DEPUTY GENERAL MANAGER
CORPORATION FINANCE DEPARTMENT
DIVISION OF CORPORATE RESTRUCTURING
Tel.: 26449380
CFD/DCR/AK/IG/94738/2007
May 28, 2007
Pankaj Kumar Mahajan,
#253, Sector – 4,
Panchkula
Haryana.
Sub: Request for Informal Guidance under SEBI (Informal Guidance) Scheme, 2003
Ref: Your letter dated April 02, 2007
1.0 Please refer to your letter quoted above seeking ‘Interpretive Letter’ under the SEBI (Informal Guidance) Scheme, 2003. You have sought interpretive letter on whether the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 {hereinafter referred to as ‘the Takeover Regulations’} will be attracted on the proposed transfer of shares inter se amongst promoters as represented in your letter.
2.0 You have inter alia represented as follows:
a) The promoters viz ShriP.K.Mahajan, Shri Paramjit Singh and Mrs. Rajinder Kaur became promoters of M/s. Shivalik Agro Poly Products ltd. (the target company) after their names appeared in the letter of offer dated 16/01/2006 in respect of the public offer made by Shri P.K. Mahajan under regulation 10 and 12 of the Takeover Regulations.
b) Shri Pankaj Kumar Mahajan was the main acquirer and Shri Paramjit Singh, Mrs. Rajinder Kaur, PP Perfects Pacs (PPP) Ltd. Shri G.D. Tyagi and Shri Ramesh Chander Gupta were the persons acting in concert(PACs) with him in respect of the above public offer.
c) Pursuant to an agreement dated 19.12.2006.Shri Paramjit Singh (PAC) proposes to transfer his entire shareholding (23.26%) to Shri Pankaj Kumar Mahajan (transferee) and Mrs. Rajendar Kaur (PAC) proposes to transfer her entire shareholding (8.95%) to the transferee. Further, Shri Paramjit Singh and Mrs. Rajendar Kaur (transferors) have proposed to transfer their 50% shareholding in PP Perfect Pacs Pvt. Ltd. (PAC) to the transferee who holds the remaining 50% shareholding in PP Perfect Pacs Pvt. Ltd. Consequently, the transferee will hold 100% equity in PP Perfect Pacs Pvt. Ltd.
d) PP Perfect Pacs Pvt. Ltd. (PAC) holds 9.67 shares in the target company.
e) The said transferors and transferee have complied with the requirements of the Takeover Regulations.
f) Proposed transaction is between promoter group, the promoters have complied with the Takeover Regulations, and the Transferors and the Transferee have been holding shares in the target company since August 2001 i.e. over 3 years. In your opinion, the proposed transfer of shares from Mr. Paramjit Singh (23.26%) and Mrs. Rajinder Kaur (8.95%) to Shri Pankaj Kumar Mahajan satisfies the requirements of regulation 3(1)(e)(iii)(b) of the Takeover Regulations and the proposed transaction is exempt under regulation 3(1)(iii)(b) of the Takeover Regulations.
g) Though Shri Pankaj Kumar Mahajan will hold 100% equity in PP Perfect Pacs (P) Ltd, but shareholding of PP Perfect Pacs (P) Ltd in the Target Company will remain same i.e. 9.67%.
h) Since Shri Pankaj Kumar Mahajan is already in control of the Target Company no additional rights will devolve on him after the proposed transaction and there will not be any change in control. Hence, Regulation 12 of the Takeover Regulation is not triggered by the proposed transfers of shares to the transferee.
3.0 Without necessarily agreeing with your analysis , our views on the issue raised by you are as under:
i. In the letter of offer dated 16.01.06, the transferee was an acquirer and the transferors were the persons acting in concert with him. Thus, it is noted that the proposed acquisition is by way of inter se transfer of shares amongst the acquirer and the persons acting in concert with him.
ii. As per Regulation 3(1)(e)(iv) of the Takeover Regulations acquisition pursuant to transfer of shares amongst acquirer and persons acting in concert with him is eligible for automatic exemption subject to the acquirer complying with the following conditions -
a. The transferor(s) and transferee(s) are acquirers and persons acting in concert in terms of the Takeover Regulations;
b. The transfer amongst the acquirer and persons acting in concert with him takes place three years after the date of closure of public offer made by them under the Takeover Regulations;
c. 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;
d. The provisions of Chapter II of the Takeover Regulations (regulation 6, 7 and 8) have been complied within the specified time-limit by both the transferee (s) and the transferor(s).
iii. In addition to the requirements mentioned at above para 3 (ii) (a) to (d), regulation 3(3) further requires that in case of acquisition exceeding 5% of the voting share capital of the target company, the transferee (Acquirer) should inform the stock exchanges at least 4 working days in advance of the date of proposed acquisition. Further, the transferee (Acquirer) shall file a report with SEBI in terms of regulations 3(4) and 3(5).
b) It is noted that the transferee proposes to acquire 23.26% of the equity share capital of the target company from Shri Paramjit Singh (PAC) and 8.95% equity share capital of the target company from Mrs. Rajinder Kaur (PAC). In addition, by virtue of acquisition of 100% shareholding in PP Perfect Pacs (P) Ltd, the transferee will indirectly acquire entire 9.67% shareholding in the target company. Thus, consequent to the proposed acquisition the shareholding of transferee will increase from 32.03% to 73.91%. The acquisition will trigger regulation 11 unless exempted under regulation 3.
c) It is also noted that the public offer was made by transferee and the transferors under regulation 10 and 12 of the Takeover Regulations on 16.01.06. The proposed acquisition is not taking place after three years after the date of closure of the said public offer and this condition stipulated in regulation 3 (1) (e) (iv) is not fulfilled.
d) Since the Takeover Regulations specifically provide that the exemption is subject to compliance of certain requirements as mentioned above, to avail the exemption it is absolutely necessary to comply with the specified requirements. The Takeover Regulations do not provide for any relaxation from compliance of the specified requirements. If the acquirer (transferee) has failed to fulfill the condition, exemption would not be available.
e) The exemption from any conditions subject to which the automatic exemption is available cannot be considered by the Takeover Panel while considering the application under regulation 3(1) (l). Where an application seeking exemption under regulation 3(1) (l) is made, the inference would be that the case is not covered under any of the automatic exemptions under regulation 3 (1) (a) to (k). This position has been further clarified by amendment to regulation 3(1)(l) in 2002.
f) In view of the above, if a case is covered under the automatic exemption category such as regulation 3(1) (e)(iv), the case cannot be considered by Takeover Panel under regulation 3 (1) (l). In the proposed acquisitions, since the inter se transfer amongst acquirer and the persons acting in concert is taking place before the expiry of 3 years after the date of closure of the public offer, this condition subject to which such automatic exemption is available is not fulfilled. Therefore, the exemption will not be available and the consequences of regulation 11 will follow.
5.0 The above position is based on the representation made to the Department as per your letter under reference. Different facts or conditions might require a different result. This letter does not express decision of the Board on the question referred.
6.0 Please note that this position is only with respect to applicability of regulation 3 (1) (e) (iv) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and does not affect applicability of any law and other SEBI Regulations, Guidelines and circulars administered by SEBI or any other authority.
Yours faithfully,
Soma Majumdar