GENERAL MANAGER
DIVISION OF CORPORATE RESTRUCTURING
CFD/DCR/TO/MM/ /04
July 7, 2004
Shri Somasekhar Sundaresan
J. Sagar Associates,
Advocates and Solicitors,
Vakils House,18 Sprott Road,
Ballard Estate,
Mumbai – 400 001
Dear Sirs,
Sub.: Request for Interpretive Letter under the SEBI (Informal Guidance) Scheme, 2003
Ref: Your letters dated May 20, 2004 and June 7, 2004
1.0 Please refer to your letters cited above, seeking interpretive letter from SEBI under SEBI (Informal Guidance) Scheme, 2003. The Interpretive letter is sought on the issue as to whether transfer of shares by the promoter of Praj Industries Limited (PIL/target company) to a trust created for the benefit of the promoter’s family and whereby the voting powers shall be transferred to the trustees will attract the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 {hereinafter referred to as “the Regulations”}.
2.0 It is, inter-alia, informed by you that:-
a. PIL is a listed company wherein Mr. Pramod Chaudhuri (principal shareholder and promoter) and Mrs. Parimal Chaudhuri, together currently own 30.3% of the total issued and paid-up share capital.
b. The said shares, held by Mr. Pramod Chaudhuri and his family, are proposed to be vested in a private family Trust to be created exclusively for the benefit of Mr. Pramod Chaudhuri’s immediate family members, viz. Ms. Parimal Chaudhuri, his wife, and his minor son, Parth Chaudhuri.
c. The shares shall be held by the Trustees of the Trust solely for the benefit of Shri Choudhry and his family.
d. There would not be any change in the beneficial ownership over the shares proposed to be vested in the Trust.
e. The trust would be irrevocable and the trustees shall not have any power to add any additional beneficiaries.
f. While there may be technical transfer of shareholding from the promoter & his relatives to the Trust, there would not be any change in the control or ownership of said shares.
g. The trustees of the proposed trust are not finalized yet.
3.0 Without necessarily agreeing with your analysis, it is observed from your submissions that:-
a. Shri Pramod Choudhry, one of the promoters of the target company holding 30.3% along with his wife in the target company, proposes to transfer their entire shareholding and voting powers to a trust. The trust would be solely for the benefit of Shri Choudhry’s wife and minor son and additional beneficiaries cannot be added.
b. It is stated that the said transfer would only be technical in nature and that there shall be no change in the control or ownership over the said shares. However, on perusal of the facts of the case and draft trust deed submitted, it appears that the trustees of the proposed trust shall be acquiring the right to exercise the voting rights (vide para 8 of the draft trust deed) in respect of the shares proposed to be transferred and to exercise all powers and take policy decisions with regard to various matters pertaining to policy as mentioned in para 7 (7) of the draft trust deed.
c. Further, in view of Shri Pramod Choudhry being stated to have a controlling interest (refer draft trust deed), the trustees would acquire the right and discretion to exercise voting rights in respect of such shares upon transfer of the said shares to the trust. This would result in the trust/trustees acquiring controlling interest over the PIL.
d. The contention made in the instant application that the beneficial interest in the 30.3% shares would not change is not tenable or relevant for the purpose of the applicability of the aforesaid Regulations as the controlling interest in the said shares would pass on to the trustees (names and identities are not yet finalised). Consequently, they would be entitled to exercise the voting rights (more than 15%) in respect of the said shares and would attract the provisions of the Regulations.
4.0 In this regard, we are of the view that pursuant to the proposed acquisition, the shareholding of trust would increase from nil to 30.3% in the PIL and the trust would also acquire voting rights in respect of the said shares. Therefore, the proposed acquisition of shares by the trust may attract the provisions of Regulation 10 and 12 of the Regulations. Hence, the trust may be required to comply with the provisions of regulations 10 and 12 of the Regulations.
5.0 This position is based on the representation made to the Division in your letter under reference. Different facts or conditions might require a different result. This letter does not express decision of the Board on the questions referred. You may, therefore, take opinion from any expert, if you so desire.
6.0 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 requirements.
Yours faithfully,
S V MURALI DHAR RAO