Securities Appellate Tribunal
In Re: Amzel Automotive Limited vs Unknown on 30 May, 2003
ORDER
G.N. Bajpai, Chairman
1. BACKGROUND 1.1 Sh Saleem Fazelbhoy, his family members and M/s Amzel Pvt Limited (hereinafter collectively referred to as "the Acquirers") are the promoters of Amzel Automotive Limited (hereinafter referred to as "the Target company").
1.2 The shares of the Target company are listed at The Stock Exchange , Mumbai.
1.3 From the letter dated 03.12.02 written by the Acquirers to SEBI it was observed that the Acquirers were holding 85.48% of the total paid up capital of the Target company on 20.02 97 ( i.e. the date on which SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 came into force) and in the year 1998 the Acquirers acquired 3150 shares constituting 0.52% shares of the Target company, thereby increasing their shareholding to 86% shares in the Target company.
2. SHOW CAUSE NOTICE A show cause notice dated 27.12.02 was issued to the Acquirers inter alia stating that :
(i) The Acquirers have acquired 3150 shares representing 0.52% of the voting capital of the Target company during the year 1998. The first acquisition of 200 equity shares in this respect was made on 07.01.98 .
(ii) In terms of the provisions of Regulation 11(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as 'the Regulations'), no acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him, or by persons acting in concert with him), entitle such acquirer to exercise more than 51% of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the regulations. In view of this, the Acquirers could not have acquired any further shares, without making a public announcement. However, the Acquirers had acquired 200 equity shares on 07.01.98.
(iii) Since the Acquirers had acquired the shares without complying with the requirements of the provisions of the Regulations, they have, prima-facie, violated the provisions of Regulation 11(2) of the Regulations and therefore, are liable for penal action under the Regulations and SEBI Act, 1992 (hereinafter referred to as ' the SEBI Act').
(iv) Why one or more or all action(s) under Regulation 44 and Regulation 45(6) of the Regulations and Section 11 and 11B of the SEBI Act, should not be initiated against them for violation specified above.
3. The Acquirers submitted their reply to the abovesaid show cause notice vide their letter dated 6.01.2003.
4. Thereafter a personal hearing was granted to the Acquirers by SEBI on 14.03.03 wherein they reiterated the submissions made by them in reply to the show cause notice.
5. SUBMISSIONS OF THE ACQUIRERS The submissions made by the Acquirers, inter alia, vide their letter dated 6.01.03 read with their earlier letter dated 3.12.2002 and during the hearing granted to them on 14.03.03 are given hereunder.
5.1 The Target company was listed on the Bombay Stock Exchange on 08.11.1979
2. 5.2 The Target Company was promoted by the Acquirers.
3.
4. 5.3 The Acquirers have held the shares since 1-1-1994, as follows:
As on date No. of shares held Percentage to paid up capital Increase/Decrease by purchase /sale 1.1.1994 499909 83.31 Nil 1.1.1995 499909 83.31 Nil 1.1.1996 501309 83.55 1450/(50 shares sold) 1.1.1997 512859 85.48 11550 1.1.1998 512859 85.48 Nil 1.1.1999 516009 86.00 3150 1.1.2000 516009 86.00 Nil 1.1.2001 516009 86.00 Nil 1.1.2002 516009 86.00 Nil 1.12.2002 516009 86.00 Nil 5.4 The shareholding of the Acquirers increased as follows, due to purchases made from small public shareholders who wanted to exit.
Period No. of shares purchased % age During 1995 1450 shares 0.24% (50 shares sold) During 1996 11550 shares 1.93% Total (A) 13000 shares 2.17% During 1997 Nil Nil During 1998 3150 shares 0.52% Total (B) 3150 shares 0.52% Total (A) +(B) 16150 shares 2.69% 5.5 The 86% shares (carrying equal voting rights) thus held by the Acquirers presently since 1.1.1999 stand registered in the following two names for which the disclosure as required under Regulation 8(3) of the Regulations has been made.
1. Mr. Saleem Fazelbhoy 4,37,599 shares (72.93%)
2. M/s. Amzel Pvt Ltd (of which more than 98% (13.07%) share capital owned by Saleem Fazelbhoy)78,410 shares Total 5,16,009 shares (86.00%) 5.6 The Acquirers have been under the honest belief that the above acquisitions of small number of shares would be exempt as creeping acquisitions. It may be noted that 13000 shares i.e. 2.17% were purchased before February, 1997 the date on which the present Takeover code came into force and 3150 shares being 0.52% were purchased after February, 1997.
5.7 The Acquirers already held in the Target company over 83.31% prior to 1994 when the Takeover Code came in force, which holding later increased only by 2.69% spread over five years .
5.8 On doubt being raised about the legal situation, the Acquirers have voluntarily approached SEBI in the matter placing before it all the facts.
5.9 There is no change in the management of the Target company or in the control over the company due to the said acquisitions.
5.10 No unfair advantage or disproportionate gain has been made by or accrued to the Acquirers.
5.11 Target company is a small company having only 284 shareholders in all, other than the promoters. These public shareholders hold only 14% of the total paid up capital of the company.
5.12 No loss has been caused to any investor or investors group due to the said small acquisitions.
5.13 Some shareholders with small holdings needing to exit and not getting a response from the stock exchange floor approached the promoters of the Target company who helped out by buying these shares without realizing that the Regulations would be triggered.
5.14 There has been no advantage to the promoters in acquiring these 0.52% shares.
5.15 This technical lapse of acquiring less than 1% of paid up share capital of the Target company should not be viewed so seriously so as to merit any penal action of the kind stated in the Show cause notice dated 27.12.2002.
6. ISSUES 6.1 I have taken into consideration the facts of the case, the submissions written as well as oral made by the Acquirers during the hearing and also the documents submitted by them in support of their submissions.
6.2 From the above the following issue arises which needs consideration:
Whether the Acquirer has triggered the provisions of Regulation 11(2) of the Regulations. If yes, when did the obligation on the part of the Acquirer arise, to make public announcement ?
7. CONSIDERATION OF ISSUES 7.1 In this regard it will be pertinent to refer to regulations 11(2) as it existed on 7.1.98 and 14(1) which are reproduced hereunder:
Regulation 11(2) "No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him, or by persons acting in concert with him), entitle such acquirer to exercise more than 51% of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the regulations."
Regulation 14 (Timing of the public announcement of offer) Regulation 14(1) : "The public announcement referred to in Regulation 10 or Regulation 11 shall be made by the merchant banker not later than four working days of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein".
From the reading of the above regulations, it is clear that in a case where Acquirer is holding more than 51% shares of the Target company then it cannot acquire additional shares or voting rights unless such Acquirer makes a public announcement to acquire shares / voting rights in accordance with the Regulations. Further, the aforesaid public announcement has to be made by the Acquirer not later than four working days of entering into an agreement for acquisition of such additional shares or voting rights or deciding to acquire such additional shares or voting rights.
7.2 I have noted the submission of the Acquirers that the Acquirers already held in the Target company over 83.31% prior to 1994 when the Takeover Code came into force, and the holding later increased only by 2.69% spread over five years .
7.3 I have noted the submissions of the Acquirers that the Acquirers have voluntarily approached SEBI in the matter of the aforesaid acquisitions and have placed before it all the facts.
7.4 I have noted the submission of the Acquirers that there has been no change in the management of the Target company or in the control over the company due to the said acquisitions.
7.5 I have noted the submission of the Acquirers that no unfair advantage or disproportionate gain has been made by or accrued to the Acquirers and no loss has been caused to any investor or investors group due to the said small acquisitions.
7.6 I have noted the submission of the Acquirers that Target company is a small company having only 284 shareholders in all, other than the promoters. These public shareholders hold only 14% of the total paid up capital of the company.
7.7 I have noted the submission of the Acquirers that some shareholders with small holdings needing to exit and not getting a response from the stock exchange floor approached the Acquirers of the Target company who helped out by buying these shares without realizing that the Regulations would be triggered.
7.8 I have noted the submission of the Acquirers that the technical lapse of acquiring less than 1% of paid up share capital of the Target company should not be viewed so seriously so as to merit any penal action of the kind stated in the Show cause notice dated 27.12.2002.
7.9 In the instant case, I find that the Acquirers were already holding 85.48% shares on 6.01.98. In the year 1998, the Acquirers acquired additional 3150 shares constituting 0.52 % shares / voting rights of the Target company and out of the aforesaid 3150 shares first 200 shares were acquired on 7.01.98 without making the public announcement in accordance with the Regulations.
7.10 In this context, it is observed that the requirement of the regulation 11(2) is very clear that if an acquirer already holds more than 51% shares and wants to acquire additional shares, then he has to make public announcement for acquiring such additional shares in accordance with the Regulations.
7.11 I do not find merit in the submission of the Acquirers that the Acquirers already held in the Target company over 83.31% prior to 1994 when the Takeover Code came into force, and the holding later increased only by 2.69% spread over five years and there has been no change in the management of the Target company or in the control over the company due to the said acquisitions. Further, I also do not find merit in the submission of the Acquirers that no unfair advantage or disproportionate gain has been made by or accrued to the Acquirers and no loss has been caused to any investor or investors group due to the said small acquisitions and that the Acquirers have voluntarily approached SEBI in the matter of the aforesaid acquisitions and has placed before it all the facts. In this context, it is observed that if an Acquirer holding more than 51% shares acquires additional shares then the Acquirer has to provide an exit opportunity to the shareholders of the Target company in accordance with the Regulations.
7.12 I find that as required under the aforesaid regulations, no public announcement has been made by the Acquirers and therefore they have violated regulation 14(1) of the said Regulations.
7.13 I do not find merit in the submission of the Acquirers that they were under the honest belief that the said acquisitions would be exempt as creeping acquisitions and that the acquisition by the Acquirers was a technical lapse and should not warrant penal action. In this regard it is stated that ignorance of the Rules and Regulations is no excuse and the honest belief of the Acquirers in acquiring the shares is of no consequence as far as providing of exit opportunity to the shareholders of the Target company pursuant to violation of Regulation 11(2) by the acquirers is concerned. If the acquisition by the Acquirers triggers the provisions of the Regulations, then the Acquirers are obligated to comply with the same, and provide an exit option to the shareholders of the Target company.
7.14 I do not find merit in the submission that Target company is a small company having only 284 shareholders holding 14% of the total paid up capital of the company in all, other than the promoters. In this context it is stated that Regulations do not distinguish between small and big companies for ascertaining the applicability of the provisions of the Regulations. If the provisions of the Regulations are triggered by the Acquirers, then it has to make a public offer and provide exit opportunity to the shareholders.
7.15 I do not find merit in the submission of the Acquirers that the acquisition of less than 1% of paid up share capital of the Target company by the Acquirers was a technical lapse and should not be viewed so seriously so as to merit any penal action . In this context it may be noted that requirement of the Regulation 11(2) is very clear i.e. no acquirer shall acquire additional shares ( even one share) without making the public announcement. Therefore, the direction to make public announcement is not a penalty and the purpose of this direction is to provide an exit option to the shareholders of the Target company consequent to the triggering of the provisions of the Regulations.
In view of the above, the Acquirers have triggered the said Regulations and obligation on the part of the Acquirers to make the public announcement arose on 07.01.98, which was to be made within 4 working days from the date of acquisition of shares i.e. on 07.01.98. The Acquirers have failed to make the public announcement and have therefore, contravened the provisions of regulation 14(1) .
8. CONCLUSION In view of the aforesaid, I find that the Acquirers have violated regulation 11(2) read with sub-regulation (1) of regulation 14, as the Acquirers have acquired 0.52% shares/voting rights in the Target company in the year 1998, without making public announcement to acquire shares/voting rights of the Target company in accordance with the said Regulations.
9. ORDER 9.1 In view of the findings made above and in exercise of the powers conferred upon me under sub-section (3) of Section 4 read with Section 11B of SEBI Act read with regulations 44 and 45 of the said Regulations, I hereby direct the Acquirers to make public announcement as required under Chapter III of the said Regulations in terms of regulations 11(2) taking 7.01.98 as the reference date for calculation of offer price. The public announcement shall be made within 45 days of passing of this order.
9.2 Further, in terms of sub regulation (12) of regulation 22, the payment of consideration to the shareholders of the Target Company has to be paid within 30 days of the closure of the offer. The maximum time period provided in the said Regulations for completing the offer formalities in respect of an open offer, is 120 days from the date of public announcement. The public announcement in the instant case ought to have been made taking 7.01.98 as the reference date and thus the entire offer process would have been completed latest by 07.05.98. Since no public announcement for acquisition of shares of the Target Company has been made, which has adversely affected interest of shareholders of Target Company, it would be just and equitable to direct the Acquirer to pay interest @ 15% per annum on the offer price. The Acquirers are hereby accordingly directed to pay interest @ 15% per annum to the shareholders for the loss of interest caused to the shareholders from 08.05.98 till the date of actual payment of consideration for the shares to be tendered and accepted in the offer directed to be made by the Acquirers.
9.3 This order shall come into force with immediate effect.