SEBI Vs. CHAMUNDESWARI ENTERPRISES LIMITED
LAWS(SB)-2003-2-12
SECURITIES APPELLATE TRIBUNAL
Decided on February 27,2003

Appellant
VERSUS
Respondents

JUDGEMENT

G.N.Bajpai, - (1.) 0 Chamundeswari Enterprises Limited, ABT Industries Limited, Shakti Beverages Limited (hereinafter referred to as the `Acquirers') propose to acquire 60,00,000 equity shares of Sri Chamundeswari Sugars Limited (hereinafter referred to the `Target company') @ Rs. 12.50 per share by way of preferential allotment. The Acquirers are a part of promoters group of the Target company. As a result of the proposed acquisition, the Acquirer will 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 Bangalore Stock Exchange and the Madras Stock Exchange.
(2.) 0 The Acquirer made an application dated 02.12.2002 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. 3.0 In the aforesaid application, the Acquirer , inter-alia, submitted the following: O part finance the setting up Of cO-generatiOn plant and alsO the OngOing distillery prOject Of the Target cOmpany, the prOmOters are infusing the funds intO the Target cOmpany. The BOard Of DirectOrs Of the Target cOmpany are in the prOcess Of issuing 60,00,000 equity shares @ Rs. 10/- each at a premium Of Rs. 2.50 tO the Acquirers aggregating tO Rs. 7.50 crs. On preferential allOtment basis. 3.2 The sharehOlding Of the Acquirers pre-allOtment and pOst-allOtment will be as fOllOws :- JUDGEMENT_365_TLSB0_20030.htm 3.3 The prOmOters Of the Target cOmpany including the Acquirers already hOld 46.54% shares in the Target cOmpany and after the preferential allOtment their sharehOlding will gO up tO 87.42%. 3.4 The prOpOsed acquisitiOn by the Acquirers is nOt the acquisitiOn Of cOntrOl Of the Target cOmpany as the existing prOmOter grOup is prOpOsing tO subscribe tO the preferential allOtment fOr the purpOses Of part financing Of the prOject. 3.5 The nOtice fOr the annual general meeting Of the Target cOmpany regarding the prOpOsed preferential allOtment held On 30.09.2002 was apprOved in the meeting Of the Target cOmpany On 30.08.2002 and was issued On 04.09.2002. The amendments tO the RegulatiOns were nOtified with effect frOm 09.09.02. The Target cOmpany wOuld have Otherwise becOme eligible tO seek exemptiOn under the preferential issue guidelines as the threshOld Of public sharehOlding falling belOw 10% is nOt being breached. The prOpOsed preferential allOtment is a bOna fide intentiOn Of the prOmOters and the Target cOmpany irrespective Of change in guidelines in this respect. 3.6 In the AGM held On 30.09.2002, the sharehOlders Of the Target cOmpany have apprOved the said allOtment Of shares in favOur Of the Acquirers. 3.7 The infusiOn Of cOntributiOn by the prOmOters Of the Target cOmpany by way Of capital is a precOnditiOn Of IREDA fOr the implementatiOn Of the prOject. It is therefOre, very essential fOr the prOmOters tO cOntribute tO the capital at the earliest and prOpOsed preferential allOtment is nOt gOing tO change the management Of the Target cOmpany in any way but will gO a lOng way in implementatiOn Of the prOject and revival Of the Target cOmpany. 3.8 The implementatiOn Of prOject as stated hereinbefOre by the Target cOmpany is very essential and the Target cOmpany has taken effective steps tOwards the same and has cOmpleted fOllOwing activities at their end :- a. Obtain assessment Of viability Of the prOject by IREDA alOng with their sanctiOn Of term lOan tO the extent Of Rs. 48.95 crs. the disbursement Of lOan wOuld be prOpOrtiOnate tO the cOntributiOn Of prOmOters' cOntributiOn tOwards the prOject. The nOminee Of IREDA has been appOinted On the BOard Of the Target cOmpany. b. GOvernment Of Karnataka has agreed tO purchase the pOwer frOm the Target cOmpany and has signed pOwer purchase agreement On 19.10.2001, the price Offered by the Karnataka GOvernment is One Of the highest in the cOuntry. c. FOr the executiOn Of cO-generatiOn prOject On turnkey basis, letter Of intent has been given tO M/s. Larsen & TOubrO and the wOrk is in prOgress as per schedule. d. The prOmOters have already cOntributed Rs. 4 crs. tOwards a prOject and has mObilised resOurces tO be brOught in. 3.9 The implementatiOn Of the prOject withOut delay will be in the larger interest Of the Target cOmpany.
(3.) 0 The abovesaid application for exemption dated 02.12.2002 was forwarded to the Takeover Panel on 05.12.2002 in terms of sub-regulation(4) of regulation 4 of the Regulations. The Takeover Panel vide its report dated 16.12.2002 has recommended, inter alia, as under: "On the facts stated in the application grant of exemption as sought is recommended subject to the shareholders of the target company - (i) Passing a special Resolution ratifying the change in control at its meeting where voting through postal ballot is to be permitted; (ii) Serving notice to the shareholders of the target company accompanying an envelope for postal ballot with prepaid postage stamps affixed. Grant of exemption is recommended also subject to the promoter group shareholders of the target company, being interested party to the resolution, abstaining from voting in respect of the resolution.";


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