EXEMPTION APPLICATION FILED UNDER REGULATION 4(2) OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997.

WTMO/03/CFD/06/2005 

1.0       BACKGROUND 

1.1       Bhoruka Financial Services Ltd. (hereinafter referred to as ‘the target company’) having its registered office at Whitefield Road, Mahadevapura Post, Bangalore – 560 048, is a company registered under the Companies Act, 1956.  The shares of the target company are listed on Bangalore Stock Exchange Limited.  

2.0       APPLICATION FOR EXEMPTION  

2.1       DLF Commercial Developers Ltd. (hereinafter referred to as ‘acquirer’) is a public limited company which belongs to DLF Group and is a subsidiary company of DLF Universal Ltd. The acquirer filed an application dated October 30, 2004 under regulation 4(2) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as ‘Takeover Regulations’), with Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’). The said application is filed seeking exemption from making Public Announcement and complying with other formalities under Chapter III of the Takeover Regulations in respect of open offer to be made under Regulations 10 and 12 of the Takeover Regulations to the balance public shareholders pursuant to the proposed acquisition of 1,98,850 equity shares / voting rights (98.73%), from the promoters of the target company and their relatives @ Rs. 2400/- per equity share.  

3.0       SUBMISSIONS IN THE EXEMPTION APPLICATION

3.1      a) as on date the acquirer is not holding any share in the target company.  After the proposed acquisition from the promoter and their relatives etc., the acquirer would hold 98.73% shares of the target company.  By virtue of the said acquisition the acquirer would acquire the majority shares/voting rights and the control over the target company.  

         b)   the target company is having only 26 public shareholders holding 1.27% shares of the target company. 

c) the shares of the target company are infrequently traded.  The acquirer is proposing to acquire the shares at Rs. 2,400/- per share, which is far above the price that could be arrived at following the parameters as stated in Regulation 20(5) of the Takeover Regulations.

         d) the target company has only 26 public shareholders and each one of them can be reached effectively by issuing registered acknowledgment due letters to them and thus the purpose of making the public offer could be effectively achieved.  No purpose would be served by making a public announcement/public offer and avoidable expenses involved in making public offer/public announcement can be avoided by granting exemption. 

         e) the exemption from the formalities as prescribed under Regulations 13,14,15,16 & 18 would expedite the process of proposed acquisition without affecting the interest of any of the public shareholders of the target company.  

3.2             The shareholding pattern of the target company before and after the proposed acquisition is as follows:

       *includes partnership firm whose shares are held in the names of the three partners.

4.0       RECOMMENDATION OF THE TAKEOVER PANEL  

4.1       The aforesaid application dated October 30, 2004 was forwarded to the Takeover Panel in terms of sub-regulation (4) of regulation 4 of the Takeovers Regulations. The Takeover Panel vide its report dated November 22, 2004 has recommended as under –

“As stated in the Application, besides the promoters and their relatives who hold 98.73% of shares of the target company, the target company has only 26 public shareholders holding 1.27% shares of the target company. The Acquirer is proposing to acquire the entire shareholding of the promoters and their relatives in the target company at the negotiated price of rs.2400/- per share. The proposed acquisition will result into change in control and management of the target company. The Acquirer is willing to make public offer to the remaining 26 public shareholders by issuing registered acknowledgement due letters. This would safeguard interest of the public shareholders of the target company.

Taking totality of circumstances into consideration, grant of exemption as sought is recommended subject, however, to the Acquirer-

               (i) making individual offers to each of the public shareholders of the target company by directly addressing offer letters offering to buy the shares held by such shareholders in the target company at the negotiated price of Rs. 2400/- per share;       

   (ii) sending such letters of offer to each of the public shareholders at the recorded addresses by registered acknowledgement due post and submitting certificate of auditor or independent Chartered Accountant to the effect that such offer letters were so posted;            

(iii) getting a Special Resolution passed by the Shareholders of the target company for the change in control and management of the target company.”

5.0             CONSIDERATION OF THE TAKEOVER PANEL REPORT AND FURTHER SUBMISSIONS OF THE ACQUIRER

5. 1      SEBI vide letter dated December 31, 2004, advised the acquirer that its aforesaid application was being considered subject to the conditions recommended by the Takeover Panel and following additional conditions, namely –  

·        The acquirer shall appoint an auditor/independent Chartered Accountant to operate the escrow account.

·        On completion of the acquisition the acquirer shall submit a certificate from the auditor/independent Chartered Accountant to the effect that all applicable provisions of Takeover Regulations and conditions in the SEBI order have been complied with.

            The acquirer was also advised to indicate its desire of personal hearing before the competent authority.

5.2       The acquirer, vide letter dated January 04, 2005 conveyed its acceptance to the conditions stipulated in the letter of SEBI dated December 31, 2004. By its letter dated June 09, 2005 the acquirer further submitted that it is agreeable to appoint a merchant banker instead of a auditor / chartered accountant to operate the escrow account and for submitting certificate to SEBI certifying that the offer letters were posted to each of the public shareholders by registered post acknowledgement due and that all applicable provisions of the Takeover Regulations and the conditions subject to which exemption may be granted have been complied with.  The acquirer has also submitted that it was not desirous of personal hearing before the competent authority.

6.0             FINDINGS

6.1             I have gone through the application dated October 30, 2004 and taken into consideration the relevant material available on record and the above mentioned recommendation of the Takeover Panel. I observe that the acquirer had sought an exemption from the formalities for open offer to be made to the 26 shareholders pursuant to the proposed acquisition particularly regulations 13,14,15,16 and 18 of the Takeover Regulations with respect to the proposed acquisition of 1,98,850 (98.73%), equity shares / voting rights of the target company from the promoters and their relatives etc. @ Rs. 2400/- per equity share.

6.2             In this regard, I have noted that the acquirer is not holding any shares of the target company, at present. I have further noted that the target company has only 26 public shareholders. 

6.3             It is noted that the shares of the target company are infrequently traded and the book value per share of the target company as on March 31, 2004 was Rs. 326.75/- and the price offered to the promoters and their relatives for the proposed acquisition is Rs. 2400/- per share.   In the instant case, the balance public shareholding, after the proposed acquisition would be, 2550 shares (1.27%).  The acquirer would acquire majority shares / voting rights and the control of the target company after the proposed acquisition.

6.4             I find merit in the submission of the acquirer that, since there are only 26 public shareholders holding only 2550 shares of the target company, no purpose would be served by making a public announcement and that the formalities of the proposed acquisition would be expedited if the same is exempted from certain provisions of the Takeover Regulations. The purpose of making a public offer would be adequately met by sending the offer letters to the 26 shareholders through registered post. 

6.5             As regards the recommendations of the Takeover Panel regarding the appointment of CA for operating the escrow account and for submission of certificate to SEBI, I am of the view that instead of a CA, who is not registered with SEBI, an entity registered with SEBI, in this case a merchant banker, would be more appropriate for ensuring compliance with requirements of regulations and conditions subject to which exemption may be granted. Therefore, I find that for the purposes of operating the escrow account and to certify that offer letters have been sent to individual public shareholders by Registered Post Acknowledgement Due and that all applicable provisions of Takeover Regulations and conditions in the SEBI order have been complied with, a Merchant Banker having certificate of registration from SEBI should be appointed.  In this regard, I have taken note of the submissions of the acquirer vide its letter dated 09^th June, 2005 whereby the acquirer has agreed to appoint the merchant banker for the aforesaid purposes.

6.6             In view of the above facts and circumstances I consider the present case fit for granting exemption from requirements of Regulations 14,15 and 16 regarding making a public announcement and Regulation 18 regarding filing of draft letter of offer and submission of letter of offer to SEBI with respect to the acquisition of 2550 equity shares representing 1.27% subject to the following conditions:-

(i)           That a special resolution shall be passed by the shareholders of the target company approving change in control and management of the target company;

(ii)         The acquirer shall make individual offers to each of the public shareholders of the target company by directly addressing offer letters offering to buy the shares held by such shareholders in the target company at the negotiated price of Rs. 2,400/- per share;

(iii)       The acquirer shall send such letters of offer to each of the public shareholders at the addresses available on record by registered acknowledgement due post;

(iv)        The acquirer shall appoint an SEBI registered Merchant Banker to operate the escrow account and shall on completion of the proposed acquisition, submit a certificate from the SEBI registered Merchant Banker to the effect that offer letters had been sent by acquirer  to individual public shareholders by Registered Post Acknowledgement Due and that all applicable provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and conditions provided in this order have been complied with.

7.0       ORDER

7.1      In view of the above findings, I, in exercise of the powers conferred upon me 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 acquirer, namely DLF Commercial Developers Ltd. from complying with the provisions of Regulation 14,15,16 and 18 of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 with regard to the proposed offer to the 26 public shareholders for the acquisition of 2550 equity shares to be made in terms of Regulation 10 and 12 of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 pursuant to the proposed acquisition of 1,98,850 equity shares (98.73%) of Bhoruka Financial Services Ltd., subject to the conditions specified in paragraph 6.6.  

7.2             The acquirer shall complete the proposed transaction within 90 days from the date of the order and shall file a status report with SEBI along with the certificate from the SEBI registered Merchant Banker as mentioned in para 6.6(iv).

                                                                                                                                                         MADHUKAR

Place:  Mumbai                                                                                                                     Whole Time Member

Date  : June 29, 2005                                                                             Securities and Exchange Board of India