Whether exemption from open offer can be claimed in case of Gift of

 Shares?

SEBI issues informal guidance to Deepak Nitrite Limited under the Informal Guidance Scheme read with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR) Regulations, 2015 and clarifies on whether the Company is required to take approval of stock exchanges under Regulation 31A(2) of SEBI (LODR) Regulations, 2015 and also can the company claim exemption under Regulation 10(1) of SEBI (SAST) Regulations, 2011.

     The facts of the case are as follows:

•   Deepak Nitrite Limited is listed on BSE and NSE
• Mr. Chimanlal Mehta,  Mr. Deepak Mehta and Mr. Ajay Mehta  are the promoters of the Company
• Mr. Ajay Mehta is not holding any shares in the company and hence his name is not reflected in the   list of promoters and promoters group in the shareholding pattern filed by the Company under     LODR. 

However, he is disclosed as promoter in other earlier offer documents of the Company 

• Mrs. Kantaben Mehta – mother of Mr. Deepak Mehta and Mr. Ajay Mehta holds 9,70,000 equity shares in the company and is being shown as Promoter Group in the shareholding pattern.
• Mrs. Kantaben Mehta  is desiring to gift  9,00,000 shares to her grandson, Mr. Param Ajay Mehta( Son of Ajay Mehta), who is presently not holding any equity shares

     The Company has sought informal guidance on the following queries:

• Whether the proposed transaction should be treated as modification or reclassification of shares as per Regulation 31A(2)?
• Wether the company should obtain permission from BSE and NSE for the proposed transaction
• Whether the proposed transaction falls under Regulation 10(1) of SEBI (SAST) Regulations, 2011?

  SEBI has given the following answers to queries raised by the company:

Reply to Query 1 and 2:

Regulation 31A(2) states that the Stock Exchange, shall allow modification or reclassification of the status of the shareholders, only upon receipt of a request from the concerned listed entity or the concerned shareholders along with all relevant evidence and on being satisfied with the compliance of conditions mentioned in the regulation.

Post gift of shares, Mrs. Kantaben Mehta will hold 70,000 shares and Mr. Param Ajay Mehta will hold 9,00,000 equity shares. Mr. Ajay Mehta is not holding any shares at present and his name is also not reflected in the list of promoters. However, Mr. Param Ajay Mehta is an immediate relative of Mr. Ajay Mehta and hence he would be considered as a member under Regulation 2(1)(zb) of SEBI (ICDR) Regulations, 2009

 SEBI stated that proposed transaction is neither modification nor reclassification of the status of the shareholders.   Hence, the Company is not required to obtain permission from BSE and NSE.

Query 3:

Regulation 10(1) of SEBI (SAST) Regulations, 2011 deals with exemption from the obligation to make an open offer under Regulation 3 and Regulation 4 subject to fulfillment of conditions stipulated in Regulation 10

Transaction between grandson and grandmother is not exempted under SEBI (SAST) Regulations, 2011. After the proposed transaction, holding of Mr. Param Ajay Mehta will be 0.69% and that of the entire promoter group will be 46.57% [no change in entire promoter group] The proposed transaction would not trigger any open offer and hence claiming exemption under Regulation 10(1) of SEBI (SAST) Regulations, 2011 will not be required.