Transfer of shares of listed company to Private Family Trust

Facts of the Case:

·              Triveni Turbine Limited (Target Company) is listed on BSE and NSE.

·         Tarun Sawhney Trust (Acquirer Trust 1) and Nikhil Sawhney Trust (Acquirer Trust 2) are collectively referred as ‘Proposed Acquirers’

·         Proposed Acquirers applied to SEBI for seeking exemption from the applicability of regulation 3 (Substantial acquisition of shares or voting rights) read with regulation 5(1) (Indirect acquisition of shares or control) of SAST regulations, 2011.

·         Acquirer Trust 1 and Acquirer Trust 2 are private family trusts. Acquirer Trusts are entities set up by the Promoters of Triveni Turbine Limited.

·         Present trustees and beneficiaries of Acquirer Trust 1 and Acquirer Trust 2 are also the promoters and family members of the promoters and descendants of the Triveni Turbine Limited.

·         M/s Subhadra Trade and Finance Limited (STFL) is an unlisted company and a declared promoter of the Triveni Turbine Limited.

·         Existing shareholders of STFL i.e. Mr. Dhruv Sawhney and Mrs. Rati Sawhney will transfer 1,29,34,550 shares representing 94.66% of the equity share capital of STFL to Acquirer Trust 1 and Acquirer Trust 2 equally by way of gift/settlement.

·         By virtue of the aforesaid transfer, the Acquirer Trusts would indirectly acquire 8,73,30,417 equity shares (26.46%) in Triveni Turbine Limited.

·         Amalgamation of M/s Umananda Trade & Finance Limited (UTFL), M/s Tarnik Investments & Trading Limited (TITL), M/s Dhankari Investments Limited (DIL), TOFSL Trading & Investments Limited (TOTIL), The Engineering & Technical Services Limited (TETSL),Accurate Traders Limited (ATL) with STFL

·         Demerger of the ‘Investment business of Kameni Upaskar Limited (KUL) with STFL,

·         SEBI advised the Acquirer Trusts to modify its Trust Deed and to include in it an undertaking stating that if there is any change in the trustees/beneficiaries and in the ownership or control of shares or voting rights then the Stock Exchange should be informed accordingly.

·         Application is made by the proposed acquirers before making an open offer.

Findings:

SEBI granted exemptions to Acquirer Trusts under Regulation 3 read with Regulation 5(1) on the following grounds:

Grounds for exemption:

·   The acquisition for which exemption is sought will take place pursuant to a private family      arrangement

·         The proposed indirect transfer of shares of the Target Company is not to any third party but to Private Family Trust(s), whose Trustees and beneficiaries are the family members of the individual Promoters and their bloodline descendants. Transfer of shares will take place by way of gift/settlement.

·         The proposed settlement of 1,29,34,550 equity shares in STFL to the Acquirer Trusts does not in any way result in a change in control or management of the Target Company and there will be no change in the overall promoter shareholding of the Target Company.

·         The undertaking from the Acquirer Trusts stating that (a) any change in the trustees or beneficiaries of the Acquirer Trusts or any change in ownership/control of shares/voting rights held by the Trusts would be disclosed to the concerned stock exchange(s) and (b) the provisions of the SEBI Act and the Regulations framed thereunder will apply on the basis that the ownership or control of shares or voting rights in the Target Company are vested directly or indirectly with the Trustees and beneficiaries of the Acquirer Trusts, is enclosed (with) this application.

Order:

The Takeover Panel recommended grant of exemption to the Proposed Acquirers/Applicants subject to them submitting the registered amended Trust Deeds. Revised trust deed was submitted to SEBI on 13/07/2017.Hence exemption is granted to the Proposed Acquirers but subject to certain conditions.

Conclusion:

Lot of promoters of listed and unlisted companies are inspired to transfer their shares to private family trusts. Following are the objectives behind it:

·         To shield the personal assets and protect it from insolvency

·         To mitigate estate duty on transmission of shares

·         Efficient succession

·         Avoid any demand for partition in the company.

However, for any change in transfer of shares as per provisions of SEBI (SAST) Regulations, 2011, this judgment makes it very clear that SEBI can grant exemption under Regulation 3 and 5(1) on case to case basis. Thus, Promoters can approach SEBI and can claim exemption under Regulation 3 and 5(1) of SEBI (SAST) Regulations, 2011 if transfer of shares is to private family trusts.