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Issues Involved:
1. Whether the acquisition made by the acquirers in the Target Company qualified for exemption from the applicability of Regulation 11 of the Takeover Regulations. 2. Whether the acquirers had committed any violation of the Takeover Regulations. 3. The regulatory action, if any, called for. Issue-Wise Detailed Analysis: 1. Exemption Qualification: The primary issue was whether the acquisition of shares by the acquirers in the Target Company qualified for exemption under Regulation 11 of the Takeover Regulations. The acquirers argued that the preferential allotment of warrants, which entitled them to receive shares at a later date, was completed before the amendment on September 9, 2002. They contended that the conversion of warrants into shares was a legal consequence and not a fresh acquisition. The acquirers asserted that Regulation 3(1)(c) applied to the preferential allotment of any security entitling the holder to receive equity shares later. They maintained that the deletion of Regulation 3(1)(c) did not affect their vested rights to convert the warrants into shares. The judgment noted that the shareholders of the Target Company had authorized the preferential allotment of warrants on February 27, 2002. The warrants were allotted on May 18 and 24, 2002, with the option to convert within 18 months. The acquirers exercised this right on August 21, 2003, which increased their shareholding beyond the permissible annual creeping limit of 5% under Regulation 11(1). However, the judgment recognized that the preferential allotment of warrants was made under the then-existing Regulation 3(1)(c), which provided an exemption. 2. Violation of Takeover Regulations: The judgment examined whether the acquirers violated the Takeover Regulations by not making a public announcement for acquiring 20% of the voting capital from the public. The deletion of Regulation 3(1)(c) on September 9, 2002, complicated the issue, as the warrants were converted into shares after this amendment. The judgment noted that the deletion aimed to prevent misuse of exemptions for changing control without a public offer. However, it found no evidence of such intentions by the acquirers. The judgment highlighted that the promoters and associates held 45.93% of the share capital before conversion, which increased to 53.63% post-conversion. Despite the increased shareholding, there was no change in control of the company. The preferential allotment aimed to finance the company's expansion and reduce debt, approved by the shareholders. 3. Regulatory Action: The judgment concluded that the acquisition of shares through the conversion of warrants could be deemed exempt under the then-existing Regulation 3(1)(c). However, it directed that the shares acquired be subjected to a lock-in period of three years from the date of allotment. This decision aimed to balance the acquirers' vested rights and the regulatory intent to prevent misuse of exemptions. Conclusion: In conclusion, the judgment recognized the preferential allotment of warrants and subsequent conversion into shares as exempt under the pre-amendment Regulation 3(1)(c). The acquirers did not violate the Takeover Regulations, but the acquired shares were subjected to a three-year lock-in period to ensure regulatory compliance and prevent potential misuse of exemptions.
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