sebi:WTM/KMA/CFD/312/11/2010

SEBI · SEBI · 2010-02-18 · Dr. K.M. Abraham, Whole Time Member

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

Facts / Headnote

Contravention of Regulation 11(1) found; acquirer directed to disinvest 1,34,905 shares (1.17% excess) within two months and to reclassify its holding as promoter category

Provisions invoked

• s. 19

Regulations

• Reg. 44
• Reg. 11(1)
• Reg. 2(h)
• Reg. 44(a)

Parties

• Nirvana Holdings Private Limited
• Nara Bhuvaneshwari
• Nara Lokesh

Holding

Nirvana Holdings Private Limited, as part of the promoter group of Heritage Foods (India) Limited, contravened Regulation 11(1) by acquiring 6.17% (7,11,421 shares) without a public announcement, taking promoter group holding from 45.70% to 51.87%. The acquirer was directed to disinvest the 1.17% excess (1,34,905 shares) within two months, transfer any profits to Investor Protection Funds, and reclassify its holding as promoter holding.

Full text

Page 2 of 7 promoter group of the target company as per explanation (I)(b)(ii) to Regulation 2(h) of the Takeover Regulations as Ms. Nara Bhuvaneshwari and Ms. Nara Lokesh belong to the promoter group of the target company and hold 50% each of the equity capital in the acquirer. The said acquisitions had increased the shareholding of the promoter group in the target company from 45.70% to 51.87% and since the same was not followed by a public announcement, was found to be in contravention of Regulation 11(1) of the Takeover Regulations. Hence, the show cause notice. A similar notice dated February 18, 2010 was also issued by SEBI to Ms. Nara Bhuvaneshwari and Ms. Nara Lokesh requiring them to show cause as to why appropriate directions under Regulation 44 of the Takeover Regulations should not be issued against them as they had indirectly acquired 6.17% of the equity capital of the target company. The acquirer filed its reply dated December 30, 2009. Ms. Nara Bhuvaneshwari and Ms. Nara Lokesh filed similar submissions, vide separate letters dated March 26, 2010. The acquirer, Ms. Nara Bhuvaneshwari and Ms. Nara Lokesh are hereinafter collectively referred to as the entities and individually by their names. An opportunity of hearing was also granted by SEBI to the entities on May 25, 2010. However, vide separate letters dated May 25, 2010, the entities informed SEBI that they were not in a position to attend the hearing and further requested SEBI to decide the matter based on

Page 3 of 7 promoters/directors are also the promoters of the target company and are holding 33.38% in the target company, it had been concluded that its promoters/directors are acting in concert with other persons in the promoter group of the target company. The acquirer denied the allegation that it belongs to the promoter group of the target company. It was the contention of the acquirer that, nowhere in the notice it is alleged that, it was acting in concert with the promoter group of the target company at the time of the impugned acquisition. The acquirer submitted “Without prejudice to the aforesaid submissions, it is submitted that if SEBI takes a very narrow technical view that since our promoters were holding 33.38% shares in the Target Company, therefore there shareholding is to be treated as our shareholding, then in that event our shareholding would be deemed to have increased from 33.38% to 39.55%. Acquisition of 6.17% is marginally higher than the permissible creeping acquisition limit of 5% in a financial year. The alleged violation in the instant case is to the extent of acquisition of 1.17% equity shares only, which is too insignificant and miniscule. Further, as a result of additional acquisition of 1.17% equity shares in the Target Company we have not acquired control over the Target, since our promoters by virtue of their shareholding of 33.38% were already in control of the Target Company. (emphasis supplied). The acquirer further stated “In the circumsta

Page 4 of 7 admitted fact. What is disputed is taking together the holding of the acquirer (through the impugned acquisitions) with the holding of the promoter group of the target company. Therefore, considering the facts of the case, it is to be examined whether the acquirer belongs to the promoter group of the target company or not. If the answer is in the affirmative, then the impugned acquisitions would be in contravention of Regulation 11(1) of the Takeover Regulations, as there was no public announcement made in respect of such acquisitions. In view of the above, it is necessary to refer to the definition of the term „promoter‟ as contained in the Takeover Regulations. The same is reproduced herein below: “promoter” means – (a) any person who is in control of the target company; (b) any person named as promoter in any offer document of the target company or any shareholding pattern filed by the target company with the stock exchanges pursuant to the Listing Agreement, whichever is later; and includes any person belonging to the promoter group as mentioned in Explanation I: Provided that a director or officer of the target company or any other person shall not be a promoter, if he is acting as such merely in his professional capacity. Explanation I: For the purpose of this clause, “promoter group” shall include: (a) ……… (b) in case the promoter is an individual – (i) the spouse of that person, or any parent, brother, sister or child of that person or of his spouse; (ii)

Source: SecMarx — sebi:WTM/KMA/CFD/312/11/2010. 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.