In Re: White House Cotton - Court Judgment

Excerpt:
1. white house cotton industries limited (hereinafter referred to as the target company) is stated to be facing liquidity problem and could not service its repayment obligations to banks and financial institutions in time. as the existing management could not run the target company profitably and meet its obligations in time to idbi, at the instance of idbi, shri. v. devraj, shri v jaganathan, shri k narayanaswamy, shri r radhakrishnan, shri r karthik, shri r saravanan, shri k venkitasamy (hereinafter referred to as the acquirers) propose to acquire the entire equity shares held by the promoters in the target company at a price of re. 0.25 per share. the proposed acquisition is for 71.03% of equity shares and voting rights of the target company 2. the acquirers made an application dated 24.03.2004 to the securities and exchange board of india (hereinafter referred to as 'sebi') under sub-regulation (2) of regulation 4 of the sebi (substantial acquisition of shares and takeovers) regulations 1997 (hereinafter referred to as "the said regulations") seeking exemption from the applicability of provisions of regulations 10, 11(1), 11(2) and 12 of the said regulations.3. in the aforesaid application, the acquirers submitted, interalia, the following: 3.1 the shares of the target company are listed on the stock exchange mumbai, madras stock exchange and coimbatore stock exchange 3.2 the acquirers are stated to be not holding any shares in the target company presently.3.3. the acquirers propose to acquire the entire equity shares held by the promoters in the target company at a price of re. 0.25 per share.the proposed acquisition is for 71.03% of equity shares and voting rights of the target company.3.4 the acquirers have made the following grounds for seeking exemption from regulations 10 and 12 of the said regulations: the target company has been consistently loss making from inception. carried forward losses of the target company as on 31.3.2003 are rs. 1394.83 lacs as against paid up capital of rs. 1500 lacs. the target company has been facing liquidity problems and has not been able to service its repayment obligations to banks and fls. the target company had made a reference to bifr and if the revival programme by change in management could not be undertaken, then the target company will become a sick company. as the existing management could not run the target company profitably and meet its obligations in time to idbi and at the instance of idbi the new promoters (acquirers) have proposed to acquire control over the target company. the team of new management has a sound knowledge in running textile spinning units and has already taken 3 sick units on lease from bank and running viably. there is no trading in the shares of the target company recently in any of the stock exchanges. the revival of the target company will improve profitability and help small investors. in the event of open offer additional cost shall be around rs. 45 lacs. if exemption is granted this money will be utilized towards working capital purpose and will help to improve its profitability.4. the said application was forwarded to the takeover panel in terms of sub-regulation (4) of regulation 4 of the regulations. the takeover panel vide its report dated april 1, 2004 has recommended, interalia, as under: in the facts stated in the application, it appears that the target company is potentially sick as it has been consistently incurring losses and the carried forward loss as on 31st march, 2003 is rs.1394.83 lakhs against the paid up capital of rs. 1500 lakhs. it further appears that the existing management could not run the target company profitably and meet its obligations in time to idbi, and at the instance of idbi, the acquirers have proposed to acquire the shares held by the promoters and control over the target company with a view to revive the target company and improve its profitability which in turn may help the small investors in long run. the interest of the investors is likely to be more secured with proposed change of management.5. i have taken into consideration the application dated march 24, 2004, the material available on record and the recommendations of takeover panel.5.1 it is noted that the acquirer is stated to be not holding any equity shares in the target company.5.2 it is noted that the existing management could not run the target company profitably and meet its obligations in time to the financial institutions including idbi, and at the instance of idbi, the acquirers propose to acquire the shares held by the promoters and control over the target company with a view to revive the target company and improve its profitability. the acquirers have submitted to have a successful track record of reviving such units.5.3 the proposed acquisition would vest in the acquirers 71.03% of equity shares and voting rights and control in the target company thereby attracting provisions of regulation 10 and 12 of the said regulations.5.4 it is noted that the proposed acquisition is mainly to revive the target company by way of change in the management. the cost of complying with the formalities of open offer may hamper the process of revival of the target company.6. taking into consideration the above, the recommendations of the takeover panel and the interest of the public shareholders of the target company, i, in exercise of the powers conferred upon me under section 19 of the securities and exchange board of india act, 1992 read with sub-regulation (6) of regulation 4 of the regulations, hereby grant exemption, to the acquirers from complying with the provisions of regulations 10 and 12 of the said regulations with regard to the proposed acquisition of 10654600 equity shares of rs. 10 each constituting 71.03% of the share capital of the target company from the existing promoters and control over the target company.6.1 the acquirers are directed to complete the proposed acquisition within 30 days of this order and file a report under regulation 3(4) with sebi.

Judgment:
1. White House Cotton Industries Limited (hereinafter referred to as the target company) is stated to be facing liquidity problem and could not service its repayment obligations to banks and financial institutions in time. As the existing management could not run the target company profitably and meet its obligations in time to IDBI, at the instance of IDBI, Shri. V. Devraj, Shri V Jaganathan, Shri K Narayanaswamy, Shri R Radhakrishnan, Shri R Karthik, Shri R Saravanan, Shri K Venkitasamy (hereinafter referred to as the acquirers) propose to acquire the entire equity shares held by the promoters in the target company at a price of Re. 0.25 per share. The proposed acquisition is for 71.03% of equity shares and voting rights of the target company 2. The acquirers made an application dated 24.03.2004 to the Securities and Exchange Board of India (hereinafter referred to as 'SEBI') under sub-regulation (2) of regulation 4 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997 (hereinafter referred to as "the said regulations") seeking exemption from the applicability of provisions of Regulations 10, 11(1), 11(2) and 12 of the said Regulations.

3. In the aforesaid application, the acquirers submitted, interalia, the following: 3.1 The shares of the target company are listed on the Stock Exchange Mumbai, Madras Stock Exchange and Coimbatore Stock Exchange 3.2 The acquirers are stated to be not holding any shares in the target company presently.

3.3. The acquirers propose to acquire the entire equity shares held by the promoters in the target company at a price of Re. 0.25 per share.

The proposed acquisition is for 71.03% of equity shares and voting rights of the target company.

3.4 The acquirers have made the following grounds for seeking exemption from Regulations 10 and 12 of the said Regulations: The target company has been consistently loss making from inception. Carried forward losses of the target company as on 31.3.2003 are Rs. 1394.83 lacs as against paid up capital of Rs. 1500 lacs. The target company has been facing liquidity problems and has not been able to service its repayment obligations to banks and Fls. The target company had made a reference to BIFR and if the revival programme by change in management could not be undertaken, then the target company will become a sick company. As the existing management could not run the target company profitably and meet its obligations in time to IDBI and at the instance of IDBI the new promoters (acquirers) have proposed to acquire control over the target company. The team of new management has a sound knowledge in running textile spinning units and has already taken 3 sick units on lease from bank and running viably. There is no trading in the shares of the target company recently in any of the stock exchanges. The revival of the target company will improve profitability and help small investors. In the event of open offer additional cost shall be around Rs. 45 lacs. If exemption is granted this money will be utilized towards working capital purpose and will help to improve its profitability.

4. The said application was forwarded to the Takeover Panel in terms of sub-regulation (4) of regulation 4 of the Regulations. The Takeover Panel vide its report dated April 1, 2004 has recommended, interalia, as under: In the facts stated in the application, it appears that the target company is potentially sick as it has been consistently incurring losses and the carried forward loss as on 31st March, 2003 is Rs.1394.83 lakhs against the paid up capital of Rs. 1500 lakhs. It further appears that the existing management could not run the target company profitably and meet its obligations in time to IDBI, and at the instance of IDBI, the acquirers have proposed to acquire the shares held by the promoters and control over the target company with a view to revive the target company and improve its profitability which in turn may help the small investors in long run. The interest of the investors is likely to be more secured with proposed change of management.

5. I have taken into consideration the application dated March 24, 2004, the material available on record and the recommendations of Takeover Panel.

5.1 It is noted that the acquirer is stated to be not holding any equity shares in the target company.

5.2 It is noted that the existing management could not run the target company profitably and meet its obligations in time to the financial institutions including IDBI, and at the instance of IDBI, the acquirers propose to acquire the shares held by the promoters and control over the target company with a view to revive the target company and improve its profitability. The acquirers have submitted to have a successful track record of reviving such units.

5.3 The proposed acquisition would vest in the acquirers 71.03% of equity shares and voting rights and control in the target company thereby attracting provisions of Regulation 10 and 12 of the said Regulations.

5.4 It is noted that the proposed acquisition is mainly to revive the target company by way of change in the management. The cost of complying with the formalities of open offer may hamper the process of revival of the target company.

6. Taking into consideration the above, the recommendations of the Takeover Panel and the interest of the public shareholders of the target company, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with sub-regulation (6) of regulation 4 of the Regulations, hereby grant exemption, to the acquirers from complying with the provisions of Regulations 10 and 12 of the said Regulations with regard to the proposed acquisition of 10654600 equity shares of Rs. 10 each constituting 71.03% of the share capital of the target company from the existing promoters and control over the target company.

6.1 The acquirers are directed to complete the proposed acquisition within 30 days of this order and file a report under Regulation 3(4) with SEBI.