2025 (6) TMI 1890 - Board - SEBI

Direct acquisitions of equity shares and voting rights in the Target Company by the Acquirer Trusts are proposed - directly acquire control over the Target Company - seeking exemption from the applicability of Regulations 3 and 4 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011 ( Takeover Regulations 2011 ) - interests of the public shareholders - Intension to streamline succession and welfare of the Family Members and their lineal descendants being members of the promoter group of the Target Company - Compliance with the conditions outlined in Chapter 8 of the SEBI Master Circular No. SEBI/HO/CFD/PoD-1/P/CIR/2023/31 - HELD THAT - The proposed acquisitions are in furtherance of an internal reorganization within the Promoter Family and are intended to streamline succession and promote welfare of Promoter Family. The proposed direct acquisitions would be non-commercial transactions which would not affect or prejudice the interests of the public shareholders of the Target Company in any manner. The trustees and the beneficiaries of the Acquirer Trusts are either individual promoters or their immediate relatives or lineal descendants. The pre-acquisition and post-acquisition shareholding of the Promoters and Promoter Group in the Target Company will remain the same. There will be no change in the public shareholding of the Target Company pursuant to the proposed acquisitions. The Target Company shall continue to be in compliance with the Minimum Public Shareholding requirements under the Securities Contracts Regulation Rules 1957 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015. The Acquirer Trusts have confirmed that they are in compliance with the conditions outlined in Chapter 8 of the SEBI Master Circular No. SEBI/HO/CFD/PoD-1/P/CIR/2023/31 dated February 16 2023 which contain the following clauses; Considering the aforementioned I am of the view that exemption as sought for in the Application may be granted to the Proposed Acquirers subject to certain conditions as ordered herein below. Hereby grant exemption to the Proposed Acquirers viz. Saraogi Family Trust and Saraogi Trust from complying with the requirements of Regulations 3(1) and 4 of the Takeover Regulations 2011 with respect to the proposed direct acquisitions in the Target Company viz. Balrampur Chini Mills Limited by way of the proposed transactions as mentioned in the Application. The exemption so granted is subject to the following conditions; The exemption granted above is limited to the requirements of making open offer under the Takeover Regulations 2011 and shall not be construed as exemption from the disclosure requirements under Chapter V of the aforesaid Regulations; compliance with the SEBI (Prohibition of Insider Trading) Regulations 2015 Listing Agreement / SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 or any other applicable Acts Rules and Regulations. The exemption granted above from making an open offer in respect of the Proposed Acquisitions shall remain valid for a period of one (1) year from the date of this Order and the Applicants shall complete the implementation of the Proposed Acquisitions within such period failing which the granted exemption shall lapse and cease to exist. The Application filed by Saraogi Family Trust and Saraogi Trust is accordingly disposed of.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this matter are:

(a) Whether the proposed direct acquisitions of shares and voting rights in the Target Company by the Acquirer Trusts attract the applicability of Regulations 3(1) and 4 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ("Takeover Regulations, 2011");

(b) Whether exemption from the obligation to make a public open offer under Regulations 3(1) and 4 of the Takeover Regulations, 2011 can be granted in respect of the proposed acquisitions by the Acquirer Trusts;

(c) Whether the proposed acquisitions constitute a change in control or ownership of the Target Company;

(d) Whether the proposed transactions adversely affect the interests of public shareholders or the securities market;

(e) Whether the Acquirer Trusts comply with the conditions stipulated under Chapter 8 of SEBI Master Circular No. SEBI/HO/CFD/PoD-1/P/CIR/2023/31 dated February 16, 2023;

(f) What conditions should be imposed if exemption is granted;

(g) The extent of compliance required with other applicable laws and regulations notwithstanding any exemption granted from the Takeover Regulations.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Applicability of Regulations 3(1) and 4 of the Takeover Regulations and eligibility for exemption

Relevant legal framework and precedents:

Regulation 3(1) prohibits any acquirer from acquiring shares or voting rights that, when aggregated with those held by persons acting in concert, entitle them to exercise 25% or more of voting rights in a target company without making a public open offer. Regulation 4 prohibits acquisition of control over a target company without making a public open offer. These provisions aim to protect minority shareholders by ensuring transparency and fair opportunity to exit in case of change in control.

Court's interpretation and reasoning:

The Tribunal noted that the proposed acquisitions by the Acquirer Trusts will lead to direct acquisition of control over the Target Company. Therefore, prima facie, the provisions of Regulations 3(1) and 4 are attracted. However, the Acquirer Trusts sought exemption on the grounds that the acquisitions are internal reorganizations within the promoter group, intended to streamline succession and welfare of family members, and will not change the overall promoter shareholding or control.

Key evidence and findings:

The shareholding pattern before and after the proposed acquisitions shows that the total promoter and promoter group shareholding remains constant at 42.87%, and the public shareholding remains unchanged at 57.13%. The transfer of shares is from Mr. Vivek Saraogi, a promoter, to two trusts settled by him and his family members, all promoters or their lineal descendants. The trusts are irrevocable, discretionary, private trusts with trustees and beneficiaries drawn exclusively from the promoter family.

Application of law to facts:

The Tribunal observed that the transactions are non-commercial and internal to the promoter group, with no change in control or ownership of the Target Company. The Acquirer Trusts act as a mirror image of the promoters' holdings. Hence, the purpose of the Takeover Regulations-to protect public shareholders from change in control-would not be frustrated by granting exemption.

Treatment of competing arguments:

No significant competing arguments were recorded opposing the exemption. The Tribunal emphasized that the exemption is subject to strict compliance with conditions ensuring no dilution of public interest or change in control beyond the promoter group.

Conclusions:

The Tribunal found it appropriate to grant exemption from Regulations 3(1) and 4 for the proposed acquisitions, subject to conditions ensuring transparency and compliance with relevant laws.

Issue (c): Whether the proposed acquisitions constitute a change in control or ownership

Relevant legal framework and precedents:

Regulation 4 of the Takeover Regulations prohibits acquisition of control without an open offer. Control is generally understood as the ability to influence management and policy decisions, directly or indirectly.

Court's interpretation and reasoning:

The Tribunal noted that the promoters and promoter group will continue to hold the same aggregate shareholding and control post-acquisition. The Acquirer Trusts are settled by promoters and their immediate family members, with trustees and beneficiaries being promoters or their lineal descendants. The trusts do not dilute or transfer beneficial ownership outside the promoter group.

Key evidence and findings:

The trust deeds and declarations confirm that the trustees have no power to transfer or delegate control outside themselves, and the beneficial interest remains within the promoter family. The shareholding pattern evidences no change in control or ownership outside the promoter group.

Application of law to facts:

Given the above, the Tribunal concluded that there is no change in control or ownership requiring an open offer under the Takeover Regulations.

Issue (d): Impact on public shareholders and securities market

Court's interpretation and reasoning:

The Tribunal accepted the submissions that the proposed transactions are non-commercial and internal to the promoter group, with no dilution of public shareholding or adverse impact on the Target Company or securities market. The public shareholders' interests remain protected as their shareholding and rights are unaffected.

Key evidence and findings:

The shareholding pattern before and after the transactions remains unchanged for public shareholders. The Target Company will continue to comply with minimum public shareholding requirements under applicable laws.

Application of law to facts:

The Tribunal found no appreciable adverse effect on the price of shares or market integrity arising from the proposed acquisitions.

Issue (e): Compliance with conditions under SEBI Master Circular dated February 16, 2023

Court's interpretation and reasoning:

The Tribunal examined the Acquirer Trusts' compliance with the detailed conditions under Chapter 8 of the SEBI Master Circular, which include:

• The trusts being a mirror image of promoters' holdings;
• Trustees and beneficiaries being promoters or their immediate relatives;
• No transfer or encumbrance of beneficial interest;
• Restrictions on trustees' powers to transfer or delegate;
• Timely disclosure of changes in trustees, beneficiaries, or shareholding;
• Annual certification and disclosure requirements;
• Compliance with Companies Act and other laws;
• No layering of trustees or beneficiaries;
• No limitation of liability in trust deeds.

The Tribunal found that the Acquirer Trusts complied with these conditions and undertook to continue compliance.

Issue (f): Conditions to be imposed if exemption is granted

The Tribunal imposed conditions including:

• Compliance with Companies Act and other applicable laws;
• Filing of reports with SEBI within 21 days after acquisitions;
• Truthfulness of statements and disclosures made in the Application;
• Ensuring trust deeds are not contrary to conditions and modifying them if necessary;
• Exemption limited only to open offer requirements and not to other disclosure or insider trading obligations;
• Validity of exemption limited to one year from the date of order, requiring completion of acquisitions within this period.

Issue (g): Compliance with other applicable laws and regulations

The Tribunal clarified that the exemption granted does not relieve the Acquirer Trusts from compliance with disclosure requirements under Chapter V of the Takeover Regulations, SEBI (Prohibition of Insider Trading) Regulations, 2015, Listing Obligations and Disclosure Requirements Regulations, or any other applicable Acts, Rules or Regulations.

3. SIGNIFICANT HOLDINGS

"No acquirer shall acquire shares or voting rights in a target company which taken together with shares or voting rights, if any, held by him and by persons acting in concert with him in such target company, entitle them to exercise twenty-five per cent or more of the voting rights in such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations."

"Irrespective of acquisition or holding of shares or voting rights in a target company, no acquirer shall acquire, directly or indirectly, control over such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations."

"The Acquirer Trusts are in substance, only a mirror image of the promoters' holdings and consequently, there is no change of ownership or control of the shares or voting rights in the Target Company."

"The proposed acquisitions are in furtherance of an internal reorganization within the Promoter Family and are intended to streamline succession and promote welfare of Promoter Family."

"The exemption granted above is limited to the requirements of making open offer under the Takeover Regulations, 2011 and shall not be construed as exemption from the disclosure requirements under Chapter V of the aforesaid Regulations; compliance with the SEBI (Prohibition of Insider Trading) Regulations, 2015, Listing Agreement / SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 or any other applicable Acts, Rules and Regulations."

Final determinations:

The Tribunal granted exemption to the Acquirer Trusts from the obligation to make an open offer under Regulations 3(1) and 4 of the Takeover Regulations, 2011, subject to specified conditions ensuring no prejudice to public shareholders or the securities market, and requiring compliance with other applicable laws and disclosure obligations. The exemption is valid for one year within which the acquisitions must be completed.