9911796707
TMI Blog2013 (12) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.15% of the issued and paid-up equity share capital of Appellant No. 1 before the occurrence of the dispute explained below. Both the Appellants are aggrieved by the impugned letter dated August 10, 2012 issued by the Respondent, SEBI, rejecting the request of the Appellants for relaxation under the Regulation 109(c) of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, hereinafter referred to as "ICDR Regulations of 2009". 3. The brief facts leading up to the present dispute are that, under the ICDR Regulations of 2009, Appellant No. 1 made preferential issues of 10 million optionally convertible warrants at the conversion exercise price of Rs.263/- per warrant including premium to B R Machine Tools Pvt. Ltd. Similar allotment of 10 million warrants was made by Appellant No. 1 in favour of Reynold Shirting Ltd., which is also a Promoter Group Company, on September 13, 2009 at the conversion exercise price of Rs.193/- per warrant including premium. Pursuant to the above said allotment of 20 million warrants, 12.5 million warrants were converted into equity shares within the creeping acquisition limit as prescribed by the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholders of Appellant No. 1 in response to Open Offer-2. In tune with the disclosure made in the letter of offer, thus, AAA came to be recognized as a part of the Promoter Group of Appellant No. 1 and the reconstituted Promoter Group shareholding reached a level of 93.15% of the total capital. Such an increase in number of shares appears to be on account of conversion of the entire 33 million GDRs. 6. In the above situation, Appellant No. 2 did not convert the balance 7.5 million outstanding warrants on account of proviso to sub-regulation (2) of Regulation 3 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, hereinafter referred to as "SAST Regulations, 2011". The said Regulation provides that no further acquisition of shares by any acquirer is permissible if such acquisition results in bringing the aggregate shareholding of the acquirer (including PACs) above the maximum permissible non public shareholding which is 75%. According to the Appellants, Appellant No. 2 was, therefore, restrained from exercising its conversion option in respect of 7.5 million outstanding warrants and this peculiar situation which had ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onvertible securities of the issuer shall not exceed eighteen months from the date of their allotment. Payment of consideration. 77. (1) Full consideration of specified securities other than warrants issued under this Chapter shall be paid by the allottees at the time of allotment of such specified securities: Provided that in case of a preferential issue of specified securities pursuant to a scheme of corporate debt restructuring as per the corporate debt restructuring framework specified by the Reserve Bank of India, the allottee may pay the consideration in terms of such scheme. (2) An amount equivalent to at least twenty five per cent of the consideration determined in terms of regulation 76 shall be paid against each warrant on the date of allotment of warrants. (3) The balance seventy five per cent. of the consideration shall be paid at the time of allotment of equity shares pursuant to exercise of option against each such warrant by the warrant holder. (4) In case the warrant holder does not exercise the option to take eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholding of the re-constituted Promoter Group already stands at 93.15%. It will further increase to 93.51% if the balance outstanding 7.5 million warrants held by the Promoter Group were directed to be converted into equity shares. Such an acquisition is not permissible under the proviso to sub-regulation (2) of Regulation 3 of the SAST Regulations, 2011. In fact, no acquirer is legally entitled to acquire shares/voting rights exceeding 75% of the issuer company's shareholding. This is in view of the fact that the Securities Contracts (Regulations) Rules, 1957 provides that 25% of the shareholding in every listed company has to be kept mandatorily for public shareholders. The Appellants, therefore, submit that the proposed acquisition of shares pursuant to conversion of warrants will amount to violation of the above stated Regulation. This situation, according to the Appellants, has arisen purely due to coming into force of the SAST Regulations, 2011 on October 23, 2011 (the same were Gazzetted on September 23, 2011). Therefore, the Appellants contend that if the Respondent does not intervene in the matter, it would result in forfeiture of 25% of the consideration paid for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warrants in question into shares. In this regard it is pertinent to deal with Regulation 109(c) of the IDCR Regulations, 2009 under which the exemption is being vociferously claimed by the Appellants. It is evident from the facts of the case that the non-compliance would in no way be caused owing to any factors ostensibly beyond the Appellants' control. We reproduce para 2(v) of the impugned order hereinbelow: "v. Relaxation under Regulation 109 of the ICDR Regulations may be granted by the Board, if the matter is in the interest of investors or for the development of the securities market. If the consideration paid to you by the warrant holder under Regulation 77 (2) is refunded to such warrant, holder it shall be against the interest of the minority investors of the company. Also, such a relaxation shall be detrimental for the development of securities market as it shall set a wrong precedent to give a relaxation where none of the clauses of Regulation 109 is applicable." 14. It is seen from the pleadings that the Promoter Group in Appellant No. 1 increased their shareholding in a systematic manner from 31.54% to 93.15% during December 2009 to December ..... X X X X Extracts X X X X X X X X Extracts X X X X
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