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SECURITIES AND EXCHANGE BOARD OF ORDER IN THE
MATTER OF PROPOSED ACQUISITION OF SHARES OF PEARL POLYMERS LTD – EXEMPTION
APPLICATION FILED UNDER REGULATION 4(2) OF THE SEBI (SUBSTANTIAL ACQUISITION OF
SHARES AND TAKEOVERS) REGULATIONS, 1997. WTMO/08/CFD/
09/2005 1.0 BACKGROUND 1.1 M/s
Pearl Polymers Ltd. (hereinafter referred to as ‘the target company’) is a
public limited company incorporated under the Companies Act, 1956, having its
registered office at B-59, Greater Kailash – I, 1.2 The
equity shares of the target company are listed on the National Stock Exchange, The
Stock Exchange, Mumbai and the Calcutta Stock Exchange. 1.3 The following are the persons belonging to the
promoter group (hereinafter referred to as ‘acquirers’) of the target company: 1.
Mrs. Suneeta
Seth 2.
Mr. Harish Seth 3.
Mr. Varun Seth 4.
Mr. Ashok Khanna 5.
Ms. Ashna Seth 6.
M/s Pearl
Engineering Polymers Ltd. 7.
Mr. Rahul Gupta 8.
Mr. Ramesh Gupta 9.
Mr. R. K. Gupta
– H.U.F 10. M/s Emperor Travels & Tours Pvt. Ltd. The acquirers made an application through the Chairman
and Managing Director of the target company vide his letter dated 10.2.2005 under
Regulation 4(2) of the SEBI (Substantial Acquisition of Shares and Takeover)
Regulations, 1997 (hereinafter referred to as ‘the Takeover Regulations’),
seeking exemption from the compliance of Regulation 11 of Chapter III of Takeover
Regulations with respect to the proposed acquisition by issue of 26,76,181 equity
shares of the target company to the acquirers through preferential allotment. 2.0 SUBMISSIONS
IN THE EXEMPTION APPLICATION 2.1 In the application dated
10.2.2005, the acquirers have made the following submissions - 2.2 The acquirers are the persons
from the promoter group of the target company and are presently holding 5.03%
shares in the target company. The acquirers, along with the persons acting in
concert with them, hold 60.80% shares in the target company. 2.3 The target company had approached financial institutions
and banks for restructuring of its debts. IDBI imposed inter alia a condition
precedent to its restructuring approval vide its letter dated 19.8.2004 that
the promoters shall have to infuse fresh equity upto Rs.300 Lakhs. Accordingly,
the promoters along with their relatives and associates have advanced an amount
of Rs.300 Lakhs towards advance against share application to the target
company. The shares are proposed to be issued to the promoter group, pursuant
to the amount towards share capital being advanced by the acquirers in order to
comply with the terms and conditions of the reliefs granted for restructuring
of debts approved by IDBI, while granting approval for restructuring of the
debts of the target company. 2.4 The Board of Directors of
the target company in its meeting held on 18.12.2004 approved the preferential
issue of equity shares to the acquirers and the Financial Institutions subject
to necessary approvals of shareholders and regulatory authority, if required. The target company had issued the notice of Annual
General Meeting (AGM) dated 29.12.2004 to the shareholders for seeking approval
of the preferential issue and the resolution of the shareholders, approving the
issue of shares on preferential basis was passed in the AGM held on 28.1.2005. The
price of Rs.11.21 per equity share for the preferential issue was calculated as
per the pricing formula specified under SEBI (Disclosure and Investor
Protection) Guidelines, the relevant date being taken as 28.12.04. Necessary intimation
was sent to the stock exchanges for obtaining in-principle approval for listing
of fresh share capital, as per the Listing Agreement. 2.5 After the allotment of the proposed issue
of 26,76,181 equity shares @ Rs.11.21 per equity share by the target company to
the acquirers, the shareholding of the acquirers in the target company would
increase from 5.03% to 20.23% and the
shareholding of the promoters would increase from 60.80% to 61.90%. 2.6 The target company is maintaining more
than 25% of the shareholding in public category and after the proposed
allotment to promoters, the voting rights of the promoters shall increase by a
marginal 1% to their present shareholding. Further, there will not be change in
management and control of the target company as a result of the proposed
allotment. 2.7 The acquirers seek exemption from the
Takeover Regulations on the following grounds: ·
All necessary
steps have been taken by the target company for the issuance of shares to the promoter
group on preferential basis in order to comply with the terms and conditions
imposed by IDBI in its approval for restructuring of debts of the target company. ·
The pricing of
aforesaid issuance of shares has been arrived at in accordance with the pricing
formula specified under SEBI (DIP) Guidelines for preferential issues. ·
Shareholders of
the target company have approved the aforesaid issuance of shares on
preferential basis in the AGM held on 28.1.2005. ·
The target
company is already maintaining the minimum public shareholding of 25%. ·
There will be no
change in the management and control of the target company. ·
The shares to be
allotted to promoters shall be subject to lock-in period as required under SEBI
Guidelines. 3.0 RECOMMENDATION OF THE TAKEOVER PANEL The aforesaid application dated 10.2.2005 was forwarded to the Takeover Panel in terms of sub-regulation (4) of regulation 4 of the Takeover Regulations on 22.2.2005. The Takeover Panel, vide letter dated 28.2.2005 forwarded its report dated 24.2.2005. In the Report, the Takeover Panel has recommended as under – “In the facts
stated in the Application filed, it appears that by the proposed allotment of
26,76,181 equity shares on preferential allotment basis in the increased Equity
Share Capital of the target company to the Acquirers, the voting rights of the Promoter
Group along with PAC would increase marginally by 1% to its existing holding
while the target company would continue to maintain more than 25% of the
shareholding in public category. Moreover, this is necessitated in order to
comply with the terms and conditions imposed by lending institutions of all In the facts
and circumstances and considering peculiarity thereof, the grant of exemption
as sought is recommended.” 4.0 FURTHER SUBMISSIONS OF
THE ACQUIRERS 4.1 Shri
Harish Seth, Vice-Chairman and Managing Director of the target company and one among
the acquirers vide letter dated 25.3.2005 made additional submissions on behalf
of the acquirers as follows:- ·
While forwarding
the notice of AGM to shareholders, the target company had disclosed in the
explanatory statement all material information as required under Chapter XIII
of SEBI (DIP) Guidelines, 2000. ·
The resolution
for preferential issue of shares was unanimously passed by the members of the
target company in the AGM held on 28.1.2005. The promoter group shareholders,
being the interested parties had abstained from voting at the said AGM. ·
The target
company has complied with the guidelines for preferential allotment including
pricing as prescribed under Chapter XIII of SEBI (DIP) Guidelines, 2000. 4.2 The
acquirers have requested vide the letter dated 25.03.05 that the target company
be exempted from postal ballot for passing of fresh resolution by shareholders
on the following grounds – o
The target
company has made full disclosures in the explanatory statement and promoters
had also abstained from voting in proceedings of the AGM. o
The Financial
Institutions are insisting the target company to certify the compliance of its
terms of its restructuring approvals which inter-alia contains conditions for
equity infusion to the tune of Rs.3 crores by the promoter group. o
The target
company has to close its books of accounts on 31.3.2005 and the directors feel
it will be prudent that the accounts statements of this financial year disclose
the correct status of the company’s affairs. o
The plans of the
target company for regularizing all its lenders and expanding its capacity shall get delayed and
may render such exercise completely unproductive. 4.3 Due to
this submission of the acquirers seeking exemption from the condition regarding
providing facility of postal ballot for passing resolution, a opportunity of hearing in terms of Regulation
4(6) of the Takeover Regulations was scheduled on 26.07.05 and was intimated to
the acquirers vide letter dated 12.07.05. 4.4 However,
vide letter dated 21.07.2005, the Chairman and Managing Director of the target company, for and on behalf of
the acquirers, submitted that they have reconsidered the matter and agree to
comply with the directions of SEBI and Takeover Panel with respect to passing
of resolution through postal ballot. It was submitted that the target company
shall have the resolution passed in the AGM dated 28.1.2005 ratified by the
shareholders of the target company as per the procedure laid down in Rule 2A
and Rule 5 of the Companies (Passing of the Resolution by Postal Ballot) Rules,
2001. It is further submitted that the acquirer shall submit the confirmation
of resolution when the same is passed by shareholders and then proceed with the
proposed allotment. It is also submitted
that since the condition of facility of voting through postal ballot is also
agreed to be complied with, personal hearing will not serve any purpose. 5.0 FINDINGS 5.1 I have carefully gone through the application dated 10.2.2005 and have taken into consideration the relevant material available on record, the above mentioned recommendation of the Takeover Panel and further submissions of the acquirers. 5.2 As per
the application read with the letter dated
5.3 In terms of provisions of
Regulation 11(2) of the Takeover Regulations an acquirer, who together with
persons acting in concert with him has acquired 55% or more but less than 75%
of the shares or voting rights in the
target company, may acquire any additional share or voting right only if
he makes a public announcement to acquire shares or voting rights in accordance
with the said regulations. In the present case, after the proposed allotment of
26,76,181 equity shares in the target company through preferential allotment,
the shareholding of the acquirers along with persons acting in concert would
increase from 60.80% to 61.90%. Therefore,
unless exempted under Regulation 3, the proposed acquisition would attract the
provisions of Regulation 11(2) of the Takeover Regulations. 5.4 I have taken into
consideration the fact that the target company had approached the Financial
Institutions and banks for restructuring of its debts and IDBI vide its
approval dated August 19, 2004 has put a condition precedent which requires the
promoter to infuse fresh equity worth Rs.300 Lakhs. Further, the target company
has already taken effective steps and passed necessary resolutions in the AGM
which was a unanimous resolution and also that the acquirers have abstained
from voting. I have taken note that the proposed acquisition is not for the
purpose of acquiring control and management over the target company. 5.6 In view of the above facts and circumstances, I find
that, the present case is fit for granting exemption
from the applicability of Regulation 11(2) of the Takeover Regulations. However, as the target company is undergoing
debt restructuring which is a major development where all shareholders must be
given an opportunity to participate in the decision making process, I find that the 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 undertaken by the acquirer/target company should be provided. Therefore, the resolution passed in AGM held
on 28.01.05 should be ratified by shareholders by providing facility of postal
ballot as undertaken by the acquirers. 6.0 ORDER 6.1 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 Regulation 4(6) of SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997, hereby grant exemption to the acquirers, from complying with
Regulation 11(2) of Chapter III of SEBI (Substantial Acquisition of Shares and
Takeover) Regulations, 1997 in the case of the proposed acquisition of 26,76,181
equity shares by preferential allotment subject to the condition that – i) The acquirers shall ensure that the
resolution passed in the AGM dated 28.1.2005 is ratified by shareholders by a
special resolution for which the 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 shall be provided; ii) The
acquirers shall submit confirmation of passing the said resolution to SEBI
within seven days from the date when such resolution is passed as undertaken by
them; and iii) The
acquirers shall ensure compliance with provisions of SEBI (DIP) Guidelines as
submitted in para 4.1, and the applicable provisions of the Listing Agreement. 6.2 The acquirers
shall complete the transaction within 90 days from the date of the order and
file a report with SEBI in the manner specified in Regulation 3(4) read with
3(5) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
1997 confirming compliance. Place: Mumbai MADHUKAR Date: SECURITIES AND EXCHANGE BOARD OF
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