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RSWM/

June 22, 2004

The Executive Director- Legal

Securities and Exchange Board of India

Mittal Court, ‘B’ Wing

1st Floor, 224, Nariman Point,

MUMBAI – 400 021.

Sub: Request seeking informal Guidance

An Interpretive Letter

 

Dear Sir,

Please refer to our letter No.RSWM/273 dated 28th May, 2004 and your letter No.LAD/DOP/SC/04/11904 dated 8th June, 2004 advising us to seek clarifications under SEBI (Informal Guidance) Scheme, 2003.

The facts of the matter with all material facts are explained in the Annexed sheet.

The relevant fee of Rs.25,000/- vide our Demand Draft No.829331 dated 22nd June, 2004 drawn on State Bank of India payable at Mumbai in favour of SEBI is enclosed.

We would appreciate if a clarification could be provided to us at the earliest possible date so as to act accordingly in the matter.

Thanking you,

 

Yours faithfully,

For RAJASTHAN SPINNING & WEAVING MILLS LTD.

 

 

SURENDER GUPTA

COMPANY SECRETARY

 

Encl.: As above


 Interpretative Letter Explaining All Material Facts and Circumstances

Reference:

This letter seeking clarification has reference to your Secondary Market Department Circular No.:SMDRP/NSDL/3254/00 dated 18th February, 2000 regarding pari­-passu treatment in all respects including Payment of Dividend to all equity shares allotted in a further issue of capital.

Basic Facts of the Case:

·              Our Company has recently made allotment of equity shares on Preferential basis to the Promoters in compliance with the applicable SEBI Guidelines.  The Date of allotment of these equity shares is June 11, 2004.

 

·              The Board of Directors in their meeting held on April 29, 2004 has recommended a final dividend @ 20% on the basis of Annual Accounts made till March 31, 2004.  The annual accounts for the financial year ending March 31¸ 2004 was also adopted by the board in this same meeting.  However, the Annual General Meeting for the year where the final dividend as recommended by the Board is yet to be held.

 

·              A date wise chronology of events is as under:-

 

-

Annual Accounts for financial year ending 31st March, 2004 adopted by the Board and Dividend @ 20% recommended thereon.

-

29th April, 2004

 

 

 

 

-

Issue of Equity Shares on Preferential basis approved by the Board in their Meeting held on

-

29th April, 2004

 

 

 

 

-

Issue of Equity Shares on Preferential basis approved by the Shareholder in the EGM held on

-

29th May, 2004

 

 

 

 

-

Date of Board Meeting held for allotment of Equity Shares issued on Preferential Basis

-

11th June, 2004

 

 

 

 

-

Tentative date for Annual General Meeting where dividend declared by the Board will be approved by the Shareholders

-

30th September, 2004

 

Subject Matter for Clarification:-

 

·              Our interpretation of the aforesaid circular of yours is that, the equity shares issued on preferential basis and allotted to Promoters on June, 11, 2004 are entitled for Dividend at the same rate, even through they were allotted after the date on which the dividend was recommended by the board.

·              Furthermore, the dividend was recommended by the board on the basis of annual accounts as of March 31, 2004 keeping in view the existing equity shares of the Company as on April 29, 2004 i.e. the date of Board Meeting.

Therefore, we seek clarification on following:-

1.            Whether the new shares allotted on 11th June, 2004 will be entitled to dividend recommended by the Board of Directors on 29th April, 2004 on the paid up capital before the new allotment for the year ended 31st March, 2004 which shall be declared at the Annual General Meeting scheduled to be held in September, 2004, in light of the Circular No.SMDRP/NSDL/3254/00 dated 18th February, 2000 regarding pari-passu treatment?

2.            Whether these shares rank pari-passu from the date of allotment and will be entitled to dividend recommended after their allotment or they are also entitled for dividend, which was recommended and declared on the basis of accounts made to a date on which these shares were not existing?

3.      Since, Dividend has only been recommended by the Board and its declaration in the General Meeting is pending and since these new equity shares has been allotted before the date of the General Meeting, will they be entitled for the same dividend, thereby they will rank pari-passu in all respects including dividend with the existing shares of the company?


DEPUTY GENERAL MANAGER

CORPORATION FINANCE DEPARTMENT

DIVISION OF ISSUES AND LISTING

( (Direct)  : 22842826

( (Board)   : 22850451- 56, 22880962 - 70 (Extn.: 367)

Fax             : 22045633

E-mail         : neelamb@sebi.gov.in

CFD/DIL/SC/19811/2004

September 6, 2004

Shri Surender Gupta

Company Secretary

Rajasthan Spinning & Weaving Mills Ltd.

Bhilwara Towers, A-12, Sector-1,

Post Box No. 185,

Noida – 201 301.

Dear Sir,

Sub.:   Request for an Interpretive Letter under Securities and Exchange Board of India (Informal Guidance) Scheme, 2003.

This is with reference to your letter ref. RSWM/404 dated June 22, 2004 seeking “Interpretive Letter” in respect of the issues arising under SEBI Circular No. SMDRP/NSDL/3254/00 dated 18th February 2000 in view of the final dividend recommended by the Board of Directors (BOD) of Rajasthan Spinning & Weaving Mills Ltd. (hereinafter referred to as “the Company”) in its meeting held on 29th April 2004 and the subsequent allotment of equity shares on preferential basis to the promoters of the company on 11th June 2004.

It is represented by you, inter alia, vide the letter under reference that, the BOD of the Company has, in its meeting held on 29th April 2004, adopted the annual accounts of the company for the financial year ended on 31st March 2004 and also recommended a final dividend @ 20% on the basis of the aforesaid annual accounts. However, the said dividend is yet to be declared by the company because the company is yet to hold its Annual General Meeting (AGM) for the financial year ended on 31st March 2004. The company has subsequently allotted equity shares on preferential basis to the promoters of the company in compliance with the applicable SEBI Guidelines on 11th June 2004. In respect of the aforesaid recommended final dividend, it is represented by you that the company has referred to SEBI’s Secondary Market Department Circular No. SMDRP/NSDL/3254/00 dated 18th February 2000 regarding pari passu treatment. The company has interpreted the said circular to mean that the equity shares issued on preferential basis and allotted to the promoters of the company on 11th June 2004 are entitled for dividend at the same rate; even though the said shares have been allotted after the date on which the dividend was recommended by the BOD. You have also clarified that that the said dividend was recommended by the BOD on 29th April 2004 on the basis of the annual accounts of the company as of 31st March 2004, keeping in view only the existing equity shares of the company as on 29th April 2004, i.e., as on the date of the Board Meeting. In view of the above, the company has sought interpretation under SEBI (Informal Guidance) Scheme, 2003 on certain issues, which are detailed and analysed as under:

1.      Whether the new shares allotted to the promoters of the company on 11th June 2004 will be entitled to dividend (as recommended by the BOD on 29th April 2004 but yet to be declared at the AGM which is scheduled to be held in September 2004) for the year ended 31st March 2004 on the paid up capital before the new allotment in light of SEBI Circular No. SMDRP/NSDL/3254/00 dated 18th February 2000 regarding pari passu treatment.

2.      Whether the aforesaid new shares rank pari passu from the date of allotment and will be entitled to dividend recommended by the BOD after their allotment; or whether the aforesaid new shares also will be entitled for dividend, which was recommended by the BOD and will be declared by the company on the basis of accounts made to a date on which these shares did not exist.

3.      Since the dividend has only been recommended by the BOD but not yet declared in the AGM of the company and since the aforesaid shares have been allotted before the date of the AGM, whether the aforesaid shares will be entitled for the same dividend, thereby meaning they will rank pari passu in all respects, including dividend, with the existing shares of the company.

Our view: The aforesaid new shares allotted to the promoters of the company on preferential basis on 11th June 2004 should rank pari passu with all the existing shares of the company from the date of their allotment, in accordance with SEBI Circular ref. SMDRP/NSDL/3254/00 dated 18th February 2000. Accordingly the said shares should also be entitled to the same dividend (which is declared after the date of their allotment) as the existing shares.

In the instant case, since the aforesaid recommendation of the Board of Directors is subject to approval of the shareholders of the company and also subject to compliance by the company with the Companies Act, 1956 and the Articles of Association of the company, the final dividend will become quantified and payable only upon declaration in the general meeting of the company. In other words, the equity shares allotted to the promoters subsequent to recommendation made by the Board of Directors, but before the record date and declaration of dividend at the AGM, will be entitled to dividend for the year ended 31st March, 2004.

It may be noted that section 93 of the Companies Act, 1956 which provides that dividend would be payable in proportion to the amount paid up on the shares, also leads to the same result, in the absence of contrary provision in the Articles.

This position is based on the representation made to the Division of Issues and Listing in your letter ref. RSWM/404 dated June 22, 2004. Different facts or conditions might require a different result. This letter expresses the Division’s position on enforcement action only. It does not express decision of the Board on the questions presented.

Yours faithfully

 

Neelam Bhardwaj