ORDER
G.N. Bajpai, Chairman
1. Shri Kapil Jain, (hereinafter referred to as the `Acquirer’) alongwith Kapil Kumar & Sons (HUF), Mrs. Lata Jain, Shri Rahul Jain, Rahul Jain & Sons (HUF), Mrs Megha Jain, Shri Vikram Jain and Ms.Shweta Jain (hereinafter referred to as `persons acting in concert’) propose to acquire 16,50,000/- equity shares of M/s Vallabh Steels Ltd. having its registered office at G.T. Road, Pawa, Sahnewal, Ludhiana-141 120 (Punjab) (hereinafter referred to as `Target company’) by way of preferential allotment. The Acquirer and the persons acting in concert with him are part of promoter group of the Target company and hold 61.84% equity share capital of the target company. As a result of the proposed acquisition, the Acquirers have to make an open offer to the public shareholders of the Target company in terms of sub regulation (1) of regulation 11 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as “the Regulations”).
1.1 The shares of the Target company are listed at the Stock Exchange Mumbai, Delhi Stock Exchange, Ludhiana Stock Exchange and The Calcutta Stock Exchange.
2. The Acquirers made an application dated 21.03.03 under sub-regulation (2) of Regulation 4 of the Regulations to the Securities and Exchange Board of India (hereinafter referred to as “SEBI”) seeking exemption from compliance of the provisions of sub regulation (1) of Regulation 11 of the Regulations.
3. In the aforesaid application and letter dated 21.03.03, it was submitted that :
3.1 The Acquirers propose to acquire 16,50,000 shares representing 33.33% of the post issue paid up capital of the Target company at the price of Rs. 10/- per share by way of preferential allotment.
3.2 The Acquirer and the persons acting in concert are the promoters of the Target company. After the proposed preferential allotment the shareholding of the promoter group in the Target company will increase from 61.84% to 74.56% shares in the Target company.
3.3 The Acquirers are already in control in the Target company. The proposed acquisition would amount only to consolidation of shareholding.
3.4 The shareholding of the Acquirers pre and post-allotment will be as follows:-
Pre-allotment in terms of Shares
Post allotment in terms of Shares
Shareholders Category No. % No. %
Promoter Group including Acquirers 2040700 61.84% 3690700 74.56%
FIs / Banks – – – –
FIIs / NRIs / OCBs 300 – 300 –
Public 1259000 38.16% 1259000 25.44% Total 3300000 100.00 3300000 100.00
3.5 Punjab National Bank, the appraising and lead lending bank has stipulated that the amount of Rs. 165 lacs is to be brought in by promoters as their contribution in the shape of preferential offer to meet part of the project cost. This amount was to be brought in by March 31, 2003 which could not be brought in by way of rights or public issue in such a short time.
3.6 The conditions in the primary market were not conducive for the Target company to enter the capital market either with a public or rights issue.
3.7 The promoters would be subscribing to the shares of the Target company at a price of Rs. 10/- per share as against its current market price of Rs. 6.10/- and the average price of only Rs. 8.95/- for the last one year.
3.8 The interest of outside shareholders would not be adversely affected as after the implementation of the project the shareholder’s value is likely to increase substantially as the Target company was setting up a project through bank funding, promoters contributions and internal accruals without putting any burden on outside shareholders. The expected increase in profitability on implementation of the project was likely to enhance the shareholders value of existing shares also.
3.10 The acquirer alongwith persons acting in concert would be contributing Rs. 165 lacs to the proposed project and there is no intention to increase the stake of the promoters.
4. The above application dt. 21.03.03 for exemption was forwarded to the Takeover Panel on 24.4.2003 in terms of sub-regulation (4) of Regulation 4 of the Regulations. The Takeover Panel vide its report dated 30.04.2003 recommended, inter alia, as under:
“On the facts stated, the proposed preferential allotment appears to be in the overall interest of investors at large and grant of exemption, as sought, is recommended”
5. I have taken into consideration the application dated 21.03.03, the facts and documents available on record and also the recommendation of Takeover Panel.
6. I have noted that the Acquirers being the promoters of the Target company have provided funds to the Target company so that it could meet the stipulations of the Banks for sanction/ enhancement of their working capital limits.
6.1 I have also noted that the funds to the tune of Rs. 165 lacs, so given by the Acquirers to the Target company, could not have been brought in by way of rights or public issue in such a short time and the Target company proposes to issue 16,50,000 shares on preferential basis representing 33.33% of the post issued paid up capital to the Acquirers against the aforesaid sum so advanced by acquirers.
6.2 I have also observed that in the instant case, the general meeting of shareholders of the Target company is yet to be convened by the Board of the Target company for getting the approval of the shareholders for the proposed preferential allotment in favour of the Acquirers.
6.3 I have noted that pursuant to the proposed preferential allotment, there would be no change in control of the Target company.
6.4 In the facts and circumstances of the instant case, and on the basis of the recommendation of the Takeover panel, I find merit in the exemption application of the Acquirers. I find that the aforesaid preferential allotment would increase the shareholding of the Acquirers from 61.84% to 74.56% and would not be detrimental to the interests of the public shareholders, if the same is made pursuant to the consent of public shareholders of the Target company in the general meeting by way of resolution and the Acquirers being interested party abstain from voting in respect of the aforesaid resolution.
7. Taking into consideration the above, the recommendation of the Takeover Panel and the interest of the public shareholders of the Target company, in exercise of the powers conferred upon me under sub section (3) of Section 4 of the Securities and Exchange Board of India Act 1992 (hereinafter referred to as “SEBI Act” ) read with sub regulation (6) of regulation 4 of the Regulations and for the reasons recorded hereinabove, I hereby, grant exemption to the Acquirers from complying with the provisions as contained in Chapter III of the Regulations with regard to the proposed preferential allotment of 16,50,000 equity shares of the Target company in favour of the Acquirers subject to fulfillment of the following conditions :-
a. A general meeting of shareholders of the Target company be called for passing a fresh special Resolution u/s 81(1A) of Companies Act for the said preferential allotment in favour of the Acquirers.
b. Following disclosures be made in the explanatory statement u/s 173 of the Companies Act forming a part of the Notice :
i. the price at which the allotment is proposed,
ii. the identity of the person(s) to whom the allotment is proposed,
iii. the purpose of and reason for such allotment,
iv. consequential changes, if any, in the board of directors of the Target company and in voting rights, the shareholding pattern of the Target company, and
v. whether such allotment would result in change in control over the Target company.
c. The guidelines for preferential allotment (including pricing) as prescribed under Chapter XIII of SEBI (Disclosure and Investor Protection) Guidelines, 2000 as amended from time to time be complied with.
d. 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” be provided to the shareholders of the Target company. The notice to shareholders of the Target company shall include a postage pre-paid envelope for facilitating the consent or dissent.
e. The prospective Acquirers (promoter group shareholders) of the target company, being interested party to the resolution, shall abstain from voting in respect of the resolution.
8. The Acquirers are also directed that :-
(i) the proposed preferential allotment be completed within 3 months from the date of passing of this Order and a report under regulation 3(4) on the same shall be filed by the Acquirers with SEBI.
(ii) 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 shall also be submitted to the SEBI along with the said Report.
9. In case of failure of the Acquirers to comply with the aforesaid conditions while making the preferential allotment, the Acquirers shall be liable to make open offer in terms of the Regulations, which would be without prejudice to any other action SEBI may take in terms of the Regulations and the SEBI Act.
