The Executive Director- Legal
Securities and Exchange Board of
Mittal Court, ‘B’ Wing
1st Floor, 224, Nariman Point,
MUMBAI – 400 021.
Sub: Request seeking informal Guidance
An Interpretive Letter
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.
For RAJASTHAN SPINNING & WEAVING MILLS LTD.
Encl.: As above
Interpretative Letter Explaining All Material Facts and Circumstances
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
The Board of Directors in their meeting held on
· A date wise chronology of events is as under:-
Subject Matter for Clarification:-
Our interpretation of the aforesaid circular of
yours is that, the equity shares issued on preferential basis and allotted to
Furthermore, the dividend was recommended by the
board on the basis of annual accounts as of
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 : email@example.com
Shri Surender Gupta
Rajasthan Spinning & Weaving Mills Ltd.
Post Box No. 185,
Noida – 201 301.
Sub.: Request for an Interpretive Letter under
Securities and Exchange Board of
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
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
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
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
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
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