QUESTION
Priya Limited ("Company") is an Indian public limited company listed on NSE Limited. The Company was initially promoted by Mr. Suresh, who together with his wife, Mrs. Raina holds 21.15% of the equity share capital of the Company as on date. The total promoter and promoter group holding, as on date, is 64.31% of the shares of the Company. On March 23, 1995, Mr. Suresh entered into a promotional agreement with M/s. Kochi Corporation Limited ("KCL"), which provides that both parties shall support each other during the currency of the agreement on all matters coming up before the general meeting of the Company. The shareholding of Mr. Suresh, Mrs. Raina and KCL, as on date, constitutes 29.91% of the equity share capital of the Company. Mr. Suresh and his wife have entered into a shareholders' agreement with M/s. Mumbai Indians under which Mr. Suresh, Mrs. Raina, the Company and M/s. Mumbai Indians undertook to take such actions as may be necessary to give effect to the provisions of, and comply with their obligations under the shareholders' agreement. Further, it was confirmed in the said shareholders' agreement that the director nominated by KCL shall be a promoter director. Another shareholder, Mr. Rohit Sharma, who is also a director in the Company and holds 4.27% of its equity shares intends to enter into a shareholders' voting agreement ("Agreement") with Mr. Suresh under which both Mr. Suresh and Mr. Rohit Sharma intend to support each other on all matters coming up before the board and general meetings of the Company. Mr. Rohit Sharma is not related to the promoter, Mr. Suresh, and was de-classified as a promoter of the Target Company on May 6, 2012. In view of the above facts, answer the following questions:
i) Would Mr. Suresh, Mrs. Raina and KCL be deemed to be persons acting in concert under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ("SAST Regulations")?
ii) Would the execution of the Agreement attract Regulation 3(1) of the SAST Regulations which will in effect require Mr. Suresh to make a public announcement of an open offer?
iii) Would the execution of the Agreement attract any other provision of the SAST Regulations that would require Mr. Suresh to make a public announcement of an open offer?
ANSWER
The following are the findings of the case as given above:
i) Regulation 2(1)(q) of the SAST Regulations include promoters and members of the promoter group under the category of persons deemed to be persons acting in concert. Since Mr. Suresh, Mrs. Raina and KCL are members of the promoter group, they would be deemed to be persons acting in concert in terms of Regulation 2(1)(q) of the SAST Regulations.
REGULATION 2(1)(Q) OF SAST REGULATIONS
Persons acting in concert means;
(1) persons who, with a common objective or purpose of acquisition of shares or voting rights in, or exercising control over a target company, pursuant to an agreement or understanding, formal or informal, directly or indirectly cooperate for acquisition of shares or voting rights in, or exercise of control over the target company.
(2) Without prejudice to the generality of the foregoing, the persons falling within the following categories shall be deemed to be persons acting in concert with other persons within the same category, unless the contrary is established,—
(i) a company, itsholding company, subsidiary company and any company under the same management or control;
(ii) a company, its directors, and any person entrusted with the management of the company;
(iii) directors of companies referred to in item (i) and (ii) of this sub-clause and associates of such directors;
(iv) promoters and members of the promoter group;
(v) immediate relatives;
(vi) a mutual fund, its sponsor, trustees, trustee company, and asset management company;
(vii) a collective investment scheme and its collective investment management company, trustees and trustee company;
(viii) a venture capital fund and its sponsor, trustees, trustee company and asset management company;
(viiia) an alternative investment fund and its sponsor, trustees, trustee company and manager; ]
(ix)[***]
(x)a merchant banker and its client, who is an acquirer;
(xi)a portfolio manager and its client, who is an acquirer;
(xii)banks, financial advisors and stock brokers of the acquirer, or of any company which is a holding company or subsidiary of the acquirer, and where the acquirer is an individual, of the immediate relative of such individual:
Provided that this sub-clause shall not apply to a bank whose sole role is that of providing normal commercial banking services or activities in relation to an open offer under these regulations;
(xiii) an investment company or fund and any person who has an interest in such investment company or fund as a shareholder or unitholder having not less than 10 per cent of the paid
- up capital of the investment company or unitcapital of the fund, and any other investment company or fund in which such person or his associate holds not less than 10 per cent of the paid
- up capital of that investment company or unit capital of that fund:
Provided that nothing contained in this sub-clauseshall apply toholding of units of mutual funds registered with the Board;
Explanation—
For the purposes of this clause ―associate of a person means,
(a) any immediate relative of such person;
(b) trusts of which such person or his immediate relative is a trustee;
(c) partnership firm in which such person or his immediate relative is a partner; and
(d) members of Hindu undivided families of which such person is a coparcener;
ii) Since Mr. Rohit Sharma would be voting with the existing promoters on all matters, he would be deemed to be a person acting in concert with the promoter group, and thus he would become a part of the promoter group. Hence, the promoter and promoter group shareholding would increase from 64.31% to68.58% of the shares of the Target Company, which is well within the limits specified in Regulation 3(1) of the SAST Regulations (i.e. less than 25% of shares of the target company). Hence, the execution of the Agreement would not attract the provisions of Regulation 3(1) of the SAST Regulations.
SUBSTANTIAL ACQUISITION OF SHARES OR VOTING RIGHTS
Regulation 3(1) No acquirer shall acquire shares or voting rights in a target company which taken together with shares or voting rights, if any, held by him and by persons acting in concert with him in such target company, entitle them to exercise twenty-five percent or more of the voting rights in such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations.
iii) Since, by virtue of the Agreement, Mr. Rohit Sharma would exercise control with Mr. Suresh and other members of the promoter group, such acquisition of control through the proposed Agreement would attract Regulation 4 of the SAST Regulations. In terms of the same, Mr. Rohit Sharma would be required to make a public announcement of an open offer.
ACQUISITION OF CONTROL
REGULATION 4 OF SAST REGULATIONS 2011
Irrespective of acquisition or holding of shares or voting rights in a target company, no acquirer shall acquire, directly or indirectly, control over such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations.
Since Mr. Rohit Sharma is exercising control over the company with help of promoters group and hence provisions of Regulation 4 of SAST Regulations, 2011.
DISCLAIMER: The case law presented here is only for sharing information with readers. The views are personal. In case of necessity do consult with professionals for more clarity and understanding on subject matter.
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