SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
UNDER THE PROVISIONS OF REGULATION 44 AND REGULATION 45 OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS 1997 IN THE MATTER OF ACQUISITION OF SHARES OF TITAN SECURITIES LIMITED BY SHRI SURESH CHAND SINGLA & PERSONS ACTING IN CONCERT .
WTMN/CFD/5/6/04
1.0 Titan Securities Ltd. (hereinafter referred to as the target company) is listed on the Stock Exchange Mumbai, the Delhi Stock Exchange and the Jaipur Stock Exchange. Shri Suresh Chand Singla and persons acting in concert with him (hereinafter referred to as the acquirers) had acquired 25,00,000 shares representing 33.26% of the enhanced voting capital of the target company through preferential allotment on July 31, 2000. Consequent to the said acquisition, the shareholding of the acquirers who are the promoters and their associates had increased by 22.27% from 33.06% to 55.32% of the equity share capital of the target company. In respect of the said acquisition, a report dated April 26, 2002 was submitted by the target company under regulation 3 (4) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997 (hereinafter referred to as “the said regulations”). On perusal of the said report, certain details pertaining to notice of the annual general meeting (AGM) along with the explanatory statement, in which the preferential allotment was approved were sought from the target company. The company, vide their letter dated May 22, 2002 submitted the said details. On perusal of the notice forwarded by the company , it was found that the company was seeking
shareholder’s approval for allotment of 25,00,000 equity shares to the promoters of the company including their friends, associates and associated companies by way of preferential offer on firm allotment basis. Subsequently further details regarding the allottees and details of any connection with the promoters of the company were sought and the company vide their letter dated August 01, 2002 submitted the same.
2.0 As per the provisions of regulation 11 (1) of the said regulations as
existed on the date of acquisition i.e. July 31, 2000, no acquirer who together with persons acting in concert with him has acquired, in accordance with the provisions of law, 10% or more but less than 75% of the shares or voting rights in a company, shall acquire, either by himself or through persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5% of the voting rights in any period of 12 months, unless such acquirer makes a public announcement to acquire shares in accordance with the said regulations. However, regulation 3 (1) (c ) of the said regulations provided that nothing contained in regulation 10, 11 and 12 of the regulations shall apply to preferential allotment made in pursuance of a resolution passed under Section 81 (1A) of the Companies Act 1956 provided that :
(i) board Resolution in respect of the proposed preferential allotment is sent to all the stock exchanges on which the shares of the company are listed for being notified on the notice board;
(ii) full disclosures of the identity of the class of the proposed allottee (s) is made, and if any of the proposed allottee (s) is to be allotted such number of shares as would increase his holding to 5% or more of the post issued capital, then in such cases, the price at which the allotment is proposed, the identity of such person(s), the purpose of and reason for such allotment, consequential changes, if any, in the board of directors of the company and in voting rights, the shareholding pattern of the company, and whether such allotment would result in change in control over the company are all disclosed in the notice of the general meeting called for the purpose of consideration of the preferential allotment.
It was noted from the submissions of the acquirer that the resolution of the board meeting held on April 15, 2000 in respect of the preferential allotment was not sent to all the stock exchanges on which the shares of the company were listed for being notified on the notice board as required under regulation 3 (1) (c ) (i) of the said regulations. Further the disclosures regarding consequential change in voting rights and shareholding pattern due to the preferential allotment were not mentioned in the notice of the extra ordinary general meeting dated April 15, 2000. The above conditions which would entitle the acquirers to claim exemption under the provisions of regulation 3(1)(c) of the said regulations were not prima facie complied by the acquirers. It was noted that acquisition of 22.27% shares and voting rights in the aforesaid manner by the acquirers and persons acting in concert prima facie amounts to violation of the provisions of regulation 11 (1) of the said regulations. In view of the said alleged violation, a show cause notice dated December 08, 2003 was issued to the acquirers and the persons acting in concert, (hereinafter referred to as the “PAC”s) directing them to show cause as to why one or more or all actions under regulation 44 and 45 (6) of the said regulations read with Section 11 and 11 B of the SEBI Act should not be initiated against them.
3.0 The acquirers in their reply to the show cause notice made the following submissions
(a) The company made a preference issue of 25,00,000 equity
shares of Rs. 10 each for cash at par and the allotment was made on July 31, 2000. The allotment was not made to the promoters and PACs except 50,000 shares allotted to Tanita Leasing & Finance Limited in which the directors of the company are interested as directors of the company.
(b) The promoters of the company have no relation in any way with any
of the persons to whom the shares have been allotted.
(c) None of the shareholders come under the definition of PACs, so the
provision of Regulation 11 (1) of the Regulation does not apply.
(d) The company has filed an application for listing and shareholding
pattern and distribution of schedule with the Stock Exchange Mumbai and the Delhi Stock Exchange which clearly show that the promoters equity has not increased along with the other PACs as mentioned in the show cause notice.
(e) The major equity has been allotted to high networth individuals and
bodies corporate with whom the promoters have no relation as per Section 6 of the Companies Act 1956 and Regulation 2.4 of the Takeover Regulations under the definition of persons acting in concert.
(f) None of the directors and members of the bodies corporate who have been allotted shares had any kind of relation with the promoters of the company.
(g) The notices were sent to all the stock exchanges where the shares of the company were listed as required by the proviso(i), of Regulation 3 (1) (c ) of the Regulations & the purpose of the consideration of the preferential allotment was clearly mentioned in the explanatory statement sent along with the notice.
(h) The submission made by Titan Securities Limited in their letter April 25, 2002 clearly mentions the shareholding pattern of the company. In the letter of Titan Securities Limited dated January 25, 2003, it has been mentioned that the different persons having the same address are related to each other but not with the promoters of the company and none of them hold 5% or more equity shares of the company individually or collectively.
4.0 Before taking a final view in the matter, in the interest of natural justice the acquirers were granted an opportunity of personal hearing on April 27, 2004. Shri Naresh Singla, director of the target company attended the hearing as representative of the acquirers and submitted that they had complied with the law in respect of the said acquisition. It was submitted by him that there was no change in control of the company and hence the acquisition was exempted under the provisions of regulation 3 (1) (c ) of the said regulations.
5.0 Shri. Naresh Singla was advised to submit proof regarding compliance with the conditions mentioned under Regulation 3 (1) (c) of the said Regulations by the acquirers and they were granted 10 days to submit their written submissions and also for submission of copies of balance sheet and shareholding pattern. In this regard, the acquirers vide their letter dated May 03, 2004 submitted the shareholding pattern for the target company for the quarter ended March 31, 2004.However the acquirers did not submit any further written submissions.
6.0 I have taken into consideration the material available on record, submissions made by the acquirers during the personal hearing granted to them on April 27, 2004 and the facts and circumstances of the case.
6.1 The issue which arises for consideration is whether the acquirers have complied with the provisions of Regulation 3(1)(c) so as to claim exemption from the provisions of Chapter III of the said regulations. Regulation 3(1)(c) as it stood on date of acquisition by the acquirers i.e. July 31, 2000 provided that nothing contained in Regulations 10, 11 and 12 of these Regulations shall apply to preferential allotment, made in pursuance of a resolution passed under Section 81 (1A) of the Companies Act 1956 (1 of 1956) provided that
(i) board Resolution in respect of the proposed preferential allotment is sent to all the stock exchanges on which the shares of the company are listed for being notified on the notice board;
(ii) full disclosures of the identity of the class of the proposed allottee (s) is made, and if any of the proposed allottee (s) is to be allotted such number of shares as would increase his holding to 5% or more of the post issued capital, then in such cases, the price at which the allotment is proposed, the identity of such person(s), the purpose of and reason for such allotment, consequential changes, if any, in the board of directors of the company and in voting rights, the shareholding pattern of the company, and whether such allotment would result in change in control over the company are all disclosed in the notice of the general meeting called for the purpose of consideration of the preferential allotment.
6.2 It is noted that during the course of the personal hearing, the acquirers submitted the copies of the letters dated April 06, 2000 addressed by the target company to the Stock Exchange Mumbai, the Delhi Stock Exchange and the Jaipur Stock Exchange forwarding them copy of the proposed board resolution in respect of the preferential allotment in the meeting scheduled to be held on April 15, 2000. In view of the same it is seen that the company appears to have complied with the condition as stipulated on the regulation 3 (1) (c) (i) of the said regulations.
6.3 However, with regard to the condition of making full disclosures regarding the proposed allottees it is noted that though it is proposed in the notice pertaining to EGM held on May 12, 2000 to allot 25,00,000 equity shares of Rs. 10 to the promoters of the company including their friends, relatives, associates and associate companies by way of preferential offer on firm allotment basis, the disclosures regarding change in voting rights and shareholding pattern due to the preferential allotment as required under regulation 3 (1) (c) (ii) were not made in the notice for the general meeting.
6.4 It was submitted by the acquirers that the promoters of the company have no relation in any way with any of the persons to whom shares have been allotted as on July 31st 2000. It was further submitted by them that none of the shareholders come under the definition of ‘persons acting in concert’ and hence the provision of regulation 11(1) of the said regulations does not apply. It is further noted that the acquirers have not submitted any other proof to substantiate the said contention raised by them. In this regard, it is noted that earlier, the target company vide their letter dated January 28, 2003 informed that the persons/entities shown in the groups having same address are acting in concert and are relatives of each other and these groups or entities are associates of promoter group. Further, consolidated figures of percentage of shareholding of each promoter group was attached along with the said letter. Hence I do not find merit in the contention of the acquirers that the promoters of the company have no relation in any way with any of the persons to whom shares have been allotted as on July 31st 2000 and such persons are not persons acting in concert with the acquirers.
6.5 In view of the above, by virtue of the said acquisition without complying with the requirements of the provisions of regulation 3(1)(c) (ii) of the said regulations, the acquirers have violated the provisions of regulation 11(1) of the said regulations. Further, it is noted that in respect of the said acquisition, the acquirers failed to submit the report to SEBI within 21 days of the said acquisition as required under the provisions of regulation 3(4) of the said regulations.
7.0 In view of the aforesaid, I find that the acquisition of 25,00,000 representing (22.73%) of equity shares of the target company by the acquirers are not eligible for the exemption provided under regulation 3(1)(c) of the said regulations and therefore the acquirers have violated the provisions of Regulation 11 (1) of the said regulations.
8.0 Taking into consideration the above, and in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with regulation 44 and 45 of the said regulations, I hereby direct that the adjudication proceedings be initiated against the acquirers under Section 15 H (ii)of the SEBI Act,1992 for non compliance of regulation 11(1) read with regulation 14(1) and 14(3) of the said regulations.
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T. M. NAGARAJAN
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Date: Jun 14, 2004
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WHOLE TIME MEMBER |
| Place: MUMBAI |
SECURITIES AND EXCHANGE BOARD OF INDIA |