9911796707
TMI Blog2013 (12) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... e of cement and other allied products. The Appellants are promoters of the Company which is listed on the BSE. It has 2,78,37,969 shares, out of which 63.26% are held by the Appellants and the remaining 36.74% are held by the public. Out of the 63.26% of the equity share capital held by the Appellants, 45.17% have been pledged with banks. In 2005 the Company approached banks for term loans of approximately Rs. 20 Crore, against which a margin of around Rs. 6 Crore was demanded by the banks. The Appellants, therefore, agreed to infuse Rs. 3 Crore into the Company by way of preferential allotment of shares. As a result of this, the shareholding of the Appellants in the Company would go up from 63.26% to 69.11% leading to the triggering of Regulation 11(1) of the Takeover Regulations. The Appellants, in order to circumvent this situation, made an application dated January 22, 2005 under Regulation 4(2) of the said Regulations to the Respondent asking to be exempted from the obligation of making an open offer under Regulation 11(1). The Respondent graciously granted the exemption sought by the Appellants for the acquisition of 30,00,000 equity shares at Rs. 10 each exercising it powers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied with. In the meanwhile, in July, 2010, the Appellants pledged 8,09,450 shares to raise Inter Corporate Deposits ("ICDs") to deal with certain financial difficulties which had arisen. The Appellants defaulted on the repayment of these ICDs, and part of the shares pledged to raise the ICDs were sold by them, bringing their shareholding down to 71.93%. Subsequently, the Corporate Debt Restructuring unit sent the approved proposal regarding the restructuring of the Company's debts to the banks concerned and the Appellants. It listed various steps to be taken by the Company in order to deal with its predicament. 5. Finally, the Respondent issued a Show-Cause Notice ("SCN") dated March 28, 2011 to the Appellants alleging the violation of Regulation 11(2) read with Regulation 14(2) of the Takeover Code of 1997. Appellants filed a reply vide letter dated May 3, 2011 expressing their belief that they were eligible for the exemptions granted under Regulation 3(1) read with Regulation 4 of the Takeover Code of 1997. Following this the Appellants appeared for a personal hearing on May 18, 2011. The Appellants then sold 14,37,352 of their shares for the purposes of a project that they had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions of the Respondent. The Respondent submits that a letter dated June 26, 2007 was sent to the Appellants stating categorically that the exemption granted vide SEBI's Order dated September 23, 2005 was only with respect to the 30,00,000 shares and not the 41,96,790 warrants sought to be exempted. It was also stated in the letter that the exemption granted should not be construed in such a way so as to include the warrants and their conversion into shares at a future date. It is the Respondent's submission that prior to the conversion of the warrants in question, no application was made as required by Regulation 4(2) of the Takeover Code of 1997. When, as a result of the conversion, the shareholding of the Appellants went from 69.11% to 74.01%, no public announcement was made in respect of the said increase. It is submitted that despite being warned against the allotment of 41,96,790 warrants vide letter dated February 21, 2007, the acquirers went ahead with the allotment followed by their subsequent conversion into shares. The Respondent submits with respect to the matters of Jaiswal Neco Limited and Seahorse Hospitals Limited that the facts of the instant case are differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he boost in capital owing to the equity shares bought by the Appellants and warrants subscribed to, the value of the shares held by investors at large increased substantially. It is evident from the records that sales skyrocketed from Rs. 31.34 Crores in March, 2006 to 93.98 Crores on March 31, 2009 which admittedly is an increase of 200%. The profitability during the above said period witnessed an increase of approximately 1600%. Further, it is pertinently noted that prior to the coming into play of the scheme which turned the shape of the Company around in its entirety for the better, the shares of the Company were quite thinly traded in view of the non-performance of the Company's scrip and there was no other adequately viable route which could have been adopted to meet the Company's desperate need for funds. And once the much needed capital was infused into the Company, we note that the production of the Ordinary Portland Cement rose from 1,35,445 M.Ts on March 31, 2005 to 2,56,479 M.Ts as on March 31, 2009, i.e., there was a visible increase of 89.36%. The increase in fixed assets investments was as much as 248%, which went up from Rs. 52.81 Crore in September, 2007 to Rs. 183 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with banks as security for all the loans taken by the Appellants for the betterment of the Company. Sale of huge number of shares, as required under orders of the Respondent, will bring down the share price, leading to under evaluation of security, in the form of shares, with banks/financial institutions for loan; this in turn shall lead to demand for higher security by financial institutions/ loanee and thereby triggering a chain reaction, leading to financial difficulties, making/continuing operation difficult/ impossible. Thus, company may fall back into sickness again. 14. Next, we have been informed that parallel adjudication proceedings under the SEBI Act, 1992 pertaining to the said violation have commenced. We make it clear that in case the Appellants are found guilty of violation of the regulation in question, SEBI shall be at liberty to impose suitable monetary penalty on the Appellants as per law. The alleged violation would, thus, not go unpunished. 15. Therefore, in the facts and circumstances of the case, we find it fit to remand the case back to SEBI for reconsideration given the fact that post-facto exemption is not an unprecedented action on part of the Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X
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