SECURITIES AND EXCHANGE BOARD OF INDIA 

ORDER

WTMO/03/CFD/04/2006

1.0 BACKGROUND

1.1 N. R. Agarwal Industries Ltd (hereinafter referred to as ‘the target company’) is a public company, incorporated under the Companies Act, 1956  having its registered office at 415-418, Janki Centre, 4^th Floor, 29, Shah Industrial Estate, Off. Veera Desai Road, Andheri (West), Mumbai – 400 058.

1.2 The equity shares of the target company are listed at the Bombay Stock Exchange Ltd, the Ahmedabad Stock Exchange Ltd and the Delhi Stock Exchange Association Ltd.

1.3 Shri Rajendra N. Agarwal  and Smt. Reena R. Agarwal (hereinafter referred to as ‘the acquirers’) jointly hold 3.14% equity shares in the target company. The acquirers propose to acquire 6,50,000 (6.34%) equity shares of the target company by way of purchase from Shri Saifee A. Jani, Smt. Farzana Jani and Westend Paper & Board Pvt Ltd. (hereinafter referred to as ‘the transferors’) at the rate of Rs.10/- per equity share. The acquirers and the transferors are part of the promoter group of the target company and thus, the proposed acquisition is stated to be by way of inter se transfer of shares amongst promoters of the target company.

2.0 APPLICATION FOR EXEMPTION –

2.1 The acquirers have, vide letter dated 14.9.2005, made an application 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, 11 and 12 of the Takeover Regulations in respect of the proposed acquisition of 6.34% of equity shares of the target company. In the said application, the acquirers have made the following submissions:

a.      The promoter group including persons acting in concert with promoters of the target company earlier acquired 41,00,000 equity shares at the rate of Rs.10 per share by way of preferential allotment made by the target company in the year 2004 pursuant to exemption granted by SEBI vide Exemption Order No. MO/51/CFD/08/04 dated 05.08.2004. The said 41,00,000 equity shares are listed with the stock exchange and has been admitted in demat form with NSDL and CDSL.

b.      The promoters including the present acquirers wanted to acquire all the 41,00,000 equity shares under the said preferential issue but due to financial constraints, they acquired at that time only 34,50,000 equity shares and arranged for the balance (6,50,000) shares to be taken up by the other promoters (i.e. the transferors) with an undertaking that whenever the transferors would be in need of funds, the promoters would buy those shares from them at the issue price.

c.      The transferors collectively hold 7, 94,800 (7.75%) equity shares in the target company. The transferors have approached the acquirers asking them to buy the shares acquired by them pursuant to the preferential issue. After the transfer of said 6, 50,000 (6.34%) equity shares, the transferors’ holding in the target company will be reduced to 1.41% and the acquirers’ shareholding would increase from 3,21,551 (3.14%) to 9,71,551 (9.48%) equity shares in the total paid up capital of the target company and the shareholding of the promoter group (excluding the shareholding of the transferors) would increase from 505884 equity shares (49.36%) to 5708845 equity shares (55.7%) in the target company.

d.      The proposed acquisition is by way of inter se transfer of shares amongst the promoter group and there is no fresh issue of equity shares by the target company. The acquirers and transferorss are part of the promoter group and hence the proposed acquisition may be regarded as inter se transfer amongst promoters under Regulation 3(1)(e)(iii) of the Takeover Regulations.

e.      The two of the transferors viz., Shri Saifee A. Jani and Smt. Farzana Jani are holding the equity shares in the target company for more than 3 years. However, Westend Paper & Board Pvt Ltd.( the other tranmsferor) has not been holding equity shares in the target company for a period of three years prior to the proposed transfer as it became shareholder in the target company pursuant to allotment of 5,00,000 shares on preferential basis on 10.11. 2004 pursuant to the above mentioned exemption order.  Hence the application has been made for exemption from Chapter III of the Takeover Regulations for the said inter se transfer of equity shares among promoters.

f.        The shares proposed to be transferred are subject to lock-in as per the SEBI (Disclosure and Investor Protection) Guidelines, 2000 and even after the inter se transfer of shares amongst the promoter group as aforesaid the said shares will continue to be under lock-in till the expiry of the lock-in period.

g.      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 are already in the promoter group.

h.      As on 12.09.05 the opening and closing prices of the shares of the target company at the Bombay Stock Exchange Limited were Rs. 34.85 and 34.15, respectively. The proposed transfer is at the rate of Rs. 10/- per share.

2.2 The acquirers vide letter dated 05.01.2006 further submit that the transferors and the acquirers have complied with the provisions of Chapter II of the Takeover Regulations. The target company vide letters dated 18.01.2006 and 01.02.2006 has also confirmed that the acquirers and the transferors have complied with the provisions of Chapter II of the Takeover Regulations.

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

3.0 RECOMMENDATION OF THE TAKEOVER PANEL –

3.1 The aforesaid application was forwarded to the Takeover Panel in terms of sub-regulation (4) of Regulation 4 of the Takeover Regulations. The Takeover Panel in its report dated 24.11.2005 has recommended as under –

“……… In the facts stated, grant of exemption as sought is recommended except that the price to be fixed as per applicable provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares & Takeovers) Regulations, 1997.”

4.0 FINDINGS

4.1           I have carefully considered the application dated 14.9.2005 and have taken into consideration the above mentioned recommendations of the Takeover Panel, letters dated 05.01.2006, 18.01.2006, 01.02.2006 and 17.02.2006 of the acquirers and the target company and other relevant materials available on record.  In the instant case, the proposed acquisition is by way of transfer of shares from transferors to the acquirers. There is no fresh issue of shares by the target company and there would not be any change in control of management in the target company.

4.2 I note that as per Reg. 3(1)(e)(iii) (b) of the Takeover Regulations, acquisition pursuant to transfer of shares amongst promoters is eligible for exemption from the applicability of the Regulations 10, 11 and 12 of the Takeover Regulations subject to the acquirer complying with the following conditions -

(a). The transferor(s) and transferee(s) are promoters in terms of provisions of Regulation 2(1)(h) of the Regulations.

(b). The transferor(s) as well as the transferee(s) have been holding shares in the Target Company for a period of atleast three years prior to the date of the acquisition.

(c). The provisions of Chapter II of the Takeover Regulations have been complied with within the specified time-limit by both the transferor(s) and the transferee(s).

(d). The inter se transfer price should not exceed 25% of the price determined in terms of Regulations 20(4) and 20(5) of the Takeover Regulations.

4.3 From the letter dated 05.01.2006 and 18.01.06 it is noted that in the disclosures made as per the requirements stipulated in Regulation 8(3) of the Takeover Regulations for the year ended March 31, 2005 the acquirers and the transferors have been shown as ‘promoter or every person acting in concert with him’. I find that in the instant case the proposed acquisition of shares is by way of inter se transfer amongst promoters of the target company. It is noted that the acquirers and the two transferors viz. Shri Saifee A. Jani and Smt. Farzana Jani have been  holding the equity shares in the target company for more than 3 years prior to the date of acquisition. However, the other transferor viz., Westend Paper & Boards Pvt Ltd, became shareholder of the target company in November 2004 after preferential allotment of 5,00,000 equity shares by the target company pursuant to the exemption order dated 05.08.2004. In my view this appears to be sufficient compliance of the condition regarding three years holding by transferor (s) and transferee (s).Further, the acquirers and the transferors have complied with the applicable provisions of Chapter II (regulations 6 and 8) of the Takeover Regulations.

4.4. The shares of the target company are frequently traded on BSE and infrequently traded on other stock exchanges where the equity shares of the target company are listed.The price of the equity shares of the target company determined in terms of Regulation 20(4) is Rs.35.61/- per share. Under the proposed acquisition, the shares are proposed to be acquired at Rs.10/- per share which is not at a premium to the price in terms of Regulation 20(4). Therefore, I find that the condition stipulated in Explanation II regulation 3 (1) (e) (iii) and (iv) of the Takeover Regulations and as recommended by the Takeover Panel is complied with in the instant case. Therefore, under the facts and circumstances of this case, the present case is a fit case for exemption under regulation 3 of the Takeover Regulations.

4.5 I also take note of the fact that in the instant case, the 6,50,000 (6.34%) equity shares of the target company, which are proposed to be sold by transferors to the acquirers, were allotted to the transferors on 10.11.2004 on preferential basis. These shares are subject to lock-in requirements specified in SEBI (Disclosure and Investor Protection) Guidelines, 2000. In terms of clause 13.3.2 of the said Guidelines the locked - in shares may be transferred to and amongst promoter / promoter group or persons in control of the company subject to the continuation of the lock-in in the hands of the transferee (s) for the remaining period and compliance of the Takeover Regulations, as applicable. In this case, the lock - in period in respect of the shares proposed to be transferred is continuing. Therefore, the shares transferred to the acquirer shall continue to be locked- in the hands of the acquirer for remaining period of lock-in.

4.6 As required under Regulation 3(3) of the Takeover Regulations, the transferee (Acquirer) should inform the stock exchanges at least 4 working days in advance of the date of proposed acquisition in case of acquisition exceeding 5% of the voting share capital of the target company. Further,  the transferee (Acquirer) shall file a report with SEBI in the specified format within 21 days of the date of acquisition along with requisite fees prescribed, in terms of Regulations 3(4) and 3(5) of the Regulations.

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 Regulation 4(6) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby dispose of the application dated 14.09.2005 and grant exemption to the proposed transaction from the applicability of Chapter III of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 subject to the condition that the 6,50,000 (6.34%) shares transferred to the acquirers by the transferors shall be locked- in the hands of the acquirers for remaining period of lock-in in terms of the SEBI (Disclosure and Investor Protection) Guidelines, 2000.

5.2 Further, the acquirer shall ensure compliance with the provisions of regulations 3 (3), 3 (4) and 3 (5) of the Takeover Regulations as mentioned above in paragraph 4.6.