Order in respect of application filed by Munjal M Jaykrishna Family Trust under regulation 11 of Takeover Regulations, 2011 for acquisition of shares in AksharChem (India) Limited

WTM/PS/185/CFD-DCR/MAR/2016 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER In the matter of proposed acquisition of shares of AksharChem (India) Limited – Application filed under Regulation 11(1) read with Regulation 11(3) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. 1. AksharChem (India) Limited (hereinafter referred to as ‘the Target Company’) is a company incorporated under the Companies Act, 1956, having its registered office at 168/ 169, Village Indrad, Kadi Kalol Road, Mehsana – 382727, Gujarat. The equity shares of the Target Company are listed on the BSE Limited (hereinafter referred to as ‘BSE’) and the Ahmedabad Stock Exchange Limited.

2. Mr. Munjal M. Jaykrishna in its capacity as a Trustee of Munjal M. Jaykrishna Family Trust (hereinafter referred to as ‘the Acquirer’/ ‘Trust’), has filed an application dated August 15, 2014, with the Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) under Regulation 11(3) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as ‘the Takeover Regulations’), seeking exemption from the applicability of Regulations 3 and 4 of the Takeover Regulations, in respect of the proposed acquisition 11,25,805 shares (about 15.39% shares of Target Company) held by Mr. Munjal Jaykrishna and 5,04,557 shares (6.89% shares) of Target Company held by Mr. Gokul Jaykrishna in the Target Company. Mr. Munjal Jaykrishna (son of Ms. Paru M. Jaykrishna and Mr. Mrugesh Jaykrishna) and Ms. Sejal Jaykrishna (wife of Mr. Munjal Jaykrishna) are the trustees of the Acquirer. The beneficiaries of the Acquirer are Mr. Munjal Jaykrishna, Ms. Sejal Jaykrishna, Sachin Munjal Jaykrishna Trust (its beneficiaries are Mr. Sachin Munjal Jaykrishna and Ms. Sejal Munjal Jaykrishna) and Namrata Munjal Jaykrishna Trust (its beneficiaries are Ms. Namrata Munjal Jaykrishna and Ms. Sejal Munjal Jaykrishna). As per the application, Sachin Munjal Jaykrishan and Namrata Munjal Jaykrishna are children of Mr. Munjal Jaykrishna.

3. The application dated August 15, 2014, inter alia stated the following:

a. The Target Company was incorporated on July 04, 1989 as Audichem (India) Private Limited. It became a public limited company vide certificate dated February 24, 1994 and later the name was changed to AksherChem (India) Limited on March 21, 2003. b. The promoter group of the Target Company holds 73.68% of the equity share capital of the Target Company. The Target Company has filed a ‘scheme of arrangement’ before the Hon’ble High Court of Gujarat at Ahmedabad. The scheme of arrangement involves de-merger and transfer of ‘CPC Green Division’ of Asahi Songwon Colors Limited to the Target Company. On sanction of the ‘scheme of arrangement’ by the Hon’ble High Court, the Target Company will issue further shares to the shareholders of Asahi Songwon Colors Limited. As a result of such further issue of shares post scheme of arrangement, the shareholding of promoters and promoter group in Target Company will reduce to 70%. c. The total paid-up equity share capital of the Target Company, as on the date of the application was ₹4,95,28,500 divided into 49,52,850 fully paid up shares of ₹10 each.

Post further issue of shares by the Target Company on sanction of the ‘scheme of arrangement’ by the Hon’ble High Court, the total paid-up equity capital of the Target Company would be ₹7,31,29,000 divided into 73,12,900 fully paid up shares of ₹10 each. d. The Acquirer is a private family trust. The trustees and the ultimate beneficiaries of the Acquirer are the family members of the Jaykrishna family (hereinafter referred to as ‘promoter family’). e. Mr. Munjal Jaykrishna is the Joint Managing Director of the Target Company and is involved in the day to day management and control of it. Ms. Paru M. Jaykrishna is the trustee of Mrugesh Jaykrishna Family Trust – 2 and is Chairman and Managing Director of the Target Company. f. As a result of the proposed acquisition by the Acquirer, the total equity share capital of the Target Company will not change. The shares held by Ms. Paru M. Jaykrishna and the balance shares held by Mr. Gokul Jayrkishna are proposed to be acquired by Mrugesh Jaykrishna Family Trust – 2, in which the Acquirer is a beneficiary (a separate application in this regard has been made to SEBI) g. The Acquirer would purchase the shares from Mr. Munjal Jaykrishna and Mr. Gokul Jaykrishna by way of block deal on the stock exchange in a phased manner at a price prevailing on the stock exchange on the date of respective tranches of acquisition, out of the funds gifted by the Trustees/ beneficiaries of the Acquirer.

h. The control over the Target Company will continue to remain with the promoter group and there will be no change in control or management of the company.

4. The proposed acquisition would increase the holding of Acquirer from NIL to 22.28% in the Target Company, thus triggering Regulation 3 of the Takeover Regulations. The application has been made in respect of the said acquisition in the Target Company, seeking exemption from making an open offer in terms of the Regulation 3 of the Takeover Regulations, inter alia on following ground:

a. The proposed acquisition of 11,25,805 shares (from Ms. Munjal Jaykrishna being 15.39%) and 5,04,557 shares (from Mr. Gokul Jaykrishna being 6.89%), by the Acquirer is an internal family reorganization within the promoter family. The beneficiaries of the Trust shall only be the members of the promoter family and/ or entities that are owned and controlled by members of the promoter family. b. The proposed acquisition is only a private family arrangement intended to streamline the succession and welfare of Jaykrishna family and 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. c. The Acquirer is an entity set-up by the promoters of the Target Company and would fall within the definition of ‘promoter group’ under the SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2009 as the Trustees and beneficiaries of the Acquirer are family members of Ms. Paru M. Jaykrishna and Mr. Munjal Jaykrishna, promoters of the Target Company. d. Ms. Paru M. Jaykrishna and Mr. Munjal Jaykrishna have been holding the shares in the Target Company for a period of more than three (3) years. e. The proposed acquisition would not result in any increase/ decrease in the holding of the promoters and promoter group and the same would not result in change in control and management of the Target Company. Mr. Munjal Jaykrishna (Trustee of the Acquirer) through whom control would be exercised over the assets of the Trust, is also the promoter of the Target Company in his personal capacity. The pre-acquisition and post-acquisition shareholding of the promoter group in the Target Company would remain same.

f. The proposed transfer of shares of the Target Company is not to any third parties but to private family trust, whose trustees and beneficiaries are the family members of the promoter family and their bloodline descendants. g. The Acquirer will be regarded as a person acting in concert with the promoters in terms of the Regulation 2(1)(q) of the Takeover Regulations.

5. As SEBI had certain concerns regarding the enforceability, transparency, control, benefit to investors, inheritance tax, when the Acquirer is a trust, it sought the comments of the applicant on the same vide e-mail dated March 20, 2015. The Acquirer vide e-mail dated March 27, 2015, submitted the following comments:

a. Trustees of the Trust are individuals who always represent the Trust and all regulations can be enforced on the trustees in their individual capacity. Accordingly, there is no difficulty as regards enforceability if the shares of the listed companies are held by the trustees for the benefit of the beneficiaries. b. The Trust is a private family trust. Its trustees and ultimate beneficiaries are individuals from the Jaykrishna family. These individuals are promoters and are in control of the listed companies. The structure in no way results in lack of transparency and does not impact the interest of investors. c. There is no change in control/ beneficial ownership of the Target Company. Any change in the trustees/ beneficiaries in future would have implications under the applicable Takeover Regulations. d. As there is no change in control/ ownership of the Target Company, therefore, there is also no question of giving an opportunity to the investors to exit. e. The transfer to the Trust is for efficient succession planning and more than that to hold the controlling interest in the listed company in one entity rather than spreading the holding amongst different individuals which may not be in the best interest of the Company and investors. Further, there is no legislation, current or proposed, for levy of any inheritance tax in India. Therefore, there is no question of saving or avoiding the same.

6. Pursuant to the same, the Acquirer vide letter dated July 18, 2015, undertook as under:

a. Where there is a change in the trustees or beneficiaries of the Trust resulting in change in control of the Target Company, then, in that case such change in trustee or beneficiary shall be in compliance with the Takeover Regulations and necessary intimation shall be made to the stock exchanges. b. Where SEBI initiates any proceedings against the Trust in its capacity as a promoter, the trustees who are also the beneficiaries and found liable for any violation shall continue to be liable in the same manner as if such trustees have been acting as promoters in their individual capacity. c. The trustees/ applicants undertake that no outsider other than the family members and their descendants shall be part of the Trust in any form whatsoever. In case, the Trust introduces any outsider, the same will be treated as change in control and will be subject to compliance with the Takeover Regulations. In case there is any change in the beneficial interest of the beneficiaries of the Trust, the same would be subject to disclosures as per the Takeover Regulations.

7. The application of the Acquirer was referred to a Panel of Experts (hereinafter referred to as 'the Panel') to make recommendation thereon, in terms of the proviso to Regulation 11(5) of the Takeover Regulations. After examination of the facts and circumstances stated in the application, the Panel in its meeting dated September 19, 2015, recommended as under- “The basis of the above exemption is that the holding of the concerned LLP/ Trust is in substance, only a mirror image of the holdings of the individual members of the concerned family and consequently, there is no real change of ownership or control of the shares or voting rights in the target company. Necessarily therefore, the exemption must be on the following conditions:- (i) The LLP/ Trust Deed must contain the following covenants and the following undertakings must be furnished by the transferors and the LLPs/ Trusts:- a. Any change in the trustees/beneficiaries/partners and any change in ownership or control of shares or voting rights held by the LLP/Trust shall be disclosed to the concerned stock exchanges; b. The provisions of the SEBI Act and the regulations framed thereunder will apply on the basis that the ownership or control of shares or voting rights vests not only directly with the LLP/ Trustees but also indirectly with the partners/beneficiaries. (ii) The Trust Deed/ LLP agreement shall be amended to ensure that it does not contain any limitation of liability of the trustees/ beneficiaries/ partners in relation to the provisions of the SEBI Act and all regulations framed thereunder. (iii) The liabilities and obligations of the individual transferors under the SEBI Act and the regulations framed thereunder will not change or get diluted due to the above transfers to the LLPs/ Trusts.” 8. SEBI vide its letter dated October 20, 2015, informed the Acquirer of the recommendations of the Panel and also asked the acquirer to submit the revised undertaking incorporating the recommendations of the Panel (if the recommendations were acceptable to it), in order to proceed with the application. The Acquirer vide letter dated November 02, 2015, submitted the following undertaking as per the recommendations of the Panel.

“1. The Trust Deed/ LLP agreement shall contain the following covenants and we undertake the following: a. Any change in the trustees/ beneficiaries/ partners and any change in ownership or control of shares or voting rights held by the Trust/ LLP shall be disclosed to the concerned stock exchanges; b. The provisions of the SEBI Act and the regulations framed thereunder will apply on the basis that the ownership or control of shares or voting rights vests not only directly with the Trustees/ LLP but also indirectly with the beneficiaries/ partners. 2. The Trust Deed/ LLP agreement shall be amended to ensure that it does not contain any limitation of liability of the trustees/ beneficiaries/ partners in relation to the provisions of the SEBI Act and all regulations framed there under. 3. The liabilities and obligations of the individual transferors under the SEBI Act and the regulations framed thereunder will not change or get diluted due to the above transfers to the Trusts/ LLPs”. Thereafter, vide e-mail dated January 13, 2016, the transferors (Mr. Munjal Jaykrishna and Mr. Gokul Jaykrishna) also furnished similar undertaking.

9. Subsequently, the transferors submitted letters dated February 08, 2016 (forwarded vide e-mail dated February 09, 2016), indicating their consent with respect to their transfer of shares in pursuance of the proposed transaction. In this regard, I note that - (a) Gokul M. Jaykrishna had stated the following: “With respect to the application in connection with the subject matter, I undertake the following; 1. I have no objections with respect to the proposed transfer of 12.26% equity shares of Asahi Songwon Colors Limited to Gokul M. Jaykrishna Family Trust and 8.50% and 6.89% equity shares of Aksharchem India Limited to Mrugesh Jaykrishna Family Trust-2 and Munjal M. Jaykrishna Family Trust respectively; and 2. I hereby provide my full consent for proposed internal reorganization within Jaykrishna Family as stated above. ……………..” (b) The other transferor, Mr. Munjal M. Jaykrishna stated as follows: “With respect to the application in connection with the subject matter, I undertake the following; 1. I have no objections with respect to the proposed transfer of 15.39% Equity shares of AksharChem (India) Limited to Munjal M. Jaykrishna Family Trust and 3.36% and 8.91% Equity Shares of Asahi Songwon Colors Limited to Mrugesh Jaykrishna Family Trust 1 and Gokul M. Jaykrishna Family Trust respectively; and 2. I hereby provide my full consent for proposed internal reorganization within Jaykrishna Family as stated above. ……………..”

10. The Acquirer had submitted that the Target Company had filed a ‘scheme of arrangement’ before the Hon’ble High Court of Gujarat, involving de-merger and transfer of ‘CPC Green Division’ of Asahi Songwon Colors Limited (‘Asahi’) to the Target Company. It has also been submitted that on sanction of the scheme of arrangement by the Hon’ble High Court, the Target Company will issue further shares to the shareholders of Asahi. As a result of such further issue of shares post ‘scheme of arrangement’, the shareholding of the promoters and promoter group in the Target Company will reduce to 70%. It is noted that the scheme of de-merger as discussed in the application was sanctioned by the Hon’ble High Court of Gujarat vide its order dated November 29, 2014. Pursuant to the said scheme, further issue of shares have been made to shareholders of Asahi. The shareholding of the promoters and the promoter group before and after the proposed acquisition will be as under:

Before the proposed acquisition Propos After the proposed Promoters and Shareholding pre- Shareholding ed acquisition the Promoter demerger post demerger Transa group No. of % of share No. of % of share ction No. of % of share shares capital shares capital shares capital Paru M. Jaykrishna 16,52,792 33.37% 24,43,572 34.78% 0 24,43,572 34.78% Gokul Jaykrishna 8,36,372 16.89% 11,25,805 15.39% -6.89% 6,21,248 8.50% Munjal Jaykrishna 8,36,372 16.89% 11,25,805 15.39% -15.39% 0 0 Acquirer 0 0 0 0 22.28% 16,30,362 22.28% Others 3,23,922 6.54% 3,24,037 4.43% 0 3,24,037 4.43%

11. I have considered the application of the Acquirer, the recommendations of the Panel, the revised undertaking of the Acquirer, the no-objection from the transferors in respect of the proposed transaction and the material available on record. As per the application, the Acquirer (Munjal M. Jaykrishna Family Trust) proposes to acquire 11,25,805 shares (about 15.39% shares) from Mr. Munjal Jaykrishna and 5,04,557 shares (6.89% shares) from Mr. Gokul Jaykrishna in the Target Company. The acquisition of the said shares is proposed to be done by way of block deal in terms of the SEBI Circular dated September 02, 2005, in a phased manner at the price prevailing on the stock exchange as on the date of respective tranche of acquisition. Pursuant to the said acquisition, the Acquirer would be eligible to exercise 22.28% voting rights in the Target Company. The proposed acquisition would increase the shareholding of the promoter group by more than 5% and thus trigger Regulation 3(2) of the Takeover Regulations, unless the open offer requirement is exempted by SEBI under Regulation 11 of the Takeover Regulations.

12. The Acquirer has submitted that it is set-up by the promoters of the Target Company and would fall within the definition of ‘promoter group’ under the SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2009 as its trustees and beneficiaries are family members of Ms. Paru M. Jaykrishna and Mr. Munjal M. Jaykrishna, promoters of the target company. The Acquirer has also stated that it would be regarded as ‘person acting in concert’ with the promoters of the Target Company in terms of Regulation 2(1)(q) of the Takeover Regulations.

13. The Panel has observed that the holding of the concerned Trust is in substance, only a mirror image of the holdings of the individual members of the concerned family and consequently, there is no real change of ownership or control of the shares or voting rights in the Target Company. However, for additional safeguards, as advised by the Panel, the Acquirer has given an undertaking dated November 02, 2015 that in case of any change in the trustees/ beneficiaries/ partners and any change in ownership or control of shares or voting rights held by the Trust, the same shall be disclosed to the concerned stock exchanges and that the provisions of the SEBI Act and the regulations framed thereunder will apply on the basis that the ownership or control of shares or voting rights vests not only directly with the Trustees but also indirectly with the beneficiaries. The Acquirer has also assured that the Trust Deed shall be amended to ensure that it does not contain any limitation of liability of the trustees/ beneficiaries in relation to the provisions of the SEBI Act and the regulations framed thereunder and that the liabilities and obligations of the individual transferors under the SEBI Act and the regulations framed thereunder will not change or get diluted due to the above transfers to the Trust.

14. I also note the following:

a. The proposed acquisition of shares is not being done to third parties but to the private family trust. The same would only be within the persons of the promoter group. The two promoters namely Mr. Munjal Jaykrishna and Mr. Gokul Jaykrishna are transferring their shares in the Target Company to the Acquirer, the beneficiaries of which are again the family members of the Jaykrishna family. b. The proposed acquisition is only a private family arrangement to streamline the succession and welfare of Jaykrishna family. c. There would be no effective change in the exercise of the voting power or in the control/ management of the Target Company.

d. There would be no change in control and management in the Target Company pursuant to the proposed transaction. e. Further, the proposed transferors have also indicated their consent with respect to their transfer of shares to the proposed acquirer.

15. In view of the above and the fact that the Acquirer has consented and has provided the undertaking as recommended by the Panel, I consider it to be a fit case for granting exemption from the requirements of Regulation 3 of the Takeover Regulations.

16. I, therefore in exercise of the powers conferred under Section 19 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, hereby grant exemption to the proposed Acquirer, Munjal M. Jaykrishna Family Trust, from complying with the requirements of Regulation 3 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 with respect to its proposed acquisition of 16,30,362 shares (i.e. 22.28%) of the Target Company, AksharChem (India) Limited, subject to the following conditions:

a. The proposed acquisition shall be in accordance with the relevant provisions of the Companies Act, 2013 and other applicable laws. b. The Trust Deed shall be revised as undertaken by the acquirer and the transferors within a period of 30 days from the date of this Order and furnish an authenticated copy of the same to SEBI. c. The proposed acquisition shall be completed within a period of 30 days after revision of the Trust Deed. On completion of transaction, the acquirer shall file a report with SEBI in the manner provided in the Takeover Regulations, within a period of 21 days from the date of such acquisition. d. The statements/ averments made or facts/ figures given in the application and in the subsequent correspondence by the Acquirers are true and correct to their best knowledge. e. The proposed Acquirer/ Trust, its beneficiaries and Trustees, transferors shall honour the undertaking given pursuant to the recommendation of the Takeover Panel in this case. f. The Acquirers/ Target Company shall ensure compliance with the statements, disclosures and undertakings made in the application and in their subsequent correspondence.

17. The exemption granted above is limited to the requirements of making open offer under Regulation 3 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and shall not be construed as exemption from the disclosure requirements under Chapter V of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the compliance with the SEBI (Prohibition of Insider Trading) Regulations, 2015, the Listing Agreement/the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 or any other applicable Acts, Rules and Regulations.

18. Accordingly, the application dated August 15, 2014 filed by Munjal M. Jaykrishna Family Trust is disposed off.

Date: March 10th, 2015 PRASHANT SARAN Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA