Securities Appellate Tribunal
Surya Pharmaceutical Limited vs Sebi on 22 December, 2009
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Misc. Application No. 55 of 2009
And
Appeal No. 174 of 2009
Date of decision: 22.12.2009
Surya Pharmaceutical Limited
Plot No. 85, HPSIDC,
Industrial Area, Baddi,
Distt. Solan,
Himachal Pradesh. ......Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot no. C4-A, G-Block,
Bandra Kurla Complex,
Bandra (East), Mumbai. ...... Respondent
Mr. S. P. Sharma, Advocate for the Appellant.
Mr. Kumar Desai, Advocate with Ms. Daya Gupta, Advocate for the Respondent. CORAM : Justice N. K. Sodhi, Presiding Officer Samar Ray, Member Per : Justice N. K. Sodhi, Presiding Officer (Oral) By order dated June 16, 2009 the whole time member of the Securities and Exchange Board of India (for short the Board) has declined to exempt from the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (for short the takeover code) M/s. Futuristic Garments Pvt. Ltd., the acquirer in respect of its proposed acquisition of 47 lac equity shares of Surya Pharmaceutical Ltd. (the target company) to be issued by way of preferential allotment of optionally convertible share warrants. Feeling aggrieved by this order, the target company is in appeal before us.
The target company approached the Industrial Development Bank of India Limited for financial assistance which was granted as per its sanction letter dated February 19, 2008 on the terms and conditions contained in Appendix I annexed 2 thereto. It is not in dispute that one of the primary conditions imposed by IDBI was that the target company should increase the stake of its promoters / directors / relatives atleast up to 51 per cent. As a result of this condition, the target company in its extra ordinary general meeting held on March 14, 2009 resolved to issue 47 lac optionally convertible share warrants to the acquirer which is one of its promoters. It is common ground between the parties that on the conversion of these optionally convertible warrants into equity shares, the stake of the promoters in the target company would go up to 51 per cent of its enhanced share capital. It is admitted on behalf of the appellant that in pursuance to the resolution, the optionally convertible warrants are yet to be issued to the acquirer which warrants on being issued could be converted into equity shares within 18 months from the date of allotment. It is also not in dispute that if and when the warrants get converted into equity shares, the takeover code would get triggered and the acquirer shall have to make a public announcement in terms thereof. When the convertible warrants are yet to be issued, the target company filed an application before the Board seeking exemption from the provisions of Chapter III of the takeover code under Regulation 3(1)(l) of that code. As already observed, this exemption has been declined by the impugned order.
We have heard the learned representative on behalf of the appellant and Shri Kumar Desai learned counsel on behalf of the respondent Board. Having perused the impugned order, we are of the view that the reasons mentioned by the whole time member in paragraph 6.3 of the impugned order for declining the exemption do not appear to be tenable. However, even if the impugned order were to be set aside, no substantial relief can be granted to the appellant in the facts and circumstances of the present case. The request of the appellant seeking exemption under Regulation 3(1)(l) of the takeover code in our view is premature. We have already noticed that in pursuance to the resolution passed by the target company in its extra ordinary general meeting, the optionally convertible warrants are yet to be issued. Even after they are issued, the acquirer in whose favour the preferential allotment shall be made has the option to get those warrants converted or not and this option he could exercise within a period of 18 months from the date of allotment. There is nothing 3 on the record to show whether the acquirer will exercise that option or not. It is only after the warrants are allotted and the acquirer exercises its option to get them converted into equity shares that the provisions of the takeover code would get attracted. Warrants by themselves do not carry any voting rights. The acquirer will acquire voting rights only when the warrants are converted into equity shares and till such time such conversion takes place, the takeover code does not get triggered. In this background, we find that the request of the appellant seeking exemption from the provisions of the takeover code is premature. Accordingly, the appeal is disposed of as such. We, however, make it clear that if the acquirer exercises the option to get the warrants converted into equity shares after they are allotted, it shall be open to the appellant or the acquirer, as the case may be, to apply to the Board seeking exemption from the provisions of the takeover code. If and when such an application is filed, we have no doubt that the Board shall consider and dispose of the same in accordance with law and within the time prescribed by the takeover code. No costs.
Sd/-
Justice N. K. Sodhi Presiding Officer Sd/-
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