Exemption order under regulation 11 of SEBI (SAST) Regulations, 2011 in the matter of Titagarh Wagons Limited

WTM/GM/CFD/20/2020–21 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTION 11(1) AND SECTION 11(2)(h) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 11(5) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 2011. IN THE MATTER OF PROPOSED ACQUISITION OF SHARES AND VOTING RIGHTS IN – TARGET COMPANY ACQUIRER TITAGARH WAGONS LIMITED CHOWDHARY FOUNDATION

BACKGROUND –

1. Titagarh Wagons Limited (“Target Company”/ “TWL”) was incorporated under the Companies Act, 1956 on July 3, 1997. The Registered Office of the Target Company is at 756, Anandapur, E.M. Bypass, Kolkata - 700107. The shares of the Target Company are listed on the BSE Limited (“BSE”) and National Stock Exchange of India Limited (“NSE”) since April 21, 2008.

2. An Application dated March 2, 2020 read with emails dated April 30, 2020, May 22, 2020, May 27, 2020, June 2, 2020, June 4, 2020, June 15, 2020, July 7, 2020 and July 13, 2020 (collectively referred to as “Application”) seeking exemption from the applicability of Regulations 3(2) and 5(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”) in the matter of proposed acquisitions of shares and voting rights in the Target Company by Chowdhary Foundation (“Acquirer Trust / Proposed Acquirer”) was received by SEBI from Jagdish Prasad Chowdhary on behalf of the Acquirer Trust.

3. Regulations 3(2) and 5(1) of the Takeover Regulations 2011 states as under – “Substantial acquisition of shares or voting rights. 3. (1) … (2) No acquirer, who together with persons acting in concert with him, has acquired and holds in accordance with these regulations shares or voting rights in a target company entitling them to exercise twenty-five per cent or more of the voting rights in the target company but less than the Order in the matter of Titagarh Wagons Limited – Chowdhary Foundation maximum permissible non-public shareholding, shall acquire within any financial year additional shares or voting rights in such target company entitling them to exercise more than five per cent of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations: Provided that such acquirer shall not be entitled to acquire or enter into any agreement to acquire shares or voting rights exceeding such number of shares as would take the aggregate shareholding pursuant to the acquisition above the maximum permissible non-public shareholding. Provided further that, acquisition pursuant to a resolution plan approved under section 31 of the Insolvency and Bankruptcy Code, 2016 [No. 31 of 2016] shall be exempt from the obligation under the proviso to the sub-regulation (2) of regulation 3. Explanation. — For purposes of determining the quantum of acquisition of additional voting rights under this sub-regulation,— (i) gross acquisitions alone shall be taken into account regardless of any intermittent fall in shareholding or voting rights whether owing to disposal of shares held or dilution of voting rights owing to fresh issue of shares by the target company. (ii) in the case of acquisition of shares by way of issue of new shares by the target company or where the target company has made an issue of new shares in any given financial year, the difference between the pre-allotment and the post-allotment percentage voting rights shall be regarded as the quantum of additional acquisition.

Indirect acquisition of shares or control. 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.”

4. In the aforementioned Application and subsequent submissions, the following inter alia was stated:

A. The shareholding in the Target Company prior to the proposed acquisition is as under:

Table I - Shareholding in the Target Company (Source: Application) Name No. of shares % Shareholding A. Promoter/ Promoter Group 1. Titagarh Capital Management Services Private Limited 2,16,70,165 18.74 2. Savitri Devi Chowdhary 1,24,66,034 10.78 3. Rashmi Chowdhary 1,28,16,105 11.09 4. Jagdish Prasad Chowdhary 1,56,540 0.14 5. Umesh Chowdhary 77,530 0.07 6. Vinita Bajoria 80 0.00 7. Sumita Kandoi 85 0.00 8. Jagdish Prasad Chowdhary (Trustee of Chowdhary Foundation) 56,50,001 4.89 Total Promoter Holding 5,28,36,540 45.70 B Public Shareholding 6,27,69,630 54.30 Total 11,56,06,170 100.00

B. The Acquirer Trust proposes to acquire 10.86% shares of Target Company from the promoters as under:

Table II - Details of Proposed Direct Acquisition Name of Name of the No. of shares % of share Remarks acquirer Transferor proposed to capital be acquired Chowdhary Savitri Devi 1,24,66,034 10.78 Transferor is a settlor, trustee and Foundation Chowdhary beneficiary of the Acquirer Trust

Jagdish Prasad 85,840 0.07 Transferor is a settlor, trustee and Chowdhary beneficiary of the Acquirer Trust Total 1,25,51,874 10.86

C. The Acquirer Trust also proposes to acquire 50% shares of Titagarh Capital Management Services Private Limited from the promoters as under:

Table III - Details of Proposed Indirect Acquisition Name of acquirer Name of the No. of shares % of Remarks Transferor proposed to share be acquired capital Chowdhary Foundation Savitri Devi 1,25,000 25 Transferor is a settlor, Chowdhary trustee and beneficiary of the Acquirer Trust Jagdish Prasad 1,25,000 25 Transferor is a settlor, Chowdhary trustee and beneficiary of the Acquirer Trust Total 2,50,000 50

D. The Settlor, Trustees and beneficiaries of the aforementioned Acquirer Trust are as under:

Table IV - Details of the Acquirer Trust Settlors Trustees Beneficiaries Relationship 1. Jagdish Prasad 1. Jagdish Prasad 1. Jagdish Prasad Chowdhary Umesh Chowdhary is Chowdhary Chowdhary the son of Jagdish 2. Savitri Devi Chowdhary Prasad Chowdhary 2. Savitri Devi 2. Savitri Devi 3. Umesh Chowdhary and Savitri Devi Chowdhary Chowdhary Chowdhary and 4. Prithish Chowdhary 3. Umesh Chowdhary Prithish Chowdhary is 5. Spouses and male lineal the son of Umesh descendants of Umesh Chowdhary Chowdhary. and Prithish Chowdhary 6. In the absence of male lineal descendants, female lineal descendants of Prithish Chowdhary

E. The shareholding in the Target Company subsequent to the proposed Acquisition by Acquirers will be as under:

Table V - Shareholding in the Target Company (Source: Application) Name No. of shares % Shareholding A. Promoter/ Promoter Group 1. Titagarh Capital Management Services Private Limited 2,16,70,165 18.74 2. Savitri Devi Chowdhary 0 0 3. Rashmi Chowdhary 1,28,16,105 11.09 4. Jagdish Prasad Chowdhary 70,700 0.06 5. Umesh Chowdhary 77,530 0.07 6. Vinita Bajoria 80 0.00 7. Sumita Kandoi 85 0.00 8. Jagdish Prasad Chowdhary (Trustee of Chowdhary Foundation) 1,82,01,875 15.74 Total Promoter Holding 5,28,36,540 45.70 B. Public Shareholding 6,27,69,630 54.30 Total 11,56,06,170 100.00

5. Grounds for seeking exemption – i. Trustees and Beneficiaries of the Acquirer Trust and the Transferors form part of the Promoter / Promoter Group of the Target Company. ii. Only individual promoters or their immediate relatives or lineal descendants are the Trustees and Beneficiaries. iii. The Transferors and their immediate relatives are directly in control of the Acquirer Trust and hence, there will be no effective change in the exercise of the voting power or control or management of the Target Company after the proposed acquisition. iv. The proposed acquisition by way of a gift, for which exemption is sought will take place pursuant to a private family arrangement intended at consolidation of shareholding of existing individual promoters in the Target Company in a Family Trust to facilitate succession planning and welfare of the Chowdhary Family. v. The Proposed Acquisition is a non-commercial transaction, which will not prejudice the interests of the public shareholders of the Target Company in any manner. vi. Pursuant to the proposed transactions, with respect to the shares being transferred, the individual promoters will no longer exercise voting right in the Target Company and instead, the Acquiring Trust will exercise the voting rights.

vii. There will not be any change in the pre-acquisition and post-acquisition shareholding of the promoter / promoter group and public shareholders pursuant to the proposed transactions. viii. The Target Company shall continue to be in compliance with the Minimum Public Shareholding requirement.

6. The Acquirer Trust, vide emails dated April 30, 2020, July 7, 2020 and July 13, 2020 confirmed its compliance with the following Guidelines outlined in the Schedule to the SEBI Circular dated December 22, 2017 – i. The Trust is, in substance, only a mirror image of the Promoters’ holdings and consequently, there is no change of ownership or control of the shares or voting rights in the Target Company. ii. Only individual promoters or their immediate relatives or lineal descendants are Trustees and beneficiaries. iii. The beneficial interest of the beneficiaries of the Trust has not been and will not, in the future, be transferred, assigned or encumbered in any manner including by way of pledge / mortgage. iv. In case of dissolution of the Trust, the assets will be distributed only to the beneficiaries of the trust or to their legal heirs. v. The Trustees will not be entitled to transfer or delegate any of their powers to any person other than one or more of themselves. vi. Any change in the trustees / beneficiaries and any change in ownership or control of shares or voting rights held by Trust shall be disclosed within two days to the concerned stock exchanges with a copy endorsed to SEBI for its record. vii. As far as the provisions of the SEBI Act and the regulations framed thereunder are concerned, the ownership or control of shares or voting rights will be treated as vesting not only with the Trustees but also indirectly with the beneficiaries. viii. The liabilities and obligations of individual transferors under the SEBI Act and the regulations framed thereunder will not change or get diluted due to transfers to the Trust. ix. The Trust shall confirm, on an annual basis, that it is in compliance with the exemption order passed by SEBI. The said confirmation shall be furnished to the company which it shall disclose prominently as a note to the shareholding pattern filed for the quarter ending March 31 each year, under Regulation 31 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

x. The Trust shall get its compliance status certified from an independent auditor annually and furnish the certificate to the Stock Exchanges for public disclosure with a copy endorsed to SEBI for its records. xi. The proposed acquisition is in accordance with the provisions of the Companies Act, 2013 and other applicable laws. xii. The transferors are disclosed as promoters in the shareholding pattern filed with the Stock Exchanges for a period of at least three years prior to the transfer (except for holding on account of inheritance). xiii. There is no layering in terms of trustees / beneficiaries in case of Trusts. xiv. The Trust Deed does not contain any limitation of liability of the trustees / beneficiaries in relation to the provisions of the SEBI Act and all regulations framed thereunder.

Consideration –

7. I have considered the Application submitted by the Proposed Acquirer and other materials available on record. Without reiterating the facts as stated above, the following is noted:

i. The Application submitted is in respect of the proposed acquisitions of shares and voting rights in the Target Company i.e. Titagarh Wagons Limited. The proposed Acquisitions as detailed at paragraphs 4B and 4C, which are to be made by the Proposed Acquirer, will attract the provisions of Regulations 3(2) and 5(1) of the Takeover Regulations.

ii. Pursuant to the proposed acquisitions, Proposed Acquirer shall directly acquire 10.86% shares and indirectly acquire 18.74% shares and along with promoter group, will hold an aggregate of 45.70% of the paid up equity capital in the Target Company.

iii. There will be no change in control of the Target Company pursuant to the proposed acquisition, as stipulated under the SEBI Circular dated December 22, 2017.

iv. The pre–acquisition and post–acquisition shareholding of the Promoters in the Target Company will remain the same.

v. There will also be no change in the public shareholding of the Target Company.

vi. The Target Company shall continue to be in compliance with the minimum public shareholding requirements under the Securities Contracts (Regulation) Rules, 1957 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

vii. The Proposed Acquirer has also confirmed that it is in compliance with the Guidelines outlined in the Schedule to the SEBI Circular dated December 22, 2017.

8. Considering the aforementioned, I am of the view that exemption as sought for in the Application may be granted to the Proposed Acquirer, subject to certain conditions as ordered herein below.

Order –

9. I, in exercise of the powers conferred upon me under Section 19 read with Section 11(1) and Section 11(2)(h) of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) and Regulation 11(5) of the Takeover Regulations, hereby grant exemption to the Proposed Acquirer from complying with the requirements of Regulations 3(2) and 5(1) of the Takeover Regulations with respect to the proposed acquisitions in the Target Company, viz. Titagarh Wagons Limited, by way of proposed transactions as mentioned in the Application.

10. The exemption so granted is subject to the following conditions:

i. The proposed acquisition shall be in accordance with the relevant provisions of the Companies Act, 2013 and other applicable laws.

ii. On completion of the proposed acquisition, the Proposed Acquirer shall file a report with SEBI within a period of 21 days from the date of such acquisition, as provided in the Takeover Regulations 2011.

iii. The statements / averments made or facts and figures mentioned in the Application and other submissions by the Proposed Acquirer are true and correct.

iv. The beneficial interest of the beneficiaries of the Trust will not in the future, be transferred, assigned or encumbered in any manner including by way of pledge/mortgage.

v. The Trust shall be an irrevocable Trust and a specific reference thereon shall be incorporated in the Trust Deed.

vi. The Proposed Acquirer shall ensure compliance with the statements, disclosures and undertakings made in the Application. The Proposed Acquirer shall also ensure compliance with the provisions of the SEBI Circular dated December 22, 2017.

vii. The Proposed Acquirer shall also ensure that the covenants in the Trust Deed are not contrary to the above conditions and the undertaking provided by it. In such case, the Trust Deed shall be suitably modified and expeditiously reported to SEBI.

11. The exemption granted above is limited to the requirements of making open offer under the Takeover Regulations 2011 and shall not be construed as exemption from the disclosure requirements under Chapter V of the aforesaid Regulations; compliance with the SEBI (Prohibition of Insider Trading) Regulations, 2015, Listing Agreement/SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 or any other applicable Acts, Rules and Regulations.

12. The Application dated March 2, 2020 filed by Jagdish Prasad Chowdhary on behalf of the Proposed Acquirer, is accordingly disposed of.

Place: Mumbai G. MAHALINGAM Date: July 30, 2020 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA