VALLABH STEELS LTD Vs. STATE
SECURITIES APPELLATE TRIBUNAL
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(1.) SHRI Kapil Jain, (hereinafter referred to as the `Acquirer') alongwith Kapil Kumar & Sons (HUF), Mrs. Lata Jain, SHRI Rahul Jain, Rahul Jain & Sons (HUF), Mrs Megha Jain, SHRI Vikram Jain and Ms.Shweta Jain (hereinafter referred to as `persons acting in concert') propose to acquire 16,50,000/- equity shares of M/s Vallabh Steels Ltd. having its registered office at G.T. Road, Pawa, Sahnewal, Ludhiana-141 120 (Punjab) (hereinafter referred to as `Target company') by way of preferential allotment. The Acquirer and the persons acting in concert with him are part of promoter group of the Target company and hold 61.84% equity share capital of the target company. As a result of the proposed acquisition, the Acquirers have to make an open offer to the public shareholders of the Target company in terms of sub regulation (1) of regulation 11 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as "the Regulations").
1.1 The shares of the Target company are listed at the Stock Exchange Mumbai, Delhi Stock Exchange, Ludhiana Stock Exchange and The Calcutta Stock Exchange.
(2.) The Acquirers made an application dated 21.03.03 under sub-regulation (2) of Regulation 4 of the Regulations to the Securities and Exchange Board of India (hereinafter referred to as "SEBI") seeking exemption from compliance of the provisions of sub regulation (1) of Regulation 11 of the Regulations.
In the aforesaid application and letter dated 21.03.03, it was submitted that :
3.1 The Acquirers propose to acquire 16,50,000 shares representing 33.33% of the post issue paid up capital of the Target company at the price of Rs. 10/- per share by way of preferential allotment.
3.2 The Acquirer and the persons acting in concert are the promoters of the Target company. After the proposed preferential allotment the shareholding of the promoter group in the Target company will increase from 61.84% to 74.56% shares in the Target company.
3.3 The Acquirers are already in control in the Target company. The proposed acquisition would amount only to consolidation of shareholding.
3.4 The shareholding of the Acquirers pre and post-allotment will be as follows:-
Pre-allotment in terms of Shares Post allotment in terms of Shares
3.5 Punjab National Bank, the appraising and lead lending bank has stipulated that the amount of Rs. 165 lacs is to be brought in by promoters as their contribution in the shape of preferential offer to meet part of the project cost. This amount was to be brought in by March 31, 2003 which could not be brought in by way of rights or public issue in such a short time.
3.6 The conditions in the primary market were not conducive for the Target company to enter the capital market either with a public or rights issue.
3.7 The promoters would be subscribing to the shares of the Target company at a price of Rs. 10/- per share as against its current market price of Rs. 6.10/- and the average price of only Rs. 8.95/- for the last one year.
3.8 The interest of outside shareholders would not be adversely affected as after the implementation of the project the shareholder's value is likely to increase substantially as the Target company was setting up a project through bank funding, promoters contributions and internal accruals without putting any burden on outside shareholders. The expected increase in profitability on implementation of the project was likely to enhance the shareholders value of existing shares also.
3.10 The acquirer alongwith persons acting in concert would be contributing Rs. 165 lacs to the proposed project and there is no intention to increase the stake of the promoters.
(3.) THE above application dt. 21.03.03 for exemption was forwarded to the Takeover Panel on 24.4.2003 in terms of sub-regulation (4) of Regulation 4 of the Regulations. THE Takeover Panel vide its report dated 30.04.2003 recommended, inter alia, as under:
"On the facts stated, the proposed preferential allotment appears to be in the overall interest of investors at large and grant of exemption, as sought, is recommended";
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