sebi:CO/046/TO/06/2003

SEBI · SEBI · 2002-05-20 · G.N. Bajpai, Chairman, Securities and Exchange Board of India

This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.

Facts / Headnote

Acquirers directed to pay interest @ 10% p.a. to nine NRI/OCB/FII shareholders for delays of 40 days and 69 days in payment of consideration; failure to comply would result in forfeiture of escrow account and action under Sections 15H and/or 24 of the SEBI Act.

Provisions invoked

• s. 11
• s. 24
• s. 15

Regulations

• Reg. 7
• Reg. 3
• Reg. 9
• Reg. 10
• Reg. 12
• Reg. 29
• Reg. 44
• Reg. 22
• Reg. 22(12)
• Reg. 22(15)
• Reg. 10(B)
• Reg. 28(11)
• Reg. 28(13)

Parties

• Acquirers (in the Hindustan Zinc Limited open offer)

Holding

The Acquirers violated Regulation 22(12) by failing to pay consideration to nine NRI/OCB/FII shareholders within 30 days of the closure of the open offer, and were directed to pay interest at 10% p.a. for delays of 40 days (eight entities) and 69 days (one entity).

Full text

3.2 In this regard attention is drawn to a statement made to the shareholders of Target company in the letter of offer dated 20.05.02. It was, inter alia, stated / disclosed that: : "The offer is subject to the approval of RBI under the Foreign Exchange Management Act, 1999 for acquiring shares tendered by shareholders including NRIs/ FIIs and OCBs. The RBI approval will be obtained in the manner set out in the following paragraphs. Besides the above, there are no approvals required to acquire shares that are tendered pursuant to this offer. On closure of the offer and receipt of the acceptances duly filled and completed in all respects from the shareholders the acquirer, on behalf of such shareholders, would make the requisite application to RBI to obtain permission for transfer of their shares in HZL to the acquire. Barring unforeseen circumstances the acquirer intends to obtain all required approvals within one month from the closing date. However, in case of delay in receipt of statutory approvals in terms of clause 22(12) of the regulations, SEBI has the power to grant extension of time, subject to the acquirer agreeing to pay interest to the shareholders for delay beyond 30 days." 3.3 In this regard, attention is drawn to Regulation 22(12) of the regulations regarding payment of consideration, which reads as under: "The acquirer shall, within a period of 30 days from the date of the closure of the offer, complete all procedures relating to the offer including payment of

6.1 The various submissions made by the Acquirers before issuance of show cause notice and after the issuance of show cause notice and after the hearing granted by me are inter alia as under : 6.2 The Acquirers had made an Open Offer vide Letter of Offer dated May 20, 2002 to shareholders of the Target Company pursuant to acquisition of shares and control over the Target Company in terms of the Government of India’s disinvestment programme. Pursuant to the Open Offer, nine shareholders not being resident Indians tendered their acceptances. A break up of such shareholders with their shareholding and their status is as given below : HINDUSTAN ZINC LIMITED - OPEN OFFER DETAILS 6.3 On July 18, 2002, no sooner than all the particulars of such nine shareholders and their holding was available pursuant to finalisation of the basis of acceptances, an application was made to the Reserve Bank of India ( on behalf of the aforesaid shareholders seeking permission of the RBI to such shareholders for selling their shares). The RBI gave its final approval in respect of eight shareholders vide its letter dated September 2, 2002, and for the remaining shareholder vide letter dated October 3, 2002. The consideration amount was paid to the eight shareholders first approved by the RBI, on September 4, 2002, and to the last shareholder on October 3,

selling non-resident shareholder and not the buying resident shareholder. 6.6 In the case of a takeover pursuant to the Government of India’s disinvestment programme, for the purpose of administrative convenience, it is normal to provide that the Acquirer shall make a composite application for administrative convenience on behalf of resident shareholders who tendered their acceptances. 6.7 The Letter of Offer, which constitutes the contract-forming documentation governing the Open Offer made it abundantly clear that such application would be made by Acquirers on behalf of such selling non-resident shareholders. In fact, the Letter of Offer reserves the right of the Acquirer to proceed with closing the purchase of shares tendered by the other selling shareholders under the Open Offer, if approval of the RBI were to be unduly delayed. 6.8 In the Letter of Offer dated May 20, 2002, it was inter alia disclosed under the Contingent Conditions clause that : " The Offer is subject to the Reserve Bank of India ("RBI") under the Foreign Exchange Management Act, 1999, for acquiring the shares tendered by shareholders including NRIs/FIIs and OCBs. The RBI approval will be obtained in the manner set out in the following paragraph. Besides the above, there are no approvals required to acquire shares that are tendered pursuant to this offer. On the closure of the offer and receipt of the acceptances duly filled and completed in all respects from the shareholders the Acquirer, on behalf of

Source: SecMarx — sebi:CO/046/TO/06/2003. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.