WTM/RKA/CFD-DCR/158/2014

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER
Under sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 and
regulation 32 of the SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011 in respect of SAL Care Private Limited and Shah Alloys Limited
In the matter of acquisition of shares of S.A.L. Steel Limited by SAL Care Private
Limited.
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1. S.A.L. Steel Limited (hereinafter referred to as "the target company") is a company having its
registered office at 5/1, Shreeji House, 5th Floor, Ashram Road, Behind M. J. Library,
Ahmedabad, Gujarat - 380006. The shares of the target company are listed on Bombay Stock
Exchange Limited ("BSE") and National Stock Exchange of India Limited ("NSE").
2. As on December 06, 2011, the promoter group of the target company comprised Shah Alloys
Limited ("Shah Alloys"), Mr. Rajendra V. Shah, Ms. Ragini R. Shah and Rajendra V. Shah
(HUF) individually holding 35.61%, 10.95%, 0.52% and 3.48%, respectively of the paid up
capital of the target company. Thus, on this date, promoter group collectively held
4,29,59,889 (50.56%) equity shares of the target company.
3. Three of the promoters viz. Mr. Rajendra V. Shah, Ms. Ragini R. Shah and Rajendra V. Shah
(HUF) who were, amongst themselves, collectively holding 1,27,02,900 ( i.e.14.95%) equity
shares of the target company transferred their entire shareholding in the target company on
December 07, 2011, December 08, 2011 and December 09, 2011 to SAL Care Private Limited
(hereinafter referred to as 'the acquirer'). From December 09, 2011 onwards, in the
disclosures filed with the concerned stock exchanges, the acquirer was shown in the promoter
group of the target company.
4. Consequent to the aforesaid transfer of shares, there was change in shareholding of these
selling promoters and the acquirer as described in the following table;Date
of Name of the Pre-acquisition
Number and Post-acquisition
acquisition
seller promoter shareholding of % of shares shareholding
of
acquirer
acquired
acquirer

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December 07,
2011
December 08,
2011
December 09,
2011

Mr. Rajendra V.
Shah
Ms. Ragini R.
Shah
Rajendra V.
Shah(HUF)

Nil
93,05,800
(10.95%)
97,44,500
(11.47%)

93,05,800
(10.95%)
4,38,700
(0.52%)
29,58,400
(3.48%)

93,05,800 (10.95%)
97,44,500 (11.47%)
1,27,02,900
(14.95%)

5. In respect of the aforesaid transactions, the acquirer filed a report on December 24, 2011
under regulation 10(7) of SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011 (hereinafter referred to as 'Takeover Regulations')claiming non-applicability
of open offer obligations under Chapter II of the Takeover Regulations. Such claim was
made by the acquirer on the premise that the acquisitions in question were inter-se transfers
amongst the 'qualifying persons' as mentioned in regulation 10(1)(a)(iii) of the Takeover
Regulations, since the acquirer's director and promoter, Mr. Karan Shah is the immediate
relative (son) of Mr. Rajendra V. Shah (one of the selling promoter of the target company)
and holds more than 66% of the share capital of the acquirer. In view of this fact, it was
claimed that the acquirer was covered within the definition of 'promoter group' under
regulation 2(1)(zb)(iv)(A) of SEBI (Issue of capital and Disclosure Requirements) Regulations,
2009 ("ICDR Regulations").
6. On examination of the aforesaid report, SEBI noted that with regard to the aforesaid
acquisitions, the acquirer and Shah Alloys Ltd. (i.e. the promoter other than the selling
promoters) being members of the promoter group, were 'persons acting in concert' within the
meaning of the expression under regulation 2(1)(q)(2)(iv) of the Takeover Regulations.
Further, pursuant to the aforesaid acquisitions, though the total promoters' shareholding in
the target company remained at 50.56%, the shareholding of the acquirer along with the
shareholding of Shah Alloys Ltd. (PAC) increased from 35.61% to 50.56%. The said increase
in shareholding of the acquirer and PAC was more than the permissible limit of 5% stipulated
in regulation 3(2) of the Takeover Regulations. SEBI further noted that the acquisitions in
question did not satisfy the conditions stipulated in regulation 10(1)(a)(iii) of the Takeover
Regulations and therefore the same did not qualify for exemption from the obligation to
make an open offer under Chapter II of the Takeover Regulations.
7. Being not satisfied with the grounds forwarded by the acquirer for exemption under
regulation 10(1)(a)(iii) of the Takeover Regulations, SEBI issued a show cause notice dated
April 03, 2014 (hereinafter referred to as "the SCN") to the acquirer and Shah Alloys Ltd. (the
existing promoter) the PAC with the acquirer calling upon them to show cause as to why
suitable directions under sections 11 and 11B of the Securities and Exchange Board of India
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Act, 1992 ("SEBI Act") and regulation 32 of the Takeover Regulations should not be issued
against them. The acquirer and PAC are hereinafter collectively referred to as "the Noticees".
It was alleged in the SCN that that as a result of the aforesaid acquisitions, there was an
increase of more than 5% in the shareholding of the acquirer along with the PAC in the target
company, and the aforesaid acquisitions also resulted in a change in control of the target
company and therefore the acquirer and the PAC were required to make a public
announcement in accordance with the provisions of regulation 3(2) and 4 read with regulation
13 of the Takeover Regulations, which they failed to make.
8.

The Noticees filed their replies vide letters dated May 15, 2014. The Noticees were also
granted an opportunity of personal hearing on June 26, 2014. Thereafter, the Noticees filed
their written submissions in the matter vide letters dated July 02, 2014. The replies / written
submissions of the Noticees are, inter alia, as under:Relies / written submissions of the acquirer (SAL Care Private Limited):
(a) Pursuant to the acquisition of shares as described in the SCN, the individual shareholding
of the acquirer in the target company increased from nil to 14.95% of the total paid-up
capital. The acquirer had acquired those shares from the existing promoters of the target
company. The said acquisition, being less than 25% of the total paid-up capital of the
target company, did not come under the purview of regulation 3 of Takeover Regulations
relating to open offer requirements.
(b) The acquirer and the other promoter of the target company (i.e. Shah Alloys) are not
acting in concert with each other in any way with respect to the aforesaid acquisition of
shares or exercising control over the target company. There is no change in shareholding
of Shah Alloys and no change in control of the target company. The acquirer has not
taken control of the target company and none of its director / employee has been
appointed as director / key personnel in the target company. The acquirer has not
interfered in the day to day management or the decision making process of the target
company.
(c) SEBI has considered that the acquirer was included in the promoter group of the target
company but actually the director of the acquirer was already on the promoter group of
the target company so the question of including the acquirer in the promoter group does
no arise. The allegation that the acquirer was included in the promoter group is not
correct as SEBI has not provided any documentary evidence / proof in that regard.
(d) Mr. Karan Shah is the director and promoter of the acquirer and holds majority
shareholding of more than 66% in the acquirer. He is the only son of Mr. Rajendra V.
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Shah and also the coparcener of Mr. Rajendra V. Shah (HUF). He and the acquirer both
fall within the definition of 'promoter group under regulation 2(zb) of the ICDR
Regulations. Thus, regulation 10(1)(a)(iii) is applicable in case of the acquirer.
(e) All necessary compliances under the Takeover Regulations have been made by the
acquirer well within the prescribed time limit and it has also informed the target company
and other relevant authorities about the purchases of shares made by it.
(f) In respect of the alleged violation of regulation 3(2), the acquirer has also drawn reference
to the order of the Whole Time Member, SEBI in the matter of Prozone Capital Shopping
Centers Limited dated May 15, 2014.
Relies / written submissions of Shah Alloys Limited:
(a) Shah Alloys has been holding the shares of the target company from its incorporation and
its holding in the target company has not changed till date.
(b) No documentary evidence has been provided by SEBI in support of the allegation that
Shah Alloys is a PAC with the acquirer. The allegation has been leveled only on the basis
of an assumption.
(c) There is no change in control and management of the target company.
(d) In respect of the alleged violation of regulation 3(2), Shah Alloys has also drawn reference
to the order of the Whole Time Member, SEBI in the matter of Prozone Capital Shopping
Centers Limited dated May 15, 2014.
9. I have considered the SCN, replies and submissions made by the Noticees and other relevant
material available on record. In this case, the transactions described in the SCN are admitted
by the Noticees. It is undisputed fact that more than 66% shares in the acquirer are held by
Mr. Karan Shah son of Mr. Rajendra V. Shah, who was a promoter of the target company at
that point of time acquisition in question. By virtue of the fact of such holding in the acquirer
by an immediate relative of promoter /director of the target company, the acquirer is covered
within the meaning of the term "promoter group" under regulation 2(1)(t) of the Takeover
Regulations read with regulation 2(1)(zb)(iv)(A) of the ICDR Regulations. Thus, from the
date of registration of the target company i.e. from February 26, 2008, the acquirer was part
of its 'promoter group' though it was not disclosed as such in the shareholding pattern filed
by the target company with the concerned stock exchanges under the listing agreement till
December 09, 2011 when it was so disclosed after the aforesaid acquisitions. Thus, the
acquirer was part of promoter group of the target company prior to the acquisitions in
question and continued thereafter. As per regulation 2(1)(q)(2)(iv) of the Takeover
Regulations, the promoters and members of the promoter group are deemed to be PACs
unless the contrary is established. It is trite to say that the burden of establishing the contrary
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to the status of PAC by virtue of being part of the promoter group lies on the persons
claiming the contrary. In this case, the Noticees have contended that they were not acting in
concert with each other for the purpose of the acquisitions in question because pursuant to
the acquisitions by the acquirer there is no change in shareholding of Shah Alloys Ltd. and
there is no change in control of the target company. In my view, these factors are is not
sufficient to establish contrary to the status of Shah Alloys Ltd. as deemed PAC with the
acquirer under regulation 2(1) (q) (2) (iv) . In this regard, the following facts are relevant to
mention:a) Shah Alloys, Mr. Rajendra V. Shah, Ms. Ragini R. Shah and Rajendra V. Shah (HUF)
were the promoters of the target company when the acquirer acquired the entire
shareholding held by three promoters viz; Mr. Rajendra V. Shah, Ms. Ragini R. Shah
and Rajendra V. Shah (HUF).
b) As per the shareholding pattern of Shah Alloys for the quarter - December 2011, Mr.
Rajendra V. Shah, Ms. Ragini R. Shah and Rajendra V. Shah (HUF) formed part of
the promoter group of Shah Alloys and held 39.97%, 5.79% and 7.74%, respectively
in it.
c) Mr. Karan Shah is the promoter and director of the acquirer and holds the majority
shareholding therein. He also holds 40,000 shares representing 0.20% of the share
capital in Shah Alloys.
d) Mr. Rajendra V. Shah who is the father of Mr. Karan Shah was the promoter of and
chairman of Shah Alloys. Further, Mr. Karan Shah was also the coparcener of
Rajendra V. Shah (HUF).
e) Immediately after acquisitions in question, On December 9, 2011 and December 10,
2011, the acquirer made disclosures to BSE / NSE under regulation 29(1) and
regulation 29(2) of the Takeover Regulations regarding the acquisitions made by it,
wherein it disclosed itself as a part of the promoter group alongwith Shah Alloys Ltd.
10. From the above facts, it is noted that the acquirer and Shah Alloys are companies which have
been promoted and are being controlled by members of the same family i.e. the family of Mr.
Rajendra V. Shah. Further, the acquisitions under consideration were made by the acquirer
from Mr. Rajendra V. Shah, Ms. Ragini R. Shah and Rajendra V. Shah (HUF) and at the time
of these acquisitions, Mr. Rajendra V. Shah, Ms. Ragini R. Shah and Rajendra V. Shah (HUF)
(along with other members of the promoter group) were in control of Shah Alloys and held a
majority shareholding therein. The status of acquirer and Shah Alloys Ltd. prior to the
acquisitions coupled with omission to disclose the acquirer in promoter category though it

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was part of promoter group and subsequent acts of disclosing the acquirer in the promoter
category after acquisition indicate that the acquirer and Shah Alloys acted in concert with each
other with common object and purpose of the aforesaid acquisition of 14.95% shares by the
acquirer.
11. The Noticees have further contended that SEBI has not provided any documentary evidence
/ proof in support of the allegation that the acquirer was included in the promoter group of
the target company pursuant to the acquisition of 14.95% shares of the target company. In
this regard, I note that on December 9, 2011 and December 10, 2011, the acquirer itself made
disclosures to BSE / NSE under regulation 29(1) and regulation 29(2) of the Takeover
Regulations, respectively regarding the acquisitions made by it, wherein it was disclosed as a
part of the promote group. The same was also reflected in the shareholding pattern of the
target company for the quarter ended December 2011 displayed on the BSE website. Since
the allegation in this regard has been made in the SCN on the basis of these disclosures made
by the acquirer and the target company in the public domain, the question of furnishing
documentary evidence in this regard does not arise at all.
12. Another contention of the Noticees is that the acquisition in question was exempted under
regulation 10(1)(a)(iii) of the Takeover Regulations which reads as under:
"10. (1) The following acquisitions shall be exempt from the obligation to make an open offer under regulation 3
and regulation 4 subject to fulfillment of the conditions stipulated therefor,
(a) acquisition pursuant to inter se transfer of shares amongst qualifying
persons, being,
(iii) a company, its subsidiaries, its holding company, other subsidiaries of such holding company, persons holding
not less than fifty per cent of the equity shares of such company, other companies in which such persons hold not less
than fifty per cent of the equity shares, and their subsidiaries subject to control over such qualifying persons being
exclusively held by the same persons;"

13. In terms of regulation 10(1)(a)(iii) the inter se transfer of shares amongst the acquirer and the
persons holding not less than fifty per cent of the equity shares of acquirer could be exempted
from the open offer obligation under Chapter II of the Takeover Regulations. In this case,
though the son of one of the seller promoter held more than 50% equity shares in the
acquirer, none of the seller promoters held any shares therein. Therefore, the acquisitions of
the Noticees in this case was not eligible for exemption under said regulation 10(1)(a)(iii).
14. The acquirer has further contended that it had acquired 14.95% shares of the target company
which was less than 25% of the total paid-up capital of the target company and thus the
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acquisitions did not come under the purview of regulation 3(2) of the Takeover Regulations.
In this regard, I note that though pursuant to its acquisitions from the three other selling
promoters the individual shareholding of the acquirer in the target company increased from
"NIL" to 14.95%, the collective shareholding of the acquirer taken together with that of Shah
Alloyes Ltd. (the other promoter holding 35.61% equity shares of the target company) who
was PAC with the acquirer for the purposes of its acquisition increased from 35.61% to
50.56%, which was in excess of the 5% limit stipulated in regulation 3(2).
15. It is also alleged in the SCN that pursuant to the acquisitions made by the acquirer, there was
a resultant change in control over the target company and therefore the acquirer and the PAC
violated regulation 4 of the Takeover Regulations. In this regard, as noted above, the acquirer
is part of 'promoter group' under regulation 2(1)(t) of the Takeover Regulations read with
regulation 2(1)(zb)(iv)(A) of the ICDR Regulations since the date of registration of the target
company and thereafter. The Noticees were in control of the target company prior to the
acquisitions in questions and thereafter and the entire shareholding of promoters in the target
which was 50.56% in the hands of 5 promoters prior to the acquisitions remained unchanged
in the hands of two promoters after the acquisitions. I further note that the transferors of
shares in the present case were belonging to one family and the transferee company is
controlled by another member of the same family - Mr. Karan Shah. Further, the PAC (i.e.
Shah Alloys) is also controlled by the aforesaid three transferors. Furthermore, Mr. Rajendra
V. Shah (one of the transferors) continues to be the Chairman of the target company even
after the aforesaid transfers. It is gainsaying in this case that shareholding of the promoters
has remained unchanged at 50.56% even after the aforesaid acquisition by the acquirer and no
new person has joined the control since the acquirer was part of the promoter group of the
target company since its registration in February 26, 2008 though it was not disclosed as such
till December , 2011. From the SCN, it is noted that it is on the basis of such disclosure only
that the allegation of violation of regulation 4 has been made in this case. Considering these
facts and circumstances, I find that change in number of promoter from 5 to 2 though
would be too venial.
16. It is noted that the acquisitions in question were by way of inter se transfer of equity shares
amongst promoters of the target company. However, since the acquirer was not disclosed in
the shareholding pattern filed by the company in terms of the listing agreement or under the
Takeover Regulations till December 09, 2011, the acquisitions in question did not qualify for
automatic exemption under regulation 10(1) (a) (ii) of the Takeover Regulations. Had the
acquirer been disclosed by the target company in its 'promoter group' for three years prior to
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the acquisition by the acquirer, the acquisitions would have been automatically exempt under
regulation 10(1)(a)(ii) from the applicability of regulation 3(2) of the Takeover Regulations on
account of being inter se transfer of shares amongst persons named as promoters. In addition,
I note that the acquisitions in question were not done in a clandestine manner and all the
requisite disclosures in that regard were made by acquirer which are available in public
domain.
17. I note that the Noticees in their submissions have referred to the exemption order of Whole
Time Member, SEBI in the matter of Prozone Capital Shopping Centers Limited dated May 15,
2014, which related to a proposed transfer of shares from an individual to his family trust and
exemption from open offer obligation was granted by SEBI in respect of that acquisition. In
the facts and circumstances of this case, I am of the opinion that had an application for
exemption under regulation 11 of the Takeover Regulations been filed by the acquirer prior
to the acquisitions under consideration, they might have chance to get such exemption.
18. Considering the facts and circumstances as discussed hereinabove, I do not find blameworthy
conduct on the part of the Noticees and the alleged breach in this case is technical and minor.
In this regard, I note that the Hon'ble High Court in the matter of SEBI v. Cabot International
Capital Corporation (2005 123 CompCas 841) had pronounced the principle that where the
breach of the regulation is unintentional, not deliberate, technical, minor and based on a bona
fide belief, strict enforcement of the regulations may not be warranted.
19. In view of the above, I do not find the need to issue any direction to the acquirer and the

PAC in the matter. However, I am of the view that the Noticee, being promoters of the target
company should take utmost care and be more vigilant and careful while consolidating their
shareholding in the target company in future. The SCN dated April 3, 2014 is disposed off
accordingly.

DATE: December 12th, 2014

PLACE: MUMBAI

RAJEEV KUMAR AGARWAL

WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA

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