1.1 India Emerging Companies Investment Ltd. (hereinafter referred to as 'the target company') is a public limited company incorporated under the Companies Act, 1956, having its registered office at Bezzola Complex, V.N Purav Marg, Chembur, Mumbai - 400 071.
1.2 The equity shares of the target company are listed on the Delhi Stock Exchange, Pune Stock Exchange and the Ahmedabad Stock Exchange.
1.3 Tata Industries Limited (hereinafter referred to as the 'acquirer') is part of the Tata Group and one of the promoters of Tata Finance Limited (hereinafter referred to as 'erstwhile transferor'). The erstwhile transferor was amalgamated with Tata Motors Limited (hereinafter referred to as 'TML') in accordance with the Scheme of Reorganisation and Amalgamation consequent upon the Hon'ble Mumbai High Court order which became effective from April 1, 2005 and thereafter the erstwhile transferor has ceased to exist. As per the Scheme, the agreement would be carried out by TML.
1.4 The erstwhile transferor was holding 50% of the equity shares of Niskalp Investment & Trading Company Ltd (hereinafter referred to as 'Niskalp') and Niskalp holds 70.50% in the target company. The acquirer had proposed to purchase from the erstwhile transferor 50% of equity of Niskalp for a nominal consideration of Re. 1 for entire equity shares.
The proposed acquisition of 50% of shares of Niskalp by the acquirer from the erstwhile transferor would have led to indirect acquisition of shares in the target company.
1.5 Hence, the acquirer made an application vide letter dated 16.3.2005 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 applicability of Regulations 10 and 12 of Chapter III of Takeover Regulations with respect to the proposed indirect acquisition.
2.1 In the application dated 16.3.2005, the acquirer had made the following submissions.
2.2 The acquirer is a non-banking financial company established with the object of promoting and financing industrial enterprises and is registered with the Reserve Bank of India. The acquirer is not a listed company. The acquirer is one of the promoters of the (erstwhile) transferor with a shareholding of 42.70% equity shares in the (erstwhile) transferor. The (erstwhile) transferor holds 50% equity shares in Niskalp which in turn has 70.50% equity shareholding in the target company.
2.3 The acquirer does not hold any shares in Niskalp and in the target company. The acquirer proposes to acquire 4,00,00,000 equity shares of Rs. 10 each of Niskalp for a nominal consideration of Re.1 for the entire equity shares amounting to 50% share in Niskalp along with 5,00,000 - 12.5% noncumulative redeemable preference shares.
2.4 The proposed acquisition will not result in any change in control or the management of Niskalp as well as the target company since both the (erstwhile) transferor and the acquirer belongs to the Tata Group and the acquirer is the promoter of the (erstwhile) transferor.
2.5 There is no direct acquisition of shares of the target company.
There would be no change in the paid up capital of Niskalp and target company subsequent to the proposed acquisition.
2.6 The following existing shareholding pattern of the target company will not change post acquisition of 4,00,00,000 equity shares of Niskalp by the acquirer:---------------------------------------------------------------Shareholder No. of Shares Percentage of holding---------------------------------------------------------------Niskalp Investment &Trading Company Ltd. 2129610 70.50Private Corporate Bodies 64900 2.15Indian Public 719190 23.81NRIs/OCBs 107100 3.54---------------------------------------------------------------Total 3020800 100.00--------------------------------------------------------------- 2.7 The acquirer had sought exemption from the Takeover Regulations inter alia on the following grounds: - On or about May 2001, significant financial irregularities/ fraud committed by the former Managing Director of the (erstwhile) transferor was discovered which had resulted in a negative net worth in all the three companies (i.e. target company, Niskalp and the (erstwhile) transferor) besides non-compliance with capital adequacy ratio prescribed by the Reserve Bank of India for Non-Banking Financial Companies by the (erstwhile) transferor.
- (Erstwhile) transferor has undertaken various initiatives to reduce its financial losses and has also exited from non core businesses. As a part of the above internal restructuring activities, the shares held by the (erstwhile) transferor in Niskalp are proposed to be transferred to the acquirer.
- The proposed acquisition is not for the purpose of securing control or change in the management of Niskalp or the target company.
The aforesaid application dated 16.3.2005 was forwarded to the Takeover Panel in terms of sub-regulation (4) of regulation 4 of the Takeover Regulations on 22.3.2005. The Takeover Panel, vide letter dated 31.3.2005 forwarded its report dated 24.3.2005. In the Report, the Takeover Panel has recommended as under - "On the facts stated in the application, it appears that the proposed acquisition of equity is on account of an internal restructuring exercise and not for the purpose of securing control or change in the management of Niskalp or India Emerging Companies Investment Limited. The grant (of) exemption as sought is recommended." 4.1 The acquirer vide letter dated 9.8.2005 made additional submissions as follows:- - The Tata Group had taken various steps to recover the losses/ amounts pertaining to the financial irregularities/ fraud committed by the former Managing Director and some senior executives of the erstwhile transferor, including initiating civil and criminal actions against the concerned senior executives, co-operating with various authorities in various investigations, prosecutions etc.
- The Tata Group infused funds into the (erstwhile) transferor to the extent of Rs. 300 crores by way of equity to ensure that the public at large, including fixed deposit holders do not suffer losses.
- The (erstwhile) transferor was amalgamated with TML in accordance with the Scheme of Reorganisation and Amalgamation consequent upon the Hon'ble Mumbai High Court order, which became effective from April 1, 2005. Clause 6 of the Scheme for amalgamation provides that any suit, actions and proceedings of whatsoever nature by or against the transferor which are pending on the Effective Date, shall not abate or be discontinued nor be, in any way prejudicially affected by reason, on account of the said amalgamation.
- TML has given an undertaking in the Hon'ble High Court of Bombay at the time of amalgamation to the effect that it shall take all necessary steps in pursuing the legal cases already instituted by it against the erstwhile errant officers and shall also take resort to such other remedies as may be permissible by law against the said officers.
4.2 The acquirer has confirmed that the proposed transfer of shares of Niskalp, would not impact in any manner, the steps being taken in pursuing the legal cases instituted and co-operation would be extended to the authorities, as and when required and that there is no change contemplated in the control of the target company, including in the composition of the Board of Directors as a consequence of the proposed transaction.
5.1 I have carefully gone through the application dated 16.3 .2005 and have taken into consideration the relevant materials available on record, the above mentioned recommendation of the Takeover Panel and further submissions of the acquirer.
5.2 In this case I note that due to the financial irregularities committed by the earlier Managing Director of the erstwhile transferor, the erstwhile transferor had to take initiatives to reduce the financial losses and as a part of the internal restructuring activity, the shares held by the erstwhile transferor in Niskalp are proposed to be transferred to the acquirer. As per the application, read with the letter dated 9.8.2005, the current shareholding pattern of the target company, along with the shareholding subsequent to the proposed acquisition would not change and would be as specified in para 2.6 above. Further, the acquirer neither holds any shares in the target company nor does it propose to purchase any shares of the target company.
5.3 In the present case, the acquirer is proposing to acquire 50% equity shares in Nishkalp from the erstwhile transferor. Nishkalp was a subsidiary of the erstwhile transferor and had held 70.50% in the target company. Thus, the acquirer would indirectly acquire 70.50% in the target company. Thus, the provisions of Regulation 10 and 12 of the Takeover Regulations would be attracted, unless the proposed acquisition is exempted under Regulation 3.
5.4 In view of the above facts and circumstances, I agree with the recommendations of the Takeover Panel and find that the present case is fit for granting exemption from the applicability of Regulation 10 and 12 of the Takeover Regulations.
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 acquirer, from complying with Regulation 10 and 12 of Chapter III of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 in the case of the proposed indirect acquisition of 70.50% equity shares of the target company. However, this exemption is granted without prejudice to the rights of SEBI to take any action for violation, if any, of the Takeover Regulations, by the acquirer.
6.2 The acquirers shall complete the transaction within 30 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.