BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. Order/SM/AD/2023-24/28999]
___________________________________________________________________
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) RULES, 1995

________________________________________________________________

In respect of
TCNS Clothing Co. Ltd.
[PAN: AAACT4432E]

In the matter of TCNS Clothing Co. Ltd.

___________________________________________________________________

BACKGROUND

1. Based on the reference dated September 18, 2022 received from SES Governance
(hereinafter referred to as ‘SES’), Securities and Exchange Board of India (hereinafter
referred to as ‘SEBI’) had carried out an examination to ascertain whether TCNS Clothing
Ltd. (hereinafter referred to as ‘TCNS/ Company/Noticee’) had violated any securities laws.
Pursuant to the aforesaid examination, SEBI observed alleged violation of Regulation 26(6)
of Securities and Exchange Board of India (Listing Obligations and Disclosure
Requirements) Regulations, 2015 (hereinafter referred to as “LODR Regulations”) by
Noticee. Therefore, SEBI initiated adjudication proceedings against Noticee for the aforesaid
violation alleged to have been committed by it.

APPOINTMENT OF ADJUDICATING OFFICER

2. Vide order dated July 05, 2023, SEBI appointed the undersigned as the Adjudicating Officer
under Section 19 of Securities and Exchange Board of India Act, 1992 (hereinafter referred
to as ‘SEBI Act’) read with Section 15I(1) and Rule 3 of SEBI (Procedure for Holding Inquiry
and Imposing Penalties) Rules, 1995 (hereinafter referred to as ‘Adjudication Rules’) to

Adjudication Order in the matter of TCNS Clothing Co. Ltd. Page 1 of 8

 inquire into and adjudge under Section 15HB of SEBI Act for the alleged violation of
Regulation 26(6) of LODR Regulations by Noticee.

SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

4. A show-cause notice dated July 20, 2023 (hereinafter referred to as ‘SCN’) was issued to
Noticee under Rule 4 of the Adjudication Rules to show-cause as to why an inquiry should
not be initiated against Noticee and penalty, if any, not be imposed upon it under the
provisions of Section 15HB of SEBI Act for the violation alleged to have been committed
by it.

5. The allegations levelled against Noticee in the SCN are summarised hereunder:
a) An upside sharing agreement was executed between Mr. Onkar Singh Pasricha, Mr.
Arvinder Singh Pasricha; who were the promoters of Noticee and Wagner Limited on
June 15, 2018. At the time of entering into Upside Sharing Agreement, Noticee was a
public unlisted company. Subsequently, the equity shares of the Company were listed
on National Stock Exchange of India Limited (hereinafter referred to as “NSE”) and
BSE Limited (hereinafter referred to as “BSE”) on July 30, 2018.

b) The Upside Sharing Agreement dated June 15, 2018 was subsisting between Mr.
Onkar Singh Pasricha, Mr. Arvinder Singh Pasricha and Wagner Limited post listing.
Accordingly, Noticee was required to obtain approval from Board of Directors and the
public shareholders in terms of Regulation 26(6) of the LODR Regulations, post listing.
However, the Noticee failed to do so.

c) Therefore, it was alleged in the SCN that Noticee by failing to obtain the approval from
its Board of Directors and the public shareholders in terms of Regulation 26(6) of the
LODR Regulations with regard to the Upside Sharing Agreement dated June 15, 2018
(also referred to as “Upside Sharing Agreement”), post listing has violated Regulation
26(6) of the LODR Regulations.

6. The SCN was sent to Noticee through Speed Post Acknowledgement due (hereinafter
referred to as ‘SPAD’) and through digitally signed email on July 20, 2023. The SCN was
duly served on Noticee. Noticee was granted 15 days’ time from the date of receipt of SCN
for filing its reply, if any, to the SCN.

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7. Thereafter, Noticee filed its reply to the SCN on August 03, 2023. The submissions made
by Noticee in its aforementioned reply is summarised herein below:

a) Upside Agreement was entered at the time when Noticee was unlisted and hence
the provisions of Regulation 26(6) of LODR Regulations was not applicable to the
Noticee with respect to Upside Agreement.
b) There has never been any transaction undertaken pursuant to the Upside
Agreement among the shareholders either by way of transfer of shares or in any
other manner.
c) Also, pursuant to the Share Purchase Agreement dated May 5, 2023 with ABFRL
Upside Agreement has been terminated vide Termination Agreement dated July
31, 2023. A disclosure regarding the same has been provided to the Stock
Exchanges in accordance with Clause 30 and 30A of LODR Regulations.
d) The Company, in terms of the requirements under Securities and Exchange Board
of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, duly
disclosed the information regarding the Upside Agreement in the Red Herring
Prospectus dated July 8, 2018 and Prospectus dated July 24, 2018 under the head
‘Material Agreements’ on page 123 in both documents.
e) Regulation 26(6) of the SEBI LODR requires prior approval of the Board, as well
as public shareholders of a listed company by way of an ordinary resolution, for
‘entering’ into any Agreement specified under Regulation 26(6). Therefore, first
para of Regulation 26(6) of the SEBI LODR is applicable solely to listed entities
where it proposes to ‘enter’ into any such agreement
f) The first, second and third proviso of Regulation 26(6) of the LODR Regulations
contain specific provisions only in relation to Shareholder Agreements, which were
subsisting as on the date of coming into force of Regulation 26(6), i.e. January 4,
2017. In case of such subsisting Shareholder Agreements, the listed entities are
required to do the following:
a. Any Shareholder Agreement which was subsisting or expired during the
preceding 3 years from the date of coming into force of Regulation 26(6) of the
LODR Regulations (i.e. January 4, 2017), were to be disclosed to the stock
exchanges; and
b. Any Shareholder Agreements which were subsisting as on the date of coming
into force of Regulation 26(6) of the SEBI LODR, i.e. January 4, 2017, were to be
placed before the Board in the forthcoming Board meeting. Thereafter, any such
Shareholder Agreements approved by the Board were required to be placed before

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 the public shareholders for approval by way of an ordinary resolution in the
forthcoming general meeting.
g) There is no specific provision in Regulation 26(6) of LODR Regulations which
provides that a Shareholder Agreement which was entered into prior to listing of a
company would, post listing, require any approval from the Board or public
shareholders of such company and hence the Company did not take any approval
from the Board or public shareholders of the company post the listing of its shares
on July 30, 2018.
A reference may also be taken of Regulation 12(1)(ii) of the Securities and
Exchange Board of India (Share Based Employee Benefits and Sweat Equity)
Regulations, 2021, which deals with Pre-IPO employee schemes and in this
relation it clearly specifies that prior to issue of any shares under the Pre-IPO
scheme, such Pre-IPO scheme need to be ratified by its shareholders subsequent
to the IPO. From this, we understand that SEBI has, wherever required, included
specific provisions which a company needs to follow post IPO. However, evidently
no such provision has been incorporated in relation to obligations under Regulation
26(6) of LODR Regulations.

8. Thereafter, in the interest of natural justice, vide email dated August 04, 2023, Noticee was
granted an opportunity of personal hearing before the undersigned on August 09, 2023.
The aforementioned email was duly served on Noticee. On the scheduled date of hearing
i.e. on August 09, 2023, authorised representatives of Noticee, Mr. Amit Chand, Chief
Financial Officer of Noticee and Mr. Piyush Asija, Company Secretary of Noticee,
appeared for hearing and reiterated the submissions made by Noticee in its reply dated
August 03, 2023.

CONSIDERATION OF ISSUES, EVIDENCE AND FINDINGS

8. I have carefully perused the charges levelled against Noticee, replies/submissions filed by
Noticee and other documents/ evidence available on record. The issues that arise for
consideration in the present case are:

Issue I: Whether Noticee has violated Regulation 26(6) of LODR Regulations?

Issue II: Does the violation, if any, attract monetary penalty under Section 15HB of SEBI
Act?

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 Issue III: If the answer to issue no. II is in affirmative, then what should be the quantum of
monetary penalty?

Issue I: Whether Noticee has violated Regulation 26(6) of LODR Regulations?

10. It is an admitted fact in the present case that an Upside Sharing Agreement was executed
between Mr. Onkar Singh Pasricha and Mr. Arvinder Singh Pasricha, who were the
promoters of Noticee and Wagner Limited (now known as ‘TA FDI Investors Ltd’) on June
15, 2018. I observe from Noticee’s reply to the SCN that Noticee had disclosed the
following information regarding the aforesaid agreement in its Prospectus dated July 24,
2018:

“Our Promoters have entered into an upside sharing agreement dated June 15, 2018 with
Wagner pursuant to which, our Promoters/members of Promoter Group are entitled to
receive from Wagner such number of Equity Shares as are determined under the
agreement, aggregating to a maximum of 1,621,740 Equity Shares (amounting to 2.36%
of our equity share capital on a fully diluted basis) at a price of ₹ 373.26 per Equity Share,
upon occurrence of sale of all or any of the Equity Shares held by Wagner, pursuant to an
initial public offering or otherwise, subject to the applicable regulatory lock-in. Any
acquisition of Equity Shares by the Promoters/members of Promoter Group pursuant to
the upside sharing agreement will be subject to compliance with applicable laws, including
the SEBI Takeover Regulations and the FEMA regulations. The upside sharing agreement
shall survive the completion of the Offer.”

11. In its submission, Noticee has stated that the Upside Sharing Agreement was entered into
when Noticee was an unlisted company and that it did not obtain approval from its Board
of Directors and the public shareholders with respect to the aforesaid agreement, post
listing of its shares on the BSE Ltd and NSE India Ltd (Collectively referred as ‘stock
exchanges’) on July 30, 2018. It is also an admitted fact that the Upside Sharing
Agreement was in existence post listing of Noticee.

12. The major contention raised by Noticee in its reply to the SCN is that the Upside Agreement
was entered into at a time when the company was unlisted and therefore, the provisions
of Regulation 26(6) of LODR Regulations did not apply to the company with respect to the
said agreement and it was not under an obligation to obtain approval from its board of
directors and shareholders with respect to Upside Sharing Agreement. Noticee has further
contended that no transaction has been undertaken among the shareholders either by way
of transfer of shares or any other manner, pursuant to the Upside Agreement. I note that

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 Noticee has also contended that there is no specific provision in Regulation 26(6) of LODR
Regulations which provides that a Shareholder Agreement, which was entered into prior
to listing of a company, would require any approval from the Board or public shareholders
of such company, post listing of its shares and that first para of Regulation 26(6) of the
SEBI LODR is applicable solely to listed entities when it proposes to ‘enter’ into any such
agreement.

13. At this juncture, for the sake of understanding, I find it pertinent to reproduce Regulation
26(6) of LODR Regulations hereunder:

Regulation 26(6) of LODR Regulations

No employee including key managerial personnel or director or promoter of a listed entity

shall enter into any agreement for himself or on behalf of any other person, with
any shareholder or any other third party with regard to compensation or profit sharing in
connection with dealings in the securities of such listed entity, unless prior approval
for the same has been obtained from the Board of Directors as well as public
shareholders by way of an ordinary resolution:

Provided that such agreement, if any, whether subsisting or expired, entered during
the preceding three years from the date of coming into force of this sub-regulation, shall
be disclosed to the stock exchanges for public dissemination:

Provided further that subsisting agreement, if any, as on the date of coming into force of
this sub-regulation shall be placed for approval before the Board of Directors in
the forthcoming Board meeting:

Provided further that if the Board of Directors approve such agreement, the same shall be
placed before the public shareholders for approval by way of an ordinary resolution in the
forthcoming general meeting:

Provided further that all interested persons involved in the transaction covered under the
agreement shall abstain from voting in the general meeting.

Explanation -For the purposes of this sub-regulation, ‘interested person’ shall mean any
person holding voting rights in the listed entity and who is in any manner, whether directly
or indirectly, interested in an agreement or proposed agreement, entered into or to
be entered into by such a person or by any employee or key managerial personnel or
director or promoter of such listed entity with any shareholder or any other third party with
respect to compensation or profit sharing in connection with the securities of such listed
entity.

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14. As per the first paragraph of Regulation 26(6) of LODR Regulations, a listed entity is under
an obligation to obtain approval of its board of directors and its shareholders prior to
entering into an agreement as specified therein. In the instant matter, I find that at the time
of entering into agreement i.e. on June 15, 2018, Noticee was an unlisted company and
therefore the provisions of Regulation 26(6) of LODR Regulations were not applicable to
it. I also do not find it explicitly mentioned in Regulation 26(6) of LODR Regulations that a
company has to obtain approval of its board of directors and shareholders with regard to
agreement within the meaning of Regulation 26(6) of LODR Regulations, which was
entered into prior to its listing, after listing of its shares on the stock exchanges. Therefore,
I find merit in this contention of Noticee.

15. However, I also note that additional obligations have placed on listed entity by way of
provisos to Regulation 26(6) of LODR Regulations. The second and third provisos to
Regulation 26(6) of LODR Regulations, inter alia, place an obligation on the listed entity to
place subsisting agreements as on the date of enforcement of Regulation 26(6) of LODR
Regulation for approval before its Board of directors (also referred to as “BOD”) and after
the BOD’s approval, place the said agreement before its public shareholders for approval
by way of ordinary resolution in its forthcoming general meeting. It is noted that Regulation
26(6) of LODR Regulations was inserted in LODR Regulations by way of amendment to
SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations,
2016 and came into force from January 04, 2017. Therefore, the question that merits
examination at this juncture is whether the impugned agreement was subsisting as on
January 04, 2017.

16. The provisos to Regulation 26(6) of LODR Regulations deal with a specific scenario, i.e.
subsisting agreements, if any, of the listed entity as on January 04, 2017. From the factual
matrix presented above, it is clear that the Upside Sharing Agreement was not in existence
as on January 04, 2017 and therefore, the aforementioned provisos to Regulation 26(6) of
LODR Regulations would also not be applicable to Noticee in the present instance

17. In light of the aforesaid, I find that Noticee was not under an obligation to obtain approval
from its board of directors and shareholders under Regulation 26(6) of LODR Regulations
with respect to Upside Sharing Agreement. Therefore, I find that allegation in the SCN that
Noticee has violated Regulation 26(6) of LODR Regulations does not stand established.

18. Since the alleged violation against Noticee is not established, I find that the Issues No. II
and III require no further consideration.

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 ORDER

19. Accordingly, taking into account the aforesaid findings and in exercise of powers conferred
upon me under Section 15-I of SEBI Act read with Rule 5 of the Adjudication Rules, the
Adjudication proceedings against Noticee i.e. TCNS Clothing Co. Ltd., initiated vide SCN
dated July 20, 2023, stands disposed of without imposition of any penalty.

20. In terms of the provisions of Rule 6 of the Adjudication Rules, a copy of this order is being
sent to Noticee and also to SEBI.

Place: Mumbai SOMA MAJUMDER

Date: August 28, 2023 ADJUDICATING OFFICER

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