Exemption order under Regulation 11 of SEBI (SAST) Regulations, 2011 in the matter of Torrent Pharmaceuticals Limited

WTM/GM/CFD/61 /2019-20

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 M/S. TORRENT PHARMACEUTICALS LIMITED ACQUIRER (S) MEHTA FAMILY TRUST

BACKGROUND –

1. M/s. Torrent Pharmaceuticals Limited (“Target Company”) is a company incorporated under the Companies Act, 1956 and its registered office is at Torrent House, off Ashram Road, Ahmedabad, Gujarat. The shares of the Target Company are listed on the Bombay Stock Exchange Limited (“BSE”) and the National Stock Exchange of India Limited (“NSE”).

2. An Application dated February 02, 2018 (“Application”) seeking exemption from the applicability of Regulations 3 and 5 read with Regulation 4 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations,

Order in the matter of Torrent Pharmaceuticals Limited

2011 (“Takeover Regulations”) in the matter of proposed acquisition of shares and voting rights in the Target Company, was received by SEBI from Mehta Family Trust (“Acquirer Trust”).

3. Regulations 3, 4 & 5 of the Takeover Regulations state – “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.

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. Acquisition of control. 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.

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, the following was inter alia stated – (a) The promoter and members of the promoter group of the Target Company includes Shri Sudhir Uttamlal Mehta and his family members, Shri Samir Uttamlal Mehta and his family members and the promoter company viz. Torrent Private Limited, owned by family members of Shri Sudhir Mehta and family members of Shri Samir Mehta. (b) Presently, Torrent Private Limited (TPL) holds 71.25% of the equity shares and voting rights in the Target Company. All the shares of TPL are held by the members of the Mehta Family. TPL has filed before NCLT at Ahmedabad a scheme of amalgamation of a group company viz. Torrent Fincorp Private Limited (‘Transferor Company’) with TPL (‘Transferee Company’). Hundred percent shares of the Transferor Company are held by Shri Samir Uttamlal Mehta as a representative trustee of Mehta Family Trust/Acquirer Trust. (c) After the sanction of scheme of amalgamation by NCLT, TPL shall issue and allot its shares to the shareholders of Torrent Fincorp Private Limited (i.e. to the Acquirer Trust, represented through its trustee Shri Samir Uttamlal Mehta). (d) The trustees of the Acquirer Trust are two brothers viz. Shri Sudhir Uttamlal Mehta and Shri Samir Uttamlal Mehta. (e) The beneficiaries of the Acquirer Trust were Sudhir Uttamlal Mehta Family Trust and Samir Uttamlal Mehta Family Trust. Further, the trustees and beneficiaries of Sudhir Uttamlal Mehta Family Trust and Samir Uttamlal Mehta Family Trust are as under: Trust Trustees Beneficiaries Sudhir Uttamlal 1. Shri Sudhir 1. Shri Sudhir Uttamlal Mehta Family Uttamlal Mehta Mehta Trust 2. Smt. Anita Sudhir 2. Smt. Anita Sudhir Mehta (wife of Mehta Shri Sudhir 3. Jinal Sudhir Mehta Uttamlal Mehta) Family Trust 4. Varun Sudhir Mehta Family Trust Samir Uttamlal 1. Shri Samir 1. Shri Samir Uttamlal Mehta Family Uttamlal Mehta Mehta Trust 2. Smt. Sapna Samir 2. Smt. Sapna Samir Mehta(wife of Shri Mehta Samir Uttamlal 3. Aman Samir Mehta Mehta) Family Trust 4. Shaan Samir Mehta Family Trust (f) Post giving effect to the scheme of amalgamation, the Acquirer Trust shall acquire 98.80% shares and control in TPL which further holds 71.25% of the voting rights in the Target Company. The shareholding pattern of TPL pre and post the scheme of amalgamation is:

Name of shareholder % of % of shareholding shareholding prior to post scheme scheme Samir Uttamlal Mehta Family 50% 0.60% Sudhir Uttamlal Mehta Family 50% 0.60% Acquirer Trust, i.e. Mehta Family Trust ---- 98.80% (represented through its trustee Shri Samir Uttamlal Mehta (g) The Acquirer Trust currently does not hold any shares in the Target Company. Pursuant to the above scheme of amalgamation, the Acquirer Trust shall hold 71.25% of the Target Company through TPL.

Pre and post shareholding pattern of promoter and promoter group of the Target Company before and after the proposed acquisition

Name of promoter Pre holding Post holding No. of shares % of share No. of shares % of share capital capital Torrent Pvt. Ltd. 12,05,63,720 71.25 12,05,63,720 71.25 Other promoters 1,000 0.00 1,000 0.00 Public Public 4,86,58,000 28.75 4,86,58,000 28.75

Total 16,92,22,720 100 16,92,22,720 100 (h) Grounds for seeking exemption – The following are the grounds for seeking exemption:

(i) The proposed acquisition of shares of Torrent Pvt. Ltd. is to carry out an internal reorganization within the promoter family and is intended to streamline succession and promote welfare of promoter family.

(ii) The proposed acquisition would be a non-commercial transaction which would not affect or prejudice the interests of the public shareholders of the Target Company in any manner.

(iii) The proposed acquisition would not result in any effective change in control and management of the target company. Shri Sudhir Uttamlal Mehta and Shri Samir Uttamlal Mehta who are presently exercising the control and management in Torrent Pvt. Ltd. in their individual capacity shall continue to exercise control and management in Torrent Pvt. Ltd in their capacity as trustees of the Acquirer Trust.

(iv) The sub-trusts were made beneficiaries with an objective of facilitating succession planning within the respective sub-families of Sudhir Uttamlal Mehta Family and Samir Uttamlal Mehta Family. A sub-trust structure would facilitate smooth succession among each family unit.

(v) The sub-trust structure would also ensure that no member of a particular sub-family can interfere with succession planning of another sub-family. To illustrate, where the respective share of Sudhir Uttamlal Mehta Family Trust and Samir Uttamlal Mehta Family Trust, being the beneficiaries of Mehta Family Trust are decided in future, manner of succession of such share amongst members of Sudhir Uttamlal Mehta Family shall only be decided by trustees of Sudhir Uttamlal Mehta Family Trust and the share amongst members of Samir Uttamlal Mehta Family shall be decided by trustees of Samir Uttamlal Mehta Family Trust. Any member of Sudhir

Uttamlal Mehta Family shall not be eligible to influence succession among members of Samir Uttamlal Mehta Family and vice versa.

(vi) Similarly, where the respective share of Jinal Sudhir Mehta Family Trust and Varun Sudhir Mehta Family Trust, being the beneficiaries of Sudhir Uttamlal Mehta Family Trust are decided in future, manner of succession of such share amongst members of Jinal Sudhir Mehta Family shall only be decided by trustees of Jinal Sudhir Mehta Family Trust and the share amongst members of Varun Sudhir Mehta Family shall be decided by trustees of Varun Sudhir Mehta Family Trust. Any member of Jinal Sudhir Mehta Family shall not be eligible to influence succession among members of Varun Sudhir Mehta Family and vice versa.

(vii) Besides shares of Torrent Private Limited, each sub-family viz. Sudhir Uttamlal Mehta family and Samir Uttamlal Mehta family also has its own personal assets. Having separate sub-trusts would facilitate succession of such assets among members of respective sub-family and also enable clear demarcation of wealth of each family.

(viii) Also, where any dispute, claim or liability arises for a particular family, it would be limited to and enforceable only against the personal assets of such family housed under its sub-trust. This would ensure that the shares of Torrent Private Limited which further holds shares in the listed entities (i.e. Torrent Power Limited, Torrent Pharmaceuticals Limited and Gujarat Lease Financing Limited) are ring-fenced from liability in respect of a particular family.

(ix) The pre-acquisition shareholding and post-acquisition shareholding of promoter in the Target Company would remain same.

(x) The Trust is in substance, only a mirror image of the promoters’ holdings and pursuant to the proposed acquisition, there shall be no change of ownership or control of the shares or voting rights in the Target Companies.

(xi) Further, it may be noted that all the ultimate beneficiaries of Mehta family Trust are members of Mehta family. The trustees of Mehta family Trust as well as respective sub-trusts are also members of Mehta family.

(xii) No outsider other than immediate relatives (as defined in the Takeover Regulations) of the existing trustees and beneficiaries and lineal descendants of such relatives are intended to be admitted as trustees and / or beneficiaries of Mehta Family Trust and the sub-trusts (xiii) Automatic exemptions available under Regulation 10 do not apply to the proposed transaction.

5. Upon examination of the Application, SEBI noticed that the Acquirer Trust was a family trust, wherein the trustees were family members and beneficiaries were family members and sub trusts. These sub trusts had family members as trustees and beneficiaries were family members and sub-trusts. The trustees and beneficiaries of these sub-trusts were family members. It thus appeared that there was sub-trust structure leading to layering in terms of beneficiaries. However, as per guidelines issued by SEBI for panel applications involving trust as acquirer, vide its Circular No. SEBI/HO/CFD/DCR1/CIR/P/2017/131 (“Circular”) dated December 22, 2017, exemptions are generally granted when there is no layering in terms of trustees/beneficiaries. In keeping with the prevalent practice of referring the Trust cases to Panel where the guidelines as stipulated in the Circular are not entirely followed, SEBI referred the Application to the Takeover Panel for its recommendation before taking a final decision in the matter. The Takeover Panel in its meeting held on March 27, 2019 considered the Application and recommended rejection of the same on the ground that there were sub-trusts as beneficiaries and thus was not in line with SEBI Circular dated December 22, 2017.

6. Thereafter, an opportunity of personal hearing was granted to the Acquirer Trust on July 04, 2019. The same was attended by the authorized representatives of the Acquirer Trust who submitted that the Applicant was willing to amend the Trust Structure to remove the sub-trusts, thereby removing any layering, so as to make it compliant with the provisions of the SEBI Circular dated December 22, 2017.

7. Subsequently, the Acquirer Trust has submitted a copy of an addendum dated January 08, 2020 to the Trust Deed dated November 07, 2016 whereby the Trust Deed has been amended and the layering in terms of the trustees/beneficiaries in the form of sub-trusts has now been removed.

CONSIDERATION OF THE APPLICATION AND FINDINGS –

8. I have considered the Application submitted by the Acquirer Trust along with its additional submissions; the recommendations of the Takeover Panel and other material available on record. In this regard, without reiterating the facts as stated above, the following are noted: (a) The Application submitted is in respect of the proposed acquisitions of shares and voting rights in the Target Company i.e. Torrent Pharmaceuticals Limited, through TPL. The proposed acquisition as detailed above, which is to be made by Acquirer Trust, will attract the provisions of Regulations 3, 4 & 5 of the Takeover Regulations. (b) As per the Trust Deed dated November 07, 2016, read with the addendum dated January 08, 2020, Mehta Family Trust has been settled by Smt. Shardaben Mehta and its original trustees are Mr. Sudhir Uttamlal Mehta and Mr. Samir Uttamlal Mehta. The beneficiaries of the Mehta Family Trust are the following:

i. Mr. Sudhir Uttamlal Mehta ii. Mrs. Anita Sudhir Mehta iii. Mr. Samir Uttamlal Mehta iv. Mrs. Sapna Samir Mehta v. Mr. Jinal Sudhir Mehta vi. Mr. Varun Sudhir Mehta vii. Mr. Aman Samir Mehta viii. Mr. Shaan Samir Mehta; and ix. Lineal male and female descendants of the persons mentioned at sl. no. v to viii above. (c) It is noted that there are no sub-trusts which are included as beneficiaries of the Mehta Family Trust. (d) Pursuant to the proposed acquisitions, the Acquirer Trust will hold an aggregate of 71.25% of the paid up equity capital in the Target Company through TPL, on account of the proposed acquisition in TPL. (e) The objective of the proposed acquisition is to streamline succession and promote welfare of the Promoter family. (f) There will be no change in control of the Target Company pursuant to the proposed acquisition. (g) The total pre–acquisition and post–acquisition shareholding of the Promoters and the Promoter Group in the Target Company will remain the same.

(h) There will be no change in the public shareholding of the Target Company.

(i) 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.

9. Upon perusal of the Trust Deed dated November 07, 2016 as amended on January 08, 2010, it is observed that the terms contained therein are in compliance with the Guidelines outlined in the Schedule to the SEBI Circular dated December 22, 2017. Accordingly, the Applicant Trust is eligible for exemption as sought and the same is being granted subject to certain conditions imposed in the interest of investors, as ordered herein below.

ORDER

10. 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 and Regulation 11(5) of the Takeover Regulations, hereby grant exemption to the Acquirer Trust, viz. Mehta Family Trust, from complying with the requirements of Regulations 3, 4 & 5 of the Takeover Regulations with respect to the proposed acquisitions in the Target Company, viz. Torrent Pharmaceuticals Limited, by way of proposed transactions as mentioned in the Application.

11. 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 Acquirer Trust shall file a report with SEBI within a period of 21 days from the date of such acquisition, as provided in the Takeover Regulations. iii. The statements / averments made or facts and figures mentioned in the Application and other submissions by the Acquirer Trusts are true and correct. iv. The Acquirer Trust shall ensure compliance with the statements, disclosures and undertakings made in the Application. The Acquirer Trust shall also ensure compliance with the provisions of the SEBI Circular dated December 22, 2017.

v. The Acquirer Trust shall also ensure that the covenants in the Trust Deed are not contrary to the above conditions and undertaking provided by the transferors.

12. The exemption granted above is limited to the requirements of making open offer under the Takeover 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.

13. The Applications dated February 02, 2018 and related correspondences filed by the Acquirer Trust, are accordingly disposed of.

Place: Mumbai G. MAHALINGAM Date: January 13, 2020 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA