SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
IN THE MATTER OF PROPOSED ACQUISITION OF SHARES OF HIFCO MARWEL LIMITED EXEMPTION APPLICATION FILED UNDER REGULATION 4 (2) OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997.
CO/ /CFD/ /2004
1.0 BACKGROUND
1.1 Hifco Marwel Ltd. (hereinafter referred to as ‘the target company’) having its registered office at Door no. 2-90/4, Gummadidala Village, Jinnaram Mandal, Medak District, Andhra Pradesh, is listed on the Stock Exchange, Mumbai and Hyderabad Stock Exchange Ltd.
2.0 APPLICATION FOR EXEMPTION
2.1 Mr. Tejaswy Nandury and Mrs. Sobha Rani Nandury (hereinafter referred to as ‘the applicants’), filed an application dated September 29, 2004 under regulation 4(2) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as ‘the Takeover Regulations’), seeking exemption from the applicability of the provisions of regulations 10 and 11 of the Takeover Regulations, in respect of the proposed acquisition of 9, 22,000 equity shares of Rs. 10 each of the target company. The proposed acquisition is by way of allotment of equity shares in the target company in a preferential manner.
3.0 SUBMISSIONS IN THE EXEMPTION APPLICATION
3.1 The applicants are already in control of the target company by way of holding controlling interest in the companies namely Hifco Consumer Credit Limited, Hifco Marketing Private Limited, Nandury Finance and Investments Private Limited, Soven Holdings Private Limited and Yasaswy Management Associates Private Limited, which are shareholders of the target company. The applicants are part of the promoter group though not holding any share directly in their name. However, the applicants are in control of the company being shareholders and directors in the above mentioned companies which are shareholders of the target company. Further the applicants are relatives of the main promoter Mr. N J Yasawy being son and wife, respectively.
In view of the above, the applicants are part of promoters though not holding shares directly in their name.
3.2 The shareholding of the applicants before and after the proposed acquisition is as follows:
|
Shareholder’s category
|
Before the proposed acquisition
|
After the proposed acquisition
|
|
Shareholder’s Category
|
No. of shares/total voting rights held
|
% of shares total voting capital held.
|
No. of shares / voting rights
|
% of shares/
voting rights
|
|
Promoter group
|
2,11,579
|
35.83%
|
2,11,579
|
13.99%
|
|
Acquirers
|
Nil
|
Nil
|
9,22,000
|
60.96%
|
|
FIs/Banks
|
Nil
|
Nil
|
Nil
|
Nil
|
|
FIIs/NRIs/OCBs
|
Nil
|
Nil
|
Nil
|
Nil
|
|
Public
|
4,01,139
|
64.17%
|
4,01,139
|
25.05%
|
|
Total
|
6,12,718
|
100.00%
|
16,12,718
|
100.00%
|
3.3 In the application dated September 29, 2004, the applicants have further submitted that -
a) the promoter shareholders of Hifco desired to revive the operations of the target company with a view of providing value to all shareholders of the target company. In this regard, the promoters would like to infuse Rs. 92, 22, 000/- into the capital of the target company by way of preferential allotment of shares at par. In the absence of infusion of capital there is no possibility of revival of the operations of the target company.
b) in the current state of affairs, it is impossible for the target company to access capital from any source, other than from the promoters. Even if the target company proposes investment by all shareholders in the form of rights issue, it would not evoke any favourable response from other shareholders. Further, cost of raising such rights issue will be burden to the target company, at this juncture, when it has only meager resources.
c) in the circumstances, the promoters are left with no option, other than to invest all the required capital by themselves.
d) in view of the proposed preferential allotment of shares to the promoters being in excess of specified percentage limits of the Takeover Regulations , the promoters need to make mandatory public offer. As the promoters would like to make sincere efforts to revive the target company, the promoters would like to maximize investment into the target company, rather than utilising the resources towards acquisition of shares.
e) the promoters confirm that the proposed allotment, if permitted by the Takeover Panel, will be in accordance with SEBI Guidelines on preferential issue as applicable.
4.0 RECOMMENDATION OF THE TAKEOVER PANEL
4.1 The aforesaid application dated September 29, 2004 was forwarded to the Takeover Panel in terms of sub-regulation (4) of regulation 4 of the Takeover Regulations. The Takeover Panel vide its report dated October 08, 2004 has recommended as under –
“On the facts stated and taking the totality of circumstances into consideration, the grant of exemption as sought is recommended subject, however, to the target company passing a Special Resolution in its General Meeting in accordance with Section 81(1A) of the Companies Act, 1956 whereas entire promoter group of the target company including the persons acting in concert abstaining from voting thereon.”
5.0 Consideration of the issues:
5.1 Mr. Tejaswy Nandury vide his letter dated November 03, 2004, has undertaken to follow any conditions that SEBI may impose while granting exemption such as passing a special resolution, providing facility of postal ballot, non participation in voting by the promoters, adherences to preferential issue guidelines, etc. The target company vide its two letters dated November 03, 2004 has also undertaken similar to the undertaking of Mr. Tejaswy Nandury. The target company has also submitted that in respect of the proposed preferential allotment the following measures shall be taken-
1) a general meeting of shareholders for passing a fresh resolution under Section 81(1A) of Companies Act, 1956 for the aforesaid said preferential allotment to the applicants will be called for .
2) the following disclosures will be made in the explanatory statement under section 173 of the Companies Act, 1956 forming a part of the notice:
a the price at which the allotment is proposed,
b the identity of such person(s),
c the purpose of and reason for such
allotment,
d consequential changes, if any, in the board of directors of the target company and in voting rights, the shareholding pattern of the company, and
e whether such allotment would result in change in control over the target company
3) the guidelines for preferential allotment (including pricing) as prescribed under Chapter XIII of SEBI (Disclosure and Investor Protection) Guidelines, 2000 will be complied with.
4) the facility of voting through postal ballot for passing of the special resolution as per the procedure laid down in rule 2A and rule 5 of “Companies (Passing of the Resolution by Postal Ballot) Rules, 2001” will be provided. The notice to the shareholders shall include a postage pre-paid envelope for facilitating the consent or dissent.
5) the prospective applicant (promoter group) of the target company, being interested party to the resolution, abstain from voting in respect of the resolution.
6.0 FINDINGS
6.1 I have carefully gone through the application dated September 29, 2004 and have taken into consideration the submissions and the undertaking of the applicants and the target company ,the above mentioned recommendation of the Takeover Panel and the relevant material available on record. In view of the above letters dated November 03, 2004 from the target company and one of the applicants, I find that grant of hearing as per regulation 4(6) of Takeover Regulations is not necessary in this matter.
6.2 I note that that the applicants are part of the promoter group in view of the provisions of regulation 2(1) (h) of Takeover Regulations .Further, after the proposed acquisition, the applicants would be holding 60.96% of the enhanced voting capital and consequently the shareholding of the promoter group would increase from 35.83% to 74.95% of the total voting rights of the target company. I have noted that the intention of the applicant is to revive the operations of the target company and that in the absence of infusion of capital by the applicant there is no possibility of revival of the operations of the target company. I have also noted that there won’t be any change in control subsequent to the proposed acquisition.
6.3 In view of the above facts and circumstances, I agree with the recommendations of the Takeover Panel and consider the present case as a fit case for granting exemption from making a public announcement as required under regulation 11(1) of the Takeover Regulations subject to the conditions as undertaken by the applicant and the target company vide their letters dated November 03, 2004.
7.0 ORDER
7.1 In view of the above findings , I , in exercise of the powers conferred upon me under section 4(3) of the Securities and Exchange Board of India Act, 1992 read with sub - regulation (6) of regulation 4 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the applicants, namely Mr. Tejaswy Nandury and Mrs. Sobha Rani Nandury from complying with the provisions of Regulation 11(1) of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 with regard to the proposed acquisition of 9,22,000 equity shares of Rs. 10/- per share by way of preferential allotment to the applicants. This exemption would be available only if ;-.
i) for the purpose of the special resolution under Section 81(1A) of Companies Act, 1956, the target company has made the following disclosures in the explanatory statement to the notice under section 173 of the Companies Act, 1956:
a the price at which the allotment is proposed,
b the identity of allottees,
c the purpose of and reason for such
allotment,
d consequential changes, if any, in the board of directors of the target company and in voting rights or the shareholding pattern of the target company, and
e whether such allotment would result in change in control over the target company
ii) the SEBI guidelines for Preferential Allotments, including pricing requirements as specified under Chapter XIII of SEBI (Disclosure and Investor Protection) Guidelines, 2000 have been complied with ;
iii) the target company has provided the facility of voting through postal ballot for passing of the special resolution as per the procedure laid down in rule 2A and rule 5 of Companies (Passing of the Resolution by Postal Ballot) Rules, 2001;
iv) along with the notice of the general meeting to the shareholders a postage pre-paid envelope for facilitating the consent or dissent shall also be sent;
v) the promoter group have abstained from voting in respect of the resolution.
7.2 I further direct that allotment to the applicants, if any, shall be completed within 90 days from the date of the order and the applicants (acquirers ) shall file a report in respect of the said allotment confirming compliance of the above mentioned conditions in the manner specified under regulation 3(4) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. Along with the said report , the acquirer shall pay the fees of Rs. 10,000/- to the Board either by a Banker’s Cheque or a Demand Draft in favour of Securities and Exchange Board of India , payable at Mumbai and a certificate of independent Chartered Accountant to the effect that all conditions as stated herein before have been complied with .
G. N. BAJPAI
CHAIRMAN
SECURITIES AND EXCHANGE BOARD OF INDIA
Place: Mumbai
Dated: December 17, 2004