Securities Appellate Tribunal
In Re: Pioneer Distilleries Ltd. vs Unknown on 5 November, 2004
ORDER
G.N. Bajpai, Chairman 1.0 BACKGROUND 1.1 Pioneer Distilleries Ltd. (hereinafter referred to as 'the target company') is a public limited company, incorporated under the Companies Act, 1956 and has its registered office at Balapur (V), Dharmabad Taluk , Nanded (Dist.) , Maharashtra.
1.2 The equity shares of the target company are listed on The Stock Exchange Mumbai and Pune Stock Exchange Ltd.
1.3 Shri K V Rajeshwar Rao , Shri K Sudhir Rao, Shri K Suhan Rao and Shri L Venketeswara Rao are the promoters of the target company and together with their relatives and other promoters, hold 45.89% equity shares of the target company. Shri K V Rajeshwar Rao , Shri K Sudhir Rao, Shri K Suhan Rao and Shri L Venketeswara Rao (hereinafter referred to as 'acquirers') are at present holding 32.75% of the equity shares of the target company.
1.4 The acquirers propose to acquire 15,00,000 equity shares from the company, being a part of the forfeited share capital of the company.
APPLICATION FOR EXEMPTION 2.0 The acquirers made an application dated July 28,2004 under regulation 4 of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (hereinafter referred to as the 'Takeover Regulations') seeking exemption from the applicability of regulation 11(1) of the 'Takeover Regulations', in respect of the proposed acquisition of 15,00,000 equity shares of the target company at Rs. 10/- per share, out of the total forfeited shares of 16,07,200 shares. Pursuant to the proposed acquisition, the shareholding of the acquirers would increase from 32.75% to 42.90%.
2.1 As per the said application, the shareholding pattern of the target company, pre and post acquisition, is as under:
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Shareholder's No. of Before the proposed After the proposed
category registered acquisition acquisition
shareholders No. of % of No. of % of shares/
as on date of shares/total shares shares/voting voting rights
application voting rights total voting rights
held capital held
---------------------------------------------------------------------------------------------Promoter Group 8
I Prompters/ 4,89,340 5,89,340 5.92 Acquirers 1 5.80 a) Shri K V 1015600 1665600 16.75 Rajeshwar Rao b) Shri 12.02 K Sudhir Rao, 955560 1605560 16.15 c) Shri K Suhan 11.32 Rao 305280 405280 4.08 d) Shri L 200400 3.61 200400 2.02 Venketeswara Rao 2966180 2.37 4466180 44.92 e) Relatives of 908970 35.13 908970 9.14 promoters Sub-Total 10.76 II Others FIs/ Banks 1 15,00,000 17.77 15,00,000 15.09 FIIs/ NRIs/OCBs 437 25,11,200 29.74 25,11,200 25.26 Public 208 5,56,450 6.60 5,56,450 5.59 Total 655 84,42,800 100.00 99,42,800 100.00
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3.0 SUBMISSIONS IN THE EXEMPTION APPLICATION In the application dated July 28, 2004, the acquirers have interalia submitted that:
i) The target company is intending to expand the project by increasing the existing Neutral Alcohol capacity from 30,000 BL per day, to 50,000 BL per day ,setting up of Absolute Alcohol ( Ethanol ) plant having capacity of 30,000 BL per day and also repayment to IDBI and LIC .
ii) State Bank of Mysore had appraised the project of the target company and had asked the promoters to contribute Rs.150 lakhs by way of equity towards the project cost .
iii) the proposed reissue would be towards the contribution made by the promoters . The promoters are subscribing at Rs. 10/- for each share as against the book value of Rs. 7.30/-.
iv) the amount forfeited would be transferred to special reserve of the target company, which would strengthen its financial position.
v) the shareholding of the promoters of the target company, post acquisition, would be 44.92%.
vi) there would be no change in management and control of the target company due to the re issue of forfeited shares.
vii) shareholders resolution has been passed in the AGM held on June 26, 2004 and the Board of Directors have been empowered to issue entire 16,07,200 forfeited shares to any person.
3.1 In view of the above, the acquirers had sought the exemption from the provisions of regulation 11 (1) of the Takeover Regulations in respect of the proposed acquisition of 15,00,000 shares, out of 16,07,200 forfeited shares.
4.0 RECOMMENDATION OF THE TAKEOVER PANEL 4.1 The aforesaid application dated July 28, 2004 was forwarded to the Takeover Panel in terms of sub-regulation (4) of regulation 4 of the Takeover Regulations. The Takeover Panel vide its report dated August 18, 2004 has recommended as under -
"Considering the facts as stated in the application , the grant of exemption as sought is recommended subject however, to shareholders of the target company approving reissuing of the said 15,00,000 equity shares out of the said forfeited 16,07,200 equity shares at Rs. 10/- per share specifically to the promoters of the target company at the extra ordinary general body meeting of the Shareholders of the target company specially convened for this purpose and the interested promoters abstaining from voting thereat"
5.0 FINDINGS 5.1 I have gone through the application dated July 28, 2004 and taken into consideration the relevant material available on record and the above mentioned recommendation of the Takeover Panel. I note that the proposed acquisition is for the purpose of expanding the project of the target company, by increasing its existing Neutral Alcohol capacity from 30,000 BL per day, to 50,000 BL per day, and also for setting up of Absolute Alcohol (Ethanol) plant having capacity of 30,000 BL per day.
5.2 I further note that, for the purpose of expanding its project, the target company made arrangements with the Banks and Financial Institutions and that State Bank of Mysore had appraised the project of the target company and had asked the promoters to contribute Rs.150 lakhs by way of equity towards the project cost. It is also noted that the shareholders resolution has already been passed in the Annual General Meeting of the target company held on June 26, 2004 and the Board of Directors of the target company had been empowered to issue the forfeited shares aggregating to 16,07,200 to any person. Further, as submitted by the company, shareholders approval was also to be sought for the issue of the forfeited shares to the promoters, in the Extraordinary General Meeting of the target company held on August 26, 2004.
5.3 The acquirers, vide letter dated October 07, 2004, had confirmed that the members unanimously approved the special resolution with regard to the reissue of 15,00,000 forfeited shares of the target company @ of Rs. 10/- per share to the promoters, at the Extraordinary General Meeting held on August 26, 2004. Further, the acquirers had also mentioned that they did not participate in the voting process, as they were interested parties.
5.4 I have also observed that the proposed acquisition is for the purpose of expanding the project of the target company and the acquirers are intending to subscribe the aforesaid shares @ Rs. 10/- per share as against the book value of Rs. 7.30/- per share. After the proposed acquisition the shareholding of the acquirers would increase from 32.75% to 47.83%. I have also noted that there would not be any change in the management and control of the target company due to the said acquisition.
5.5 The Takeover Panel recommended for the grant of exemption for the said proposed acquisition interalia subject to the approval of the shareholders of the target company, for the said acquisition by the promoters, at the extra ordinary general body meeting of the shareholders of the target company, specially convened for this purpose, subject further to the interested promoters abstaining from voting thereat. As the acquirers have already complied with the said conditions, as stated in their letter dated October 07, 2004, it is noted that the condition laid down by the Takeover Panel is already been complied with.
5.6 In view of the above facts and circumstances, I agree with the recommendations of the Takeover Panel and consider the present case as a fit case for granting exemption from making a public announcement as required under regulation 11 (1) of the Takeover Regulations.
ORDER 6.0 In view of the above findings, I, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992, read with sub - regulation (6) of regulation 4 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the acquirers, namely Shri K V Rajeshwar Rao , Shri K Sudhir Rao, Shri K Suhan Rao and Shri L Venketeswara Rao, from complying with the provisions of Regulation 11(1) of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, with regard to the proposed acquisition of 15,00,000 (15.08% of post acquisition capital) by way of reissue of equity shares of Pioneer Distilleries Ltd.
6.1 The acquirers shall complete the transaction within 30 days from the date of the order and file a status report thereafter with SEBI confirming compliance.