sebi:WTM/PS/09/CFD-DCR-1/MAY/2014

SEBI · SEBI · Prashant Saran, Whole Time Member

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Facts / Headnote

Exemption granted; application disposed off

Provisions invoked

• s. 19

Regulations

• Reg. 3(2)
• Reg. 11o
• Reg. 10(7)
• Reg. 11(5)

Holding

SEBI granted exemption to the Acquirers (promoter group members) from the requirement of making an open offer under regulation 3(2) of the Takeover Regulations, 2011 in respect of their proposed acquisition of 40,00,000 shares of ₹10/- each by way of preferential allotment against conversion of ₹4 crore unsecured loan, which would increase the promoter group's shareholding from 30.18% to 59.47%.

Full text

Page 2 of 7 (ii) In the year 1994, the Target Company was converted into a public limited company and its IPO, for issuing 35,00,000 equity shares of
10/- each, was over-subscribed by 18 times. The post issue equity capital was
553.41 lakhs comprising of 55.341 lakh equity shares of
10/- each. The funds were utilized for increasing the production capacity of manufacturing Cylinder Blocks. (iii) During the course of implementation, Bajaj Auto Limited had approached the Target Company for development of cylinders for its two wheeler vehicles. The Target Company obtained orders worth
1 crore per month. The Target Company had approached the IDBI Bank for a term loan of
2.25 crore to meet the part of the cost of setting up the chrome plating plant. Due to substantial orders from Bajaj Auto, the Company Concentrated more on orders of Bajaj Auto with an expectation to get major share in the replacement market. (iv) After continuous supply of cylinders for a period of six year, Bajaj Auto stopped purchasing cylinders from the Target Company due to change of technology from two-stroke to four-stroke scooter segment of motor cycle division. As a result, the turnover of the company reduced from
1 crore per month to almost zero level. However, due to the importance given for the orders from Bajaj Auto, the Target Company lost contacts with export buyers and also with other local buyers. (v) The Target Company received orders from Electrolux, Italy as 'OEM' supplier and supplied for

Page 3 of 7 (viii) SBI had also filed a winding up petition vide Company Petition No. 85/2010, before the Hon'ble Andhra Pradesh High Court. (ix) The Bankers had invoked the provisions of the SARFAESI Act (the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) and issued notice for sale of pledged properties of the Target Company. The operations of the Target Company came to standstill on account of pressure from the Financial Institutions/Banks. (x) To come out of the pressure from Banks/Financial Institution and the court cases, the Target Company approached Banks / Financial Institution for a One Time Settlement ("OTS"). (xi) The Banks accepted the OTS and such OTS payments were time bound and any delay in payment would have result in winding up of the Target Company. (xii) The Target Company could not raise any deposits or debenture as its networth was in the negative. Therefore, in order to meet the payments under the OTS, it had become obligatory for the promoters to bring the funds by way of interest free unsecured loans. (xiii) In view of the same, the promoters' family members (the Acquirers) have brought in a sum of
5.8 crore by way of interest free unsecured loan to meet OTS obligation. (xiv) The Target Company, now, desires to manufacture the products on its own. This will increase the turnover and profitability of the Target Company. To manufacture the products, the company wants working capital limits. The Targ

Page 4 of 7 P. Annapurna Shareholder and wife of P. Madhupratap 30.00 P. Ravichandra Shareholder and Son of Mr. P. Veeranarayana 10.00 P. Charitha Shareholder and wife of P. Ravichandra 10.00 Total 400.00

Source: SecMarx — sebi:WTM/PS/09/CFD-DCR-1/MAY/2014. 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.