In the matter Of Proposed Acquisition of Equity Shares Of Indiacom Ltd.

SECURITIES AND EXCHANGE BOARD OF INDIA 

ORDER

WTMO/37/CFD/08/2006

1.0 BACKGROUND

1.1 M/s Indiacom Ltd. (hereinafter referred to as ‘the target company’) is a company limited by shares incorporated under the Companies Act, 1956, having its registered office at Hermes Heritage – Phase I (Commercial), Shastrinagar, Pune Nagar Road, Pune – 411 006. The equity shares of the target company are listed on OTC Exchange of India.

1.2 Mr. Natalino Duo (hereinafter referred to as ‘the acquirer’) is the Chairman and Director of the target company and belongs to its promoter group.

2.0 APPLICATION SEEKING EXEMPTION

2.1 Vide letter dated November 14, 2005, the acquirer filed an application with the Securities and Exchange Board of India (SEBI) under regulation 4(2) read with regulation 3(1) (l) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, (hereinafter referred to as “the Takeover Regulations’) seeking exemption from the applicability of Regulation 10 of the Takeover Regulations with respect to the proposed acquisition of 13,39,358 equity shares of the target company from one Ms. Bindu Sood by way of revocable gift.

3.0 SUBMISSIONS MADE IN THE APPLICATION

3.1 In the aforesaid application, the acquirer has inter alia made the following submissions –

a)      The target company is engaged in the business of collection, processing, dissemination of information in various forms including publication of telephone directory with yellow pages for department of Telecommunication / Bharat Sanchar Nigam Ltd. etc.  The acquirer is one of the promoters of the target company and was Chairman of the target company in 1999. The acquirer belongs to the group of six persons acting in concert i.e.  (i) Mr. Natalino Duo, (ii) Mr. Abhey Yograj, (iii) Ms. Bindu Sood, (iv). Dr. Madanmohan Rao, (v) Mr. Ashok Mandore, (vi) Mr. V. Srinivasa Rao.

b)     The acquirers have infused funds into the company at a time when the company was in dire need of additional equity capital. The acquirer has been taking active part in giving strategic inputs for the turn-around of the company and growth of its business. Similarly, Ms. Bindu Sood has contributed to the equity, given fixed deposits to the target company and functioned as a Director of the target company.

c)      Pursuant to a revocable gift deed dated December 04, 2004, the acquirer transferred 13, 39,358 (35.26%) equity shares held by him in the target company to Ms. Bindu Sood by way of gift on 08.12.2004. Prior to the said gift, Ms. Bindu Sood was holding 1, 48,600 (3.91%) equity shares in the target company. After the said gift the shareholding of the acquirer became nil and the shareholding of Ms. Bindu Sood increased to 14,87,958/- equity shares (39.17%) in the target company.

d)     The gift was without consideration in accordance with section 122 of the Transfer of Property Act, 1882. The acquirer, on his own accord, in order to provide a reasonable income to Ms. Bindu Sood with whom he had marriage plans, transferred his shareholding in the target company to Ms. Bindu Sood by way of the said gift.

e)     The acquirer and Ms. Bindu Sood were part of the promoter group of the target company and the said acquisition by way of gift was exempted under regulation 3 (1) (e) (iii) (b) of the Takeover Regulations and in respect of the said acquisition the report required under regulation 3 (4) of the Takeover Regulations was filed with SEBI on 28.12.2005.

f)        This gift was to enable Ms. Bindu Sood to enjoy the dividend received on the said 13, 39,358 equity shares of the target company.  Ms. Bindu Sood has not received any dividend from the company.  The objective of the above mentioned gift did not materialize and the said gift has not bestowed any benefit upon Ms. Bindu Sood.  

g)     Ms. Bindu Sood has proposed to relinquish the gift by returning the said 13,39,358 (35.26%) equity shares of the target company under the Revocable Gift Deed. Accordingly, the acquirer proposes to take back the said 13, 39,358 (35.26%) equity shares of the target company. The acquirer and Ms. Bindu Sood fall under the promoter’s category and are persons acting in concert. In respect of the proposed acquisition, except one condition i.e. holding of shares by the transferee for a period of three years, all the conditions of automatic exemption under regulation 3 (1) (e) (iii) (b) are satisfied. The shareholding pattern of the target company before and after said acquisition is as follows:

Shareholders category	Number of registered shareholders as on date of application	Before the proposed acquisition		After the proposed acquisition
		No. of shares/ total voting rights held	% of shares total voting capital held	No. of shares/ voting rights	% of shares / voting rights
Promoter group	6	19,72,608	51.92	19,72,608	51.92
Acquirer	Acquirer – one of the Promoters
FIs/Banks	-	-	-	-	-
FIIs/NRIs/ OCBs	-	-	-	-	-
Public	5181	18,26,392	48.09	18,26,392	48.09
Total	5187	37,99,000	100	37,99,000	100

 

h)      The shareholding of the promoters, in the target company, would remain the same after the proposed acquisition.

i)        Though the shares of the target company are listed on the OTC Exchange Ltd, there has been no trading on the exchange for more than five years i.e. since September 20, 2000.

4.0 GROUNDS FOR SEEKING EXEMPTION

4.1 The acquirer has sought the exemption inter alia on the following grounds:-

a)     The acquirer and Ms. Bindu Sood belong to the promoter group and there would not be any change in control / management of target company by virtue of the proposed acquisition of 13,39,358 (35.26%) equity shares of the target company by the acquirer pursuant to the relinquishment of the gift by Ms. Bindu Sood.

b)     Except for one condition i.e. “holding of shares in the company for a period of three years” proviso to 3(1)(e)(iii)(b), the acquirer satisfies all the other conditions. If the acquirer had kept some shares and transferred the balance by way of gift to Ms. Bindu Sood in December 2004, the acquirer would have been eligible for an automatic exemption under regulation 3(1)(e)(iii)(b) of the Takeover Regulations  in respect of the proposed acquisition also.

c)      Transfer of the said 13,39,358 (35.26%) equity shares of the target company by Ms. Bindu Sood to the acquirer would not cause any loss or prejudice to any shareholder of the target company since the transfer is arising out of the gift that the acquirer had made in personal capacity for no consideration.

 

 

5.0 RECOMMENDATION OF THE TAKEOVER PANEL

5.1 The aforesaid application dated November 14, 2005 was forwarded by SEBI to the Takeover Panel in terms of sub-regulation (4) of Regulation 4 of the Takeover Regulations.

5.2 The Takeover Panel vide its report dated January 05, 2006 did not recommend the grant of exemption as sought by the acquirer for the following reasons –

(a) The said 13,39,358 (35.26%) equity shares of the target company which were earlier gifted by the acquirer in favour of Ms. Bindu Sood were absolutely transferred in favour of Ms. Bindu Sood and she has been holding the said shares in her own rights as absolute owner thereof. Now the acquirer is proposing to acquire the said shares held by Ms. Bindu Sood without any monetary consideration.

(b) The acquirer has not been holding shares in the target company for a period of three years prior to the proposed acquisition and thus the condition stipulated in the proviso to regulation 3(1)(e)(iii)(b) of the Takeovers Regulations has not been complied with.   

6.0 HEARING TO THE ACQUIRER

6.1  In terms of regulation 4(6) of the Takeover Regulations, a notice for hearing alongwith a copy of the recommendation of the Takeover Panel was sent to the acquirer vide letter dated February 23, 2006.

6.2 The acquirer alongwith the Managing Director and Executive Director of the target company appeared and made submissions before me on March 16, 2006. The acquirer also submitted a written submission dated March 16, 2006.

6.3 The acquirer reiterated its submissions made in the application and the letter dated 14.11.05. He emphasized that he had transferred the said 13,39,358 (35.26%) equity shares of the target company to Ms. Bindu Sood by way of gift and the same shares are retransferred to him by way of gift involving no consideration and the acquirer and Ms. Bindu Sood are persons acting in concert and they continue to remain so even after the proposed acquisition. He further submitted that had he held a single share in the target company prior to the proposed transaction, the automatic exemption would have been available in respect of the proposed transaction under regulation 3 (1) (e) (iii) (b) of the Takeover Regulations. According to the acquirer this is a technical non compliance with the condition stipulated in proviso to regulation 3 (1) (e) (iii) (b) of the Takeover Regulations. In fact, the proposed transaction is re-transfer of the shares which were held by the acquirer and gifted to Ms. Bindu Sood.

6.4 The acquirer further submitted that the target company had recently bought back its shares under the scheme of arrangement sanctioned by the Hon’ble High Court of Bombay. However, only 167300 shares of the target company were tendered in the said buy-back.  

7.0 FURTHER SUBMISSIONS

7.1  Vide letter dated March 22, 2006, the acquirer further submitted that in terms of the proviso to regulation 3 (1) (e) (iii) (b) of the Takeover Regulations both the transferor as well as the transferee should have held the shares in the target company for a period of atleast three years prior to the proposed acquisition. The acquirer was holding shares in the target company from September 07, 1999 to December 08, 2004 i.e. for more than five years continuously. Therefore, he qualifies for the exemption.

7.2 Vide letter dated June 07, 2006, the acquirer submitted a copy of letter dated 06.06.06 from Ms. Bindu Sood whereby she had confirmed the return of said13,39,358 (35.26%) equity shares of the target company to the acquirer by way of gift. He has also submitted that he has accepted the gift. The acquirer has also furnished a copy of the legal  opinion of Shri Virendra Tulzapurkar, Sr. Advocate wherein the Learned Senior Advocate has opined the gift of equity shares to Ms. Bindu Sood by the acquirer was absolute and the said equity shares can be returned by her to the acquirer by gifting the same back to the acquirer either by executing a registered instrument or by delivering the same and the gift must be accepted by the acquirer. It is also opined that in the present case the shares have been validly gifted by Ms. Sood to the acquirer.  

8.0 CONSIDERATION OF ISSUES AND FINDINGS

8.1           I have carefully considered the application dated November 14, 2005, the submissions of the acquirer as mentioned above and the recommendations of the Takeover Panel and the relevant material available on record.

8.2 It is admitted position that the acquirer was not holding any share in the target company after 08.12.2004 when the said 13, 39,358 (35.26%) equity shares of the target company were transferred by the acquirer to Ms. Bindu Sood by way of gift, although he continues to belong to the promoter group and remains a person acting in concert with the promoters. Thus, after the proposed acquisition the shareholding of the acquirer in the target company would increase from nil to 35.26%. The proposed acquisition would attract regulation 10 of the Takeover Regulations unless exempted under regulation 3 thereof.

8.3 I do not agree with the submission that the proposed acquisition is eligible for exemption under regulation 3 (1) (e) (iii) (b) of the Takeover Regulations since the acquirer was holding equity shares in the target company from 07.09.99 to 08.12.2004 i.e. for a period of more than 5 years continuously. In this regard, I agree with the views of the Takeover Panel that the case is not eligible for automatic exemption from applicability of regulation 10 of the Takeover Regulations since the acquirer has not complied with the proviso to regulation 3 (1) (e) (iii) (b) as he had not been holding equity shares in the target company for a period of three years prior to the proposed acquisition.

8.4 However, in the present case, since the case is not eligible under any of the categories eligible for automatic exemption, the application had been made for the purpose of considering the case under regulation 3 (1) (l) and the same has been referred to the Takeover Panel. In my view, the Takeover Panel has to consider the facts and circumstances of the case for the purposes of regulation 3 (1) (l) of the Takeover Regulations i.e. the other case not eligible for automatic exemption under regulation 3 (1) (a) to (k) of the Takeover Regulations.

8.5 In view of the above, I have considered the facts and circumstances of this case and note that the acquirer was holding the said 13, 39,358 (35.26%) equity shares of the target company from 07.09.99 to 08.12.2004 and has been the director and Chairman of the target company since 1999 and belong to the promoter group of the target company, though he does not hold any shares in the target company prior to the proposed acquisition.

8.6 On the facts and circumstances of the present case, I note that the proposed acquisition is retransfer of shares gifted to Ms. Bindu Sood by the acquirer. The acquirer and Ms. Bindu Sood belong to the promoter group of the target company and will continue to remain the promoters even after the proposed transaction and pursuant to the proposed acquisition there would not be any change in control in the management of the target company.

8.7 I also take note that the acquirer is acquiring the said 13,39,358 (35.26%) equity shares of the target company which were earlier held by him and gifted to Ms. Bindu Sood by way of a gift by her. The acquisition is without consideration. The acquirer alongwith the persons acting in concert with him were already in control of the management of the target company. I find that under the facts of the present case, the proposed transaction will not be prejudicial to the interests of the public shareholders.

8.8 In view of the above, taking into account all the mitigating facts and circumstances, as mentioned above, I find that this is a fit case to grant exemption from complying with the regulation 10 of the Takeover Regulations in respect of the proposed acquisition of 13,39,358 equity shares by the acquirer from Ms. Bindu Sood by way of gift.

9.0 ORDER

 

9.1 In view of the above findings, I, in exercise of the powers conferred upon me by virtue of Section 19 of the Securities and Exchange Board of India Act, 1992, read with Regulation 4(6) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the acquirer from complying with the requirements of Regulation 10 of Chapter III of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 in respect of the proposed acquisition of 13,39,358 equity shares of the target company namely Indiacom Limited by way of gift from Ms. Bindu Sood.

 

9.2 In respect of the acquisition in the present case, the acquirer shall, within 21 days from the date of this order, submit a report to SEBI in the method and manner specified in regulation 3 (4) read with 3 (5) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.

 

Date : 8.8.2006    T. C. NAIR

Place : Mumbai   WHOLE TIME MEMBER

SECURITIES AND EXCHANGE BOARD OF INDIA