Exemption to open offer

SEBI has released informal guidance to Navkar Builders Limited (NBL) under the Informal Guidance Scheme read with SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SEBI (SAST) Regulations 2011) whereby NBL has sought exemption from the obligation to make open offer under Regulation 3 and 4 of SEBI SAST Regulations.

Facts of the case are as follows:

·         Navkar Builders Limited (NBL) is listed on BSE.

·         Promoters of NBL are Mr. Dakshesh Shah, Mr. Samir Patel and Navkar Fiscal Services Pvt. Ltd.

·         Shareholding pattern of NBL is filed with BSE and the names of these promoters are mentioned in the shareholding pattern for more than 3 years.

·         Two transactions have been proposed by NBL.

·         First transaction:

o   Navkar Fiscal Services Private Limited [hereinafter referred as NFSPL] (holding 28.82% shareholding) proposes to acquire shares  of NBL from Mr. Samir Patel.(holding 4.46% shareholding)

o   After the execution of transaction, shareholding of NFSPL will increase from 28.82% to 33.29% in NBL

o   The transferor and transferee have been named as the promoters of NBL for more than 3 years prior to the proposed acquisition

·         Second Transaction:

o   Mr. Dakshesh Shah and Mr. Samir Patel are the promoters ofNFSPL .

o   Out of the total 7,65,020 shares held by Mr. Samir Patel, he proposes to transfer 7,57,300 shares to Mr. Dakshesh Shah and remaining 7,720 shares to Mrs. Shital Dakshesh Shah

o   After the execution of the transaction, shareholding of Mr. Dakshesh Shah will be 99.50% and that of Shital Shah will be 0.50%

NBL has raised query that whether the above mentioned two transactions will be exempt under Regulation 10(1)(a) of SEBI SAST Regulations from the obligation to make open offer under Regulation 3 and 4 of SEBI SAST Regulations

Regulation 10(1)(a) of SEBI SAST Regulations states that:

Regulation 10(1):

The following acquisitions shall be exempt from the obligation to make an open offer under regulation 3 and regulation 4 subject to fulfilment of the conditions stipulated therefor,—

(a) acquisition pursuant to inter se transfer of shares amongst qualifying persons, being,—

    (i) immediate relatives;

   (ii) persons named as promoters in the shareholding pattern filed by the target company in terms of the listing agreement or these regulations for not less than three years prior to the proposed acquisition;

 (iii) a company, its subsidiaries, its holding company, other subsidiaries of such holding company, persons holding not less than fifty per cent of the equity shares of such company, other companies in which such persons hold not less than fifty per cent of the equity shares, and their subsidiaries subject to control over such qualifying persons being exclusively held by the same persons;

 (iv) persons acting in concert for not less than three years prior to the proposed acquisition,  and disclosed as such pursuant to filings under the listing agreement;

(v) shareholders of a target company who have been persons acting in concert for a period of not less than three years prior to the proposed acquisition and are disclosed as such pursuant to filings under the listing agreement, and any company in which the entire equity share capital is owned by such shareholders in the same proportion as their holdings in the target company without any differential entitlement to exercise voting rights in such company:

Provided that for purposes of availing of the exemption under this clause,—

(i) If the shares of the target company are frequently traded, the acquisition price per share shall not be higher by more than twenty-five per cent of the volume-weighted average market price for a period of sixty trading days preceding the date of issuance of notice for the proposed inter se transfer under sub-regulation (5), as traded on the stock exchange where the maximum volume of trading in the shares of the target company are recorded during such period, and if the shares of the target company are infrequently traded, the acquisition price shall not be higher by more than twenty-five percent of the price determined in terms of clause (e) of sub-regulation (2) of regulation 8; and

(ii) the transferor and the transferee shall have complied with applicable disclosure requirements set out in Chapter V.

SEBI has stated that the first transaction is between two promoters whose names occur in the shareholding pattern for more than 3 years and the shareholding pattern have been filed with SEBI. Hence it is eligible for exemption under Regulation 10(1)(a)(ii) from open offer under Regulation 3 and 4 subject to compliance with Regulation 10 of Takeover Regulations, 2011

However, in case of second transaction, it is also between two promoters. But, the shareholding pattern of NFSPL is not disclosed on stock exchanges.

Further, post share transfer,  Mr. Dakshesh Shah will have the entire shareholding/control in NFSPL.This would result in indirect acquisition of shares by Mr. Dakshesh Shah in NBL through NFSPL. ..

The indirect acquisition of shares through inter se transfer of shares of promoter entity doesn’t fall under the exemption. Hence, second transaction is not exempt under Regulation 10(1)(a)(ii) from obligation to make open offer under Regulation 3 and 4