sebi:CO/56/TO/06/2003

SEBI · SEBI · 2003-02-21 · G.N. Bajpai, Chairman, SEBI

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

Facts / Headnote

Acquirer directed to make public announcement within 45 days and pay interest at 10% per annum to shareholders from 1.5.03 till actual payment of consideration

Provisions invoked

• s. 11B
• s. 81

Regulations

• Reg. 7
• Reg. 11
• Reg. 3
• Reg. 9
• Reg. 14
• Reg. 14(1)
• Reg. 44
• Reg. 10
• Reg. 22
• Reg. 11(1)
• Reg. 3(1)
• Reg. 20(5)
• Reg. 3(1)(l)
• Reg. 4(2)
• Reg. 20(11)

Parties

• Acquirer

Holding

The Acquirer violated regulation 11(1) read with regulation 14(1) of the Takeover Regulations by acquiring 6.40% additional shares/voting rights in the Target company through preferential allotment on 24.12.2002 without making a public announcement, and was directed to make a public announcement within 45 days and pay interest at 10% per annum to shareholders.

Full text

Acquirer in terms of regulation 14(1) of the Regulations within 4 working days from the date of 24.12.2002 in accordance with the Regulations. As the Acquirer acquired the said shares/voting rights and control of the company in the manner as stated above without making a public announcement, the Acquirer had, prima-facie, violated the provisions of regulations 11(1) read with regulation14(1) of the Regulations and hence is liable for penal action under the Regulations and SEBI Act, 1992. 3.0 The Acquirer submitted its reply to the abovesaid show cause notice vide its letter dated 21.2.2003. 4.0 PERSONAL HEARING 4.1 Thereafter a personal hearing was granted to the Acquirer on 30.4.2003 wherein the authorised representative of the acquirer Ms. Rashida Aaenwala, Company Secretary appeared and made submissions on his behalf. Written submissions were also submitted on behalf of the acquirer after the conclusion of oral submissions. 5.0 SUBMISSIONS OF THE ACQUIRER The oral and written submissions made on behalf of the acquirer during personal hearing dt. 30.04.05 are given hereunder : 5.1 The Target company was originally incorporated on 2.12.1993 as M/s.Golden Carpets Pvt. Ltd. The Target company was converted into a public limited company vide special resolution dated 21.12.1994 and fresh certificate of incorporation was issued on 1.1.1995. 5.2 The Target company was incorporated with the objective to carry on the business of manufacturers, retailers, distributors, stockists, age

financed to the extent of Rs.500 lacs. 5.5 In addition to under-subscription, there were dues on allotment money for which repeated reminders were sent to the concerned investors. However, as subscription money which was due from the investors to the company was not received, on failure to receive the allotment money, these shares were forfeited. 5.6 The Target company started its commercial production in the financial year in 1998-1999 and has been constantly incurring losses since then. Further, the Target company was originally registered as an 100% EOU and thereby it could not grab the domestic market due to regulatory restrictions. Considering the tremendous potential and also the high margins available in the domestic market viz a viz the international market, the management of the target company decided to debond the unit. Accordingly, the units were debonded in 2001 and for this the target company had to incur huge expenditure. 5.7 Due to under subscription, forfeiture of shares and various other

preferential allotment, the shareholding of the acquirer has increased from 30.82% to 37.22% shares in the Target company. 5.12 The Acquirer is already in control in the Target company. The proposed acquisition would amount to consolidation of shareholding. The shareholding pattern of the Target company is as under : 5.13 As a result of the above preferential allotment there has been no change in the management or control of the Target company. 5.14 The acquirer made the investment when the acquisition of shares on preferential basis was exempt under Regulation 3 (1) (c) of the Regulations i.e. prior of 09.09.02 and therefore the acquirer be granted exemption on acquisition from making public announcement for the acquisition of 9.26% of the shares on preferential basis. 6.0 ISSUES 6.1 I have taken into consideration the facts of the case, the

Source: SecMarx — sebi:CO/56/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.