Request for Informal Guidance under Securities and Exchange Board of India (Informal Guidance) Scheme, 2003

Aug 09, 2004
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Informal Guidance

GENERAL MANAGER

CORPORATION FINANCE DEPARTMENT

DIVISION OF CORPORATE RESTRUCTURING

Tel. (Board) : 22850451-56, 22880962-70

Fax : 22829520

CFD/DCR/AK/IG/17498 /2004

August 09, 2004

SKF India Limited,

Mahatma Gandhi Memorial Building,

N.S.Road,

Mumbai – 400 002.

Dear Sir,

 

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

Ref : Your letter dated 12.07.04

 

 

     

  1. Please refer to your letter cited above seeking "interpretive letter" under the SEBI (Informal Guidance) Scheme, 2003. The interpretive letter is sought in respect of proposed buy back of Warrants by SKF India Limited.

    2.  

  2. It is, inter-alia, informed by you vide your letter under reference that-

    3.  

  1. SKF India Limited had issued NCDs at par with detachable warrants attached to each NCD on a rights issue basis to its equity shareholders in the year 2001.

    2.  

  2. The conversion price for these warrants is to be at a 25% discount to the average of daily high and low prices of the Company’s equity shares on BSE and NSE during the six calendar months preceding the date of the Board Meeting for deciding on the conversion price.

    3.  

  3. The Company has a call option between 18 and 36 months commencing from July 2003 whereas the warrant holders have a put option between 33 and 36 months commencing from October 2004.

    4.  

  4. Currently, the warrants are in the 30th month from the date of allotment.

    5.  

  5. The warrants are also listed but infrequently traded. The warrants, assuming full conversion would account for 14.3% of the increased equity capital of the Company.

    6.  

  6. The company intends to buyback the Warrants (the right to put option) from the warrants holders and extinguish these rights.

    7.  

3. Clarification is sought by you on the following;

i) Whether the warrants of SKF India Ltd. would come under the purview of Buy Back Regulations and Section 77A of Companies Act, 1956?

ii) Whether it is permissible for the company to buy back the warrants without complying with section 77 A of Companies Act, 1956?

Without necessarily agreeing with your analysis, it is clarified that Section 77 A of the Act applies to buy-back of shares and "other specified securities". Explanation (a) at the end of the Section provides that "specified securities" includes Employees Stock Option or other securities as may be notified by Central Government from time to time. Since no securities have been notified by the Central Government so far, buy-backs of warrants are not covered by section 77A. The regulations will also not apply to buy back of the warrants in this case, since section 77A itself is not applicable as clarified above. It may be noted that the regulations, which are made under section 77A of the Companies Act do not apply to transactions not covered under section 77A.

  1. It may be noted that the proposed buy back would have to be in accordance with the terms of the issue of the warrants.

    2.  

  2. This position is based on the representation made to the Department/ Division in your letter. Different facts or conditions might require a different result.

    3.  

  3. This letter expresses the Departments/Division’s position on enforcement action only. It does not express decision of the Board on the questions presented.

    4.  

  4. You may note that the above views are expressed only with respect to the applicability of section 77A of the Companies Act and the SEBI (Buy Back of Securities) Regulations, 1998, to the proposed transaction, on the basis of your submissions and do not affect the applicability of any other law or requirement.

    5.  

Yours faithfully,

S.V. Murali Dhar Rao