BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ ADJUDICATION ORDER NO. EAD-2/DSR/VVK/405/2015 ]
______________________________________________________________________

UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT,

1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND
IMPOSING PENALTIES BY ADJUDICATING OFFICER ) RULES, 1995 AND UNDER
SECTION 23-I OF SECURITIES CONTRACTS ( REGULATION ) ACT,1956 READ
WITH RULE 5 OF SECURITIES CONTRACTS REGULATION ( PROCEDURE FOR
HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER )
RULES, 2005.

In respect of
MADHUSUDAN SECURITIES LIMITED [ PAN: AACCM7638R ]
_______________________________________________________________________
1. Securities and Exchange Board of India (hereinafter referred to as SEBI) observed
that

Madhusudan

Securities

Limited

(hereinafter

referred

to

as "MSL

Noticee/Target Company " ) have not complied with the

a) provisions of Regulation 8(3) of the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997 (hereinafter referred to as "SAST Regulations,
1997") during the years from 1998 to 2005, 2008 and 2010 ,
b) provisions of Section 21 of the Securities Contracts ( Regulation ) Act, 1956
[ hereinafter referred to as "SCR Act,1956" ] read with Rule 19A of the Securities
Contracts ( Regulation) Rules,1957 [ hereinafter referred to as "SCR Rules,1957"]
and Clause 35 & 40 of the Listing Agreement (LA);
c) provisions of regulation 23(6)of the SAST Regulations,1997; and,
Page 1 of 23

Brought to you by http://StockViz.biz

d) provisions of regulation 73(1)(c) of the SEBI ( Issue of Capital and Disclosure

Requirements ) Regulations, 2009 ( hereinafter referred to as "ICDR Regulations,
2009 " ).
2. (a) Alleged violation of regulation 8(3) of the SAST Regulations,1997 :
The details of the delayed disclosures made by the noticee are given as below :Regulation
8(3)
8(3)
8(3)
8(3)
8(3)
8 (3)
8 (3)
8 (3)
8 (3)
8 (3)

Due Date of
compliance
30.04.1998
30.04.1999
30.04.2000
30.04.2001
30.04.2002
30.04.2003
30.04.2004
30.04.2005
30.04.2008
30.04.2010

Actual date
of filing*
03.05.2005
03.05.2005
03.05.2005
03.05.2005
03.05.2005
03.05.2005
03.05.2005
03.05.2005
05.05.2008
12.05.2010

Delay
in
no. of days
2,560
2,195
1,829
1,464
1,099
734
368
3
5
12

* The actual dates of filing of disclosures are as per the mail received from the BSE on
March 21, 2014.

(b) Alleged violation of Section 21 of the SCR Act,1956; Rule 19A of the SCR
Rules, 1957 read with Clause 35 & 40A of the LA.:
It is observed that the noticee made a preferential allotment to Primus Retail
Private Limited (PRPL) on May 18, 2011, pursuant to a Business Transfer
Agreement (BTA) entered on February 4, 2011. The shares of the noticee are
listed at The Bombay Stock Exchange Ltd. ( hereinafter referred to as "BSE" ). It
was further observed that PRPL held 80.37% of the post preferential issue share
capital of the noticee. In the explanatory statement to the EGM, it was mentioned
that pursuant to the preferential allotment, there would be change in control of the
noticee. Therefore, PRPL should have been included as a promoter of the noticee.
However, it was observed that the explanatory statement depicted the
shareholding pattern of the noticee before and after the issue, without including
PRPL in the promoter category.

It was alleged that the noticee had wrongly

classified PRPL and its PACs under the `public' category after the preferential
Page 2 of 23

Brought to you by http://StockViz.biz

allotment. Thus, it was alleged that the noticee has violated Clause 35 of the LA
which requires the noticee to provide the correct shareholding details on a quarterly
basis.

Further it was also observed that pursuant to the preferential allotment, the
promoter shareholding in the noticee company

increased to 88.38% ( i.e. the

shareholding of PRPL along with PACs). Thus, the noticee in terms of Rule 19A of
the SCR Rules,1957 was required to maintain 25% public shareholding within 12
months of the date of preferential allotment. Further, it was also observed that on
October 31, 2011, the noticee made another preferential allotment of 10,52,630
shares to three entities ( one promoter group entity and two public entities ).
Pursuant to the same, the shareholding of the promoter group reduced to 82.22% (
i.e. the shareholding of PRPL along with PACs ). Thus, it was observed that the
public shareholding was not brought to the level of 25% within one year from the
date of preferential allotment i.e. by May 18, 2012. Thus, it was, alleged that the
noticee has circumvented the minimum public shareholding requirements by
wrongly classifying the promoter entities as `public' and, thus, allegedly violated
Section 21 of the SCR Act,1956 read with Rule 19A of the SCR Rules, 1957 read
with Clause 40A of the LA.

(c) Alleged violation of regulation 23(6) of the SAST Regulations,1997 :

It was observed that the noticee authorized the transfer of 48% shares from the
seller Madhusudan Leasing and Finance Limited (MLFL) ( now known as " Joy
Reality Limited (JRL) ") to the acquirer Sree Sanjeeva Raghu Agencies Private
Limited (hereinafter referred to as " SSRAPL" ) during the quarter ended December,
2001 without confirming whether all the obligations have been fulfilled by the
acquirer under the SAST Regulations,1997.

Thus, SSRAPL was under the

obligation to make an open offer under regulation 10 but did not make it. It was,
therefore, alleged that the noticee had failed to comply with regulation 23(6) of the
SAST Regulations,1997.
Page 3 of 23

Brought to you by http://StockViz.biz

(d) Alleged violation of regulation 73(1)(c) of the SAST Regulations,1997 :

It was observed that the noticee has not complied with Regulation 73(1)(c) of the
ICDR Regulations, 2009 in respect of preferential allotment dated May 18, 2011 in
the scrip of MSL.
In this regard, it was observed that the noticee made a preferential allotment to
Primus Retail Private Limited (PRPL / Acquirer) on May 18, 2011, pursuant to a
Business Transfer Agreement (BTA) entered on February 4, 2011. PRPL held
80.37% of the post preferential issue share capital of the noticee. In the explanatory
statement to the EGM, it was mentioned that pursuant to the preferential allotment,
there would be change in control of the noticee. Thus, PRPL should have been
included as a promoter of the noticee. However, the explanatory statement depicted
the shareholding pattern of the noticee, before and after the issue, without including
PRPL in the promoter category. Thus, it was alleged that the noticee has violated
regulation 73(1)(c) of the ICDR Regulations, 2009 by disclosing the shareholding of
PRPL in 'non-promoter' category in the post-preferential shareholding of the noticee.
Appointment of Adjudicating Officer

3. I have been appointed as the Adjudicating Officer vide separate orders all dated
16th July, 2014 under Section 15-I of the Securities and Exchange Board of India
Act,1992 (hereinafter referred to as the `SEBI Act,1992') read with Rule 3 of the
Securities and Exchange Board of India (Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Officer)

Rules,1995 ( hereinafter referred to

as " the Rules") to inquire into and adjudge the

alleged violation

of

provisions of law by the noticee.

Show Cause Notices, Replies and Personal Hearing

4.

Four Separate Show Cause Notices ( hereinafter referred to as "SCN") were

issued to the noticee under Rule 4(1) of the said Rules to show cause as to why
an inquiry should not be held and penalty ,if any ,should not be imposed under
Page 4 of 23

Brought to you by http://StockViz.biz

respective provisions of law

viz. Section 15A(b) & 15HB of the SEBI Act, 1992

and Section 23A, 23E & Section 23H of the

SCR Act,1956 for the alleged

violation of the said provisions of law.

Replies of the Noticee:

5.

As regards the violation of 2 (a) above, the noticee filed its reply vide letter
dated 27th December, 2014 and the common additional written submissions
dated the 27th February,2015 to both the SCNs ( Nos.EAD-2/DSR/VVK/25730
& 25733 /2014) dated the 1st September, 2014, the contents whereof are
reproduced as below :-

Reply dated 27th December,2014 :

"

- We deny all the allegations made against us in the said SCN.

- There was no change in the shareholding of promoters and/or persons in control

of the company in the Financial Years 2002-2003 to 2009-2009 and, therefore, no
prejudice was caused to the shareholders of the company or to the investors at
large by the said alleged non-disclosure by the Company for the aforesaid years.

- Furthermore, the scrip of the Company was suspended from trading on the
BSE from 30/4/2003 to 06/10/2009.

- Due to financial crisis, many of the office staff left the company and hence, some
of the disclosures to the BSE were made late.

- The BSE suspended the scrip from trading, inter alia, on account of this delay in
making disclosures imposed a penalty of Rs.2,50,000/- on the Company to revoke
the suspension and penalty for delay in submission of all the documents of
compliances.

Page 5 of 23

Brought to you by http://StockViz.biz

- Since we have been penalised by the BSE for the same delay in making
disclosures, we may not be penalised once again by SEBI for the same delay.

- We request that we may given the benefit of the doubt and discharged from
the present SCN."

6) As regards the violation of 2 (b) above, the noticee filed its reply vide
letter dated 29th December, 2014, the contents whereof are reproduced as
below:-

"

- We deny all the allegations made against us in the SCN.

- We submit that the Business Transfer Agreement (BTA) dated February 4,2011
was entered into with Primus Retail Private Limited for the latter to acquire
61,42,857 shares of our company by way of Preferential Allotment and for our
Company to acquire certain businesses carried on by Primus.

Although the

Preferential Allotment was in fact done on May 18,2011 and a Public

Announcement and Open Offer done to the shareholders of our Company in terms
of the SEBI Takeover Regulations,1997, the BTA could not be given full effect to
because vide order dated October 8,2012, the Hon'ble High Court of Karnataka
ordered Primus to be wound up.

Consequently, there was no change in the

management of our company.

- Primus would have become a promoter of the Company and described as such
only on completion of the Open Offer and not prior thereto. The Open Offer has
not been completed till date and hence, it would not have been correct or proper
for Primus to be described as a promoter of the Company in the Explanatory
Statement to the Notice for EGM to obtain approval for the Preferential Allotment.

Primus was wound up in terms of the Karnataka High Court's order dated

October 8,2012 and, therefore, they were not able to perform their obligations
under the aforesaid BTA; furthermore, due to the said order, Primus was also
unable to comply with the requirements of the Open Offer made to the
Page 6 of 23

Brought to you by http://StockViz.biz

shareholders of our company. Consequently, the preferential allotment of shares

made to Primus was forfeited in the Board of Directors meeting held on 17th
October, 2014 subject to Statutory Approval.

- It may be noted that even prior to the said cancellation, there was no change in
the management of the Company in favour of Primus pursuant to the aforesaid
BTA and Preferential Allotment of shares. Primus could not have and in fact, did
not act as promoters of the company.

We submit that the public shareholding after 12 months of the Preferential

Allotment was above 25% and that we have not circumvented the minimum
shareholding requirement by wrongly classifying the promoter entities as "public"
as alleged or otherwise and, that we have not violated Rule 19A of the SCR Rules
read with clause 40A of the LA. Therefore, we may be given the benefit of doubt
and discharged from the present SCN."

Additional Written Submissions vide letter dated the 27th February,2015

" - Our client repeats, reiterates and submits that PRPL was wound up under the
Order dated October 8,2012 passed by the Karnataka High Court and for that
reason also, they were not able to comply with the provisions of the BTA dated
February 4,2011. Furthermore, in its order dated February 20,2014, SEBI
exempted PRPL from being an acquirer in an open offer made by them on
February 10,2011. Consequently, the 61,42,847 shares allotted to PRPL by way
of the Preferential Allotment dated May 18,2011 were forfeited in the Board of
Director's meeting held on October 17,2014.

Two other entities, Indus Age Advisors Ltd (IAL) and Growsafe Securities Pvt. Ltd.
(GSPL) acquired a total of 2,31,000 shares of our client from the open market and
promoters of our client on February 04, 2011. Furthermore, on October 31, 2011,
our client allotted 5,39,286 shares to Foresight Holdings Pvt. Ltd. (on behalf of
Page 7 of 23

Brought to you by http://StockViz.biz

Foresight Enterprises). In respect of the said acquisition, a Letter of Offer dated

February 18, 2015 was sent to the shareholders of our client by IAL and GSPL (the
acquirers) along with Mr. Salim Govani, Foresight Holdings Pvt. Ltd and Foresight
Enterprises (collectively referred to as Person Acting in Concert or PACs) for
acquiring upto 13,47,594 shares from them. The said Letter of Offer was issued
after approval of SEBI was obtained vide letter dated February 13, 2015. The said
offer opened on February 28, 2015 and closed on March 19, 2015".

7) As regards the violation of 2(c) above, the noticee filed its reply vide letter
dated 27th December,2014, the contents whereof are reproduced as below :-

" - We deny all the allegations made against us in the said SCN.
MLFL was part of the promoter group of our Company, the Acquirer was promoted
by Late K Sanjeeva Reddy in August 1999 and therefore, the Acquirer is a part of
the group of companies promoted by Late K Sanjeeva Reddy. MLFL and our
Company were also promoted by Mr. K Sanjeeva Reddy and therefore, part of the
same group.

- MLFL was a part of the promoter group of our Company. In and around
December,2001, MLFL transferred 48% shareholding held by them in our
company to the SSRAPL, consequently reduced the promoter shareholding
in our company to 47.73%.

- MLFL was constrained to transfer the said 48% shares to the acquirer and not to
a third party or on the stock exchange because of poor market conditions and lack
of liquidity in the scrip on the BSE. Furthermore, the said transfer was done in
despair since MLFL desperately required funds to meet its obligations and could
not find other sources of funds."

Page 8 of 23

Brought to you by http://StockViz.biz

From the above, it is clear that the aforesaid transfer of 48% shares by MLFL to
the Acquirere was an inter se transfer of shares among members of the same
group and therefore, in terms of Regulation 3(1) (e) (i), the Acquirere was exempt
from the requirements of Regulation 10 of the Takeover Regulations. In this
regard, it may be noted that Regulation 3(1)(e) (i) provided that Nothing contained
in regulations 10, 11 and 12 of the Takeover Regulations shall apply to inter se
transfer of shares amongst group coming within the definition of group as defined
in the Monopolies and Restrictive Trade Practices Act, 1969 where persons
constituting such group have been shown as group in the last published Annual
Report of the target Company i.e. Our Company.

Since MLFL and the Acquirer were controlled by the same person at the relevant
time. i.e. Late K Sanjeeva Reddy, they formed part of the same group and hence
the Acquirer was eligible for the exemption under Regulation 391) (e) (i) of the
Takeover Regulations from making a Public Announcement and / or Open offer.

In view of the above, we were advised that the Acquirer had complied with all its
obligations under the Takeover Regulations and hence we approved / authorised
the transfer of shares from MLFL to the Acquirer. Hence, we submit that we had
complied with the requirements of Regulation 23(6) of the Takeover Regulations."

Additional Written Submissions dated the 27th February,2015.

" -

Our client had complied with Regulations 6,7 & 8 of the said SAST

Regulations,1997. Under regulation 3(2) of the said Regulations, only the

transferor and transferee are required to comply with Regulations 6,7 & 8 of the
said Regulations for the purpose of seeking exemption. Furthermore, it is not
SEBI's allegation that either the transferor or transferee had not complied with the
provisions of regulation 6,7 & 8 of the said Regulations. Therefore, the exemption
under Regulation 3(1)(e)(i) was available to the transferee and they were not
required to make a Public Announcement or Open Offer under Regulation 10 of
the said Regulations. Hence, our client had correctly confirmed that all the
Page 9 of 23

Brought to you by http://StockViz.biz

requirements under the said regulations had been complied with by the Transferor
and therefore, our client had complied with Regulation 23(6) of the said
Regulations."

8) As regards the violation of 2 (d) above, the noticee filed its reply vide
dated 29th December,2014 the contents whereof are reproduced as below :-

" - We deny all the allegations made against us in the aforesaid SCN.
- We submit that the Business Transfer Agreement (BTA) dated February 4,2011
was entered into with Primus Retail Private Ltd.(Primus) for the latter to acquire
61,42,857 shares of our company by way of Preferential Allotment and for our
company to acquire certain businesses carried on by Primus. Although the
Preferential Allotment was in fact done on May 18,2011 and a Public
Announcement and Open Offer were made to the shareholders of our Company in
terms of the SEBI Takeover Regulations,1997 on February 10,2011, the BTA could
not be given full effect to because vide order dated the October 8,2012, the
Hon'ble High Court of Karnataka ordered Primus to be wound up. Consequently,
there was no change in the management of our Company.

- We submit that Primus would have become a promoter of the Company and
described as such only on completion of the Open offer and not prior thereto. The
Open Offer has not been completed till date and hence, it would not have been
correct or proper for Primus to be described as a promoter of the Company in the
Explanatory Statement to the Notice for EGM to obtain approval for the Preferential
Allotment.

- Primus was would up in terms of the Karnataka High Court's order dated October
8,2012 and therefore, they were not able to perform their obligations under the
aforesaid BTA; furthermore, due to the said order, Primus was also unable to
comply with the requirements of the Open Offer made to the shareholders of our
Page 10 of 23

Brought to you by http://StockViz.biz

company. Thus, in fact, there was no change in the management of the Company
in favour of Primus pursuant to the aforesaid BTA and Preferential Allotment of
shares.

- We submit that the inclusion of the post allotment shareholding of Primus in the
non-promoter category in the Explanatory Statement to the Notice for EGM dated
March 18,2011 did not amount to the violation of Regulation 73(1)(c) of the ICDR
Regulations,2009.

- The requirement of regulation 73(1)(c) of the ICDR Regulations,2009 is to

disclose the shareholding patter prior to and after the Preferential Allotment of
Shares in the Explanatory Statement to the Notice for the General Meeting in
which the special resolution ( for allotment of shares ) was proposed to be passed.
We humbly submit that shareholders were not misled regarding the post allotment
shareholding. Therefore, we may be given the benefit of doubt and discharged
from the present SCN."

Additional Written Submissions dated the 27th February,2015

" - Our client repeats, reiterates and submits that PRPL was wound up under the
Order dated October 8,2012 passed by the Karnataka High Court and for that
reason also, they were not able to comply with the provisions of the BTA dated
February 4,2011. Furthermore, in its order dated February 20,2014, SEBI
exempted PRPL from being an acquirer in an open offer made by them on
February 10,2011. Consequently, the 61,42,847 shares allotted to PRPL by way
of the Preferential Allotment dated May 18,2011 were forfeited in the Board of
Director's meeting held on October 17,2014."

9.

Thereafter, in the interest of natural justice and in order to conduct inquiry in

terms of Rule 4(3) of the said Rules, the noticee was granted an opportunity of
personal hearing on 25th February, 2014 .The Authorized Representative
Page 11 of 23

Brought to you by http://StockViz.biz

appeared on behalf of the noticee and reiterated their submissions mentioned in

their

respective replies. Further, the noticee sought a week's time to make

additional submissions which was granted upto 5th of March,2015. The noticee
vide its letter dated the 27th February,2015 filed its additional written submissions
in the matter.

Consideration of Issues, Evidence and Findings

10. I have carefully perused the charges leveled against the Noticee in the SCN and
the reply of the noticee, the oral submissions, additional submissions and the
documents available on record. In the instant case, the following issues arise for
consideration and determination :-

a. Whether the Noticee has violated the provisions of Regulation 8(3) and
23(6)of the SAST Regulations,1997 , Section 21 of the SCR Act,1956 read
with Rule 19A of the SCR Rules,1957 and Clause 35 & 40 of the LA, and
regulation 73(1)(c) of the ICDR Regulations, 2009.

b. Whether the Noticee is liable for monetary penalty prescribed under

Section 15A(b), 15HB of the SEBI Act,1992 and Section 23A, 23E and 23H of
the SCR Act,1956 for the respective aforesaid violations.

c. If so, what should be the quantum of monetary penalty for such

violations that can be imposed taking into consideration the factors
mentioned in Section 15-J of the SEBI Act,1992 and Section 23-J of the
SCR Act, 1956?

11. Before proceeding further, it is pertinent to refer to the relevant provisions of the
law which read as under :Provisions of SCR Act,1956 :

Page 12 of 23

Brought to you by http://StockViz.biz

" Sec. 21. Conditions for listing - Where securities are listed on the application
of any person in any recognised stock exchange, such person shall comply with
the conditions of the listing agreement with that stock exchange."

Provisions of SCR Rules,1957 :

" 19A - Continuous Listing Requirement (1) Every listed company other than public sector company shall maintain public
shareholding of at least twenty five per cent :

Provided that any listed company which has public shareholding below twenty
five per cent, on the commencement of the Securities Contracts (Regulation)
(Amendment) Rules, 2010, shall increase its public shareholding to at least twenty
five per cent, within a period of three years from the date of such commencement,
in the manner specified by the Securities and Exchange Board of India.

Explanation: For the purposes of this sub-rule, a company whose securities has
been listed pursuant to an offer and allotment made to public in terms of subclause (ii) of clause (b) of sub-rule (2) of rule 19, shall maintain minimum twenty
five per cent, public shareholding from the date on which the public shareholding
in the company reaches the level of twenty five percent in terms of said subclause.

(2) Where the public shareholding in a listed company falls below twenty five per
cent. at any time, such company shall bring the public shareholding to twenty five
per cent. within a maximum period of twelve months from the date of such fall in
the manner specified by the Securities and Exchange Board of India."
Provisions of ICDR Regulations, 2009 :
Disclosures :
"73(1) : The issuer shall, in addition to the disclosures required under section 173
of the Companies Act, 1956 or any other applicable law, disclose the following in
Page 13 of 23

Brought to you by http://StockViz.biz

the explanatory statement to the notice for the general meeting proposed for
passing special resolution :(a)
(b)
(c) the shareholding pattern of the issuer before and after the preferential
issue;"

Provisions of SAST Regulations,1997 :

Reg. 8 - Continual Disclosures :" 8(3) Every company whose shares are listed on a stock exchange, shall within
30 days from the financial year ending March 31, as well as the record date of the
company for the purposes of declaration of dividend, make yearly disclosures to
all the stock exchanges on which the shares of the company are listed, the
changes, if any, in respect of the holdings of the persons referred to under subregulation (1) and also holdings of promoters or person(s) having control over the
company as on 31st March."

Provisions of Listing Agreement :

Clause 35 of the LA reads as under :
" The issuer company agrees to file with the exchange the following
details, separately for each class of equity shares / security in the formats
specified in this clause, in compliance with the following timelines, namely :-

a) One day prior to listing of its securities on the stock exchanges.

b) On a quarterly basis, within 21 days from the end of each quarter.
c) Within 10 days of any capital restructuring of the company resulting in a
change exceeding +/-2% of the total paid-up share capital.

Clause 40A of the LA reads as under : " Minimum level of public shareholding
Page 14 of 23

Brought to you by http://StockViz.biz

(i) The issuer company agrees to comply with the requirements specified in Rule
19(2) and Rule 19A of the Securities Contracts (Regulation) Rules, 1957.
(ii) ....... "

Findings:
12) Allegation of violation of Regulation 8(3) of SAST Regulations,1997:
It was alleged in the SCN that the Noticee was under an obligation to disclose the
aggregate shareholdings to the stock exchanges i.e. BSE for the year 1998 to
2005, 2008 and 2010 under regulation 8(3) of the SAST Regulations, 1997.
However, the said disclosures were admittedly made by the Noticee belatedly. I
note that as regards the said Regulation 8(3), the noticee was under an
obligation to file disclosures pertaining to its shareholding to the stock exchanges
within 30 days from the financial year ending March 31. However, I note that the
noticee has made the disclosures belatedly and the details thereof are as follows.

Regulation
8(3)
8(3)
8(3)
8(3)
8(3)
8 (3)
8 (3)
8 (3)
8 (3)
8 (3)
13.

Due Date of
compliance
30.04.1998
30.04.1999
30.04.2000
30.04.2001
30.04.2002
30.04.2003
30.04.2004
30.04.2005
30.04.2008
30.04.2010

Actual date
of filing*
03.05.2005
03.05.2005
03.05.2005
03.05.2005
03.05.2005
03.05.2005
03.05.2005
03.05.2005
05.05.2008
12.05.2010

Delay
in
no. of days
2,560
2,195
1,829
1,464
1,099
734
368
3
5
12

I note from the submission of the noticee that BSE had penalised the noticee for
the belated disclosures and levied a penalty of ` 2,50,000 on the noticee. The
noticee had

sought for a lenient view in the matter. I note that the noticee

submitted that there was no change in their shareholding of promoters and / or

persons in control of the

company during the years to which the delayed

disclosures relate. I further note that the noticee in its said reply has submitted that
Page 15 of 23

Brought to you by http://StockViz.biz

no prejudice was caused to the shareholders

at large by the said alleged non

of the company or to the investors

disclosure by the company for the aforesaid

years. I further observe that the argument of the noticee that there was no change
in the shareholdings of promoters and /or persons in control of the Company
during the years and, therefore, no prejudice was caused to the shareholders of
the company or to the investors at large by the said alleged delayed disclosure by
the noticee and therefore penalty ought not to have been imposed is without any
merit and the same is untenable.

14. I observe that the disclosures made by the Noticee under Regulation 8(3) of the
SAST Regulations, 1997 are made public only through Stock Exchange. It is with
this end in view that the Regulations require the making of

timely disclosures so

that investing public is not deprived of vital information. The disclosures made by
companies listed on the stock exchanges are the means to

attain such end and,

therefore, the dissemination of complete information is required. However,

the Noticee in this case has neglected the duty of making timely disclosures in
compliance with Regulation 8(3) of the SAST Regulations,1997. It is pertinent to
note that delayed disclosure would serve no purpose at all. Thus, I find that
the noticee has admittedly failed to comply with regulation 8(3) of the SAST
Regulations,1997 for the year 1998 to 2005, 2008 and 2010. Therefore, the
Noticee is liable for monetary penalty under section 15A(b) of SEBI Act,1992
which reads as under :15A. Penalty for failure to furnish information, return, etc. - If any person,
who is required under this Act or any rules or regulations made thereunder,(a) ..
(b) to file any return or furnish any information, books or other documents within
the time specified therefor in the regulations, fails to file return or furnish the
same within the time specified therefor in the regulations, he shall be liable to a
penalty of one lakh rupees for each day during which such failure continues or
one crore rupees, whichever is less;
Page 16 of 23

Brought to you by http://StockViz.biz

15) Allegation of violation of provisions of Section 21 of the SCR Act,1956

read with Rule 19A of the SCR Rules,1957 and Clause 35 & 40 of the LA.
From the material available on record, I observe that the noticee made a
preferential allotment to PRPL on May 18, 2011 pursuant to BTA entered on
February 4, 2011 and that PRPL held 80.37% of the post preferential issue share
capital of the noticee. Further, pursuant to the preferential allotment, the
promoter shareholding in the noticee company increased to 88.38% ( i.e. the
shareholding of PRPL along with PACs ). It is further observed that on October
31, 2011, the noticee made another preferential allotment of 10,52,630 shares to
three entities ( one promoter group entity and two public entities ) and due to this
the shareholding of the promoter group reduced to 82.22% ( i.e. the shareholding
of PRPL along with PACs). Thus, it is observed that the public shareholding was
not brought to the level of 25% within one year from the date of preferential
allotment i.e by May 18,2012.
17. I observe that in terms of Rule 19A of the SCR Rules,1957, the noticee was required
to maintain 25% public shareholding within 12 months of the date of preferential
allotment. In the explanatory statement to the EGM, it was mentioned that pursuant
to the preferential allotment, there would be change in control of the noticee.
Therefore, PRPL should have been included as a promoter of the noticee. However,
it was observed that the explanatory statement depicted the shareholding pattern of
the noticee

before and after the issue, without including PRPL in the promoter

category. It was alleged that the noticee had wrongly classified PRPL and its PACs
under the `public' category after the preferential allotment and
shareholding was not maintained

the 25% public

within 12 months of the date of preferential

allotment of the first tranche of preferential allotment dated May 18,2011 by the
noticee.

18. I find that the noticee in its reply dated 29th December, 2014 has denied all the
allegations made against it and submitted that PRPL would have become promoter of
Page 17 of 23

Brought to you by http://StockViz.biz

the Company and described as such only on completion of the Open Offer and not
prior thereto. It was further submitted by PRPL that the open offer has not been
completed till date and, hence, it would not have been correct or proper for PRPL to
be described as a promoter of the company in the Explanatory Statement to the
Notice for EGM. The noticee has submitted that PRPL was wound up in terms of the
Karnataka High Court's order dated October 8,2012 and, therefore, they were not
able to perform their obligations under the said BTA inasmuch the PRPL went into
liquidation pursuant to the said High Court order and was, therefore, incapacitated
from participating in the proposed open offer as PRPL became non-existent,
therefore, the open offer could not be completed / fructified. Further, the shares
allotted to PRPL were forfeited in the Board of Directors meeting held on October
17,2014. I also note that the acquirers viz. Indus Age Advisors Limited, Growsafe
Securities Pvt.Ltd., Foresight Holdings Pvt.Ltd. along with Mr.Salim Govani made
open offer for acquiring 15.50% of the total voting paid up equity share capital of the
noticee company and the offer opened on February 28,2015 and closed on March
19,2015. Pursuant to the same there would be a change in control of the noticee
company in favour of the acquirers and PACs by way of change in constitution of the
Board of Directors of the noticee / target company. I find merit in the submissions of
the notice ,therefore, it cannot be held that the noticee had failed to maintain 25%
public shareholding within 12 months of the date of preferential allotment. Thus, I
conclude that the allegation of violation of

provisions

of Section 21 of SCR Act

read with Clause 35 & 40A of the LA read with Rule 19A of the SCR Rules,1957 does
not stand established.

(19) Allegation of violation of provisions of regulation 23(6) of the SAST

Regulations,1997
It was alleged in the SCN that the Noticee had authorised transfer of 48% shares
from the seller ML &FL ( now known as JRL ) to buyer - acquirer SSRA Pvt. Ltd
(SSRAPL) during the quarter ended December, 2001 without confirming whether
all the obligations have been fulfilled bySSRAPL in terms of the provisions of
SAST Regulations 1997. The noticee in its reply dated the 27th December, 2014,
Page 18 of 23

Brought to you by http://StockViz.biz

inter alia, stated that MLFL was part of the promoter group. The acquirer was
promoted by Late K.Sanjeeva Reddy in August,1999 and therefore, the acquirer is
a part of the group of companies promoted by Late K.Sanjeeva Reddy. MLFL and
the Noticee company were also

promoted

therefore, part of the same group.

by

Mr.K.Sanjeeva

Reddy

and,

In and around December,2001, MLFL

transferred 48% shareholding held by them in the Noticee company to the

SSRAPL consequently, reduced the promoter shareholding to

47.73%.

The

Noticee was constrained to transfer the said 48% shares to the acquirer and not to
a third party or on the stock exchange because of poor market conditions and lack
of liquidity in the scrip on the BSE. Furthermore, the said transfer was done in
despair since MLFL desperately required funds to meet its obligations and
could not find other sources of funds. From the above, it is clear that the aforesaid
transfer of 48% shares by the Noticee to the acquirer was an inter se transfer of
shares among members of the same group and, therefore, in terms of
regulation 3(1)(e)(i) of Takeover Regulations 1997, the acquirer was exempt from
the requirements of regulation

10 of the Takeover Regulations.

and the acquirer were controlled by

Since MLFL

the same person at the relevant time i.e.

Late K Sanjeeva Reddy, they formed part

of the same group and hence the

acquirer was eligible for the exemption under

Regulation

Takeover Regulations from making a Public

Announcement and / or Open offer.

3(1)(e)(i)

of

the

In view of the above, the Noticee submitted that they were advised by the
Merchant Banker that the acquirer had complied with all its obligations under the
Takeover Regulations and hence hence they approved / authorized the transfer of
shares from MSL to the acquirer. The Noticee submitted that they had complied
with the requirements of Regulation 23(6) of the Takeover Regulations. Further,
the noticee in its additional written submissions dated the 27th February,
2015has, inter alia, stated that the

exemption under regulation 3(1)(e)(i) of

the SAST Regulations,1997 was available

to the transferee and they were not

required to make a Public Announcement or

Open Offer under Regulation 10 of

the said Regulations and the Noticee had

correctly confirmed that all the

requirements under the said regulations had been

complied

transferor. I note that the noticee permitted the transfer

Page 19 of 23

Brought to you by http://StockViz.biz

with

by

the

of 48% shares of the

company from MLFL to Shree Sanjeevan Raghu Agencies Private Limited during
the quarter ended

December,2001. I further note that the acquirer was allegedly

required under

Regulation 23(6) of the Takeover Regulations to confirm that

all obligations had been fulfilled by the acquirer prior to authorization of the said
transfer. I find merit in the submission of the noticee that the target company and
the MLFL and SSRAPL are part of the same group i.e. inter se group and fall
under the exempted category under regulation 3(1)(e)(i) of
Regulations,1997.

I also note that

the SAST

the transfer is inter se transfer of shares

amongst group (coming within the definition of group) as defined in the

Monopolies and Restrictive Trade Practices Act,1969 where persons constituting
such group under Section 2(ef) (i),(ii) and (I),(II) and (III) have been shown as
group in the last published Annual Report of the target company i.e. MSL. Since
the

SSRAPL (the acquirer) is exempt under regulation 3(1)(e)(i) of the SAST

Regulations,1997 ,therefore,is deemed to have fulfilled all obligations under the

regulations. Therefore, I find merit in the submissions of the noticee and I
conclude that the allegation of

violation of

regulation

23(6)

of

the

SAST

Regulations,1997 does not stand established.

(20)

Allegation of violation of provisions of regulation 73(1)(c) of the ICDR

Regulations,2009

I observe from the SCN that the noticee made a preferential allotment to PRPL
(Acquirer) on May 18,2011 pursuant to BTA entered on
80.37% of the post preferential issue share capital

of the noticee. In the Explanatory

Statement (ES) to the notice of EGM, it was mentioned

preferential allotment, there would be change in

February 4,2011. PRPL held

that

pursuant

to

the

control of the noticee. I also

observe from the SCN that PRPL should have been included as a promoter of the
noticee. However, I observe that the said ES depicted the shareholding pattern of the
noticee, before and after the issue, without including PRPL in the promoter category.
Therefore, it was alleged that the noticee has violated requlation 73(1)(c) of the ICDR
Regulations, 2009 by disclosing the shareholding of PRPL in `non-promoter' category in
the post-preferential shareholding of the noticee. I

observe from the noticee's reply

dated the 29th December, 2014 which, inter alia,

stated that the inclusion of the post

Page 20 of 23

Brought to you by http://StockViz.biz

allotment shareholding of PRPL in the non-

promoter category in the ES to the notice

for EGM dated March 18,2011 did not amount to violation of regulation 73(1)(c) of the
ICDR Regulations,2009. I note that regulation 73(1)(c) of the ICDR Regulations,2009
reads as under:
The issuer shall, in addition to the disclosures required under

section 173 of the

Companies Act, 1956 or any other applicable law, disclose the

following

explanatory statement to the notice for the general meeting

proposed for passing

in

the

special resolution :(a)

(b)
(c) the shareholding pattern of the issuer before and after the preferential issue;"
I observe that the noticee made oral submissions during the hearing on 25th
February,2015 and submitted a copy of the Explanatory Statement to the Notice
for the EGM. The relevant information pertaining to the shareholding pattern of
the noticee is given as below :Shareholding pattern before and after the Preferential Issue

Category
Promoter's Holding
I.

Indian Promoters
a) Individual
b) Bodies Corporate
c) Others

(ii )Foreign
Promoters
- Bodies Corporate
Sub Total (i) + (ii)
Non Promoters
Holding

Pre-Preferential issue
Shareholding (as of 12th
March, 2011)
NO.
%

63,500
-134,800

4.23
-8.99

63,500
--134,800

0.83
-1.76

--

--

--

--

198,300
--

13.22
--

198,300
--

2.59
--

Page 21 of 23

Brought to you by http://StockViz.biz

Post- Preferential issue

Shareholding (after allotment of
equity shares)
NO.
%

Primus Retail
Pvt Ltd

--

--

6,142,857

80.37

Identity of the Proposed allottee and the percentage of pest preferential issue capital
Sr
NO
1

Name of allottees
Primus Retail Private Limited
Total

No of Equity shares to
be allotted`
6,142,857
6,142,857

% of Post issue equity

capital
80.37
80.37

The noticee during the hearing submitted that the requirement of regulation
73(1)(c) had been complied by them as the noticee had declared the shareholding
pattern before and after the preferential issue. I find merit in the submission of the
noticee inasmuch as regulation 73(1)(c) of the ICDR Regulations,2009 mandates
only the disclosure of the shareholding pattern of the issuer before and after the
preferential issue which the Noticee had complied with as evident from the ES
mentioned above. Therefore I conclude that the alleged violation of regulation
73(1)(c) of the ICDR Regulations,2009 does not stand established.
21. While imposing monetary penalty, it is important to consider the factors stipulated
in Section 15-J of the SEBI Act,1992 which read as under :Section 15-J of SEBI Act, 1992:
15-J - Factors to be taken into account by the adjudicating officer:
While adjudging the quantum of penalty under section 15-I, the adjudicating
officer shall have due regard to the following factors, namely:(a) the amount of disproportionate gain or unfair advantage, wherever
quantifiable, made as a result of the default;
(b) the amount of loss caused to an investor or group of investors as a result of
the default;
(c) the repetitive nature of the default.

Page 22 of 23

Brought to you by http://StockViz.biz

22. I observe from the material available on record that any quantifiable gain or unfair
advantage accrued to the Noticee or the extent of loss suffered by the investors
as a result of the default cannot be computed. It is observed that the violation of
Regulation 8(3) of the SAST Regulations,1997 by the noticee during the years
1998 to 2005, 2008 and 2010 is repetitive in nature.
ORDER
23. In view of the above, after considering all the facts and circumstances of the case
and in exercise of the powers conferred upon me under Section 15-I(2) of the
SEBI Act, 1992 read with Rule 5 of the said Rules, I hereby impose a penalty of
`.3,00,000/- (Rupees three lakh only ) on Madhusudan Securities Limited under
Section 15A(b) of the SEBI Act,1992 for the violation of Regulation 8(3) of the
SAST Regulations, 1997. In my view, the aforesaid monetary penalty is
commensurate with the defaults committed by the Noticee.

24. The above penalty amount shall be paid by the Noticee by way of Demand Draft
(DD) drawn in favour of SEBI Penalties Remittable to Government of India and
payable at Mumbai within 45 (forty five) days of receipt of this order. The said
DD shall be forwarded to the Division Chief, Corporate Finance Department
DCR-II, Securities and Exchange Board of India, SEBI Bhavan, Plot No. C4-A, G
Block, Bandra-Kurla Complex, Bandra (E), Mumbai 400 051.

25. In terms of Rule 6 of the said Rules, a copy of this order is sent to the Noticee
and also to Securities and Exchange Board of India.

Date: April 17, 2015

Place: Mumbai

D. SURA REDDY
GENERAL MANAGER &
ADJUDICATING OFFICER

Page 23 of 23

Brought to you by http://StockViz.biz