The Arun Bajoria - Bombay Dyeing Tussle

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The Legal Battle

Bajoria was asked to appear before SEBI in June 2001. However, in a letter to SEBI, he said, "Since the issue pertaining to Bombay Dyeing is already with the Company Law Board (CLB), the issue of my personal appearance does not arise."

In July 2001, the CLB held that Bajoria had violated the provisions of the SEBI takeover code by not disclosing his acquisition of more than 5% shares of BD. The CLB order said, "We find that the letter dated March 16, 2000 cannot be construed to be a ‘disclosure' in terms of Regulation 7." The CLB said that the letter allegedly sent by Bajoria and his associates on March 16, 2000, informing BD about the acquisition of more than 5% of the company's shares could not be construed as a disclosure since it was not as per the SEBI prescribed format. Bajoria claimed that he had crossed the 5% mark on March 15, 2000 and this was made known to BD through a letter dated March 16, 2000. While declaring the acquisition of shares in excess of 5%, the court also added that ‘the possibility of the letter of 16th March having been prepared at a later date could not be ruled out.

CLB said that Bajoria had not furnished any evidence like postage account or a dispatch register and the only proof of him having posted the letter was in the form of a copy of the certificate of posting. Kelkar added that the March 16 date was of no relevance, as according to BD's records, Bajoria's stake at that point of time was well below 5%. The stake crossed the 5% level only on May 16. So even if Bajoria did send a letter dated March 16 to BD, its content could not be about his holding exceeding 5%, simply because it had not exceeded 5% at that time.

By August 2001, Bajoria was reported to have again increased his stake in BD to 6% from 4.9%, as the company revealed plans to opt for a share buyback plan. The buyback offer was for 1.02 crore equity shares, amounting to 25% of BD's total paid-up equity share capital at Rs 60 per share. Following this, the promoter stake in the company was expected to go up to 54.47% from the August 2001 level of 40.85%. It was rumored that Bajoria's renewed interest was solely to book profits arising due to a possible price increase led by the buyback news.

Before Bajoria could further increase his stake, towards the end of August 2001, SEBI passed its verdict barring Bajoria and his associates from accessing the capital market and dealing in securities - either directly or indirectly - for one year. Bajoria's broking firms, Mega Stock and Mega Resources, through which the BD deals had been executed, were also barred from trading.

Reacting to the SEBI decision, Bajoria said, "Takeover guidelines have been violated even in the past. In these cases SEBI had merely asked them to pay a fine after warning them against making the same mistake again in the future. But, in my case, the market regulator has taken a harsh decision. The SEBI order is totally malafide. It is a politically motivated decision and not a commercial decision in the true sense of the word." He announced that he intended to file a writ petition against the SEBI order.

Analysts claimed that the ruling was unlikely to pose any major problems for Bajoria's plans to offload his BD stake through the buyback program. This was because Bajoria was reported to have transferred his shares to various associates and relatives, who would not be affected by the SEBI order, and who could easily sell them in the market. Bajoria said, "I was apprehensive that SEBI might take such a step to prevent me from taking advantage of BD's buyback. So, I transferred the shares to my associates so that any order barring me, my relatives and my broking firms from entering the markets did not affect my plans."

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