WTM/PS/60/CFD-DCR-1/JAN/2015

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

CORAM: PRASHANT SARAN, WHOLE TIME MEMBER
ORDER
In the matter of proposed acquisition of indirect control on Ashok Alco-Chem Limited Application filed under regulation 11(1) of the Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011
Date of Hearing: September 11, 2014
Appearance:
For the Applicant:
1. Ms. Shailashri Bhaskar, Authorized Representative
2. Ms. Seema Gangawat, Company Secretary, Ashok Alco-Chem Limited
For the Securities and Exchange Board of India:
1. Ms. Anitha Anoop, Deputy General Manager
2. Mr. Amit Tandon, Deputy General Manager
3. Mr. Susanta Kumar Das, Assistant General Manager, and
4. Mr. T. Vinay Rajneesh, Assistant General Manager

1.

Ashok Alco-Chem Limited (hereinafter referred to as "the Target Company") is a company

incorporated under the Companies Act, 1956 having its registered office at 104, Venkatesh
Chambers, 1st Floor, Ghanshyam Talwalkar Marg, Fort, Mumbai - 400001. The equity shares of the
Target Company are listed on the Bombay Stock Exchange Limited (hereinafter referred to as "the
BSE").
2.

The promoter of the Target Company is Aura Alkalies and Chemicals Private Limited

(hereinafter referred to as "Aura"), which holds 20,68,632 equity shares of `10/- each constituting
49.84% of the total capital of the Target Company. Aura also holds 4,50,000 warrants of `30/- each
convertible into equity shares in one or more tranches within the period of 18 months from the date
of allotment (i.e., on March 26, 2014). As per the shareholding pattern of the Target Company, as
disclosed to the BSE for the quarter ended September 2014, the public shareholders hold the
remaining 50.16% {constituted by 20,81,711 equity shares}of the Target Company's equity capital.
3.

H.K. Dealers Private Limited (hereinafter referred to as "the proposed acquirer" or "H K

Dealers"), vide application dated July 23, 2014, filed under regulation 11(1) of the SEBI (Substantial

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Acquisition of Shares and Takeovers) Regulations, 2011 ("the Takeover Regulations") inter alia made
the following submissions :
a) The share capital of the Target Company comprised of 41,50,343 equity shares of `10/each aggregating `415.03 lakhs.
b) All equity shares carry uniform voting rights.
c) The proposed acquirer would not acquire any shares in the Target Company.

The

promoter, Aura is in turn promoted by Mr. Sunil Khimji Shah and H K Dealers. H K
Dealers has been promoted by Mr. Harshadrai T Shah and Mr. Tejas Harshadrai Shah. Mr.
Sunil Khimji Shah and the promoters of H K Dealers are not related to each other.
d) The paid-up share capital of Aura is 10,10,000 shares and its shareholding pattern is as
under:
Sr. no.

Name
of
Shareholder

1.
2.

the

Number of
Shares held

% of shares
held

Sunil Khimji Shah

6,06,000

60%

H K Dealers

4,04,000

40%

Total

10,10,000

100%

e) It has been decided that H K Dealers would now become the majority shareholder of Aura
by acquiring 4,04,000 shares from Mr. Sunil Khimji Shah, thereby increasing its
shareholding in Aura to 8,08,000 shares. On completion of the proposed transaction, H K
Dealers would hold 80% of the paid-up capital in Aura, making it a majority shareholder in
Aura. The shares of Aura are proposed to be transferred at `12.75/- per share to the
proposed acquirer. Post the proposed transaction, the shareholding pattern in Aura would
be as under:
Sr. no.

Name
of
Shareholder

1.
2.

the

Number
of
Shares held

% of shares
held

Sunil Khimji Shah

2,02,000

20%

H K Dealers

8,08,000

80%

Total

10,10,000

100%

f) The proposed acquisition of 4,04,000 shares of the Aura by the Acquirer from Sunil Khimji
Shah would amount to an indirect acquisition of control (of the Target Company) under
regulations 4 of the Takeover Regulations.

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g) The proposed acquisition of shares of Aura by H K Dealers is in the nature of inter se

transfer of shares amongst promoters of Aura and does not require any approvals.
h) There would no change in the shareholding of Aura in the Target Company on completion
of the proposed transaction. However, the shareholding of Aura is undergoing a change
with the present majority promoter becoming a minority promoter and the present minority
promoter becoming a majority shareholder.
i) H K Dealers has sought exemption from the applicability of regulation 4 of the Takeover
Regulations on the following grounds :
1. the transaction would not result in any change in the shareholding of the promoter
group nor would it result in any change in the control or management of the Target
Company. The promoter, Aura would continue to hold 49.84% of the total paid-up
capital of the Target Company.
2. The change in the identity of the entities who would exercise voting rights over the
Target Company is only amongst the shareholders of Aura, who have been the
promoters and persons in control of Aura from the date of its incorporation. No
new person who is a stranger to the promoter group of Aura or H K Dealers is
acquiring shares. Further, there is no change in the promoter group of H K Dealers,
which is promoted by Mr. Tejas Shah and Mr. Harshadrai T. Shah and they continue
to be the promoters/shareholders of H K Dealers from the date of its
incorporation.
3. There would be no effective change in control or management of the Target
Company.
4. There would be no reduction in the shareholding of the public shareholders in the
Target Company.
4.

H K Dealers was afforded an opportunity of personal hearing in respect of its application

on September 01, 2014. The same was communicated vide SEBI letter dated August 14, 2014. The
aforesaid letter also mentioned the reasons on which SEBI was not prima facie not in favour of
granting exemption as sought by H K Dealers. On the date of the personal hearing, the proposed
acquirer did not appear. However, in the interest of justice, it was granted another opportunity of
personal hearing on September 11, 2014. On the said date, the proposed acquirer was represented
by its representatives, Ms. Shailashri Bhaskar, practising company secretary and Ms. Seema
Gangawat, Company Secretary of the Target Company. The representatives reiterated the grounds
mentioned in the application and requested that H K Dealers be exempted from the obligation to

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make a public announcement. The proposed acquirer was also granted liberty to file written
submissions in the matter. However, vide email dated October 18, 2014 and letter dated October
17, 2014, H K Dealers submitted that it does not have any further submissions to make in the
matter.
5.

I have considered the application, the submissions made in the personal hearing and other

material available on record. Aura, the Promoter of the Target Company presently holds 49.84% of
the share capital of the Target Company and is in control of the Target Company. Aura, in turn is
held by Mr. Sunil Khimji Shah (60% of Aura's capital; major shareholder) and H K Dealers (holding
40%). The application states that there is no relationship between Mr. Sunil Khimji Shah and the
promoters of H K Dealers. With this background, I note that in the proposed transaction, H K
Dealers intends to acquire 4,04,000 shares of Aura from Mr. Sunil Khimji Shah. On completion of
this transaction, H K Dealers would hold 80% of the capital in Aura and thereby become a major
shareholder and a controlling promoter in Aura. The shareholding of Mr. Sunil Khimji Shah would
be reduced to 20% in Aura. This proposed transaction, where H K Dealers becoming a major and
a controlling promoter in Aura, would indirectly confer control of the Target Company on it. In this
regard, I refer to the provisions of regulation 4 and 5(1) of the Takeover Regulations, which are
reproduced below:
Acquisition of control.
Regulation 4: Irrespective of acquisition or holding of shares or voting rights in a target company, no acquirer shall
acquire, directly or indirectly, control over such target company unless the acquirer makes a public announcement of an
open offer for acquiring shares of such target company in accordance with these regulations.

Indirect acquisition of shares or control.

Regulation 5(1): For the purposes of regulation 3 and regulation 4, acquisition of shares or voting rights in, or
control over, any company or other entity, that would enable any person and persons acting in concert with him to
exercise or direct the exercise of such percentage of voting rights in, or control over, a target company, the acquisition of
which would otherwise attract the obligation to make a public announcement of an open offer for acquiring shares
under these regulations, shall be considered as an indirect acquisition of shares or voting rights in, or control over the
target company.
6.

In terms of regulation 4, an acquirer can acquire control, directly or indirectly, only when he

makes a public announcement of an open offer to acquire shares in accordance with the Takeover
Regulations. Further, in accordance with regulation 5(1), the proposed transaction would confer

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indirect control of the Target Company on the proposed acquirer i.e., H K Dealers. On account of
the proposed transaction, H K Dealers would acquire control over Aura and thereby direct the
exercise of the 49.84% voting rights held by Aura in the Target Company as per its decisions. In
view of the same, the submission of the proposed acquirer that the transaction would not result in
any change in management and control over the Target Company, cannot be accepted. Similarly,
the submission that 'no new person who is a stranger to the promoter group of Aura or H K Dealers is acquiring
the shares' cannot be accepted.
7.

The submission that there would be no change in the shareholding of Aura in the Target

Company post the proposed transaction is not relevant as the matter is in respect of proposed
acquisition of indirect control by H K Dealers. I also find that the contention that there would be
no reduction in the shareholding of the public shareholders in the Target Company is also not a
valid ground for granting exemption from the obligation to make an open offer in respect of the
proposed transaction.
8.

H K Dealers has contended that the transaction i.e., its proposed acquisition of shares in

Aura, is in the nature of inter se transfer of shares amongst promoters of Aura and there would be
no effective change in control or management of the Target Company. This contention appears to
be on the basis that 'effective' holding of H K Dealers in the Target Company before the
transaction was 19.936% (40% of 49.84% shareholding of Aura) and that of Mr. Sunil Khimji Shah
was 29.904% (60% of 49.84% shareholding). After the transaction, these 'effective' holdings will
change to 39.872% (80% of 49.84) and 9.968% (20% of 49.84). The question is that had the direct
holdings of the two shareholders changed amongst themselves in the aforesaid way i.e., from
19.936% and 29.904% to 39.872% and 9.968% respectively, the transaction would have been
exempt (subject to satisfaction of prescribed condition) under the Takeover Code and why the same
treatment cannot be given when indirect holdings are changing in the same way.
I am of the opinion that the two situations are not identical. In the case of direct holding,
the two shareholders can in all probability have undisputed control as long as they co-operate with
each other. However, neither of them can remain undisputedly in control if the other shareholder
does not co-operate. The situation does not substantially change even if the shareholdings changed
hand. The larger shareholder will still need the smaller shareholder to remain in control; as all alone
he will be very vulnerable in an AGM. The control remains joint, before and after the transaction,
had the shareholding been direct.

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However, in the case of indirect shareholding, before the transaction, Mr. Sunil K. Shah (at
60% shareholding in Aura) held complete control of Aura and Aura held almost undisputed control
of the Target Company. However, after the transaction, H K Dealers at 80% will hold complete
control of Aura and Aura will continue to hold almost undisputed control of the Target Company.
Thus, the control is clearly shifting from Mr. Sunil Khimji Shah to H K Dealers.
In view of the above, I find no merit in the above argument of H K Dealers.
9.

In view of the above discussions and the finding that H K Dealers would acquire indirect

control over the Target Company by way of the proposed transaction, I am of the considered view
that granting exemption to it from the obligation to make a public announcement of an open offer
to acquire shares in accordance with regulation 4 of the Takeover Regulations read with regulation
5(1) thereof, may not be reasonable and appropriate.
10.

In view of the above findings, I, in exercise of the powers conferred upon me under section

19 of the Securities and Exchange Board of India Act, 1992 and regulation 11 of the SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011, hereby reject the application
dated July 23, 2014 of H K Dealers Private Limited seeking exemption from the applicability of
regulations 4 and 5(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
2011 in respect of its proposed transaction of acquiring 4,04,000 shares of Aura Alkalies and
Chemicals Private Limited.

PRASHANT SARAN
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA
Date : January 01, 2015
Place : Mumbai

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