Exemption from public announcement for acquisition of 15% or more of shares or voting rights

Transcription

1 Exemption from public announcement for acquisition of 15% or more of shares or voting rights SEBI Takeover Regulations i regulate takeover and substantial acquisition of shares of a listed company. Regulation 10, 11 and 12 of these regulations contain the provisions regarding takeover of a listed company. The said regulations states that if acquirer acquires shares/ voting rights beyond a particular threshold limit, acquirer will have to make public announcement and give open offer to the shareholders of the Company. Regulation 3 of SEBI Takeover Regulations provides for exemptions from the compliance of regulations 10, 11 and 12. Regulation 3(1) (e) provides exemption from compliance of regulation 10,11 and 12 for the transfer of shares amongst group/ relatives/promoters/ person acting in concert etc. We will discuss about these provisions and privilege derived there from. Regulation 3(1)(e) of SEBI Takeover Regulations:- Nothing contained in regulations 10, 11 and 12 of SEBI Takeover Regulations shall apply to:- (e) Inter se transfer of shares amongst- (i) group coming within the definition of group as defined in the Monopolies and Restrictive Trade Practices Act, 1969 where persons constituting such group have been shown as group in the last published Annual Report of the target company. (ii) Relatives within the meaning of section 6 of the Companies Act, 1956 (iii) (a) Qualifying Indian promoters and foreign collaborators who are shareholders (b) Qualifying promoters Provided that the transferor(s) as well as transferee(s) have been holding shares in the target company atleast three years prior to the proposed acquisition. Meaning of Qualifying Promoters - (i) (ii) Any person who is directly or indirectly in control of the company Any person named as a promoter in any document for offer of securities to public or existing shareholders or in the shareholding pattern disclosed by the company under the listing agreement, whichever is later If qualifying promoter is an individual following are included :- (1) A relative within the meaning of section 6 of the Companies Act, 1956 (2) Any firm or company directly or indirectly controlled by qualifying promoter (3) Any firm or company directly or indirectly controlled by a relative of qualifying promoter (4) A firm in which qualifying promoter or relative of qualifying promoter holds not less than 50% of share of firm

2 (5) A HUF in which qualifying promoter or relative of qualifying promoter is partner or coparcener If qualifying promoter is a Body Corporate following are included :- 1. A subsidiary or holding company of that body; or 2. Any company directly or indirectly controlled by the qualifying promoter of that body corporate or relative of that qualifying promoter 3. Any firm where not less than 50% of the share in firm is held by qualifying promoter or a relative of qualifying promoter 4. A HUF where qualifying promoter or relative of a qualifying promoter is partner or coparcener (iv) the acquirer and persons acting in concert with him, where such transfer of shares takes place three years after the date of closure of the public offer made by them under these regulations. Further, (1) the exemption under sub-clauses (iii) and (iv) above shall not be available if inter se transfer of share is at a price exceeding 25% of the price as determined in terms of subregulations (4) and (5) of regulation 20. (2) The benefit of availing exemption under this clause 3(e) shall be subject to such transferor(s) and transferree(s) having complied with regulation 6, 7 and 8. Comparison of interse acquisitions as per regulation 3(e) of SEBI Takeover Regulation:- There are four types of interse acquisition under regulation 3(e) in short as follows:- (i) (ii) (iii) (iv) Transfer within Group Transfer within relatives Transfer within qualifying promoters Transfer within acquirer and persons acting in concert with him Restriction on price is not applicable for interse acquisition within Group or Relatives. Holding of shares for minimum 3 years restriction is not applicable for intese acquisition within Group or Relatives. ii Now we will analyse conditions for qualifying exemption for interse transfer within Group in detail:- If following conditions are satisfied, provisions of regulations 10, 11 and 12 and not applicable to such transfers:- Acquirer shall satisfy the criteria of the definition of group as defined in the Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter referred to as MRTP Act ); Names of seller and acquirer shall be listed in the last published Annual Report of the target company under the heading Group

3 Definition of Group as per MRTP Act:- Section 2(ef) of MRTP Act:- "group" means a group of (i) two or more individuals, association of individuals, firms, trusts, trustees or bodies corporate (excluding financial institutions), or any combination thereof, which exercises, or is established to be in a position to exercise, control, directly or indirectly, over any body corporate, firm or trust; or (ii) associated persons. Explanation : For the purposes of this clause (I) a group of persons who are able, directly or indirectly, to control the policy of a body corporate, firm or trust, without having a controlling interest in that body corporate, firm or trust, shall also be deemed to be in a position to exercise control over it; (II) "associated persons" (a) in relation to a director of a body corporate, means (i) a relative of such director, and includes a firm in which such director or his relative is a partner; (ii) any trust of which any such director or his relative is a trustee; (iii) any company of which such director, whether independently or together with his relatives, constitutes one-fourth of its board of directors; (iv) any other body corporate, at any general meeting of which not less than one-fourth of the total number of directors of such other body corporate are appointed or controlled by the director of the first mentioned body corporate or his relative, whether acting singly or jointly; (b) in relation to the partner of a firm, means a relative of such partner and includes any other partner of such firm; and (c) in relation to the trustee of a trust, means any other trustee of such trust; (III) where any person is an associated person in relation to another, the latter shall also be deemed to be an associated person in relation to the former; This definition is inclusive definition and not an exhaustive definition. Current Situation MRTP Act and Competition Act 2002 The Ministry of Corporate Affairs, Government of India has issued a Notification dated 28 th August 2009, whereby Monopolies and Restrictive Trade Practices Act, 1969 ( the MRTP Act ) stands repealed and is replaced by the Competition Act, 2002, with effect from September 1, 2009.

4 The MRTP Commission will continue to handle all the old cases filed prior to September 1, 2009 for a period of 2 years. It will, however, not entertain any new cases. Competition Act effect:- As per Competition Act 2002, any acquisition of an enterprise shall fall under the terms combination or Group only if total assets or turnover exceeds the limits prescribed under it. iii The limit set under the definition of combination or Group is much higher and is applicable to acquisition of very huge enterprises having total assets or Rs Crores or turnover of Rs Crores etc. Relevance of definition of Group under MRTP ACT A listed company can publish the list of entities, which fall under the definition of Group as per MRTP Act, in its Annual Report. If the entities/persons which falls under the definition of Group, proposes to transfer the shares amongst themselves, need not comply with the regulations 10, 11 and 12 of SEBI Takeover Regulations. Further, it will not be adversely affected as to be a combination or Group under the Competition Act, 2002, if the total assets or turnover is lower than Rs.1000 crore or Rs crore respectively. Inter-se transfer of shares amongst the promoters or person acting in concert is also allowed iv. The additional condition is that, the transferor and transferee should be holding shares for at least 3 years before such transaction. In such cases, price can not exceed 25% of the price as determined in terms of sub-regulations (4) and (5) of regulation 20.These conditions are not applicable for the transfer of shares amongst group v Consequence of failure to publish such list in Annual Report If a company fails to publish list of entities which falls under the definition of Group, the acquirer will lose the advantage of claiming exemption under regulation 3(e)(i) of SEBI Takeover Regulations. Hence, even if the proposed acquirer falls under the definition of Group, he/she cannot claim exemption under Regulation 3(e)(i) due to failure of the company to publish his name in the list of entities in the latest annual report. Advantage to company A Company Secretary of listed companies should take into cognizance the relevance of the list of companies which falls under the definition of Group as per MRTP Act. They should publish such list in the Annual Report of the company. It will have following advantages to the company:- If any of the entity or entities or persons wants to transfer shares of listed company amongst themselves, it need not comply with Regulation 10, 11 and 12 of SEBI Takeover Regulations. It means no public announcement is required to be given for transfer of shares of the listed company amongst such entities or persons The MRTP Act is repealed. The Competition Act, 2002 is applicable only if certain criteria of total assets or turnover are met.

5 The only compliance is vi to intimate to stock exchanges 4 working days in advance of the proposed acquisition exceeding 5% of voting share capital of the company and vii submit Report to SEBI within 21 days of the transactions along with fees. The acquirer and company needs to comply regulation 7 of SEBI Takeover Regulations The acquirer and seller need not be holding the shares for a period of 3 years This transaction can happen at a price higher than 25% of the price as determined in terms of sub-regulations (4) and (5) of regulation 20. Conclusion:- A company secretary of a listed company should take due care while publishing the list of entities or persons under the head Group. It will really help the acquirer to acquire shares of the company without making public announcement as regulation 10, 11 and 12 of the SEBI Takeover Regulations are not applicable in this case. However before doing that, he also needs to evaluate the consequences under Competition Act, i Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, ii Regulation 3(e)(i) of SEBI Takeover Regulations iii Section 5 of the Competition Act 2002 iv Regulation 3(e)(ii) of SEBI Takeover Regulations v Regulation 3(e)(iii) and explanation 1 to clause 3(1)(e)(iv) of SEBI Takeover Regulations vi Regulation 3(3) of SEBI Takeover Regulations vii Regulations 3(3) and 3(4) of SEBI Takeover Regulations