Order in the matter of acquisition of shares of Shree Ganesh Forgings Limited

1. Shree Ganesh Forgings Limited (hereinafter referred to as the target company) is a company incorporated under the Companies Act, 1956, having its registered office at 412, Emca House, SBS Road, Fort, Mumbai–400001. The target company is listed on the Bombay Stock Exchange Limited (hereinafter referred to as BSE) and the National Stock Exchange of India Limited (hereinafter referred to as NSE). Mr. Deepak Balkrishnan Sekhri, Chairman and Managing Director of the target company, on his behalf and on behalf of his wife, Mrs. Anita Deepak Sekhri (hereinafter collectively referred to as the acquirers), vide letter dated July 20, 2010 filed an application with the Securities and Exchange Board of India (hereinafter referred to as SEBI) under Regulation 3(1)(l) read with Regulation 4(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the Takeover Regulations). In terms of the said application, the acquirers are the promoters of the target company and that Mr. Akshatt Deepak Sekhri, Ms. Namha Deepak Sekhri, Deepak Sekhri (HUF), M/s. Namha Profiles Inc., M/s. Chandramouli Silk Mills, Mr. P. K. Chakravarty, Mr. Anantha Narayan Nair and Ms. Nalini Vasantkumar Kotian are persons acting in concert (hereinafter collectively referred to as the PACs) with them.

As per the application, the acquirers along with the PACs currently hold 55.22% of the paid up capital of the target company. It is stated in the application that the target company had requested the Corporate Debt Restructuring Cell (hereinafter referred to as CDR Cell) for restructuring its debts in 2008. According to the acquirers, though, the CDR Cell had sanctioned the CDR package in September 2008, the same was not successful in sustaining the target company’s operations due to various reasons. Therefore, the target company had again requested the CDR Cell to rework the package and the same was sanctioned by the CDR Cell on March 15, 2010, whereby the promoter’s/acquirer’s contribution was fixed at `6,00,00,000 against which they could be issued share capital of the target company. It is further stated that, against the contribution brought in by the acquirers as per the terms and conditions of the CDR package, the target company proposes to allot 48,70,130 shares to the acquirers/promoters which would increase the shareholding of the promoter group (including the acquirers and PACs) from 55.22% to 67.78% of the paid up capital of the target company.

Hence, the application has been filed seeking exemption from Regulation 11(2) of the Takeover Regulations inter alia on the following grounds:

a) The acquisition under the preferential allotment is proposed to be made not with the purpose of increasing or consolidating the shareholding of the promoters. b) The intention of the acquirers is solely to comply with the terms and conditions of the CDR scheme. c) The acquisition would not result in any change in control of the target company. d) The exemption, if granted, would be in the interest of the target company, its acquirers/promoters and 4,800 members of the public who hold shares in the target company.

2. The shareholding pattern of the target company as per the application is as under:-

Category Number of Before the proposed acquisition After the proposed registered acquisition shareholders as on date of application No. of shares/ % of Share No. of shares/ % of total voting Holding total voting Share rights held rights held Holding Promoters’ shareholding Promoter group 12 31,48,133 25.18 31,48,133 18.12

Acquirers 2 37,54,758 30.04 86,24,888 49.66 Total holding of 69,02,891 55.22 1,17,73,021 67.78 the Promoter Group B. Public Shareholding FIs/Banks - - - - - FIIs/NRIs/ OCBs 37 1,17,528 0.94 1,17,528 0.67 Public 4749 54,80,055 43.84 54,80,055 31.55 Total Public 55,97,583 44.78 55,97,583 32.22 Holding Total 4800 125,00,474 100.00 1,73,70,604 100.00

3. Thereafter, the target company, vide letter dated August 6, 2010 submitted a copy of the notice convening the Annual General Meeting (AGM) held on July 30, 2010 whereby the issue of shares on preferential basis to its promoters was approved. It was resolved inter alia that “…….pursuant to section 81(1A) and other applicable provisions of the Companies Act, 1956, and the Securities and Exchange Board of India (SEBI) (Issue of Capital and Disclosure Requirements) Regulations, 2009 and the Listing Agreement, consent of the Company be and is accorded to the Board of Directors to issue and allot, on a preferential basis, equity share capital of the Company upto the sum of Rs. 6 crores (Rupees Six Crores) to the promoters of the company at a price to be worked out as per the SEBI(Issue of Capital and Disclosure

Requirements) Regulations), 2009, in terms of the Corporate Debt Restructuring (CDR) package approved by the CDR Cell of the Reserve Bank of India vide their letter no. BY.CDR JCP. 1544/2009-10 dated 15th March, 2010, as per details provided in the Explanatory Statement attached hereto.”

4. The aforesaid application was forwarded to the Takeover Panel by SEBI, in terms of Regulation 4(4) of the Takeover Regulations and the Takeover Panel, vide report dated September 21, 2010 recommended as under:

“Considering the fact that the proposed preferential allotment of 4,87,130 equity shares to the promoters is being done to comply with the package approved by the CDR Cell, the panel recommended grant of exemption from the applicability of regulation 11(2) of SAST Regulations to the proposed acquisition of shares by the promoters. It was also observed by the panel that the public shareholding will remain above the threshold limit of 25% even after the proposed preferential allotment of shares.”

5. I have considered the application, the subsequent information received from the acquirers, the aforesaid recommendation of the Takeover Panel and relevant material available on record. I note that, prior to the present application, Mr. Deepak Balkrishnan Sekhri, vide letter dated September 10, 2009 had made an application for exemption under Regulation 4 of Takeover Regulations in respect of the proposed acquisition of 12,25,490 equity shares of the target company through preferential allotment against promoters’ contribution as per the CDR Scheme approved by the CDR Cell. The said application was disposed of by SEBI, vide Order dated January 15, 2010 granting exemption. However, according to the acquirers, the said acquisition could not be effected because the said CDR package was not successful in sustaining the target company’s operations. Thereafter, the CDR Cell sanctioned the reworked package on March 15, 2010, under which, the preferential allotment of 48,70,130 equity shares against the promoters’/acquirers’ contribution of `6,00,00,000 was fixed. Pursuant to the aforesaid allotment, the shareholding of the promoter group including the acquirers would increase from 55.22% of the paid up capital to 67.78% of the target company.

The acquirers in their application have enclosed a certified copy of the letter dated March 15, 2010 from the CDR Cell enclosing therewith the details of the reworked package. The said reworked package inter alia required “…The promoters shall covert the promoter’s contribution of Rs.6.00 crore to be brought towards the package into equity within 18 months from the cut off date of package, after obtaining the necessary clearance from SEBI. Conversion would be at the price to be decided as per SEBI guidelines…” Thus, it is noted that the proposed preferential allotment is as per the stipulation of the CDR Cell. The acquirers have further stated in their application that they had already brought in `6,00,00,000/- under the CDR Package. I note that there would not be any change in control pursuant to the proposed preferential allotment as the acquirers being the part of the promoter group are already in control of the target company. I further note that the proposed allotment of shares was already approved by the shareholders of the target company at their AGM held on July 30, 2010. I have also taken note of the submission that the resolution has been passed by the shareholders of the target company after making all requisite disclosures to the shareholders in the notice of AGM and explanatory statement thereto.

In the notice sent to the shareholders in respect of the aforesaid AGM, it was proposed that that the proposed preferential allotment to the acquirers would be in terms with the CDR Scheme. It has been further submitted by the target company that the proposed preferential allotment shall be in accordance with the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. According to the acquirers, the exemption would be in the interest of the target company, its promoters and 4,800 public shareholders. Even after the proposed acquisition, the public shareholding in the target company would be at a level more than what is required under Clause 40A of the Listing Agreement.

6. I note that the Takeover Panel, while recommending exemption (as stated in paragraph 4 above), had requested SEBI to ensure whether the target company had complied with the earlier Order (dated January 15, 2010) of SEBI in respect of the disclosure regarding the reference to the CDR Cell. In this regard, I note that in the notice to the shareholders in respect of the AGM held on September 2009 (prior to the SEBI Order dated January 15, 2010), it was mentioned“…The Corporate Debt Restructuring Cell of the Reserve Bank of India approved the CDR package for the Company on September 10, 2008…..”.

In this regard, SEBI vide Order dated January 15, 2010 had observed as under: “… it may be worthwhile to mention that CDR Scheme is decided by CDR Empowered Group in terms of the framework laid down by Reserve Bank of India, vide circular dated August 23, 2001 and not approved by it. The target company is advised to inform the said factual position to its shareholders.” It is in this context that the Takeover Panel had requested SEBI to ensure the compliance of the aforesaid advice. In this regard, I observe that the notice to convene the AGM held on July 30, 2010 (in respect of the present application) seeking inter alia the approval of the proposed preferential allotment had once again contained a statement that “…….. the promoters of the company at a price to be worked out as Corporate Debt Restructuring (CDR) package approved by the CDR Cell of the Reserve Bank of India ………”. However, subsequently, the target company, vide a public notice dated November 1, 2010 published in Financial Express (English–all editions) and Aapla Mahanagar made inter alia the following disclosure:

“All members of the Company are hereby informed that the draft resolutions at item nos. 8 and 9 of the notice dated 18th June, 2010 convening the Annual General Meeting of the Company on July 30, 2010, inadvertently contained the words “”of the Reserve Bank of India” after the words “CDR Cell”. As the CDR Cell is an independent body although established by the RBI, it was required to be referred to as the “CDR Cell” only. The Chairman, while taking up the respective items at the meeting, explained to the shareholders the factual position that since the CDR Cell is an independent body, any approval from the CDR Cell is not to be construed as an approval from the RBI…..” [Emphasis supplied] I also note from the certified extracts of the minutes of the AGM of the target company held on July 30, 2010 that the reference to the Reserve Bank of India has been omitted in the resolution which was passed.

7. Considering the facts and circumstances and the reasons stated in the preceeding paragraphs, I am in agreement with the recommendations of the Takeover Panel and consider the present case a fit one for granting exemption from the applicability of the provisions of Regulation 11(2) of the Takeover Regulations.

8. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulation 4(6) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the acquirers, namely, Mr. Deepak Balkrishan Sekhri, Ms. Anita Deepak Sekhri along with persons acting in concert namely, Mr. Akshatt Deepak Sekhri, Ms. Namha Deepak Sekhri, Deepak Sekhri (HUF), M/s. Namha Profiles Inc., M/s. Chandramouli Silk Mills., Mr. P. K. Chakravarty, Mr. Anantha Narayan Nair, Ms. Nalini Vasantkumar Kotian from complying with the provisions of Regulation 11(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 with regard to the proposed acquisition of 48,70,130 shares at a price of `12.32/- per share of the target company, Shree Ganesh Forgings Limited, by the acquirers through preferential allotment.

9. The exemption is granted subject to the following conditions:

(a) The statements/averments made/facts or figures given in the application and subsequent correspondence are true and correct to the best of knowledge of the acquirers. (b) The acquirers shall ensure compliance with the statements, disclosures and undertakings made in the application and subsequent letters. (c) The target company and the acquirers shall comply with the relevant norms including the norms regarding the pricing specified in Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. (d) There shall be no reduction in the minimum level of public shareholding pursuant to the proposed preferential allotment and that the target company shall maintain the minimum level of public shareholding, as required in terms of the listing agreement.

10. This exemption shall not be construed as exemption from requirements of any other provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (e.g. disclosure requirements under Chapter II), the Listing Agreement or any other law.

11. The aforesaid acquirers shall file a report with the Securities and Exchange Board of India confirming compliance with the conditions specified in this Order.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA PLACE: MUMBAI DATE: DECEMBER 9, 2010