Securities Appellate Tribunal
Sebi vs Ind Swift Ltd., Essix Financial ... on 28 March, 2003
ORDER
G.N. Bajpai, Chairman
1. Ind Swift Ltd, Essix Financial Services Ltd, Mukur Pharmaceutical Co. Pvt Ltd and Swift Formulations Ltd(hereinafter collectively referred to as the `Acquirers) propose to acquire 20,00,000 equity shares of Ind Swift Laboratories Ltd (hereinafter referred to the `Target company) by way of preferential allotment. The Acquirers are a part of promoter group of the Target company and alongwith other promoters hold 23.23% equity share capital of the target company. As a result of the proposed acquisition, the Acquirers have to make an open offer to the public shareholders of the Target company in terms of sub regulation (1) of regulation 11 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as "the Regulations").
1.1 The shares of the Target company are listed at the Mumbai Stock Exchange, Delhi Stock Exchange, Ludhiana Stock Exchange and The National Stock Exchange.
2. The Acquirers made an application dated 13.01.03 under sub-regulation (2) of regulation 4 of the Regulations to the Securities and Exchange Board of India (hereinafter referred to as "SEBI") seeking exemption from compliance of the provisions of sub regulation (1) of regulation 11 of the Regulations.
3. In the aforesaid application and letter dated 6.02.03 the Acquirers, inter-alia, submitted the following:
3.1 The Acquirers propose to acquire 20 lac shares representing 15.33% of the post issued paid up capital of the Target company at the price of Rs.25/- per share by way of preferential allotment.
3.2 The Acquirers are the promoters of the Target company. After the proposed preferential allotment the shareholding of the promoter group in the Target company will increase from 46.37% to 54.59% shares in the Target company.
3.3 The Acquirers are already in control in the Target company. The proposed acquisition would amount to consolidation of shareholding.
3.4 The shareholding of the Acquirers pre and post-allotment will be as follows :-
Pre-allotment in terms of Shares Post allotment in terms of Shares Shareholders Category No. % No. % Promoter Group :
Acquirers 2,228,900 20.18 4,228,900 32.41 PSIDC 2556,600 23.14 2556,600 19.60 Others 336,510 3.05 336,510 2.58 Public FIs / Banks 389,400 3.53 389,400 2.99 FIIs/NRIs/OCBs 7,000 0.06 7,000 0.05 Mutual Funds NIL NIL NIL Bodies Corporate 1,459,697 13.21 1,459,697 11.19 Others 4,068,193 36.83 4,068,193 31.18 Total 11,046,300 100.00 13,046,300 100.00
5. The shares held by Punjab State Industrial Development Corporation (PSIDC) a State level financial institution will be transferred to the Acquirers pursuant to the Financial Collaboration Agreement entered into between the co-promoters in 1996. This transfer will be covered in regulation 3(1)(i) of the Regulations and the requisite report under regulation 3 will be sent to SEBI at the time of acquisition.
3.6 Being the promoters of the Target company, the Acquirers have provided funds to the Target company so that it could meet the stipulations of the Banks for sanction/ enhancement of their working capital limits.
3.7 The funds so given by the Acquirers to the Target company was reflected by it as share application money in its Books of Accounts.
3.8 That when the funds were given to the Target company, neither the number of shares to be issued in lieu of that amount nor the price of shares was contemplated.
3.9 That till date no shares have been allotted to the Acquirers against the said application money of Rs.500 lacs.
3.10 The Target company proposes to issue shares on preferential basis to the Acquirers against the sum so advanced by them.
3.11 The investment was made by the Acquirers when the acquisition of shares on preferential basis was exempt under regulation 3(1)(c) of the regulations (i.e. before the amendments made in the regulations on 9.9.02).
12. Since, the action for investment was made much before the said amendment in the regulations it is proposed that the Acquirers be allowed to acquire 15.33% shares on preferential basis.
4. The above said application for exemption dated 13.01.03 was forwarded to the Takeover Panel on 17.01.2003 in terms of sub-regulation(4) of regulation 4 of the Regulations. The Takeover Panel vide its report dated 14.02.2003 has recommended, inter alia, as under:
"On the facts stated, it appears that the required formalities to reach the stage of issuance of shares on preferential basis and to make offer are yet not complied with and the acquirers are yet not qualified to make offer. In the circumstances, no recommendation to grant exemption as sought is made."
5. I have taken into consideration the application dated 13.01.03, the facts and documents available on record and also the recommendation of Takeover Panel.
6. I have noted that the Acquirers being the promoters of the Target company have provided funds to the Target company so that it could meet the stipulations of the Banks for sanction/ enhancement of their working capital limits.
7. I have noted that the funds to the tune of Rs.500 lacs, so given by the Acquirers to the Target company was reflected by it as share application money in its Books of Accounts.
8. I have noted that when the funds were given to the Target company, neither the number of shares to be issued in lieu of that amount nor the price of shares was contemplated.
9. I have noted that till date no shares have been allotted to the Acquirers against the said application money of Rs.500 lacs.
10. I have noted that the Target company proposes to issue 20,00,000 shares on preferential basis representing 15.33%shares of the enhanced equity capital to the Acquirers against the sum of Rs 50 lacs so advanced by the them.
11. I have noted that the investment was made by the Acquirers when the acquisition of shares on preferential basis was exempt under regulation 3(1)(c) of the Regulations (i.e. before the amendments made in the regulations on 9.9.02 ).
12. I have noted that pursuant to the proposed preferential allotment there would be no change in control of the Target company.
13. I find that the Acquirers/ Target company have submitted a report dated 26.02.03 under regulation 3(4) claiming exemption under regulation 3(1)(i) for acquisition of shares pursuant to transfer of 25,56,600 shares constituting 23.14% shares of the equity capital of the Target company by PSIDC in favour of Ind Swift Limited, Swift formulations (P) Limited & Mukur Pharmaceuticals Co. (P) Limited pursuant to the Financial Collaboration Agreement entered into between the co-promoters in 1996. The aforesaid report is being examined by SEBI.
14. I have noted that the Panel has not given any recommendation as in its view the application of the Acquirers is premature.
15. I find that in the instant case the general meeting of shareholders of the Target company is yet to be convened by the Board of the Target company for getting the approval of the shareholders for the proposed preferential allotment in favour of the Acquirers.
16. In the facts and circumstances of the instant case, I find merit in the exemption application of the Acquire Rs.I find that the aforesaid preferential allotment in favour of Acquirers, resulting in increase of shareholding of the Acquirers from 23.23% to 34.99% will not be detrimental to the interests of the public shareholders if the same is made pursuant to the consent of public shareholders of the Target company in the general meeting by way of resolution and the Acquirers being interested party abstain from voting in respect of the aforesaid resolution.
17. Taking into consideration the above, the recommendation of the Takeover Panel and the interest of the public shareholders of the Target company, in exercise of the powers conferred upon me under sub section (3) of Section 4 of the Securities and Exchange Board of India Act 1992( hereinafter referred to as "SEBI Act" ) read with sub regulation (6) of regulation 4 of the Regulations for the reasons recorded hereinabove, I hereby, grant exemption to the Acquirers from complying with the provisions as contained in Chapter III of the Regulations with regard to the proposed preferential allotment of 20,00,000 equity shares of the Target company in favour of the Acquirers subject to fulfillment of the following conditions :-
a. A general meeting of shareholders of the Target company be called for passing a fresh special Resolution u/s 81(1A) of Companies Act for the said preferential allotment in favour of the Acquirers b. Following disclosures be made in the explanatory statement u/s 173 of the Companies Act forming a part of the Notice i. the price at which the allotment is proposed, ii. the identity of such person(s), iii. the purpose of and reason for such allotment, iv. consequential changes, if any, in the board of directors of the Target company and in voting rights, the shareholding pattern of the Target company, and v. whether such allotment would result in change in control over the Target company a. The guidelines for preferential allotment (including pricing) as prescribed under Chapter XIII of SEBI (Disclosure and Investor Protection) Guidelines, 2000 as amended from time to time be complied with.
b. Facility of voting through postal ballot for passing of the special resolution as per the procedure laid down for postal ballot in rule 2A and rule 5 of "Companies (Passing of the Resolution by Postal Ballot) Rules, 2001" be provided to the shareholders of the Target company. The notice to shareholders of the Target company shall include a postage pre-paid envelope for facilitating the consent or dissent.
c. The Acquirers being interested party to the resolution, shall abstain from voting in respect of the resolution.
18. The Acquirers are also directed that :-
(i) the proposed preferential allotment be completed within 3 months from the date of passing of this Order and a report under regulation 3(4) on the same shall be filed by the Acquirers with SEBI.
ii. a certificate of Auditor / independent Chartered Accountant to the effect that all applicable provisions of the Regulations / conditions as stated hereinbefore have been complied with shall also be submitted to the SEBI along with the report.
19. In case of failure of the Acquirers to comply with the aforesaid conditions while making the preferential allotment, the Acquirers shall be liable to make open offer in terms of the Regulations, without prejudice to any other action SEBI may take in terms of Regulations and SEBI Act.