Ashok Alco-Chem Limited- Order in the matter of application filed under regulation 11(1) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

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

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 the Number of % of shares Shareholder Shares held held 1. Sunil Khimji Shah 6,06,000 60% 2. 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 the Number of % of shares Shareholder Shares held held 1. Sunil Khimji Shah 2,02,000 20% 2. 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.

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 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 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.

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