Order in respect of Smt. Sadhana Rai in the matter of Wellesley Corporation Limited

SEBI/WTM/SR/CFD–DCR/ 36 /07/2017 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI CORAM: S. RAMAN, WHOLE TIME MEMBER ORDER UNDER 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 WELLESLEY CORPORATION LIMITED.

Background –

1.1 Wellesley Corporation Limited (“Target Company”) was incorporated under the Companies Act, 1956, on October 23, 1991, as a public limited company in the name of Usha Housing Development Company Limited. The name of the Target Company was changed to its present name on October 22, 2011. The Registered Office of the Target Company is at Shop No. 1, Country Inn, Mehragaon Bhimtal, Nainital, Uttar Pradesh–248179. The shares of the Target Company are listed on BSE Limited (“BSE”).

1.2 SEBI received an application dated February 9, 2017 (“Application”) from Smt. Sadhana Rai (“Acquirer”) seeking exemption from the applicability of Regulation 3 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”) in respect of the proposed acquisition of shares and voting rights in the Target Company.

1.3 Regulation 3 of the Takeover Regulations states – “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.”

1.4 In the aforementioned Application, the following was inter alia stated – i. “Usha General Food Limited (“UGFL”) is the sole Promoter of the Target Company, who presently holds 100,00,000 equity shares representing 74.07% of the Target Company. ii. UGFL is an unlisted public company and is controlled by Marry Gold Steel Co. Private Limited (“Marry Gold”), a private limited company, (which) in turn is substantially controlled by Lord Rama Trust (“Trust”). The Trust was created by Shri Vinay Rai (“Settlor”) and his wife, Smt. Sadhana Rai, who is the sole Trustee and Beneficiary of the Trust. The Trust was created by the Settlor for providing upkeep and maintenance of his wife, Smt. Sadhana Rai and other family members. Lord Rama Trust Settlor Trustee Beneficiaries Shri Vinay Rai Smt. Sadhana Rai Smt. Sadhana Rai iii. Now, UGFL proposes to transfer its entire shareholding in the Target Company to Smt. Sadhana Rai i.e. Acquirer, as a part of internal restructuring of the Promoter shareholding in the Target Company. iv. Though the ultimate control over UGFL vest with Acquirer through the Trust but the Acquirer is not qualified person to claim exemption directly under Regulation 10(1)(a)(iii) of the Takeover Regulations.

v. There will be no change in control or management of the Target Company pursuant to the acquisition of shares by the Acquirer. vi. Accordingly, an exemption is being sought from the applicability of Regulation 3(1) of the Takeover Regulations. vii. The present Board of Directors of the Target Company as on the date of filing of the application is as follows – Sr. No. Name Designation 1. Mr. Manoj Gupta Independent Non–Executive Director 2. Mr. Vishnu Gopal Rajgarhia Independent Director 3. Mr. Deepak Jalan Independent Director 4. Mr. Piyush Prakash Independent Director 5. Mrs. Kirti Gupta Independent Director 6. Mr. Gyanendra Prakash Managing Director viii. The shareholding in the Target Company as on December 31, 2016, is as under: Table A Sr. No. Name No. of shares % Shareholding A. Promoter/ Promoter Group 1. UGFL 100,00,000 74.07 B. Public Shareholding 35,00,400 25.93 Total (A + B) 135,00,400 100.00 ix. UGFL is a wholly owned subsidiary of Marry Gold and was incorporated on July 1, 1987, as a public limited company. The shareholding structure of UGFL is as follows Name of Shareholders No. of Shares % w.r.t. total number of shares Marry Gold Steel Co. Private Limited 34,98,980 100.00 R. K. K. R Enterprises Limited 5 0.00 Mr. Jeevan Ram Gupta 10 0.00 Mr. Ganesh Govindan Rajan 1 0.00 Mr. Bharat Bhushan Taneja 1 0.00 Mr. Brijesh Ghildayal 1 0.00 Mr. Ramesh Verma 1 0.00 Ms. Marry Mathews 1 0.00 Total 34,99,000 100.00 x. Marry Gold was incorporated under the Companies Act, 1956, on October 20, 1994, as a private limited company. The shareholding pattern of Marry Gold is as follows: Name of Shareholders No. of Shares % w.r.t. total number of shares Mrs. Sadhana Rai 5,980 59.80 (Under Beneficial interest of Lord Rama Trust) Mr. Ashwani Bakshi 1,000 10.00 Mr. R. P. Sharma 1,000 10.00 Mr. M. N. Choudhary 1,000 10.00 Mr. R. K. Gupta 1,000 10.00 Mr. Vijay Kumar Gupta 10 0.10 Mr. Vinod Kumar Sharma 10 0.10 Total 10,000 100.00

Proposed Acquisition – The proposed acquisition envisages the following – i. Acquirer proposes to acquire entire shares held by UGFL in the Target Company. Acquirer is the ultimate beneficiary of the shares held by UGFL. ii. Pursuant to the acquisition of 100,00,000 equity shares (74.07%) of the Target Company, Acquirer would acquire direct ownership/voting rights.

Name Pre – Acquisition Post – Acquisition Shares % Shares % A. Promoter Group 1. UGFL 100,00,000 74.07 0 0.00 2. Smt Sadhana Rai 0 0.00 100,00,000 74.07

B. Public Shareholding 35,00,400 25.93 35,00,400 25.93

Total (A + B) 135,00,400 100.00 135,00,400 100.00

Grounds for seeking exemption – i. The proposed transfer from UGFL to Acquirer is due to internal restructuring of the shareholding in the Target Company and is to streamline the shareholding structure of the Promoter of the Target Company. ii. Pursuant to the proposed acquisition, there will be no change in the control and management of the Target Company. iii. There will be no change in the ultimate beneficial ownership of the Promoter’s shareholding as earlier also the ultimate ownership/ voting rights/ control vested with Acquirer and will remain with the Acquirer subsequent to the proposed acquisition also. iv. The application is filed in the belief that the proposed acquisition in on principle, exempted from making an open offer. SEBI does not require any open offer in spirit, when no additional voting rights are acquired by the group of the promoters.”

Observations of the Takeover Panel on the Application made by the Proposed Acquirer –

A. Takeover Panel’s Recommendations –

2.1 The Application dated February 9, 2017, was forwarded to the Takeover Panel in terms of the proviso to Regulation 11(5) of the Takeover Regulations. The matter was deliberated by the Takeover Panel in its meeting held on June 3, 2017. The Takeover Panel made the following observations – “In the case of Wellesley Corporation Limited, the Panel deliberated the case and recommended grant of exemption.”

Consideration of the Application and Findings –

3.1 I have considered the Application submitted by the Acquirer; the recommendations of the Takeover Panel and other material available on record.

3.2.1 From the preceding paragraphs, it is noted that –

A. The Application submitted is in respect of the proposed acquisition of shares and voting rights in the Target Company i.e. Wellesley Corporation Limited.

B. The aforesaid acquisition is proposed to be made by Smt. Sadhana Rai i.e. the Proposed Acquirer, in the following manner – i. Transfer of 1,00,00,000 (74.07%) equity shares of the Target Company, by the existing Promoter i.e. UGFL, to Smt. Sadhana Rai. The pre and post–acquisition shareholding in the Target Company will be as under –

Name Pre – Acquisition Post – Acquisition Shares % Shares % A. Promoter Group 1. UGFL 100,00,000 74.07 0 0.00 2. Smt Sadhana Rai 0 0.00 100,00,000 74.07

B. Public Shareholding 35,00,400 25.93 35,00,400 25.93

Total (A + B) 135,00,400 100.00 135,00,400 100.00 ii. The holding structure of the Target Company (prior to proposed acquisition), is as under –

Smt. Sadhana Rai (Sole Trustee and Sole Beneficiary) ↓ Lord Rama Trust (Holds 59.80% in Marry Gold) ↓ Marry Gold (Holds 100% in UGFL) ↓ UGFL (Holds 74.07% in Target Company as Promoter) ↓ Target Company iii. From the above, it is observed that the ultimate control over the Target Company vest with the Acquirer through Lord Rama Trust. However, such control is exercised through multiple layers.

iv. If the proposed acquisition is undertaken, Smt. Sadhana Rai will acquirer direct control over the Target Company thereby making the ownership structure simpler.

C. The proposed acquisition is pursuant to an internal restructuring of the shareholding in the Target Company and for streamlining the shareholding structure of the Promoter of the Target Company.

D. There will be no change in control of the Target Company pursuant to the proposed acquisition.

E. There is no new acquisition of shares by the Promoter and the pre-acquisition and post-acquisition shareholding of the Promoter in the Target Company will remain the same at 74.07%.

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 Takeover Panel has also recommended grant of exemption to the Target Company.

3.2.2 Considering the aforementioned, I am of the view that exemption as sought for in the Application (read with further correspondence/submissions/ clarifications) be granted to the Proposed Acquirer, subject to certain conditions as ordered herein below.

Order –

4.1 I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) read with Regulation 11(5) of the Takeover Regulations, hereby grant exemption to the Proposed Acquirer, viz. Smt. Sadhana Rai, from complying with the requirements of Regulation 3(1) of the Takeover Regulations with respect to the proposed acquisition/exercise of voting rights in respect of the Target Company, viz. Wellesley Corporation Limited, by way of proposed transactions as mentioned in the Application.

4.2 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. iii. The statements/ averments made or facts and figures mentioned in the Application by the Proposed Acquirer are true and correct. iv. The Proposed Acquirer shall ensure compliance with the statements and disclosures made in the Application. v. The Proposed Acquirer shall confirm, on an annual basis, that she is in compliance with the Exemption Order passed by SEBI. The said confirmation shall be furnished to the Target Company, which 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. vi. The Proposed Acquirer shall get the compliance status certified from an Independent Auditor annually and furnish the same to the stock exchanges with a copy endorsed to SEBI for its records. vii. The liabilities and obligations of the transferor under the SEBI Act and Regulations framed thereunder will not change or get diluted due to transfers to the Proposed Acquirer.

4.3 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.

4.4 The Application dated February 9, 2017, filed by Smt. Sadhana Rai, is accordingly disposed of.

Place: Mumbai S. RAMAN Date: July 18, 2017 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA