sebi:CO/61/TO/06/2003

SEBI · SEBI · 2003-02-01 · G.N. Bajpai, Chairman, SEBI

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Facts / Headnote

Violation of Regulation 11(1) read with Regulation 14(1) found; Acquirers directed to make public announcement within 45 days and pay interest @10% per annum

Provisions invoked

• s. 11B
• s. 11
• s. 81

Regulations

• Reg. 6
• Reg. 3
• Reg. 8
• Reg. 14
• Reg. 14(1)
• Reg. 44
• Reg. 10
• Reg. 11
• Reg. 22
• Reg. 11(1)
• Reg. 3(1)
• Reg. 20(5)
• Reg. 45(6)

Parties

• Acquirers/promoters

Holding

The Acquirers violated Regulation 11(1) read with Regulation 14(1) by acquiring 6.76% shares/voting rights on preferential basis on 28.11.2002 without making a public announcement, and were directed to make a public announcement under Chapter III within 45 days taking 03.08.2002 as reference date for offer price with 10% interest from 04.04.2003 till payment.

Full text

prima facie found to be in violation of the provisions of Regulation 11(1) of the Regulations, a show cause notice dated January 24,2003 was issued to the Acquirers inter alia, stating that : 2.1 Pursuant to the acquisition as aforesaid, a public announcement was required to be made by the acquirers in terms of regulation 14(1) of the Regulations within 4 working days from the date of 28.11.2002 in accordance with the Regulations and as the acquirers acquired the said shares/voting rights and control of the company in the manner as stated above without making a public announcement, the acquirers had, prima-facie, violated the provisions of Regulation 11(1) read with 14(1) of the regulations and therefore are liable for penal action under the Regulations and SEBI Act, 1992. Vide said notice the acquirers were directed to show cause as to why one or more or all action(s) under Regulation 44 and Regulation 45(6) of the Regulations read with Section 11 and 11B of the SEBI Act should not be initiated against them for the aforesaid violations. 3.0 REPLY TO THE SHOW CAUSE NOTICE 3.1 The Acquirers submitted their reply to the above said show cause notice vide its letter dated 01.02.2003, stating inter alia, as under : a) The Board of Directors at their meeting held on 03.08.2002 had approved the aforesaid preferential allotment and convened EGM of shareholders on 28.8.2002 when resolution was passed under Section 81(1A) of the Companies Act, 1956 for approving the issue of shares und

The Acquirers, however, vide fax dated 3.3.2003 requested for postponement of the hearing to any future date. 4.2 Thereafter the hearing was adjourned for April 9, 2003. Once again the acquirer vide letter dated April 7, 2003 requested for further adjournment of the hearing on the ground that the mother of one of the acquirers had expired. 4.3 Considering the reason for seeking the adjournment, while granting adjournment, the third hearing was fixed on May 15, 2003. While communicating the adjournment and next date for hearing, the acquirers were again informed that in case of their failure to attend the hearing, it will be presumed that they have no further submissions to make and the hearing will be proceeded on the basis of the material available on records. However, again the acquirers vide fax dated 13.5.2003 requested for further adjournment on the ground that one of the acquirers had fallen ill. 4.4 The reason cited by the acquirers for postponement gave an impression that the acquirers were not taking the matter seriously and deliberately causing the delay in proceedings. Further, it was felt that they have no explanation to offer for their default, except for the submissions made in their reply to the show cause notice available in the records of SEBI. Hence, the request of the acquirers for further adjournment of hearing was not acceded to and it was decided to proceed in the matter ex- parte. 5.0 ISSUE(S) 5.1 I have taken into consideration the facts and circumstan

Regulation 11(1)- (Consolidation of Holdings) “No acquirer, who together with persons acting in concert with him has acquired, in accordance with the provisions of law, 15% or more but less than 75% of the shares or voting rights in a company, shall acquire either by himself or through persons acting in concert with him any additional shares or voting rights entitling him to exercise more than 5% of the voting rights in any financial year ending 31st March, unless such acquirer makes a public announcement to acquire shares in accordance with the regulations.” Regulation 14 (Timing of the public announcement of offer) Regulation 14(1) : “The public announcement referred to in Regulation 10 or Regulation 11 shall be made by the merchant banker not later than four working days of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein”. 6.2 From the reading of the above provisions, it is clear that in a case where Acquirer is holding 15% or more but less than 75% shares of the Target company, the acquirer cannot acquire additional shares or voting rights entitling him to exercise more than 5% of the voting rights in any financial year ending 31st March, unless such Acquirer makes a public announcement in accordance with the Regulations. Further, the aforesaid public announcement is required to be made by the Acquirer not later than four working days of entering into

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