SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
IN THE MATTER OF ACQUISITION OF SHARES OF TRIDENT ALCO CHEM LTD BY SHRI VARINDER GUPTA AND M/s MAYADEVI POLYCOT LTD.
WTMO/33/CFD/3/04
1.0 Shri Varinder Gupta and M/s Mayadevi Polycot Ltd. (hereinafter referred to as the acquirers) and Trident Infotech Corp. Ltd., ANG Securities Ltd. and Abhishek Industries Ltd. (hereinafter referred to as the transferors) are stated to be promoters of the company Trident Alcochem Ltd. (hereinafter referred to as the target company). The shares of the target company are listed at the Ludhiana Stock Exchange, Delhi Stock Exchange and the Stock Exchange Mumbai. The acquirers have acquired 49,88,800 equity shares representing 61.97% of the share capital of the target company on June 08, 2002. In respect of the said acquisition, a report was filed with Securities and Exchange Board of India (hereinafter referred to as SEBI) under the provisions of Regulation 3 (4) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997 (hereinafter referred to as the said Regulations) for claiming exemption under regulation 3(1)(e)(i) of the said Regulations . As per the said report dated June 26, 2002 filed by the acquirers, as a result of the said acquisition of 61.97% equity shares, the collective shareholding of the acquirers increased from 4510(0.06%)(pre acquisition) to 49,93,310(62.03%)(post acquisition) equity shares of the target company. The increase in shareholding was more than 15%, i.e. more than the threshold limit of 15% in terms of Regulation 10 of the said Regulations. Further consequent to increase in the collective shareholding of the acquirers from 0.06% to 62.03%, there was prima facie change in control over the target company and therefore Regulation 12 of the said Regulations was also attracted.
1.1 In terms of the provisions of Regulation 3(1)(e)(i), as existed on the date of acquisition i.e. June 08, 2002, an acquirer in order to be eligible for exemption from the applicability of the provisions of Regulations 10,11 and 12 of the said Regulations shall comply with the following conditions.
(i) The transferor and the transferee shall be “group companies” within the definition of group as defined in the MRTP Act.
(ii) Transferor as well as the transferee shall file statements concerning group and individual shareholding as required under regulation 6, 7 and 8 of the said regulations.
1.2 From the report filed by the acquirers it was noted that the transferor and the transferee cannot be classified as group companies as the transferee group consist of one individual i.e. Shri Varinder Gupta. Hence it was noted that the pre condition stated above which requires the transferee and the transferor to be ‘group companies’ as defined under the provisions of the MRTP Act was not fulfilled in the case of the acquisition by the acquirers. Further it was noted that with regard to the compliance with Regulations 6 and 8 by the acquirers, one of the acquirers M/s Mayadevi Polycot Ltd. had not complied with the provisions of Regulation 8(2) for the years 1998, 1999, 2000, 2001 and 2002. The said provision requires a promoter or every person having control over a company to disclose within 21 days from the financial year ending March 31st, as well as the record date of the company for the purpose of declaration of dividend, the number and percentage of shares or voting rights held by him and persons acting in concert with him in that company to the company. Further it was also noted that the transferor i.e. Trident Infotech Corp. Ltd. and ANG Securities Ltd. had not complied with the provisions of Regulation 6(1) and 6(2) for the year 1997 and Regulation 8(1) and 8(2) for the years 1998, 1999 and 2000. Another transferor i.e. Abhishek Industries Ltd had also not complied with Regulation 6(1) and 6(2) for the year 1997 and Regulation 8(1) and 8(2) for the years 1998, 1999, 2000 and 2001.
2.0 The above conditions which would entitle the acquirers to claim exemption under the provisions of Regulation 3(1)(e)(i) of the said Regulations did not appear to have been complied by the transferor and the transferee (the acquirers). The acquisition made by the acquirers without complying with the requirements of the provisions of the Regulations was, prima facie found to be in violation of the provisions of Regulations 10 and 12 read with 14 (1) and 14 (3) of the said Regulations. Therefore, a show cause notice dated November 14, 2003 was issued to the acquirers stating interalia that their acquisition of 61.97% shares/voting rights in the aforesaid manner without complying with the requirements of the provisions of the said Regulations, prima-facie, amounted to violation of the provisions of Regulations 10 & 12 read with Regulations 14(1) & 14(3) of the Regulations and therefore the acquirers were liable for penal action under the provisions of the said Regulations and the Securities and Exchange Board of India Act, 1992 (SEBI Act, 1992). Hence the acquirers were directed to show cause as to why one or more or all action(s) under Regulation 44 and Regulation 45(6) of the Regulations and Section 11 and 11B of the SEBI Act, 1992 should not be initiated against them.
3.0 The acquirers submitted their reply to above said show cause notice vide their letter dated November 15, 2003 stating interalia as under:
(a) By Virtue of the said inter se transfer, the shareholding of Shri Varinder Gupta has increased from 0.06% to 14.34% and the shareholding of Mayadevi Polycot Ltd. has increased from nil% to 47.69%. The aggregate shareholding of the promoter group along with PACs remained the same i.e. 62%. There was no change in the control over the target company.
(b) We have considered the transferees and transferor within the definition of ‘Group’ as defined under MRTP Act, 1969 which includes individuals also within the group. Though the word ‘Group companies’ was mentioned in the Regulations but the intention and the spirit of the legislature was to include all the entities within the definition of the group as defined under MRTP Act, 1969. The same was later amended vide amendment made to the Regulations on 09.09.02.
(c) Otherwise, also since the holding of Mr. Varinder Gupta has increased to 14.34% he need not take exemption as his individual shareholding is within the threshold limit of 15%.
(d) With regard to compliance with chapter, the following is submitted:
Mayadevi Polycot Ltd. (transferee) had not been holding any shares in the target company prior to the aforesaid inter-se transfer of shares and hence, the compliance with Reg. 8 was not applicable.
(e) The transferors had been holding not more than 5% in the target company and hence, the compliance with Regulations 6&8 was not applicable.
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 February 23, 2004 which was communicated to them vide letter dated January 23, 2004. Shri Sunil Shah and Shri Krishan Singla attended the hearing as representatives of the acquirers and submitted that they have complied with the law in respect of the said acquisition. It was submitted by them that they have considered the transferors and the transferees within the definition of group as defined under the MRTP Act. Further Shri Varinder Gupta had acquired less than 15% of the shareholding of the company and is not required to file the report. However, reports were filed on behalf of M/s Mayadevi Polycot Ltd. and Shri Varinder Gupta in terms of the regulations. It was also stated by the acquirer that the inter se transfer has not resulted in the change in control of management of the company and the acquirers have not gained any undue advantage by the inter se transfer of shares and no loss has been caused to the investors of the company.
5.0 Subsequently the acquirers submitted their written submissions vide their letter dated February 24, 2004 wherein they reiterated the submissions made during the personal hearing and also submitted the following:
(a) We have complied in letter and spirit. We have considered the
transferors and transferees including ANG Securities and Varinder Gupta within the definition of group as defined under the MRTP Act, which includes individuals also, although technically individuals may not be included under the term group company. As an individual Shri Varinder Gupta has acquired less than 15% shareholding of the company and he may not be required to file the report. We have complied the law in right letter and spirit and submitted the report under SEBI regulations not only on behalf of Mayadevi Polycot Ltd. but by Shri Varinder Gupta also.
(b) This inter se transfer has not resulted in the change in the control of management of the company. M/s Mayadevi Polycot Ltd. is an unlisted closely held limited company incorporated in the year 1997, presently having capital of Rs. 5.37 lacs which is owned by Shri Varinder Gupta and his associates. The three directors of the company all are relatives of Shri Varinder Gupta, main promoter of Trident Alco Chem Ltd. (name changed to Industrial Organics Ltd.)
(c) We have gained no unfair advantage by this inter se transfer of shares. This inter se transfer has also not caused any loss to any investor of the company.
(d) The companies M/s Mayadevi Polycot Ltd., ANG Securities Ltd., Trident Infotech Corporation Ltd. and Abhishek Industries Ltd. have not submitted the statements because their shareholding does not exceed the prescribed limit of 5% of the shareholding of the company at the relevant point of time. Though these companies have not disclosed their holding being less than the prescribed limit even then the target company was regularly submitting the information to the stock exchanges regarding their shareholding being associated group companies.
6.0 I have taken into consideration the report dated June 26, 2002 filed by the acquirers, the facts and circumstances of the case, the submissions made by the acquirers during the personal hearing granted to them on February 23, 2004 and also the written submissions dated February 24, 2004 submitted by them.
6.1 The issue which arises for consideration is whether the acquirers have complied with the provisions of Regulation 3(1)(e)(i) so as to claim exemption from the provisions of Chapter III of the said Regulations. Regulation 3(1)(e)(i) as it stood on date of acquisition by the acquirers i.e. June 08, 2002 provided that nothing contained in Regulations 10, 11 and 12 of these Regulations shall apply to inter se transfer of shares amongst group companies coming under the definition of group as defined in MRTP Act. Further in respect of the exemption provided under the Regulation 3(1)(e)(i), it was stipulated that the transferor and the transferee shall file statements concerning group and individual shareholding under Regulations 6, 7 and 8 of the said Regulations.
6.2 The acquirers during the personal hearing as well as in their written submissions contended that the transferors and transferees come within the definition of ‘group’ as defined under the MRTP Act which includes individual also. In this regard it is noted that the term ‘group companies’ mentioned in regulation 3(1)(e)(i) have been substituted by the term ‘group’ vide SEBI (Substantial Acquisition of Shares and Takeovers) (Second amendment) Regulations 2002 with effect from September 09, 2002. As the law has been suitably amended to provide for the term ‘group’ in the place of the term ‘group companies’, I feel that the benefit of the amendment may be extended to the acquirers also. Hence the said condition may be deemed to have been complied with in respect of the said acquisition.
6.3 With regard to the status of compliance with Regulation 6 &8 by the acquirers and transferors, it is observed that both the acquirers and transferors are promoters and had been shown as ‘promoters’ in the Reports submitted under Regulation 8 by the target company to the Stock Exchanges. In this regard it is to be noted that regulation 8 (2) of the said Regulations which provides for continual disclosures states that the promoter or every person having control over a company shall, within 21days from the financial year ending March 31, as well as the record date of the company for the purpose of declaration of dividend, disclose the number and percentage of shares or voting rights held by him and by persons acting in concert with him, in that company to the company. In view of the above, the transferee and transferor should have complied with the requirements of Regulation 6 and 8 of the said Regulations.
6.4 However, it is observed that Mayadevi Polycot Ltd. (one of the acquirers) had not complied with Regulation 8(2) for the year 1998, 1999, 2000, 2001 and 2002. Trident Infotech Corporation Ltd., ANG Securities Ltd. (transferor(s)) had not complied with Regulation 6(1) and 6(2) for the year 1997 and Regulation 8(1) and 8(2) for the years 1998, 1999 and 2000 and Abhishek Industries Ltd. had not complied with regulation 6(1) and 6(2) for the year 1997 and Regulation 8(1) and 8(2) for the years 1998, 1999, 2000 and 2001.
6.5 The timely disclosures contemplated under the Regulations 6, 7 and 8 of the said Regulations are important from the point of view of the shareholders. As the transferors and the transferees failed to comply with the conditions stipulated under the provisions of regulation 3(1)(e)(i) of the said Regulations the acquisition made by the acquirers is not eligible for exemption from the provisions of Regulations 10, 11 and 12 of the said Regulations.
6.6 I further find that pursuant to the said acquisition of 61.97% of equity shares by the acquirers, the shareholding of the promoter group along with persons acting in concert remained at 62% and hence there was no change in control over the target company. Therefore, Regulation 12 of the said Regulations was, prima facie not violated.
6.7 In view of the above, by virtue of the said acquisition without complying with the requirements of the provisions of regulation 3(1)(e)(i) of the said Regulations the acquirers violated the provisions of Regulation 10 read with 14(1) & 14(3) of the said Regulation.
7.0 In view of the aforesaid, I find that in respect of the acquisition of 49,88,800 (61.97%) of equity shares of the target company, the acquirers do not fall within the ambit of the provisions of Regulation 3(1)(e)(i) of the said Regulations and therefore have violated the provisions of Regulation 10 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-
1) under section 15A(b) of the SEBI Act, 1992 for non compliance of Regulations 6 and 8 of the said Regulations by the acquirers and transferors.
2) under section 15H(ii) of the SEBI Act, 1992 for non compliance of Regulation 10 read with Regulation 14(1) and 14(3) of the said Regulations.
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T. M. NAGARAJAN
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Date: March 31, 2004
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WHOLE TIME MEMBER |
| Place: MUMBAI |
SECURITIES AND EXCHANGE BOARD OF INDIA |