SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER

WTMO/ 48 /CFD/10 /2006

1.0 BACKGROUND

1.1 South Asian Enterprises Ltd (hereinafter referred to as ‘the target company’) is a public company, limited by shares incorporated under the Companies Act, 1956, having its registered office at Mikky House, K- Block, Kidwai Nagar, Kanpur (U.P.) - 208011.

1.2 The equity shares of the target company are listed on the Bombay Stock Exchange Ltd. (BSE) and the Ahmedabad Stock Exchange Ltd. (ASE)

2.0 APPLICATION FOR EXEMPTION –

2.1 Vide letter dated February 23, 2006 VLS Securities Limited and VLS Investments Inc. (hereinafter collectively referred to as ‘the acquirers’) said to be the wholly owned subsidiaries of VLS Finance Ltd. (hereinafter referred to as ‘transferor’) have filed an application with the Securities and Exchange Board of India (SEBI) under regulation 4(2) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (hereinafter referred to as ‘the Takeover Regulations’) seeking exemption from the applicability of Regulation 10 of the Takeover Regulations with respect to the proposed acquisition of 17,11,289 (42.7822%) equity shares in the target company from the transferor.

2.2  The acquirers have inter alia made the following submissions in their application : -

a.      The first named acquirer, i.e., VLS Securities Ltd. is a Category I Merchant Banker Registered with SEBI vide registration no. INM000000198 and a stock broker (member of NSE) vide SEBI registration no. INB230880735. The second acquirer, i.e., VLS Investments Inc. is a limited liability corporation incorporated at Delaware, U.S.A. Both the acquirers are wholly owned subsidiaries of the transferor.

b.      The acquirers propose to acquire 17,11,289 equity shares amounting to 42.7822% equity capital in the target company at the rate of Rs.7.08/- per share from the transferor. The source of funds for consideration in respect of the proposed acquisition will be mainly from own funds of both the acquirers and/or the issue of further capital to the transferor.

c.      The acquirers and the transferor are covered under the definition of ‘group’ coming within the definition of ‘group’ as defined in the Monopolies and Restrictive Trade Practices Act, 1969. The proposed acquisition is by way of inter se transfer amongst group. The transferor alongwith the other constituents of the group collectively exercise control over the target company.

d.      The acquirers are not holding any share in the target company. The acquirers do not have any other persons acting in concert (PAC) with them in respect of the proposed acquisition. Although in terms of regulation 2(1)(e)(2)(i) of the Takeover Regulations, the holding company of the acquirers is deemed to be the person acting in concert, the transferor i.e. the holding company of acquirers, being the seller of the shares of the target company has not been declared as PAC by the acquirers in respect of the proposed transaction .

e.      There will not be any change in the control in the target company pursuant to the proposed transfer.

f.        None of the acquirers have made any open offer in terms of the said regulations in the past. There has not been any instance of adjudication proceeding against either of the acquirers by the SEBI.

g.      Neither of the acquirers has filed any application under regulation 4 of the Takeover Regulation. Further, no report has been filed by either of the applicants under regulation 3(4) of the Takeover Regulations with SEBI.

h.      The proposed transfer is, in effect, an inter se transfer amongst group as contemplated in regulation 3 (1) (e) (i) of the Takeover Regulations. However, the disclosure to that effect in the previous Annual Report (for the year 2004-05) of the target company was not made and therefore specific exemption is sought for the purpose of compliance with regulation 10 of the Takeover Regulations.

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

2.4 The acquirers vide letter dated March 06, 2006 further submitted that the transferor has complied with the provisions of Chapter II of the Takeover Regulations.

3.0 RECOMMENDATION OF THE TAKEOVER PANEL –

3.1 The aforesaid application dated 23.2.2006 was forwarded to the Takeover Panel in terms of sub-regulation (4) of Regulation 4 of the Takeover Regulations. The Takeover Panel provided its report dated 9.03.2006 by which the Panel has recommended as under –

“The Acquirers are wholly owned subsidiaries of VLS Finance Ltd., the transferors of equity shares proposed to be acquired. The Transferor and Acquirers are covered within the definition of ‘group’ as given in regulation 3(1)(e)(i) of the Takeover Code read with Section 2(ef) of the MRTP Act, 1969. The proposed transfer of shares is an inter se transfer amongst group as defined in Regulation 3(1)(e)(i) of the Takeover Code and would ordinarily be covered under the exemption category stated in the Takeover Code. However, the ‘group’ is not disclosed in the previous annual report for the year 2004-05 of the target company and as such, exemption is sought from the applicability of Regulation 10 of the Takeover Code as automatic exemption under Regulation 3 (1)(e)(i) is not available.  

On the facts stated in the Application, grant of exemption as sought is recommended. However, the Securities and Exchange Board of India may, if so desired, look into the status of pending cases against any of the parties involved.  ”

4.0 FINDINGS

4.1       I have carefully considered the application dated 23.02.2006, the further submissions made by the acquirers vide their letter dated 06.03.06, the recommendations of the Takeover Panel and the relevant materials available on record.

4.2 I observe that pursuant to the proposed acquisition the shareholding of the acquirers in the target company will increase from nil to 42.7822%. The proposed acquisition, unless exempted under regulation 3 of the Takeover Regulations, would attract regulation 10 thereof. In terms of regulation 3(1)(e)(i) of the Takeover Regulations, regulation 10 does not apply in case of inter se transfer of shares amongst ‘group’ coming within the definition of ‘group’ as defined in the Monopolies and Restrictive Trade Practices Act, 1969 where persons constituting such group have been shown as group in the last published Annual Report of the target company.  

4.3 In the present case, admittedly, though the acquirers and the transferor are part of the ‘group’ for the purposes of regulation 3 (1) (e) (i) of the Takeover Regulations they have not been shown as ‘group’ in the last published Annual Report of the target company. Therefore, the proposed acquisition is not eligible for automatic exemption from applicability of regulation 10 of the Takeover Regulations since the condition regarding disclosure of acquirers and the transferor as ‘group’ in the last published Annual Report of the target company has not been fulfilled.

4.4 However, in the present case, since the case is not eligible under any of the categories eligible for automatic exemption, the application had been made for the purpose of considering the case under regulation 3 (1) (l) and the same has been referred to the Takeover Panel. In my view, the Takeover Panel has to consider the facts and circumstances of the case for the purposes of regulation 3 (1) (l) of the Takeover Regulations i.e. the other case not eligible for automatic exemption under regulation 3 (1) (a) to (k) of the Takeover Regulations.

4.5 In view of the above, I have considered the facts and circumstances of this case and note that the proposed inter se transfer of equity shares will not cause any change in the control and management of the target company as the acquirers as well as the target company are the wholly owned subsidiaries of the transferor. Consequent to the proposed acquisition, there will not be any change in the shareholding or voting rights of the entire group in the target company. Further, the transferor has complied with the provisions of Chapter II of the Takeover Regulations.

4.6 On the facts and circumstances of the present case, I note that the proposed acquisition is transfer of shares from the transferor who is part of the promoter group of the target company to the acquirers who form part of the ‘group’ alongwith the transferor. Thus, even consequent to the proposed transfer the acquirers and the transferor will continue to remain the promoters or persons acting in concert with them and pursuant to the proposed acquisition there would not be any change in control in the management of the target company.

4.7 As observed by the Panel, SEBI has examined the fact about the pending actions against the transferor. It is noted that a preliminary inquiry initiated by SEBI in the context of complaints alleging price manipulation / insider trading in the shares of the VLS Finance Ltd. (transferor) was closed in view of non availability of old records. In view of this, I am not able to draw any adverse reference in respect of the proposed transaction.

4.8 Taking into account all the mitigating facts and circumstances, as mentioned above, in my view, insisting on the acquirer to make public announcement in accordance with the provisions of regulation 10 of the Takeover Regulations may not be desirable.

5.0 ORDER

5.1 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 dispose of the application dated February 23, 2006 filed by M/s. VLS Securities Ltd. and VLS Investments Inc.