sebi:WTMN/78/CFD/08/04

SEBI · SEBI · 2001-08-30 · T. M. Nagarajan, Whole Time Member

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Facts / Headnote

No open offer directed; adjudication proceedings ordered for disclosure lapses and three-year lock-in imposed on shares allotted on June 2, 2003

Provisions invoked

• s. 19
• s. 81

Regulations

• Reg. 3
• Reg. 10
• Reg. 12
• Reg. 44
• Reg. 11(1)
• Reg. 2(c)
• Reg. 3(1)
• Reg. 2(k)
• Reg. 3(1)(c)

Parties

• Flex International Pvt. Ltd.
• Apoorva Extrusion Pvt. Ltd.

Holding

The acquisition of shares on June 2, 2003 by Flex International Pvt. Ltd. and Apoorva Extrusion Pvt. Ltd. on conversion of warrants preferentially allotted on November 29, 2001 was deemed covered by the exemption under the then-existing Regulation 3(1)(c) with no public offer obligation under Regulations 10 and 11, while a three-year lock-in was imposed on the allotted shares and adjudication was ordered for disclosure lapses.

Full text

Investor Protection) Guidelines 2000, one crore equity shares of Rs.10/- each to financial institutions towards part settlement of the loans and one crore warrants to promo associates, mainly to finance part repayment of the loans and other dues of financial institutions. As the resolution could not be acted upon within the stipulated period of 3 fresh consent of the shareholders of the Target company had been obtained at its Annual General Meeting held on August 30, 2001. In terms of the fresh resolution pas shareholders had approved the proposal to issue, on preferential basis, one crore equity shares of Rs.10/- each to financial institutions and one crore warrants to promo associates. The warrants carried a right to apply for and allotment of one equity shares for every warrant held on or before the expiry of 18 months from the date of allotm price to be determined as per SEBI guidelines for preferential issue. The warrants had been allotted on November 29, 2001 to the promoter group entities and after interse t the two promoter group companies came to hold the warrants, when the right of conversion was exercised on May 28, 2003. Thereupon, the allotment of equity shares ha made to these promoter-entities i.e. the “Acquirers” on June 2, 2003 i.e. 4 days after expiry of the 18 month perod. 5.3              I find that the acquirers have ultimately on June 02, 2003, acquired shares in the Target Company which (taken together with the share or voting rights already held b ent

been covered under the exempted  category in terms of the then regulation 3(1)(c) of the Takeover Regulations. However,  the shares acquired would need to be subject appropriate lock-in requirement. Further, since, technically, full disclosures had not been made as envisaged in the provision to the then existing regulation 3(1)(c) ibid, shares, on conversion of the preferentially allotted warrants, had been allotted four days after expiry of the 18 month period. While these technical lapses should not go to the validity of the allotment, the lapses need to be dealt with in separate adjudication proceedings. 6.0              ORDER 6.1                         In view of the findings made above and in exercise of the powers conferred upon me under Section 19 of SEBI Act 1992 read with regulation 44 and 45 of t Regulations, I direct that adjudication proceedings be initiated in terms of the SEBI Act 1992, against the Acquirers for not having made full disclosures as envisage proviso to the then existing provisions of Regulation 3(1)(c) of the Takeover Regulations. The Acquirer may make their submissions before the Adjudicating Office consider the same on merits and pass appropriate order in accordance with law. Order appointing the Adjudicating Officer will be issued separately. 6.2                         I also hereby direct that the equity shares allotted by Flex Industries Ltd. on June 2, 2003 to Flex International Pvt. Ltd. and Apoorva Extrusion Pvt. Ltd. through co warrants

2001. The resolution had been passed in terms of the provisions of section 81(1A) of the Companies Act 1956 and the allotment had been made in accordance with the gu for preferential issues contained in SEBI (Disclosure and Investor Protection) Guidelines 2000. It is also observed that the relevant Board resolution had been sent to t exchanges for notification. The explanatory statement appended to the notice had given details regarding the purpose of the proposed preferential allotment, the pa shareholding before and after the preferential issue of shares to the Financial Institutions as well as before and after conversion of the warrants allocated on preferential the “Acquirers”. The statement had also stated that lock in period and the number of shares/ warrants subjected to such lock in, would be as per SEBI guidelines. It had a mentioned that the issue of warrants would not result in any change in the management control of the company. The warrants were allotted on November 29, 2001, viewe light of the then existing provisions of regulation 3(1)(c) of the Takeover Regulations, the preferential allotment of warrants had been made to the “acquirers” by th Company’, pursuant to the provisions of Section 81(1A) of the Companies Act, 1956; the relevant board resolution has been sent to the Stock Exchanges’ disclosures h made of the particulars specified except for the specific name of the allottee. 5.8              Thus, there is sustainable force in the argument that the pro

Source: SecMarx — sebi:WTMN/78/CFD/08/04. 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.