1.1 M/s Pearl Polymers Ltd. (hereinafter referred to as 'the target company') is a public limited company incorporated under the Companies Act, 1956, having its registered office at B-59, Greater Kailash - I, New Delhi - 110048.
1.2 The equity shares of the target company are listed on the National Stock Exchange, The Stock Exchange, Mumbai and the Calcutta Stock Exchange.
1.3 The following are the persons belonging to the promoter group (hereinafter referred to as 'acquirers') of the target company: The acquirers made an application through the Chairman and Managing Director of the target company vide his letter dated 10.2.2005 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 compliance of Regulation 11 of Chapter III of Takeover Regulations with respect to the proposed acquisition by issue of 26,76,181 equity shares of the target company to the acquirers through preferential allotment.
2.1 In the application dated 10.2.2005, the acquirers have made the following submissions - 2.2 The acquirers are the persons from the promoter group of the target company and are presently holding 5.03% shares in the target company.
The acquirers, along with the persons acting in concert with them, hold 60.80% shares in the target company.
2.3 The target company had approached financial institutions and banks for restructuring of its debts. IDBI imposed inter alia a condition precedent to its restructuring approval vide its letter dated 19.8.2004 that the promoters shall have to infuse fresh equity upto Rs.300 Lakhs.
Accordingly, the promoters along with their relatives and associates have advanced an amount of Rs.300 Lakhs towards advance against share application to the target company. The shares are proposed to be issued to the promoter group, pursuant to the amount towards share capital being advanced by the acquirers in order to comply with the terms and conditions of the reliefs granted for restructuring of debts approved by IDBI, while granting approval for restructuring of the debts of the target company.
2.4 The Board of Directors of the target company in its meeting held on 18.12.2004 approved the preferential issue of equity shares to the acquirers and the Financial Institutions subject to necessary approvals of shareholders and regulatory authority, if required. The target company had issued the notice of Annual General Meeting (AGM) dated 29.12.2004 to the shareholders for seeking approval of the preferential issue and the resolution of the shareholders, approving the issue of shares on preferential basis was passed in the AGM held on 28.1.2005.
The price of Rs.11.21 per equity share for the preferential issue was calculated as per the pricing formula specified under SEBI (Disclosure and Investor Protection) Guidelines, the relevant date being taken as 28.12.04. Necessary intimation was sent to the stock exchanges for obtaining in-principle approval for listing of fresh share capital, as per the Listing Agreement.
2.5 After the allotment of the proposed issue of 26,76,181 equity shares @ Rs.11.21 per equity share by the target company to the acquirers, the shareholding of the acquirers in the target company would increase from 5.03% to 20.23% and the shareholding of the promoters would increase from 60.80% to 61.90%.
2.6 The target company is maintaining more than 25% of the shareholding in public category and after the proposed allotment to promoters, the voting rights of the promoters shall increase by a marginal 1% to their present shareholding. Further, there will not be change in management and control of the target company as a result of the proposed allotment.
2.7 The acquirers seek exemption from the Takeover Regulations on the following grounds: o All necessary steps have been taken by the target company for the issuance of shares to the promoter group on preferential basis in order to comply with the terms and conditions imposed by IDBI in its approval for restructuring of debts of the target company.
o The pricing of aforesaid issuance of shares has been arrived at in accordance with the pricing formula specified under SEBI (DIP) Guidelines for preferential issues.
o Shareholders of the target company have approved the aforesaid issuance of shares on preferential basis in the AGM held on 28.1.2005.
o The target company is already maintaining the minimum public shareholding of 25%.
o There will be no change in the management and control of the target company.
o The shares to be allotted to promoters shall be subject to lock-in period as required under SEBI Guidelines.
The aforesaid application dated 10.2.2005 was forwarded to the Takeover Panel in terms of sub-regulation (4) of regulation 4 of the Takeover Regulations on 22.2.2005. The Takeover Panel, vide letter dated 28.2.2005 forwarded its report dated 24.2.2005. In the Report, the Takeover Panel has recommended as under - "In the facts stated in the Application filed, it appears that by the proposed allotment of 26,76,181 equity shares on preferential allotment basis in the increased Equity Share Capital of the target company to the Acquirers, the voting rights of the Promoter Group along with PAC would increase marginally by 1% to its existing holding while the target company would continue to maintain more than 25% of the shareholding in public category. Moreover, this is necessitated in order to comply with the terms and conditions imposed by lending institutions of all India repute while approving restructuring of debts of the target company.
In the facts and circumstances and considering peculiarity thereof, the grant of exemption as sought is recommended." 4.1 Shri Harish Seth, Vice-Chairman and Managing Director of the target company and one among the acquirers vide letter dated 25.3.2005 made additional submissions on behalf of the acquirers as follows:- o While forwarding the notice of AGM to shareholders, the target company had disclosed in the explanatory statement all material information as required under Chapter XIII of SEBI (DIP) Guidelines, 2000.
o The resolution for preferential issue of shares was unanimously passed by the members of the target company in the AGM held on 28.1.2005. The promoter group shareholders, being the interested parties had abstained from voting at the said AGM. o The target company has complied with the guidelines for preferential allotment including pricing as prescribed under Chapter XIII of SEBI (DIP) Guidelines, 2000.
4.2 The acquirers have requested vide the letter dated 25.03.05 that the target company be exempted from postal ballot for passing of fresh resolution by shareholders on the following grounds - o The target company has made full disclosures in the explanatory statement and promoters had also abstained from voting in proceedings of the AGM. o The Financial Institutions are insisting the target company to certify the compliance of its terms of its restructuring approvals which inter-alia contains conditions for equity infusion to the tune of Rs.3 crores by the promoter group.
o The target company has to close its books of accounts on 31.3.2005 and the directors feel it will be prudent that the accounts statements of this financial year disclose the correct status of the company's affairs.
o The plans of the target company for regularizing all its lenders and expanding its capacity shall get delayed and may render such exercise completely unproductive.
4.3 Due to this submission of the acquirers seeking exemption from the condition regarding providing facility of postal ballot for passing resolution, a opportunity of hearing in terms of Regulation 4(6) of the Takeover Regulations was scheduled on 26.07.05 and was intimated to the acquirers vide letter dated 12.07.05.
4.4 However, vide letter dated 21.07.2005, the Chairman and Managing Director of the target company, for and on behalf of the acquirers, submitted that they have reconsidered the matter and agree to comply with the directions of SEBI and Takeover Panel with respect to passing of resolution through postal ballot. It was submitted that the target company shall have the resolution passed in the AGM dated 28.1.2005 ratified by the shareholders of the target company as per the procedure laid down in Rule 2A and Rule 5 of the Companies (Passing of the Resolution by Postal Ballot) Rules, 2001. It is further submitted that the acquirer shall submit the confirmation of resolution when the same is passed by shareholders and then proceed with the proposed allotment.
It is also submitted that since the condition of facility of voting through postal ballot is also agreed to be complied with, personal hearing will not serve any purpose.
5.1 I have carefully gone through the application dated 10.2.2005 and have taken into consideration the relevant material available on record, the above mentioned recommendation of the Takeover Panel and further submissions of the acquirers.
5.2 As per the application read with the letter dated March 25, 2005, the current shareholding pattern of the target company along with the shareholding subsequent to the proposed acquisition would be as under:--------------------------------------------------------------------------------------------- Shareholder's No. of Before the proposed After the proposed category shareholders as on acquisition acquisition--------------------------------------------------------------------------------------------- No. of % of Shares/ No. of Shares/% of Shares Shares/Total Total Voting Voting Rights Voting rights---------------------------------------------------------------------------------------------Promoters 6 610985 5.032 1681457 10.348PAC who do - - - 1605709 9.881Promoters 21 6771662 55.771 6771662 41.673Promoters 27 7382647 60.803 10058828 61.902 FIs/Banks 1 145850 1.201 1577374 9.707 FIs/Banks 4 21620 0.178 21620 0.133FIIs/NRIs/ 28 232970 1.919 232970 1.434 Indian 14131 4358863 35.899 4358863 26.824 Total 14191 12141950 100.00 16249655 100.00--------------------------------------------------------------------------------------------- 5.3 In terms of provisions of Regulation 11(2) of the Takeover Regulations an acquirer, who together with persons acting in concert with him has acquired 55% or more but less than 75% of the shares or voting rights in the target company, may acquire any additional share or voting right only if he makes a public announcement to acquire shares or voting rights in accordance with the said regulations. In the present case, after the proposed allotment of 26,76,181 equity shares in the target company through preferential allotment, the shareholding of the acquirers along with persons acting in concert would increase from 60.80% to 61.90%.Therefore, unless exempted under Regulation 3, the proposed acquisition would attract the provisions of Regulation 11(2) of the Takeover Regulations.
5.4 I have taken into consideration the fact that the target company had approached the Financial Institutions and banks for restructuring of its debts and IDBI vide its approval dated August 19, 2004 has put a condition precedent which requires the promoter to infuse fresh equity worth Rs.300 Lakhs. Further, the target company has already taken effective steps and passed necessary resolutions in the AGM which was a unanimous resolution and also that the acquirers have abstained from voting. I have taken note that the proposed acquisition is not for the purpose of acquiring control and management over the target company.
5.6 In view of the above facts and circumstances, I find that, the present case is fit for granting exemption from the applicability of Regulation 11(2) of the Takeover Regulations. However, as the target company is undergoing debt restructuring which is a major development where all shareholders must be given an opportunity to participate in the decision making process, I find that the 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 undertaken by the acquirer/target company should be provided.
Therefore, the resolution passed in AGM held on 28.01.05 should be ratified by shareholders by providing facility of postal ballot as undertaken by the acquirers.
6.1 In view of the above findings, I, in exercise of the powers conferred upon me under 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 grant exemption to the acquirers, from complying with Regulation 11(2) of Chapter III of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 in the case of the proposed acquisition of 26,76,181 equity shares by preferential allotment subject to the condition that - i) The acquirers shall ensure that the resolution passed in the AGM dated 28.1.2005 is ratified by shareholders by a special resolution for which the 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 shall be provided; ii) The acquirers shall submit confirmation of passing the said resolution to SEBI within seven days from the date when such resolution is passed as undertaken by them; and iii) The acquirers shall ensure compliance with provisions of SEBI (DIP) Guidelines as submitted in para 4.1, and the applicable provisions of the Listing Agreement.
6.2 The acquirers shall complete the transaction within 90 days from the date of the order and file a report with SEBI in the manner specified in Regulation 3(4) read with 3(5) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 confirming compliance.