1. Home
  2. »
  3. Enforcement
  4. »
  5. Informal Guidance

Informal Guidance of 'Shree Karpagambal Mills Ltd

Jan 17, 2005
|
Informal Guidance

GENERAL MANAGER

DIVISION OF CORPORATE RESTRUCTURING

 

CFD/DCR/IG/AT/31263 /2005

January 17, 2005

 

Enam Financial Consultants Pvt. Ltd

801/802, Dalamal Tower,

Nariman Point

Mumbai – 400 021

 

Dear Sirs,

 

Sub: Request for a ‘No Action Letter’ under SEBI (Informal Guidance) Scheme, 2003.

 

  1. Please refer to your letter dated January 11, 2004 on the captioned subject seeking ‘No Action Letter’ under SEBI (Informal Guidance) Scheme, 2003. The ‘No Action Letter’ has been sought on the issue as to whether the proposed acquisition of 59,012 shares by Mr. A. Palaniappan, Mr. Karti P Chidambaram and Halidon Marketing Pvt. Ltd (acquirers/transferees) is exempt from the provision of regulation 11(1) and 12 of the SEBI (Substantial Acquisition of Shares And Takeovers) Regulations, 1997 {“Takeover Regulations”} .
     
  2. It is, inter-alia, informed by you that:-

 

                     i.                        Sree Karpagambal Mills Limited (SKML/ Target Company) was incorporated in 1956 and is engaged in the business of manufacture and sale of yarn. The equity shares of SKML are listed on Madras Stock Exchange Ltd. and Bangalore Stock Exchange Ltd pursuant to a public issue in 1983.

                 ii.                        Mr. L.CT.L. Palaniappa Chettiar was the first Managing Director of the Target Company and continued to be in that position till his demise in April 1981. However from April 1970, in addition to Shri L.CT.L. Palaniappa Chettiar his eldest son Shri P. Lakshmanan was appointed as joint Managing Director. After the demise of Shri L.CT.L. Palaniappa Chettiar, Mr. P. Lakshmanan was appointed as Managing Director from 1981. In April 1997, Sri L. Palaniappan (son of Sri P. Lakshmanan) was appointed as a Managing Director of the Target Company with Sri. P. Lakshmanan continuing as a Managing Director. And this position continues till today. The other two sons of Late Shri L.CT.L. Palaniappa Chettiar viz. Mr. P. Annamalai and Mr. P. Chidambaram did not participate in the day-to-day management of the company, although they/heirs/nominees continue to be shareholders of the Target Company since inception.

                  iii.                        The Promoters equity holding in the Target Company were held and always held by the family consisting of the founder promoter Late Shri L.CT.L. Palaniappa Chettiar, his three sons and subsequently, by succession/devotion, their sons (Grandsons of Shri L.CT. L. Palaniappa Chettiar).

                iv.                        It may be seen from the above, that the total family shareholding in the company continued to remain in tact all through out since inception. The changes that have taken place in the holding of the family members are purely consequent to family succession/devolution either as heirs or legatees.

                   v.                        Mr. P. Lakshmanan, the present Managing Director of the Target Company wants to retire and exit from the business and the third generation family members viz. Mr. A. Palaniappan (son of late Mr. P. Annamalai) and Mr. Karti P Chidambaram (son of Mr. P. Chidambaram) are desirous to acquire the holdings of Mr. P. Lakshmanan and family, and continue the family business.

                 vi.                        The proposed transfer of shares by Mr. P. Lakshmanan and his family members to Mr. A. Palaniappan and Mr. Karti P Chidambaram is within the promoter’s family viz. from one brother’s family to the other two brother’s families. Both before and after the proposed transfer of shares, the aggregate shareholdings of the family members of late Mr. L CT. L. Palaniappa Chettiar shall continue to be the same.

                vii.                        The Transferors (Mr. P. Lakshmanan and others) the transferees (Mr. A. Palaniappan and Mr. Karti P Chidambaram) and the Target Company have fully complied with the Regulations 6 and 8 of the Takeover Regulations.

              viii.                        The Price of acquisition has been determined in accordance and full compliance with Regulation 20(5) of the Takeover Regulations. Hence, the shares are being acquired at a price not exceeding 25% of the price determined in terms of Regulation 20(5).

               ix.                        As a result of the aforesaid proposed acquisition, the combined equity shareholding of the new promoters would increase from 52,460 equity shares or 26.23% to 1,19,788 equity shares or 59.88% of the equity share capital of the company. After the acquisition, the new promoters will manage the company. They may also change or reconstitute the Board of Directors of the Target Company as a consequence of proposed transfer of shares.

 

                 x.                        The transferees agree and undertake to comply with regulation 3(3) and 3(4) of Takeovers Regulations.

 

 

  1. In view of the facts set forth in your aforesaid letter and in terms of paragraph 7 of the Guidance Scheme, our views  in relation to the issue raised in your letter under reference are as follows :

 

(i)                 As per Regulation 3(1)(e)(iii) (b) of the Takeover Regulations, acquisition pursuant to transfer of shares amongst Promoters is eligible for exemption from the applicability of the Regulations 10, 11 and 12 of the Takeover Regulations subject to the compliance of the following conditions -

 

a.     The transferor(s) and transferee(s) are promoters in terms of provisions of Regulation 2(1)(h) of the Regulations.

b.     The transferees collectively as well as transferors collectively have been holding shares in the Target Company for a period of atleast three years prior to the date of acquisition.

c.      The provisions of Chapter II of the Takeover Regulations have been complied within the specified time-limit by both the transferees and transferors.

d.     The inter se transfer price should not exceed 25% of the price determined in terms of Regulations 20(4) and 20(5) of the Takeover Regulations.

e.     As required under Regulation 3(3) of the Takeover Regulations, the transferee (Acquirer) should inform the stock exchanges at least 4 working days in advance of the date of proposed acquisition in case of acquisition exceeding 5% of the voting share capital of the target company.

f.       The transferee (Acquirer) shall file a report with SEBI in the specified format within 21 days of the date of acquisition along with requisite fees prescribed, in terms of Regulations 3(4) and 3(5) of the Regulations.

 

(ii). From your letter, it is observed that under the proposed transaction their would be acquisition of 59,012 shares by Mr. A. Palaniappan, Mr. Karti P Chidambaram and Halidon Marketing Pvt. Ltd (acquirers/transferees) from Mr. P. Lakshmanan and his family members (transferors). Further, the shareholding of the transferees would increase from 26.23% to 65.44% (59.88% of transferees and 5.56% of the person acting in concert with them).

(iii) It is also observed that the transferees and the transferors are promoters of the Target Company in terms of Regulation 2(1) (h) of the Takeover Regulations and they have been collectively holding shares in the Target Company for the last three years. Further, transferees (Acquirers) and transferors have complied with the provisions of regulations 6 and 8 within the stipulated time in the Takeover Regulations.

 

  1. Without necessarily agreeing with your analysis, it is observed that the proposed acquisition of 59,012 shares by Mr. A. Palaniappan, Mr. Karti P Chidambaram and M/s Halidon Marketing Pvt. Ltd (acquirers/transferees) whereby the shareholding of transferees along with person acting in concert with them would increase from 26.23% to 65.44% (59.88% of transferees and 5.56% of the person acting in concert with them) would be eligible for exemption from the applicability of the provisions of Regulations 11 and 12 of the Takeover Regulations subject to other conditions as specified at 3 (i) (d) and (e) and the transferees (Acquirers) shall also be under obligation to file the report in terms of regulation 3 (4) read with regulation 3 (5) of the Takeover Regulations as mentioned at 3 (i) (f) above.

 

  1. In view of the above, the Division would not recommend any action in respect of the proposed transaction under the Takeover Regulations if the transaction is consummated as proposed in your letter and the conditions as stated above are complied with.

 

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

 

  1. This letter does not express decision of the Board on the questions referred. You may note that the above views are expressed only with respect to the clarification sought on SEBI (Substantial Acquisition and Takeovers) Regulations, 1997 and do not affect the applicability of any other law or requirement.

 

 

Yours faithfully,

 

S V Muralidhar Rao