In Re: Ace Software Exports - Court Judgment

Excerpt:
1.1 m/s ace software exports limited (hereinafter referred to as 'the target company') is a company incorporated under the companies act, 1956, having its registered office at 801, everest commercial complex, opp. shastri maidan, rajkot - 360 001. the equity shares of the target company are listed on the bombay stock exchange ltd. (bse) and the saurashtra - kutch stock exchange ltd. (skse).1.2 shri vikram b.sanghani, mr. sanjay h dhamsania, mr. bhupat chunilal sanghani, mr. harilal t dhamsania, mr. arvind sitapara, ms. bina v.sanghani, mr. harsha r kalaria, mr. hasumati p detroja ms. jamkunverben h dhamsania, mr. jay b sanghani, mr. jayantilal b kalaria, m/s jayantilal b kalaria - huf, ms. khyati s. kalaria, ms. madhavi s.dhamsania, ms. mrudula patel, ms. pushpaben j. kalaria, mr. rahul j.kalaria, mr. rahul j. kalaria - huf, ms. samishaben ajaykumar patel, mr. shaunak j. kalaria, shaunak j. kalaria - huf, vikram b sanghani - huf and apex data service inc. (hereinafter collectively referred to as 'the acquirers') belong to the promoter group of the target company.the acquirers together with the persons acting in concert are holding 52.40% of the equity shares of the target company.2.1 the target company propose to buy-back its 4,42,346 equity shares from the shareholders at a price not exceeding rs. 20/- per share in terms of the provisions of section 77a, 77aa of the companies act 1956 and the provisions of the securities and exchange board of india (buy- back of securities) regulations, 1998. due to the said buy-back offer, the voting rights of the acquirers would increase from 52.40% to 57.35%, in case of 100% response to the said buy-back offer and the acquires not offering to sell any shares held by them in the proposed buy-back offer of the target company.2.2 the acquirers, vide letter dated october 20, 2006 filed an application with the securities and exchange board of india (hereinafter referred to as sebi) under regulation 4(2) read with regulation 3(1)(1) of securities and exchange board of india (substantial acquisition of shares and takeovers) regulations,1997, (hereinafter referred to as the 'takeover regulations'). since, the post buy-back shareholding of acquirers would increase to a level beyond 55%, the exemption is sought from the applicability of regulation 11 of the takeover regulations, inter alia on the following grounds:- a) the acquirers are promoters of the target company. the acquirers are holding 52.40% of the equity shares capital of the target company and are already in control of the target company. b) the target company has passed a special resolution by way of postal ballot in compliance with the provisions of section 77 a, 77 aa and 77 b of the companies act, 1956 and the provision of the securities and exchange board of india (buy back of securities) regulations, 1998. the board of directors of the target company in their meeting held on january 27, 2007 decided to buy back upto 4,42,346 equity shares at a price not exceeding rs.20/- per share. c) the acquirers and /or persons in control, of the target company and/or their associates/persons acting in concert would not offer their shares to the target company and are not participating under the proposed buy back. d) the buy back of equity shares is proposed to maximize return to investors, enhance overall shareholder value and further improve financial ratios. e) there is no change in control of the target company pursuant to the increase in the percentage of shareholding of the acquirers. f) the increase in percentage of shareholding of acquirers is resultant of buy back of shares by the target company and not by increase in number of shares with the acquirers. g) even after buy-back of the equity shares by the target company to the full extent, the voting rights of the acquirers will remain maximum at the level of 57.35%, which meets with the minimum public shareholding requirements of the listing agreements with the stock exchanges where the shares of the target company are listed.2.3 the shareholding pattern of the target company before and after the proposed acquisition (as mentioned in the application) is as under:------------------------------------------------------------------------shareholders' number of shareholding shareholdingcategory registered before the after the proposed shareholders proposed acquisition as on date of acquisition------------------------------------------------------------------------ number of % of shares/total number of % of share/ shares/total voting capital shares/voting voting rights voting rights held rights23 2683625 52.40 2683625 57.35110 179416 3.5056 67464 1032 1995755 42.654376 2189721 42.754566 5121726 100.00 4679380 100.00------------------------------------------------------------------------ 3.1 the aforesaid application dated october 20, 2006 was forwarded by sebi to the takeover panel in terms of sub-regulation (4) of regulation 4 of the takeover regulations. the takeover panel vide its report dated march 6, 2007 (forwarded by the takeover panel vide letter dated march 20, 2007) has recommended for the grant of exemption as sought by the acquirers.4.1 i have carefully considered the application dated october 20, 2006 filed by the acquirers, the above mentioned recommendations of the takeover panel and relevant materials available on record.4.2 at the outset, i note that the increase in shareholding of the acquirers is incidental to the buy back plan of the target company. the acquirers have submitted that they would not acquire any shares of the target company directly or indirectly in the said buy back offer made by the target company and that the number of shares held by acquirers would not change after the proposed buy back. the acquirers do not propose to acquire a single share of the target company. i also note that there would not be any change in control as the acquirers are the promoters of the target company and have control over the target company. i note from the submission of the acquirers that, even in case of 100% response in the proposed buy-back offer and successful completion of the said buy-back, the share holding of the acquirers would remain at the level of 57.35% which would meet the continuous listing requirements of the listing agreement with the stock exchanges where the shares of the target company are listed. the acquirers in their application have stated that the proposed buy back would be at rs.20/- per share which is higher than the present market price of rs. 14.77 per share as on march 26, 2007. the acquirers also do not propose to acquire a single share of the target company.4.3 in view of the above facts and circumstances, i agree with the recommendations of the takeover panel and consider the present case as a fit case for granting exemption from making a public announcement as required under regulation 11 of the takeover regulations.5.1 in view of the above findings, i, in exercise of the powers conferred upon me by virtue of section 19 of the securities and exchange board of india act, 1992 read with sub - regulation (6) of regulation 4 of securities and exchange board of india (substantial acquisition of shares and takeovers) regulations, 1997, hereby grant exemption to the acquirers, namely, shri vikram b.sanghani, mr. sanjay h dhamsania, mr. bhupat chunilal sanghani, mr. harilal t dhamsania, mr.arvind sitapara, ms. bina v sanghani, mr. harsha r kalaria, mr.hasumati p detroja ms. jamkunverben h dhamsania, mr. jay b sanghani, mr. jayantilal b kalaria, m/s jayantilal b kalaria - huf, ms. khyati s kalaria, ms. madhavi s dhamsania, ms. mrudula patel, ms. pushpaben j.kalaria, mr. rahul j. kalaria, mr. rahul j. kalaria - huf, ms.samishaben ajaykumar patel, mr. shaunak j. kalaria, shaunak j. kalaria - huf, vikram b sanghani - huf and apex data service inc. from complying with the provisions of regulation 11 of securities and exchange board of india (substantial acquisition of shares and takeovers) regulations, 1997 with regard to the increase in their voting rights from 52.40% to 57.35%, consequent to the proposed buy-back offer of ace software exports ltd., the target company.

Judgment:
1.1 M/s Ace Software Exports Limited (hereinafter referred to as 'the target company') is a company incorporated under the Companies Act, 1956, having its registered office at 801, Everest Commercial Complex, Opp. Shastri Maidan, Rajkot - 360 001. The equity shares of the target company are listed on the Bombay Stock Exchange Ltd. (BSE) and The Saurashtra - Kutch Stock Exchange Ltd. (SKSE).

1.2 Shri Vikram B.Sanghani, Mr. Sanjay H Dhamsania, Mr. Bhupat Chunilal Sanghani, Mr. Harilal T Dhamsania, Mr. Arvind Sitapara, Ms. Bina V.Sanghani, Mr. Harsha R Kalaria, Mr. Hasumati P Detroja Ms. Jamkunverben H Dhamsania, Mr. Jay B Sanghani, Mr. Jayantilal B Kalaria, M/s Jayantilal B Kalaria - HUF, Ms. Khyati S. Kalaria, Ms. Madhavi S.Dhamsania, Ms. Mrudula Patel, Ms. Pushpaben J. kalaria, Mr. Rahul J.Kalaria, Mr. Rahul J. Kalaria - HUF, Ms. Samishaben Ajaykumar Patel, Mr. Shaunak J. Kalaria, Shaunak J. Kalaria - HUF, Vikram B Sanghani - HUF and Apex Data Service INC. (hereinafter collectively referred to as 'the acquirers') belong to the promoter group of the target company.

The acquirers together with the persons acting in concert are holding 52.40% of the equity shares of the target company.

2.1 The target company propose to buy-back its 4,42,346 equity shares from the shareholders at a price not exceeding Rs. 20/- per share in terms of the provisions of section 77A, 77AA of the Companies Act 1956 and the provisions of the Securities and Exchange Board of India (Buy- Back of Securities) Regulations, 1998. Due to the said buy-back offer, the voting rights of the acquirers would increase from 52.40% to 57.35%, in case of 100% response to the said buy-back offer and the acquires not offering to sell any shares held by them in the proposed buy-back offer of the target company.

2.2 The acquirers, vide letter dated October 20, 2006 filed an application with the Securities and Exchange Board of India (hereinafter referred to as SEBI) under Regulation 4(2) read with Regulation 3(1)(1) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations,1997, (hereinafter referred to as the 'Takeover Regulations'). Since, the post buy-back shareholding of acquirers would increase to a level beyond 55%, the exemption is sought from the applicability of Regulation 11 of the Takeover Regulations, inter alia on the following grounds:- a) The acquirers are promoters of the target company. The acquirers are holding 52.40% of the equity shares capital of the target company and are already in control of the target company.

b) The target company has passed a special resolution by way of postal ballot in compliance with the provisions of Section 77 A, 77 AA and 77 B of the Companies Act, 1956 and the provision of the Securities and Exchange Board of India (Buy Back of Securities) Regulations, 1998. The board of directors of the target company in their meeting held on January 27, 2007 decided to buy back upto 4,42,346 equity shares at a price not exceeding Rs.20/- per share.

c) The acquirers and /or persons in control, of the target company and/or their associates/persons acting in concert would not offer their shares to the target company and are not participating under the proposed buy back.

d) The buy back of equity shares is proposed to maximize return to investors, enhance overall shareholder value and further improve financial ratios.

e) There is no change in control of the target company pursuant to the increase in the percentage of shareholding of the acquirers.

f) The increase in percentage of shareholding of acquirers is resultant of buy back of shares by the target company and not by increase in number of shares with the acquirers.

g) Even after Buy-back of the equity shares by the target company to the full extent, the voting rights of the acquirers will remain maximum at the level of 57.35%, which meets with the minimum public shareholding requirements of the listing agreements with the stock exchanges where the shares of the target company are listed.

2.3 The shareholding pattern of the target company before and after the proposed acquisition (as mentioned in the application) is as under:------------------------------------------------------------------------Shareholders' Number of Shareholding Shareholdingcategory registered Before the After the proposed shareholders proposed acquisition as on date of acquisition------------------------------------------------------------------------ Number of % of shares/total Number of % of Share/ shares/total voting capital shares/voting Voting rights voting rights held rights23 2683625 52.40 2683625 57.35110 179416 3.5056 67464 1032 1995755 42.654376 2189721 42.754566 5121726 100.00 4679380 100.00------------------------------------------------------------------------ 3.1 The aforesaid application dated October 20, 2006 was forwarded by SEBI to the Takeover Panel in terms of Sub-regulation (4) of Regulation 4 of the Takeover Regulations. The Takeover Panel vide its report dated March 6, 2007 (forwarded by the Takeover Panel vide letter dated March 20, 2007) has recommended for the grant of exemption as sought by the acquirers.

4.1 I have carefully considered the application dated October 20, 2006 filed by the acquirers, the above mentioned recommendations of the Takeover Panel and relevant materials available on record.

4.2 At the outset, I note that the increase in shareholding of the acquirers is incidental to the buy back plan of the target company. The acquirers have submitted that they would not acquire any shares of the target company directly or indirectly in the said buy back offer made by the target company and that the number of shares held by acquirers would not change after the proposed buy back. The acquirers do not propose to acquire a single share of the target company. I also note that there would not be any change in control as the acquirers are the promoters of the target company and have control over the target company. I note from the submission of the acquirers that, even in case of 100% response in the proposed buy-back offer and successful completion of the said buy-back, the share holding of the acquirers would remain at the level of 57.35% which would meet the continuous listing requirements of the listing agreement with the stock exchanges where the shares of the target company are listed. The acquirers in their application have stated that the proposed buy back would be at Rs.20/- per share which is higher than the present market price of Rs. 14.77 per share as on March 26, 2007. The acquirers also do not propose to acquire a single share of the target company.

4.3 In view of the above facts and circumstances, I agree with the recommendations of the Takeover Panel and consider the present case as a fit case for granting exemption from making a public announcement as required under Regulation 11 of the Takeover Regulations.

5.1 In view of the above findings, I, in exercise of the powers conferred upon me by virtue of Section 19 of the Securities and Exchange Board of India Act, 1992 read with sub - Regulation (6) of Regulation 4 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the acquirers, namely, Shri Vikram B.Sanghani, Mr. Sanjay H Dhamsania, Mr. Bhupat Chunilal Sanghani, Mr. Harilal T Dhamsania, Mr.

Arvind Sitapara, Ms. Bina V Sanghani, Mr. Harsha R Kalaria, Mr.

Hasumati P Detroja Ms. Jamkunverben H Dhamsania, Mr. Jay B Sanghani, Mr. Jayantilal B Kalaria, M/s Jayantilal B Kalaria - HUF, Ms. Khyati S Kalaria, Ms. Madhavi S Dhamsania, Ms. Mrudula Patel, Ms. Pushpaben J.Kalaria, Mr. Rahul J. Kalaria, Mr. Rahul J. Kalaria - HUF, Ms.

Samishaben Ajaykumar Patel, Mr. Shaunak J. Kalaria, Shaunak J. Kalaria - HUF, Vikram B Sanghani - HUF and Apex Data Service INC. from complying with the provisions of Regulation 11 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 with regard to the increase in their voting rights from 52.40% to 57.35%, consequent to the proposed buy-back offer of ACE Software Exports Ltd., the target company.