SEBI Vs. ACE GLASS CONTAINERS LTD
LAWS(SB)-2003-1-3
SECURITIES APPELLATE TRIBUNAL
Decided on January 28,2003

Appellant
VERSUS
Respondents

JUDGEMENT

G.N.Bajpai, - (1.) BACKGROUND 1.1 Ace Glass Containers Ltd. is a group company of C K Somany Group. (here in after Shri C K Somany and Ace Glass Containers Ltd. collectively referred to as "the Acquirer"). The Acquirer proposes to acquire 806,192 equity shares (7.3%) of Hindustan National Glass and Industries Ltd. (hereinafter referred to as "the Target Company") from S K Somany Group @ Rs 40/- per share in terms of Memorandum of Understanding signed on 07.10.02. 1.2 The shares of the Target company are listed at the Mumbai Stock Exchange and the Calcutta Stock Exchange. In the Target Company, C K Somany Group holds 73.05% equity shares, S K Somany Group holds 7.75% equity shares (prior to the proposed acquisition), H L Somany Group holds 7.72 % equity shares, R K Somany Group holds 10.83 % equity shares and the balance 0.65% equity shares are held by public shareholders being 136 in number. 1.3 As a result of the proposed acquisition, the Acquirer would 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").
(2.) APPLICATION 2.1 The Acquirer made an application dated 14/09/02 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 regulations 12,14, 15, 16, 18, 21, 22(3), 22(4), 22(5) and 22(8) for making public announcement under sub regulation (1) of regulation 11 of the Regulations. Submissions 3.1 In the aforesaid application, the Acquirer , inter-alia, submitted the following: 3.2 The Target company was promoted by the Somany family. The Somany family, comprising the groups of Mr. H.L. Somany, Mr. S.K. Somany, Mr. C.K. Somany and Mr. R.K. Somany arrived at a family settlement in the year 1994. As a part of this settlement, around 40% of the then paid-up capital of the Target company was retained / transferred by others groups to the C.K. Somany group and hence the ownership rights and management control of the Target company was acquired by the C.K. Somany group, the present promoter group of the Target company from 29th December 1994. 3.3 In the year 1997, the groups of Mr. H.L. Somany, Mr. S.K. Somany and Mr. R.K. Somany filed a suit before the Hon'ble Calcutta High Court [ suit No. 35 of 1997] for purchase of their shareholdings in the Target company by the C.K. Somany group as a result of which the Calcutta High Court vide an interim order dated 4th February 1997 restrained the C.K. Somany group from dealing in, disposing of or creating any third party rights in respect of their shareholding [1410273 equity shares] in the Target company until the disposal of the suit. 3.4 The C.K. Somany group also approached the court and obtained a similar order of injunction dated 25.02.97 against the groups of Mr. H.L. Somany, Mr. S.K. Somany and Mr. R.K. Somany restraining them from selling, transferring or pledging any of the 29,70,926 equity shares of the Target company held by them and their relatives and associates, being the subject matter of the aforesaid suit until disposal of the suit. 3.5 The S.K. Somany group, holding 8,56,192 equity shares in the Target company offered to sell 8,06,192 equity shares in the Target company to the C.K. Somany group vide their letter dated 22nd August 2002 at a price to be mutually agreed upon and subject to the C.K. Somany group getting the said order dated 25th February 1997 vacated to the extent of 8,06,192 equity shares held by the S.K. Somany group. 3.6 The Calcutta High Court vide its order dated 13th September 2002 modified its earlier order dated 25th February 1997, thus permitting the C.K. Somany group 8,06,912 equity shares of the Target company held by the S.K. Somany group. 3.7 On receipt of the copy of the aforesaid order of the Calcutta High Court, the C.K. Somany group proposes to enter into a Memorandum of Understanding with the S.K. Somany group to purchase their shareholding of 8,06,912 equity shares in the Target company at a price to be mutually agreed upon between the parties. 3.8 Due to the operation of the order of the Hon'ble High Court restraining them from transferring or disposing their holding in the Target company, the groups of Mr. R.K. Somany and Mr. H.L. Somany [holding 10.83 % and 7.75% respectively in the Target company] will not be eligible to participate in the open offer. As such the mandated public offer can be made only to other public shareholders holding 0.65% of the share capital of the Target company. 3.9 The procedural requirements for making an open offer are quite elaborate and involve much effort, time and costs. In view of the small number of shareholders involved, complying with all the formalities involved in the open offer would impose unjustified costs and efforts on the acquirers. 3.10 The exemption may be granted to the Acquirer from the provisions of Regulation 12, 14, 15, 16, 18 21, 22(3), 22(4), 22(5) and 22(8). Further, the requirement of making a public announcement, preparation of Letter of Offer and filing the same with SEBI may be waived. 3.11 The Acquirer will make an offer to all 136 shareholders to buy their shareholding at the price determined in accordance with the provisions of the Regulations. 3.12 The Acquirer will make an offer by sending individual offer letters disclosing all material facts as may be required. Such offer letters shall be sent by registered post acknowledgement due to each of the individual shareholders. 3.13 The Acquirer would be fully complying with the provisions of Regulation 28 regarding creation of an escrow account in respect of the consideration to be paid to such 136 public shareholders. 3.14 The offer to the shareholders shall be made at a price which shall not be less than the negotiated price paid by the acquirers for acquisition of 8,06,912 equity shares from the S.K. Somany group. 3.15 The shares of the Target company are infrequently traded within the meaning of regulation 20(5) and the offer price is proposed to be based on the negotiated price as per the MOU proposed to be entered into by the Acquirers with the S K Somany group.
(3.) PANEL RECOMMENDATION 4.1 The above said application for exemption dated 14/09/02 was forwarded to the Takeover Panel on 23.09.20022002 in terms of sub-regulation(4) of regulation 4 of the Regulations. The Takeover Panel vide its report dated 17.10.2002 has recommended, inter alia, as under: "The Acquirer C K Somany along with the persons acting in concert holds 73.05% of the equity shares capital of the target company. The control and management of the target company is already with the acquirers group. The acquirers seek to acquirer 7.3% equity shares held by the S K Somany Group. In the facts of the case, grant of exemption as sought is recommended subject to the acquirer - (i) making individual offers to each of the remaining shareholders who are not restrained by any Order of the Court from selling their shareholdings by directly addressing offer letters offering to buy the shares held by such shareholders in the target company; (ii) sending such letters to each of such shareholders at the recorded addresses by registered acknowledgement due post; (iii) submitting of Certificate of auditor / independent Chartered Accountant to the effect that the offer letters were so posted; (iv) offering the minimum price per share calculated in accordance with Regulation 20 of the Takeover Code but in any event not less than Rs. 40/- per share.";


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