SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER

ORDER UNDER REGULATION 4(6) OF SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997 IN THE MATTER OF PROPOSED ACQUISITION OF SHARES OF ITI LIMITED BY THE UNION OF INDIA

WTMO/CFD/135/03/05

1.0       BACKGROUND

1.1             ITI Ltd. (hereinafter referred to as ‘the target company’) is a public limited company incorporated under the Companies Act, 1956 and having its registered office at 45/1 Magrath Road, Bangalore – 560 025.

1.2             The target company is a manufacturer and renders services in telephone, telegraph, radio and railway signnalling etc. The equity shares of the target company are listed on the Bangalore Stock Exchange Association Ltd., The Stock Exchange Mumbai and National Stock Exchange of India Limited. 

1.3       The Union of India (hereinafter referred to as the acquirer) is presently holding 6,74,68,190 equity shares of the target company which constitutes 76.67% of its paid up equity capital.

2.0       Application for Exemption 

2.1             The target company submitted an application dated February 11, 2005, (hereinafter called the said application) on behalf of the acquirer as authorised by the Ministry of Communications & Information Technology to the Securities  and  Exchange  Board  of  India  (hereinafter referred to as ‘SEBI’) under sub-regulation (2) of regulation 4 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as ‘the said Regulations’) seeking exemption from making a public offer in respect of the proposed acquisition of shares of 20,00,00,000 by the Union of India by way of preferential allotment pursuant to a Revival Package sanctioned by the acquirer to the target company. After the proposed acquisition the shareholding of the Union of India would increase from 76.67% to 92.87% and the non- promoter shareholding would reduce from 22.98% to 7.02% (excluding the shareholding of Karnataka Government ). 

2.2              As per the said application, the shareholding pattern of the target company before and after the proposed acquisition, is as follows:

3.0       SUBMISSIONS IN THE EXEMPTION APPLICATION

3.1       In the said application, it was submitted by the target company inter alia as under;

            i)    it had submitted a revival plan to the Union of India during the year 2003 seeking financial assistance.

ii)    the Union of India had sanctioned a financial package for the target company including infusion of equity capital by the Union of India to the extent of Rs. 200 crore.   

iii) it had made a reference under section 15 of Sick Industrial Companies (Special Provisions) Act, 1985, in the year 2003-2004 and the said reference was registered by the Board for Industrial and Financial Reconstruction( BIFR ) as 504/2004.    

In view of the above grounds, the target company sought exemption from making a public offer in respect of the proposed acquisition of 20,00,00,000 shares by the Union of India by way of preferential allotment from making a public offer.   

4.0       TAKEOVER PANEL REPORT

4.1             The said application dated February 11, 2005 was forwarded by SEBI to the Takeover Panel in terms of sub-regulation (4) of regulation 4 of the said Regulations. The Takeover Panel vide its report dated February 17, 2005 had recommended for exemption as sought by the acquirers with an observation that :-

                      “The target company is a Public Sector undertaking coming under the Department of Communications Government of India.  The target company had submitted a Revival Plan to the Government of India seeking financial assistance for revival of the target company which is sanctioned and a Financial Package including infusion of equity capital by the Government of India to the extent of Rs. 200 crores is provided.  The target company has already enhanced its Authorised share Capital from Rs. 500 crores to Rs. 700/- crores for infusion of Rs. 200 crores of Equity Shares capital by Government of India.  The Application being to seek exemption from the relevant provisions of the Takeover Code to enable President of India to subscribe to the Equity capital of target company at par to the extent of Rs. 200 crores under preferential allotment basis, grant of exemption as sought is recommended. ”       

5.0             CONSIDERATION OF THE ISSUES & FINDINGS:

5.1             I have perused the application filed by the target company on behalf of the acquirer, the recommendation made by the Takeover Panel and other relevant material on record. I have noted that the proposed acquisition of shares by the acquirer is pursuant to a revival package sanctioned by the acquirer, vide its letter dated December 24, 2004 to the target company. I observed that the said revival package was in the interest of the shareholders of the target company.  I have further noted that as per the said Revival Plan, the acquirer infused equity capital to the extent of Rs.200/- crores.  Importantly, I have also noted that the there would not be any change in control pursuant to the proposed acquisition of shares by the acquirer and the said acquisition would not adversely affect the interest of the shareholders.

5.2             I have also noted that pursuant to the proposed acquisition, the non promoter shareholding would be reduced to 7.02% from the existing 22.98% of the paid up equity capital of the target company.  The proposed acquisition of shares is exempted from the applicability of clause 40 A of the Listing Agreement as a reference was made by the target company to BIFR under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985.  

5.3             I have also observed that the grant of exemption is necessary in order to protect the interests of the target company, which is surviving for its revival, and its shareholders. Further the grant of exemption is required for enabling the acquirer to infuse capital to the target company in consideration of the proposed allotment of shares.

5.4             In view of the above facts and circumstances, I am of the considered view that it is a fit case for granting exemption from making an open offer under the provisions of the said Regulations, in the interest of the target company and its shareholders.

6.0       ORDER

6.1       Having regard to the above, and the recommendations made by the Takeover Panel and also in the interest of the public shareholders of the target company, I, in exercise of the powers conferred upon me under 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, do hereby grant exemption to the acquirer, namely Union of India from making an open    offer as specified under SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 with regard to the proposed acquisition of 20,00,00,000 equity shares of ITI Limited,  alloted on preferential basis. 

7.0       This order shall come into force with immediate effect.

MADHUKAR 

        WHOLE TIME MEMBER

SECURITIES AND EXCHANGE BOARD OF INDIA

Place: Mumbai

Dated: March   23,  2005