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2013 (12) TMI 704

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..... financial institutions/ loanee and thereby triggering a chain reaction, leading to financial difficulties, making/continuing operation difficult/ impossible - company may fall back into sickness again - Case remanded back to SEBI for reconsideration given the fact that post-facto exemption is not an unprecedented action on part of the Respondent – Decided in favour of Appellant. - 85 of 2012 - - - Dated:- 28-6-2013 - JOG SINGH, J. For the Appellant : Janak Dwarkadas, Vinay Chauhan, Prashant Ingle and K.C. Jacob. For the Respondent : Shiraz Rustomjee and Ajay Khaire. JUDGMENT:- The present appeal is filed by 13 entities ("Appellants") against order dated July 19, 2011, ("Impugned Order") passed by the Securities and Exchange Board of India ("Respondent") directing the Appellants to disinvest 41,96,760 shares of Bheema Cements Limited ("the Company") within a period of two months from the date of the Impugned Order for the violation of Regulation 11(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ("Takeover Regulations") while acquiring the abovementioned shares. 2. The Company was originally incorporated in the name of M/s. Co .....

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..... d on the BSE on December 7, 2007. This allotment took the shareholding of Appellants in the Company to 69.11%. The allotment of these shares and warrants led to the infusion of Rs. 3,41,96,790 into the Company. Now, the warrants were converted into equity shares on December 15, 2008 by the Appellants who paid an amount of Rs, 3,77,71,110 to the Company as the balance amount payable for subscription of warrants before conversion. This took the shareholding of the Appellants from 69.11% to 74.01%. The Appellants did not make any public announcement as required under Regulations 11(2) and 14(2) of the Takeover Code of 1997. This precisely appears to be the dispute in the instant appeal. 4. Further, the Respondent had written a letter to the Company on June 26, 2007, stating that the exemption granted was only with respect to the 30,00,000 shares and not for allotment of 41,96,790 warrants. After the conversion of warrants into equity shares, the Appellants vide letter dated September 10, 2010, applied to the Respondent for post-facto exemption from making a public offer under the Takeover Code of 1997 with respect to the warrants converted into shares on December 15, 2008. This appl .....

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..... osition in any way. Further, the Appellants have not been the beneficiaries of any undue advantage, nor have the public shareholders suffered in any way owing to the actions of the Appellants. 7. The Appellants submit that the shares of the Company not being very liquid, the market will not be able to absorb 41,96,790 shares. Also, the price of the shares will fall drastically which would lead to undermining of the value of the shares held by the public and the banks. There have been no complaints by public investors with respect to the transactions undertaken by the Appellants. It is also submitted that adjudication proceedings have already commenced with respect to the same alleged violation in question. The Respondent having granted post-facto exemption in the cases of Jaiswal Neco Limited and Seahorse Hospitals Ltd., it is stated that the Respondent cannot have different yardsticks with respect to different entities. The Appellants submit that the Respondent failed to understand the gravity of the Appellants situation when it was forced to take the decision to convert the 41,96,760 warrants into shares, in a duly convened EGM with the shareholders' approval and the Appellants .....

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..... a public offer under Regulation 11(1) of the Takeover Code of 1997 with respect to 30,00,000 shares; (iii) That the exemption granted by the Respondent was only with respect to the 30,00,000 shares and did not extend to the 41,96,790 warrants; (iv) That the Appellants' infusion of capital into the Company through the allotment of preferential shares was done in order to bring the Company out of its unfortunate predicament; (v) That the Respondent had warned the Appellants vide letter dated June 26, 2007 that the exemption granted to the Appellants was only with respect to the 30,00,000 shares, and not for the warrants in question. (vi) That, the Appellants acted in violation of Regulation 11(2) of the Takeover Code of 1997, when they subscribed to 41,96,790 warrants and subsequently converted then into shares on December 15, 2008. (vii) That the Appellants have been in control of the Company all along and the impugned conversion of the warrants into equity shares does not refashion the dynamics with respect to the functioning of the Company. 11. However, we also note that prior to the infusion of capital into the Company in 2005 by the Appellant .....

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..... he Tribunal notes that when the Appellants got the shareholders' approval in the EGM held on December 13, 2005 the Appellants had also included in the agenda, and subsequently gotten approved, the allotment of 41,96,790 warrants followed by their conversion into equity shares. Also, the BSE had granted in-principle approval to the listing of the 30,00,000 shares in question, as well as the warrants convertible into shares at a future date. Therefore, the conditions which were fulfilled by the Appellants with respect to the 30,00,000 shares were also fulfilled with respect to the 41,96,790 warrants in question. 13. We are of the considered view, that ordering the Appellants to divest 41,96,790 equity shares would not be in anyone's interest and that no benefit would accrue to other investors in the scrip of the Company, its employees or its promoters by such divestment. On the contrary, this proposed action of divestment might sent the Company back into sickness after all the attempts made by the Appellants to bring it out of dire straits gradually over a significantly long period of time. In order to abruptly divest the 41,96,790 equity shares the Appellants will have to sell off .....

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