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CO/47/TO/06/2003
SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
In the matter of acquisition of shares/voting rights/control of Mac Infotech Limited
1. FACTS OF THE CASE :
1.1 Mac Infotech Ltd, (hereinafter referred to as the ‘Target Company’) is a public listed company listed on the Stock Exchange Mumbai with a paid up capital of Rs.22.50 lacs comprising of 2,25,000 equity shares of Rs.10 each. As informed by the Target Company vide its letter dt. 23.12.02 the total number of shareholders as on that day was 98 and there was no trading in equity shares of the company in the stock exchanges for the last 3 years.
1.2 Shri N. V. S. Rao and his associates (hereinafter collectively referred to as " the Acquirers") acquired 96,000 shares being 42.67% of the equity capital of the Target company on 04.04.2000.
1.3 The aforesaid shares were acquired through a Memorandum of Understanding (MOU) entered into on 4.4.2000 between Shri NVS Rao and his associates and Shri Shirish K Jhaveri and his associates, the promoters of the Target Company @ Rs.11.27/- per share.
2. SHOW CAUSE NOTICE
2.1 A show cause notice dated 24.02.03 was issued to the acquirers alleging inter alia that :
a) With the acquisition of 42.67% shares, the Acquirers’ holding in the Target company has increased from NIL to 42.67% collectively (with persons acting in concert with them) and therefore, the said acquisition attracted the provisions of Regulation 10, 12 and 14(3) of SEBI (Substantial Acquisition of Shares and Takeovers)Regulations, 1997 (hereinafter referred to as “the Regulations”).
b) The Acquirers have acquired the shares of Target company as aforesaid without making a public announcement and open offer as required by the provisions of the Regulations. Therefore, it was alleged that they have, prima-facie, violated the provisions of Regulation 10 and 12 read with Reg. 14(1) and Reg 14(3) and are liable for action under the Regulations and SEBI Act, 1992.
2.2 In light of these violations, vide said show cause notice dt. 24.02.03 the acquirers were directed to show cause as to why one or more or all actions under the Regulation 44 and Regulation 45(6) of the Regulations read with Section 11 B of the SEBI Act 1992, should not be initiated against them.
3. REPLY TO SHOW CAUSE NOTICE
3.1 The Acquirers vide their letter dated 10.03.03 replied to the Show cause notice and inter alia, made the following submissions:
a) They have acquired the 96,000 shares from Shri Shirish K Jhaveri with the objective of reviving the company and commence the operation in software segment.
b) The equity shares of company were not traded for last 10 years and shareholders were not enjoying any liquidity in the equity shares of the company.
c) They had appointed a fully qualified Company Secretary and Chartered Accountant to advise and guide them on the acquisition of equity shares of company but they have not informed them about any of these guidelines.
d) To provide individual investor the option to exit, they were ready to acquire the shares from individual shareholders at their cost and are ready to pay the interest for the delayed portion.
e) The delay in adhering to Regulation 10, 12, 14(1) and (3) may be condoned and no penal action may be initiated against them as they are ready to acquire 20% of equity as proposed by Regulations from the existing shareholders at the purchase price plus interest.
4. HEARING
4.1 The reply to show cause notice was not found to be satisfactory and accordingly, before taking a view in the matter, an opportunity of personal hearing was granted to the Acquirers on 09.04.03 adhering to the principles of natural justice.
4.2 During the hearing, the Acquirers have agreed to make an open offer in terms of the Regulations. Further vide their letter dated 22.04.03 they undertook to pay an interest of 12% p.a. to the shareholders.
5.0 I have carefully considered the submissions made by the Acquirers vide their letter dated 10.3.03, and also during the personal hearing on 09.04.03 and letter dt. 22.04.03. I have also considered all the material facts as available on record.
6. ISSUES AND CONSIDERATION
6.1 As the Acquirers did not contest the issue of violations of the provisions of Regulations 10 and 12 read with Reg. 14(1) and (3) and admitted their default, I do not consider it necessary to discuss the said provisions in detail as admittedly the acquirers failed to comply with these requirements of the Regulations when they acquired 46.67% of shares in target company without making public announcement in terms of the Regulations.
6.2 The only question remains as to what should be the interest amount to be paid to the shareholders by the acquirers. In terms of sub Regulation 12 of Regulation 22, the payment of consideration to the shareholders of the Target Company has to be paid within 30 days of the closure of the offer. The maximum time period provided in the Regulations for completing the offer formalities in respect of an open offer, is 120 days from the date of Pubic Announcement.
6.3 The Pubic Announcement in the instant case ought to have been made taking 4.4.2000 as a reference date and thus the entire offer process would have been completed latest by 02.08.2000. Non making of Public Announcement for acquisition of shares of Target Company has adversely affected the interest of shareholders of Target Company, which needs to be addressed here so that the loss of interest caused to the shareholders may be minimized.
6.4 In this regard, I have considered the proposal of the acquirer undertaking to pay an interest of 12% for the delay in making the payment of consideration to the shareholders. In this context, it may be noted that in terms of the Regulations, the payment to the shareholders was to be made by the acquirer in case the offer had been made according to the provisions of the Regulations, by 02.08.00. However, the said amount remains unpaid till date. Therefore, the interest rate applicable in the instant case should be the rate which was prevailing as on 02.08.00. As per Rule 3, sub-rule 1, clause (c) of the Companies (Acceptance of Deposits) Rule, 1975, the maximum rate of interest at which a company could invite or renew any deposit was 15% p.a. at rests which shall not be shorter than monthly rests. Thus, had the shareholders invested the consideration (if) received at the then prevailing interest rate, they would have received interest @ 15% p.a., on monthly rests basis. In view of this, I am not inclined to accept 12% p.a. interest payment to the shareholders, as proposed by the acquirers. Rather, in view of the above observations, and taking into facts and circumstances of the instant case, it would be just, equitable and in the interest of the shareholders to direct the acquirer to pay interest @ 15% p.a. on the offer price.
7. DIRECTIONS/ORDERS
7.1 In view of the above, in exercise of the powers conferred upon me under sub-section (3) of Section 4 read with Section 11B SEBI Act 1992 {hereinafter referred to as the Act} read with Regulation 44 and 45 of the Regulations, I hereby direct the Acquirers to make public Announcement in terms of Regulations 10 and 12 of the Regulations taking 04.04.2000 as the reference date for calculation of offer price within 45 days of passing of this order.
7.2 I further direct the acquirers to pay interest @ 15% p.a. on the offer price to the shareholders, for the loss of interest caused to them from 03.08.2000 till the date of actual payment of consideration for the shares to be tendered and accepted in the offer, directed to be made by the Acquirers vide this order.
7.3 This order shall come into force with immediate effect.
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Date:June 12, 2003
Place : Mumbai
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G.N BAJPAI
CHAIRMAN
SECURITIES AND EXCHANGE BOARD OF INDIA
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