Description

SEBI final order against Rajiv R. Kotia and family members for violations of SAST Regulations 1997 relating to acquisition of shares in Sungold Capital Limited without making mandatory open offer in 2007.

Summary

SEBI issued a final order under Sections 11 and 11B of SEBI Act, 1992 against Mr. Rajiv R. Kotia and four family members (Mrs. Shilpa Amit Kotia, Mrs. Shweta Dhaval Kotia, Mr. Dhaval Ramesh Kotia, and Mr. Ravi Rajiv Kotia) for violations of SAST Regulations 1997. The noticees were found to have acquired shares of Sungold Capital Limited (SCL), a BSE-listed company engaged in media & entertainment, trading and finance, in 2007 in breach of open offer thresholds under regulations 10 and 11(1). The case has undergone multiple appeals including before SAT and Supreme Court.

Key Points

  • SEBI’s original WTM Order dated July 07, 2020 found violations of regulation 10 and 11(1) of SAST Regulations 1997
  • Five noticees (Mr. Rajiv R. Kotia and four family members) directed to make combined public open offer within 45 days
  • Noticees required to pay 10% per annum interest on offer price for delay period from violation date till payment date
  • Adjudicating Officer Order dated May 18, 2020 imposed penalties: INR 11 lakh on Mr. Rajiv R. Kotia and INR 10 lakh jointly and severally on other four noticees
  • SAT dismissed appeal on August 24, 2022; review application dismissed on November 07, 2023
  • Supreme Court vide order dated May 03, 2024 restored review application before SAT
  • Target company Sungold Capital Limited is listed on BSE Ltd.

Regulatory Changes

This order enforces the now-repealed SAST Regulations 1997, specifically regulations 10 and 11(1) relating to mandatory open offer requirements upon crossing substantial acquisition thresholds. The order applies historical regulatory framework to violations committed in 2007.

Compliance Requirements

  • All five noticees must make a combined public announcement of open offer for acquiring shares of Sungold Capital Limited under Regulation 10 and 11(1) of SAST Regulations 1997 within 45 days from the date when order comes into force
  • Noticees must pay interest at 10% per annum for delay in making open offer, calculated from the date violation occurred till payment of consideration
  • Interest payment applies to shareholders who held shares on the date of violation and whose shares are accepted in the open offer
  • Interest calculation must be done after adjustment of dividend paid, if any
  • Open offer must comply with all requirements of SAST Regulations 1997

Important Dates

  • 2007: Original violations occurred - shares of SCL acquired in breach of open offer thresholds
  • May 18, 2020: Adjudicating Officer Order imposing penalties
  • July 07, 2020: WTM Order 2020 directing open offer and interest payment
  • August 24, 2022: SAT dismissed appeal (SAT Order 2022)
  • November 07, 2023: SAT dismissed review application (SAT Order 2023)
  • May 03, 2024: Supreme Court restored review application before SAT (SC Order 2024)
  • Within 45 days from order enforcement date: Deadline for public announcement of open offer

Impact Assessment

Market Impact: Limited direct market impact as relates to historical violations from 2007 in a small-cap company (Sungold Capital Limited). However, enforcement action demonstrates SEBI’s commitment to pursuing takeover regulation violations even after significant time lapses.

Company Impact: Sungold Capital Limited shareholders who held shares on violation date will receive mandatory open offer opportunity with interest compensation at 10% per annum for the delay period.

Regulatory Precedent: Case establishes that family members acting in concert to acquire shares triggering open offer obligations cannot escape enforcement action through prolonged litigation. Multiple levels of judicial review have upheld SEBI’s enforcement powers.

Compliance Lessons: Entities must carefully track shareholding acquisitions by persons acting in concert to ensure timely compliance with substantial acquisition thresholds and open offer requirements. Violations attract both monetary penalties and mandatory remedial open offers with interest burden.

Impact Justification

Enforcement order for historical takeover regulation violations with mandatory open offer requirement and interest penalties. Involves multiple family members acting in concert.