WTM/GA/120/SAST/0/07
SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
IN THE MATTER OF PROPOSED ACQUISITION OF EQUITY SHARES OF ASHNOOR TEXTILE MILLS LTD. – EXEMPTION APPLICATION FILED UNDER REGULATION 4(2) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS ) REGULATIONS, 1997
1.0 BACKGROUND
1.1 Ashnoor Textile Mills 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 Gurgaon, Haryana-110016. The equity shares of the target company are listed on the Delhi Stock Exchange Association Ltd. (DSE), the Bombay Stock Exchange Ltd. (BSE), the Jaipur Stock Exchange Ltd. (JSE) and the Ludhiana Stock Association Ltd. (LSE).
1.2 Shri Suneel Gupta and Smt. Sangeeta Gupta (hereinafter referred to as ‘the acquirers’) are the promoters of the target company and are holding 28.49% of the total paid up capital of the target company. The acquirers proposed to acquire 35,00,000 equity shares of the target company, through preferential allotment . Pursuant to the said proposed preferential allotment and the acquisition of shares of the target company, the shareholding of the acquirers would increase from 28.49% to 52.29% of the paid up capital of the target company.
2.0 APPLICATION FOR EXEMPTION
2.1 The acquirers ,vide letter dated May 24, 2006 filed an application with Securities and Exchange Board of India (hereinafter referred to as 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 regulations 11(1) of the Takeover Regulations with respect to their proposed acquisition of 35,00,000 equity shares of the of the target company, by way of preferential allotment.
2.2 In the said application, the acquirers have inter alia made the following submissions: -
a) that their shareholding in the target company is 28.49% of the total paid up capital and that they are having control over the target company.
b) that the target company had been incurring substantial losses for the last few years and to wipe off the said loss , the target company had filed a petition before the Hon'ble Punjab and Haryana High Court for the reduction of the capital by 30%.
c) that the target company had availed term loans and credit facilities from Industrial Development Bank of India (IDBI), Haryana Financial Corporation ( HFC) and Bank of Maharashtra for business expansion.
d) that due to the adverse financial position, the target company was unable to repay its outstanding loans along with the interest to the lenders.
e) that the target company reached a settlement with HFC and Bank of Maharashtra in 2004.
f) that the target company had also approached IDBI for the One Time settlement (OTS) of the debt due to IDBI. In 2005, the target company submitted its final proposal for the OTS based upon which the IDBI had agreed to settle the outstanding loan amount at Rs.5.75 Cr to be paid in the 15 equal monthly installments by waiving off the principal of Rs.2 crores, 100% simple interest of Rs.926 cr and 100% FILD of Rs.12.55 cr. That in the proposal submitted by the target company, it has been committed that the funds for the settlement shall be brought in by the promoters and through their own sources.
g) that in compliance of the said condition, the promoters are required to bring funds towards repayment of loan amount.
h) that the proposed exemption is driven by the objective of rehabilitation of the target company and the said rehabilitation shall help in reviving the interest of 20,000 shareholders of the target company .
i) that there is no change in control of the target company.
2.3 The shareholding pattern of the target company before and after the proposed preferential allotment ( and also after the reduction in capital ), in terms of the aforesaid application is as under:
|
Name of Shareholders
|
Pre issue shareholding
|
Post holding shareholding (After allotment of Equity shares) Before Reduction
|
Post holding shareholding (After allotment & Reduction by 30%)
|
|
|
No of Shares Held
|
% of Shares
|
No. of shares held
|
% of shares
|
No of Shares held
|
% of shares
|
|
Promoters’ Holding
|
19,98,608
|
28.49%
|
54,98,608
|
52.29%
|
48,99,026
|
58.25%
|
|
Non – Promoter Holding
|
50,16,088
|
71.51%
|
50,16,088
|
47.71%
|
35,11,261
|
41.75%
|
|
TOTAL
|
70,14,696
|
100%
|
1,05,14,696
|
100%
|
84,10,287
|
100%
|
3.0 RECOMMENDATION OF THE TAKEOVER PANEL –
3.1 The aforesaid application dated May 24, 2006 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 June 27, 2006 had recommended as under –
"The Committee considered the entire request of the applicant, the facts and circumstances and the documents and taking into consideration the facts that the petition is pending before the High Court of Punjab and Haryana, the Committee recommends grant of exemption as prayed for with a rider that the fact of this recommendations be placed by the applicant on the record of the High Court of Punjab and Haryana on the next date of hearing and for that purpose necessary undertaking be obtained from the applicant".
4.0 FURTHER SUBMISSIONS MADE BY THE ACQUIRERS.
4.1 Shri Shri Suneel Gupta (one of the acquirers) vide letter dated July 21, 2006 forwarded the undertaking signed (on July 18, 2006) by himself and also by the target company , to SEBI inter alia to the effect that :
i. A general meeting of shareholders of the target company will be called for passing a special resolution under section 81(1A) of the Companies Act, 1956 in respect of the proposed preferential allotment to the acquirers.
ii. Target company shall make the following disclosures in the explanatory statement in terms of Section 173 of the Companies Act, 1956 forming part of the Notice of General Meeting:
· The price at which the allotment is proposed.
· The identity of proposed allottees.
· The purpose of and reason for such preferential allotment.
· Consequential changes, if any, in the Board of Directors of the target company and in voting rights, the shareholding pattern of the target company, and
· Whether such allotment would result in change in control over the target company.
iii. The guidelines for preferential allotment (including pricing) as specified under Chapter XIII of SEBI (Disclosure and Investor Protection) Guidelines, 2000 shall be complied with.
iv. In respect of the resolution under section 81(1A), the facility of voting through postal ballot for passing of the special resolution as per the procedure laid down for postal ballot 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.
v. The acquirers (promoter group shareholders) of the target company, being interested party to the resolution, shall abstain from voting in respect of the said resolution under Section 81(1A) of the Companies Act, 1956.
4.2 The acquirers vide letter dated August 07, 2006 informed SEBI that the target company had already filed the copy of the Extra Ordinary General Meeting Notice wherein the resolution for both preferential allotment and reduction of share capital had been mentioned. The acquires vide letter dated August 12, 2006 filed a revised undertaking (signed by both of them on August 11, 2006) more or less on the above lines. The acquirers vide e- mail dated August 23, 2006 had also informed SEBI that the Hon'ble Punjab and Haryana High Court vide order dated July 27, 2006 had approved the said reduction in capital and the shareholding of the acquirers after the said reduction in capital would be 58.25% ( including the proposed allotment) in the target company.
5.0 FINDINGS
5.1 I have carefully considered the application dated May 21, 2006 made by the acquirers and have taken into consideration the above mentioned recommendations of the Takeover Panel, further submissions of the acquirers and relevant materials available on record.
5.2 I note that the target company had suffered losses and that the proposed preferential allotment is for the purpose of improving the financial condition of the target company. I note that the target company had availed loan and credits from IDBI, HFC and Bank of Maharashtra for its business expansion. However, due to certain financial losses, the target company was unable to pay off its debt, and therefore, it had reached a settlement with HFC and Bank of Maharashtra . It had also reached OTS with IDBI. I note that the infusion of the funds by the acquirers is pursuant to the proposal submitted by the target company to IDBI. I also note that the intention of the acquirers to infuse funds from their own sources is for the revival of the target company and in the interest of 20,000 shareholders. of the target company.
5.3 If the shares are not allotted to the promoters then it would result in failure of the OTS entered into between the target company with IDBI, thereby causing extreme financial burden on the target company and resulting in loss to the shareholders. The proposed allotment shall not, in any way, prejudice the interests of any shareholder or creditor of the target company and that there would not be any change in control over the target company after the proposed preferential allotment to acquirers who are promoters of the target company.
5.4 I have noted that the intention of the acquirers is to revive the operations of the target company and that in the absence of infusion of capital by the acquirers, there is no possibility of revival of the operations of the target company, as it is stated by the target company that it is not in a position to raise funds by rights or preferential allotment to other investors.
5.5 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 complying with regulation 11(1) of the Takeover Regulations subject to the conditions as undertaken by the target company and the acquirers as enclosed in their letters dated July 21, 2006 and August 12, 2006.
6.0 ORDER
6.1 In view of the above findings, I , in exercise of the powers conferred by virtue of section 19 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 acquirers Shri Suneel Gupta and Ms Sangeeta Gupta from complying with the provisions of Regulation 11(1) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997 with regard to the proposed preferential allotment of 35,00,000 equity shares of Ashnoor Textile Mills Ltd., subject to the condition that, the acquirers and the target company shall comply with the undertakings as enclosed in the letters of the acquirers dated July 21 and August 12, 2006.
6.2 I further direct that the formalities in respect of proposed preferential allotment shall be completed within 90 days of receipt of this order and the acquirers shall file a report with Securities and Exchange Board of India in the manner specified in regulation 3(4) read with regulation 3(5) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
G. ANANTHARAMAN
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA
Place: Mumbai
Dated: 05.01.07