Regulation Title: Consolidation of Holdings
Facts: 1. The director and promoters of Nirvana Holdings Private Limited (Acquirer), Ms. Nara Bhuvaneshwari and Ms. Nara Lokesh belong to the promoter group of Heritage Foods (India) Limited (Target Company). The promoter group held 45.70% of the equity capital of the Target Company as on September 30, 2008.
2. The Acquirer had acquired 9,161 shares of the Target Company on November 13, 2008 and 7,02,260 shares on November 17, 2008 from Franklin Templeton Mutual Fund, which together constituted 6.17% of the equity capital of the Target Company, that has increased the shareholding of the promoter group from 45.70% to 51.87% and since it was not followed by the Public Announcement, therefore, it has contravened Regulation 11(1) of the SEBI (SAST) Regulations, 1997. Accordingly a show notice was issued to the Acquirer to which they made the following contentions:
1. The Acquirer was not holding any shares in the Target Company prior to November 13, 2008. Merely because their promoters/directors are also the promoters of the Target Company and are holding 33.38% in the Target Company, it had been concluded that its promoters/directors are person acting in concert with the promoters of the Target Company
2. In the notice it was no where mentioned that it was acting in concert with the promoter group of the Target Company at the time of acquisition.
3. The alleged violation is to the extent of only 1.17% of the shares of the Target Company, which is too insignificant and miniscule.
4. There is no change in control of the Target Company, since our promoters are already controlling the Target Company.
5. As the Acquirer does not belong to the promoter group of the Target Company, the impugned acquisitions cannot be clubbed with the holding of the promoter group of the target Company
Issues:Whether where the person controlling the Acquirer Company belongs to the promoter group of the Target Company, the Acquirer could be considered as PACs with the promoters of the Target Company and its shareholding can be clubbed with that of the promoter group for the purpose of SEBI (SAST) Regulations, 1997?
Decision: Whole time member held that Ms. Nara Bhuvaneshwari and Ms. Nara Lokesh belong to the promoter group of Target Company and holds 33.38% in the Target Company for the quarter ended September 30, 2008. As Ms. Nara Bhuvaneshwari and Ms. Nara Lokesh, holds 50% each of the share capital in the Acquirer company, then in terms of Explanation (1)(b)(ii) to Regulation 2(h) of the SEBI (SAST) Regulations, 1997, the Acquirer is to be considered as a part of the promoter group of the Target Company and thus, the acquisition was made by him is in violation of Regulation 11(1) of SEBI (SAST) Regulations, 1997 to the extent of 1.17% of the paid up capital of the Target Company. The relevant text of Regulation 2(h) is reproduced below:
“2 (h) ‘promoter’ means—
a) any person who is in control of the target company;
b) any person named as promoter in any offer document of the target company or any shareholding pattern filed by the target company with the stock exchanges pursuant to the Listing Agreement, whichever is later;
and includes any person belonging to the promoter group as mentioned in Explanation I :
Explanation I : For the purpose of this clause, ‘promoter groups’ shall include :
b) in case the promoter is an individual—
ii) any company in which 10 per cent or more of the share capital is held by the promoter or an immediate relative of the promoter or a firm or HUF in which the promoter or any one or more of his immediate relative is a member;”
Moreover it was observed that in the shareholding pattern of the Target Company, the Acquirer is still shown as a part of “Public” category. As the Acquirer belong to the promoter group of the Target Company, therefore, the Target Company and Acquirer was directed to take effective steps to classify its shareholding in the Target Company under the promoter category and further directed the Acquirer to appoint a Merchant Banker and disinvest 1,34,905 shares (1.17%) of the Target Company within a period of 2 months from the date of the order and transfer the profits, if any, to Investor Protection Funds of the concerned Stock Exchange.