(1.) 1 Sterlite Opportunities and Ventures Ltd., Sterlite Industries (India) Ltd., and Sterlite Optical Technologies Ltd. (herein after collectively referred to as Acquirers) made a public announcement on April 10, 2002 to the shareholders of Hindustan Zinc Ltd. (herein after referred to as the Target Company) for acquisition of 20% equity capital of the Target Company pursuant to Regulation 10 and Regulation 12 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as Regulations).
1.2 Pursuant to the public announcement a letter of offer dated May 20, 2002 was sent to the shareholders of the Target Company. As per the letter of offer the date of opening of the offer was May 27, 2002 and date of closing of the offer was June 25, 2002. Further, the last date of payment of consideration was stated to be July 25, 2002.
(2.) 1 On August 20, 2002 SBI Capital Markets Ltd. (hereinafter referred to as the Merchant Banker) filed the revised 45 days report in respect of the aforesaid offer with SEBI. On perusal of the report it was observed that the payment to 9 NRI/OCB/FII shareholders of the Target company was not made in time i.e. by July 25, 2002 and was made after a delay of 40 days in respect of 8 NRI/OCB/FII shareholders and a delay of 69 days in respect of one NRI/OCB/FII shareholder, due to non-receipt of Reserve Bank of India (RBI) approval in time in respect of transfer of shares from the aforesaid 9 shareholders.
2.2 On October 04, 2002, SEBI directed the Merchant Banker to pay interest @ of 10% p.a. for the delay beyond July 25, 2002 to the shareholders for the delay. In reply, the Merchant Banker vide letter dated October 25, 2002 inter alia stated that it had advised the Acquirers to pay interest for the delay in payment of consideration to the OCB/NRI/FII shareholders of the Target Company. Further, it was also stated that the Acquirers have informed them that in their opinion the interest liability payable to the shareholders is not justified.
2.3 SEBI vide its letter dated November 14, 2002 again advised the Merchant Banker to ensure compliance of SEBI's letter dated October 04, 2002. In reply to the aforesaid letter, the Acquirers replied vide letter dated December 02, 2002 inter alia stating that the permission required from the RBI did not come within the ambit of the term statutory approvals as provided in the Regulations and therefore there was no justification for payment of interest under Regulation 22(12) by the Acquirers and also that there was no willful default on the part of the Acquirers in obtaining the approval from RBI.
2.4 On November 18,2002 SEBI received a complaint from DSK Legal, Advocates and Solicitors on behalf of Metdist India Holdings Ltd. inter alia alleging that the Acquirer has not paid interest for making delayed payment of the consideration amount in terms of SEBI'S direction dated October 04, 2002 for payment of interest and requested SEBI to take necessary steps in the matter.
2.5 On December 03, 2002, the Merchant Banker advised the Acquirers to make the payment of interest to the NRI/OCB/FII shareholders of the Target Company and to apply to RBI to obtain approval so as to make the payment from Escrow Account in order to comply with SEBI's directions.
2.6 Merchant Banker vide its letter dated January 03, 2003 inter alia informed SEBI that they have received a legal notice from the solicitors of the Acquirers threatening legal action against the Merchant Banker unless they immediately transfer the NRI shares to the Acquirers.
Show CAUSE NOTICE
A Show Cause Notice was issued to the Acquirer on January 20, 2003 inter alia stating that :
3.1 It is observed that as a consequence of non-receipt of approval from RBI, the payment of consideration to the NRI/OCB/FII shareholders of Target company whose shares were accepted in the aforesaid offer was delayed.
3.2 In this regard attention is drawn to a statement made to the shareholders of Target company in the letter of offer dated 20.05.02. It was, inter alia, stated / disclosed that: :
"The offer is subject to the approval of RBI under the Foreign Exchange Management Act, 1999 for acquiring shares tendered by shareholders including NRIs/FIIs and OCBs. The RBI approval will be obtained in the manner set out in the following paragraphs. Besides the above, there are no approvals required to acquire shares that are tendered pursuant to this offer.
On closure of the offer and receipt of the acceptances duly filled and completed in all respects from the shareholders the acquirer, on behalf of such shareholders, would make the requisite application to RBI to obtain permission for transfer of their shares in HZL to the acquire.
Barring unforeseen circumstances the acquirer intends to obtain all required approvals within one month from the closing date. However, in case of delay in receipt of statutory approvals in terms of clause 22(12) of the regulations, SEBI has the power to grant extension of time, subject to the acquirer agreeing to pay interest to the shareholders for delay beyond 30 days."
3.3 In this regard, attention is drawn to Regulation 22(12) of the regulations regarding payment of consideration, which reads as under:
"The acquirer shall, within a period of 30 days from the date of the closure of the offer, complete all procedures relating to the offer including payment of consideration to the shareholders who have accepted the offer and for the purpose open a special account as provided under Regulation 29.
Provided that where the acquirer is unable to make the payment to the shareholders who have accepted the offer before the said period of 30 days due to non-receipt of requisite statutory approvals, the Board may, if satisfied that non-receipt of requisite statutory approvals was not due to any wilful default or neglect of the acquirer or failure of the acquirer to diligently pursue the applications for such approvals, grant extension of time for the purpose, subject to the acquirer agreeing to pay interest to the shareholders for delay beyond 30 days, as may be specified by the Board from time to time."
3.4 In view of the aforesaid specific disclosure made by the Acquirers in the letter of offer dated 20/5/02 to the shareholders of Target company, the Acquirers agreed to obtain the RBI approval on behalf of shareholders, for obtaining permission for transfer of their shares in favour of the Acquirers.
3.5 It is observed that the offer closed on 25.06.02. The consideration amount to the NRI/OCB/FII shareholders of the Target company whose shares were accepted by the Acquirers in the open offer was to be made within 30 days from the date of closure of the offer in terms of regulation 22(12). The Acquirers have made payment of consideration to the NRI/OCB/FII shareholders (9 entities) of Target company on 04.09.02 (8 out of 9 entities) and on 03.10.02 (1 out of 9 entities) i.e. after a delay of 40 days and 69 days respectively.
Thus, in view of the delay of 40 days (8 entities) and 69 days (1 entity) in making payment of consideration to NRI/OCB/FII shareholders , the Acquirers are obligated to pay interest to NRI/OCB/FII shareholders for the delayed period of 40 days and 69 days respectively.
3.6 In terms of Regulation 22(12), SEBI had vide letters dated 04.10.02 & 14.11.02 addressed to the Merchant Banker, directed the Acquirers to make payment of interest @ 10% p.a. for the delayed period to the NRI/OCB/FII shareholders whose shares were accepted by them. However, the Acquirers have failed to pay the interest for the delayed period to the said NRI/OCB/FII shareholders as directed by SEBI.
3.7 In view of the prima facie violation of Regulation 22(12) by the Acquirers they were called upon to show cause as to why one or more or all action(s) under Regulations 22(15), 28(11), 44 and 45(6) of the captioned Regulations and Section 11, and 11B of SEBI Act, 1992 should not be initiated against them.
(3.) THE Acquirers replied vide their letter dated January 31, 2003 and inter alia reiterated that payment of interest is not legally justified as there is no material on record to suggest or any allegation that there was a willful default on part of the Acquirers.;