CO/80/CFD/11/2004 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER
IN THE MATTER OF PROPOSED ACQUISITION OF SHARES OF ANDHRA PRADESH TANNERIES LTD. (EXEMPTION APPLICATION FILED UNDER REGULATION 4(2) OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997).
1.0 BACKGROUND
1.1 Andhra Pradesh Tanneries Ltd. (hereinafter referred to as ‘the target company’) is a public limited company incorporated under the Companies Act, 1956, having its registered office at Leather Complex Area, Nellimarla, Vizianagaram Dist. Andhra Pradesh. The promoters of the target company are Bambolli Holdings Pvt. Ltd. and Smt. Gita R Pandit.
1.2 The equity shares of the target company are listed on The Stock Exchange, Mumbai and Hyderabad Stock Exchange Ltd.
1.3 Bambolli Holdings Pvt. Ltd. and the persons acting in concert, namely, Smt. Gita R Pandit, Smt Urmila V Pandit, Smt Arati S. Saran and Smt. Shefali S Shah, are hereinafter collectively referred to as ‘acquirers’. The acquirers are presently holding 55.04% of the total paid up and voting capital of the target company. They now propose to acquire 16,26,100 equity shares of Rs. 10 each and 20,00,000 preference shares of Rs. 10 each at par, of the target company, through the preferential allotment and have requested for exemption from applicability of the provisions of regulations 10 and 11 and Chapter III of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (hereinafter referred to as ‘Takeover Regulations’) with respect to the said acquisition.
APPLICATION FOR EXEMPTION
2.0 The acquirers made an application dated 25.08.04 under the Takeover Regulations, seeking exemption from the applicability of regulations 10 & 11 and Chapter III of the said Regulations, in respect of the aforesaid proposed acquisition of 16,26,100 equity shares of Rs. 10 each and 20,00,000 preference shares of Rs. 10 each at par, of the target company, to be acquired through preferential allotment. As per the said application, the current shareholding pattern of the target company, is as under:
*These shares will be acquired by one of the acquirers viz. Bambolli Holdings Pvt. Ltd. 3.0 SUBMISSIONS IN THE EXEMPTION APPLICATION In the application dated 25.08.2004, the acquirers have interalia submitted that: a) the acquirers had entered into a Share Purchase Agreement dated 16.12.2003 with the previous promoters of the target company and purchased 3,13,422 equity shares of Rs. 10/- each of the target company, representing 54.61% of the paid up and voting capital of the target company at a price of Rs. 7/- per share. b) the acquirers then made a public announcement in terms of Takeover Regulations to acquire 1,15,000 (20%) equity shares of Rs. 10/- each. However, the response to the said public announcement was very weak and the acquirers could get only 2,450 shares (0.43%) of the paid up and voting capital of the target company. Thus, pursuant to the open offer, the aggregate shareholding of the acquirers increased to 3,15,872 equity shares of the target company, representing 55.04% of the total paid up and voting capital of the target company. c) the acquirers now propose to acquire 16,26,100 equity shares of Rs. 10 each and 20,00,000 preference shares of Rs. 10 each at par, of the target company, through preferential allotment. d) the acquirers are already in control over the target company . e) the target company has been incurring losses and its entire net worth has eroded. The previous management of the target company had applied on 03.08.02 to the Commissioner of Industries, Government of Andhra Pradesh, Hyderabad, for revival of sick units under Andhra Pradesh Revival Scheme – Guidelines dated June 25, 2001 issued by the Government of Andhra Pradesh. No response was received on the said application. f) the net worth of the target company being negative, the target company is not in a position to acquire funds from banks, financial institutions or other sources. g) the acquirers have therefore decided to bring in funds from their own sources for revival of the target company. h) the acquirers propose to bring in Rs. 3.63 crores by way of equity as well as preference share capital and the balance amount, as required, would be arranged by way of unsecured loan from promoter / acquirers. i) the acquirers are well versed with the Leather and Footwear business and have promoted another company in the Footwear industry. j) the interest of the shareholders would not be jeopardised in making preferential issues to the acquirers. k) after the exemption sought by the acquirer is granted, the target company would pass necessary resolution of the shareholders u/s 81(1A) of the Companies Act, 1956. 4.0 RECOMMENDATION OF THE TAKEOVER PANEL 4.1 The aforesaid application dated 25.08.04 was forwarded to the Takeover Panel in terms of sub-regulation (4) of regulation 4 of the Takeover Regulations. The Takeover Panel, vide its report dated 09.09.04, has recommended as under – “ The acquirers are already in control and management of the target company. The target company appears to be a Sick Company. Funds are required to be infused in the target company for revival of the target company. The acquirers intend to bring in funds by way of preferential issue to the promoters, that is, the acquirers. By the promoters infusing funds in the target company by this method is likely to be in the benefit of the shareholders of the target company. In the circumstances stated, the grant of exemption as sought is recommended subject, however, to the target company passing resolution of the shareholders under section 81(1A) of the Companies Act, 1956 and the acquirers absenting from voting at such resolution.” 5.0 FINDINGS 5.1 I have carefully gone through the application dated 25.08.04 and taken into consideration the relevant material available on record and the above mentioned recommendation of the Takeover Panel. 5.2 The acquirers have stated in the application that the target company is a sick company and funds are required for its revival and growth. They have further submitted that the net worth of the target company being negative, it is not in a position to acquire funds from banks, financial institutions or other sources and hence the acquirers have decided to bring in funds from their own sources for the revival of the target company. They propose to bring in about Rs. 3.63 crores by way of equity as well as preference share capital and the balance amount, as required, would be arranged by way of unsecured loans from promoters/acquirers. 5.3 The acquirers have also stated in the application that they are experienced in the leather and footwear business and had promoted another company in the footwear industry. 5.4 I have observed that the proposed acquisition is for the purpose of infusion of funds to revive the target company and to make the business of the target company profitable. It is also observed from the application filed by the acquirers that they have sufficient experience in the field of leather business. Further, as the acquirers are already in control of the target company, there won’t be any change in control. I have also noted that the shares of the target company are not traded and the number of shareholders are only 439. Besides, the acquirers are already in control of the target company. 5.5 As regards the proposed acquisition of 20,00,000 preference shares by the acquirers, I have noted the submission of the acquirers that the voting rights with respect to these shares would be exercised only in terms of section 87 of the Companies Act, 1956 and therefore, no voting rights would be exercisable pursuant to proposed allotment. Hence, as the preferential allotment of preference shares would not result in acquisition of voting rights at the time of the allotment, I find no reason to consider the request of exemption made by the acquirers for the proposed acquisition of preference shares, at this stage. However, it is made clear that, as the preference shares may be vested with voting rights in future, in terms of the provisions of the Companies Act, 1956, the acquirers shall comply with the applicable provisions of the Takeover Regulations at the appropriate time. 5.6 The acquirers vide letter dated September 23, 2004 interalia requested for the exemption from the requirement of one of the applicable conditions of Chapter III of the Takeovers Regulations, namely, the requirement of passing the special resolution u/s 81 (1A) of Companies Act, 1956 through postal ballot. The said request is made for the reason that the financial condition of the target company is weak and therefore it is not in a position to spend any money, except which directly relates to the revival of the target company. I have considered the said request made by the acquirers and observed that there is no necessity to waive the said requirement. In this regard, I have also noted that the acquirers themselves have agreed to comply with the aforesaid requirement in case the said request is not considered by Securities and Exchange Board of India. 5.7 In view of the above facts and circumstances, I agree with the recommendations of the Takeover Panel and consider the present case as a fit case for granting exemption from making a public announcement, as required under regulation 11(1) of the Takeover Regulations. However, in respect of the exemption sought by the acquirers for the proposed allotment of the preference shares to them, I observe that the said acquisition would not result in acquisition of voting rights at the time of allotment. In view of the above, it is found that no exemption is required to be considered or granted at present. However, the acquirers shall comply with the applicable provisions of the Takeover Regulations at the time when the preference shares allotted to them may be vested with voting rights in future (in terms of the provisions of the Companies Act). ORDER 6.0 In view of the above findings, 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, hereby grant exemption to the acquirers, namely Bambolli Holdings Pvt. Ltd. and the persons acting in concert, namely, Smt. Gita R Pandit, Smt Urmila V Pandit, Smt Arati S. Saran and Smt. Shefali S Shah, from complying with the provisions of Regulation 11(1) of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, with regard to the proposed acquisition of 16,26,100 equity shares of Rs. 10/- per share ,subject to the following conditions : i) The target company shall convene a general meeting of shareholders for passing a fresh special resolution under Section 81(1A) of Companies Act, 1956 for the aforesaid said preferential allotment to the acquirers. ii) The target company shall make the following disclosures in the explanatory statement u/s 173 of the Companies Act, 1956 forming a part of the notice: a the price at which the allotment is proposed, b the identity of such person(s), c the purpose of and reason for such allotment, d consequential changes, if any, in the board of directors of the target company and in voting rights, the shareholding pattern of the company, and e whether such allotment would result in change in control over the target company iii) the acquirers have to comply with the guidelines of SEBI for Preferential Allotment, including pricing guidelines, as prescribed under Chapter XIII of SEBI (Disclosure and Investor Protection) Guidelines, 2000. iv) the target company shall provide facility of voting through postal ballot for passing of the special resolution as per the procedure laid down for postal ballot in rule 2A and rule 5 of Companies (Passing of the Resolution by Postal Ballot) Rules, 2001. The notice to the shareholders shall also include a postage pre-paid envelope for facilitating the consent or dissent. iv) the acquirers, being interested parties to the resolution, shall abstain from voting in respect of the resolution. 6.2 The acquirers shall complete the transaction within 90 days from the date of the order and file a report under regulation 3(4) read with 3(5) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 thereafter, with SEBI, confirming compliance. 6.3 The acquirers are directed to file a certificate of Auditor / independent Chartered Accountant to the effect that all applicable provisions of the Regulations / conditions as stated hereinbefore have been complied with, to SEBI, along with the report mentioned at para 6.2.
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