Exemption Order under Regulation 11 of SEBI (SAST) Regulations, 2011 in the matter of Motilal Oswal Financial Services Limited

UNDER SECTION 11(1) AND SECTION 11(2)(h) OF THE SEBI 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 INDIRECT ACQUISITION OF SHARES AND VOTING RIGHTS IN –

TARGET COMPANY MOTILAL OSWAL FINANCIAL SERVICES LIMITED

ACQUIRER MOTILAL OSWAL FAMILY TRUST

BACKGROUND –

1. Motilal Oswal Financial Services Limited (“Target Company / MOFSL”) was incorporated under the Companies Act, 1956 on May 18, 2005. The Registered Office of the Target Company is at Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025. The shares of the Target Company are listed on BSE Limited (“BSE”) (Listing date – September 11, 2007) and National Stock Exchange of India Limited (“NSE”) (Listing date – September 11, 2007). The Target Company is a trading member registered with BSE, NSE, The Mutli Commodity Exchange of India Ltd. (“MCX”) and National Commodity an Derivatives Exchange Order in the matter of Motilal Oswal Financial Services Limited

Limited (“NCDEX”). MOFSL is also SEBI registered depository participant with Central Depository Services (India) Limited (“CDSL”) and National Securities Depository Limited (“NSDL”).

2. An Application dated October 23, 2019 (“Application”) seeking exemption from the applicability of inter alia Regulations 3 and 5 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“SAST Regulations”) in the matter of proposed acquisition of shares and voting rights in the Target Company, was received by SEBI from Motilal Oswal Family Trust (“Acquirer Trust / Proposed Acquirer”).

3. Regulation 3 and 5 of the SAST Regulations states as under:

“Substantial acquisition of shares or voting rights. 3. (1) No acquirer shall acquire shares or voting rights in a target company which taken together with shares or voting rights, if any, held by him and by persons acting in concert with him in such target company, entitle them to exercise twenty-five per cent or more of the voting rights in 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. (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 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. (3) For the purposes of sub-regulation (1) and sub-regulation (2), acquisition of shares by any person, such that the individual shareholding of such person acquiring shares exceeds the stipulated thresholds, shall also be attracting the obligation to make an open offer for acquiring shares of the target company irrespective of whether there is a change in the aggregate shareholding with persons acting in concert.

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 was inter alia stated:

A. The shareholding of the MOFSL before and after the proposed acquisition is as under:

TABLE-1: Shareholding of Promoter Group in the MOFSL [Source: Application]

Name of promoter Pre-Acquisition Post-Acquisition No. of shares % No. of shares % PIMPL 8,37,30,715 56.78 8,37,30,715 56.783 Motilal Oswal 87,53,755 5.94 87,53,755 5.936 Raamdeo Agarwal 87,53,755 5.94 87,53,755 5.936 Raamdeo Ramgopal 6,50,000 0.441 6,50,000 0.441 Agarwal-HUF Suneeta Raamdeo 2,95,400 0.200 2,95,400 0.200 Agarwal Vimla Motilal Oswal 1,25,240 0.085 1,25,240 0.085 Suman Agrawal 1,00,000 0.068 1,00,000 0.068 Karoon Ramgopal 1,00,000 0.068 1,00,000 0.068 Agarawal Vinay Agrawal 1,00,000 0.068 1,00,000 0.068 Sukhdeo Ramgopal 80,200 0.054 80,200 0.054 Agarwal Anita Agarwal 80,000 0.054 80,000 0.054 Satish Agrawal 78,020 0.053 78,020 0.053 Govind Deo Agarwal 55,770 0.038 55,770 0.038 Rajendra Gopilal Oswal 55,000 0.037 55,000 0.037 OSAG Enterprises LLP 2,000 0.001 2,000 0.001 Vimala Devi 1430 0.001 1430 0.001 Motilal Gopilal Oswal- 120 0.000 120 0.000 HUF Total Promoter 10,29,61,405 69.82 10,29,61,405 69.82 Holding Public Public 4,44,95,563 30.18 4,44,95,563 30.18 Total 14,74,56,968 100 14,74,56,968 100

TABLE-2: Shareholding of Passionate Investment Management Private Limited (“PIMPL”) [Source: Application] Name of the shareholder No. of shares % Holding Motilal Oswal 57,79,600 50 Motilal Oswal HUF 100 0 Raamdeo Agarwal 44,38,837 38.40 Vimla Oswal 100 0 Suneeta Agrawal 8,20,663 7.10 Raamdeo Agarwal HUF 5,20,000 4.50 Total 1,15,59,300 100

B. As per the Application dated October 23,2019:

i. Mr. Motilal Oswal currently holds 57,79,600 (50%) shares in PIMPL, which in turn holds 8,37,30,715 shares (56.78%) of MOFSL.

ii. MOFSL is a public listed company incorporated under the Companies Act, 1956. MOFSL has a public shareholding of 30.18% and non-public shareholding of 69.82%. MOFSL is a subsidiary of PIMPL.

iii. Motilal Oswal intends to gift / settle his shareholding in PIMPL to Motilal Oswal Family Trust - a private family trust. The Acquirer Trust has been settled by Ansi Oswal (Mother of Motilal Oswal) for the benefit of Motilal Oswal Family members by a registered trust deed dated October 15, 2019 (“Trust Deed”) read with Draft Addendum Deed, submitted vide letter dated December 27, 2019 and Revised Draft Addendum Deed submitted vide email dated February 06, 2020.

C. The Settlor, Trustees and beneficiaries of the aforementioned Acquirer Trust are as under –

TABLE-3: Details of the Acquirer Trust

ACQUIRER TRUST – MOTILAL OSWAL FAMILY TRUST SETTLOR TRUSTEES BENEFICIARIES RELATIONSHIP Mrs. Ansi Gopilal Mr. Motilal Oswal 1.Vimla Motilal Oswal (Spouse) The Trustees and Oswal (Self) 2.Pratik Motilal Oswal (Son) beneficiaries are (Mother of Motilal 3.Pratiksha Mehta (Daughter) immediate relatives / Oswal) 4.Lineal Descendants of Pratik lineal descendants of Motilal Oswal the Promoter / Settlor.

D. The proposed acquisition involves the following:

i. Mr. Motilal Oswal proposes to gift / settle to the Acquirer Trust, all of the equity shares (i.e. 5,779,600 shares representing 50% of the total shareholding in PIMPL) held by him in PIMPL, which in turn holds 56.78% stake in the Target Company/MOFSL (“Indirect Acquisition”). Thereafter, the Trustees (on behalf of the Acquirer Trust) will hold 50 % of the equity share capital in PIMPL. The shareholding in PIMPL subsequent to the Acquisition will be as under: -

TABLE-4- PROPOSED SHAREHOLDING IN PIMPL (SOURCE: APPLICATION)

S. NO NAME % SHAREHOLDING 1 Motilal Oswal Family Trust 50 2 Motilal Oswal HUF 0 3 Raamdeo Agarwal 38.40 4 Vimla Oswal 0 5 Suneeta Agrawal 7.10 6 Raamdeo Agarwal HUF 4.50 Total 100 ii. MOFSL is a subsidiary of PIMPL. PIMPL holds 8,37,30,715 equity shares of face value of INR 10/- per equity share of the Target Company/MOFSL, aggregating to 56.78 % of the equity share capital of the Target Company/MOFSL. Consequent to acquisition of 50 % shares of PIMPL by Motilal Oswal Family Trust from Mr. Motilal Oswal, there will be an indirect acquisition of control over the Target Company by the Motilal Oswal Family Trust.

E. Grounds for seeking exemption – i. The proposed transfer of shares of the Mr. Motilal Oswal is not to any third party but to the Motilal Oswal Family Trust, which is a family trust settled and administered by the members of the Motilal Oswal Family i.e. immediate relatives and lineal descendants of the promoters’ themselves. Members of the Motilal Oswal Family holding and transferring all the shares of PIMPL as stated above (Transferor) and the members of the Motilal Oswal Family who are the trustees have been declared as promoters to the stock exchanges.

ii. The Transferor will subsequently hold the shares as the Trustee of the Acquirer Trust.

iii. Regulation 10 of the SAST Regulations provides for general exemption from making an open offer in case of acquisition pursuant to inter-se transfer of shares between persons named as promoters in the shareholding pattern filed by the Target Company in terms of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (as amended from time to time) or the Takeover Regulations for at least three years prior to the acquisition. Since the Acquirer Trust is a newly formed entity, the Acquirer Trust has not been shown as promoter in the shareholding pattern filed by the Target Company in the last three years prior to proposed Acquisition.

iv. The Proposed indirect acquisition is a non-commercial transaction, which would not affect or prejudice the interests of the public shareholders of the Target Company in any manner.

v. Pursuant to the proposed transfers, Motilal Oswal Family Trust will be considered as part of the promoter group of PIMPL (through direct acquisition) as well as the Target Company (through indirect acquisition) as the trustees and the ultimate beneficiaries of the Acquirer Trust are promoters and members of the Target Company.

vi. The sole and exclusive beneficiaries of the Acquirer Trust are the immediate relatives and their legal lineal descendants of the Transferor only and no third party is a beneficiary. The beneficiaries of the Acquirer Trust are not entitled to transfer their beneficial ownership interest in the Trust property to any third party. Upon demise / insolvency of a beneficiary, the beneficial ownership interests in the trust property will vest in lineal descendants of the relevant beneficiary.

vii. The proposed transfer will not alter the board of directors of the Target Company.

viii. There is no change of control of PIMPL and the Target Company and the Transferor will continue to exercise control over PIMPL and Target Company through the Acquirer Trust.

ix. The proposed transfer by the Transferors is only an internal reorganization of the shareholding of the Target Company within the Transferor’s family for the purpose of a private family arrangement for the benefit of the members of Motilal Oswal Family. It is pertinent to note that the trustee who will exercise control over the assets of the Acquirer Trust and the Transferor, who is the current promoter of PIMPL and the Target Company, are the same. Further, the proposed transfer would not result in any increase / decrease in the holding of the Transferor in PIMPL and the Target Company as the Transferor would not continue to hold the same shares through the Acquirer Trust as the Trustee. Consequently, there will be no change in control or management of PIMPL and the Target Company pursuant to the proposed transfer by the Transferor by way of a gift / settlement in the Acquirer Trust. Such transfer is non-commercial in nature and will not prejudice the interests of the public shareholders of PIMPL and the Target Company in any manner.

5. The Acquirer Trust (vide the Application read with Draft Addendum Deeds and e-mails / letters dated November 28, 2019, December 16, 2019, December 27, 2019, January 01, 2020 and February 06, 2020 has 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/MOFSL.

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 2 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 3 years prior to 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.

6. Further, vide email dated February 06, 2020, the applicant has submitted revised draft of first addendum to the trust deed, omitting the references to voting trusts and trust companies from the original Trust Deed.

CONSIDERATION –

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

A. The Application submitted is in respect of the proposed indirect acquisitions of shares and voting rights in the Target Company i.e. Motilal Oswal Financial Services Limited. The proposed indirect acquisition as detailed at paragraph 4D above, which are to be made by Motilal Oswal Family Trust i.e. the Proposed Acquirer in PIMPL, will attract the provisions of Regulations 3 and 5 of the SAST Regulations over the Target Company.

B. Pursuant to the proposed acquisitions, the Proposed Acquirer will hold an aggregate of 50% of the paid up equity capital in PIMPL.

C. The objective of the proposed acquisitions is to streamline the succession of Motilal Oswal Family and their respective lineal descendants.

D. 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.

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

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

G. The Target Company shall continue to be in compliance with the Minimum Public Shareholding requirements under the Securities Contracts Regulation Rules, 1957 (“SCRR”) and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

H. 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 (as reproduced at paragraph 5 above).

8. Considering the aforementioned, I am of the view that exemption as sought for in the Application (read with further submissions) 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 SAST Regulations, hereby grant exemption to the Proposed Acquirer, viz. Motilal Oswal Family Trust, from complying with the requirements of Regulations 3 and 5 of the SAST Regulations with respect to the proposed acquisitions in the Motilal Oswal Financial Services 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 SAST Regulations.

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 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.

v. The Proposed Acquirer shall also ensure that the covenants in the Trust Deed are not contrary to the above conditions and undertaking provided by the transferors. 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 SAST Regulations 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 October 23, 2019 and related correspondences filed by Motilal Oswal Family Trust is accordingly disposed of.

Place: Mumbai G. MAHALINGAM Date: February 10, 2020 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA