Order in the matter of Art Nirman Limited

WTM/GM/CFD-DCR-1/43/2020–21 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTION 11(1) AND SECTION 11(2)(h) OF THE SEBI ACT 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 ACQUISITION OF SHARES AND VOTING RIGHTS IN – TARGET COMPANY ART NIRMAN LTD. ACQUIRER ASHOK KUMAR THAKKAR ALONG WITH RAGHURAMBHAI THAKKAR AND PIYUSHKUMAR THAKKAR

1. Art Nirman Limited (Target Company) was incorporated in 2011 and is involved in the development of residential and commercial real estate projects. The shares of the Target Company are listed on the NSE Emerge Platform.

2. An application dated March 31, 2020 (Application) seeking exemption from the applicability of Regulations 3(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”) in the matter of acquisition of shares and voting rights in the Target Company was received by SEBI from Ashok Kumar Thakkar along with Raghurambhai Thakkar and Piyushkumar Thakkar (Applicants).

3. In the aforementioned Application and subsequent submissions, the following was, inter alia, stated:

Order in the matter of Art Nirman Limited a) The shareholding in the Target Company, -

Name Shareholding post IPO in Shareholding as of March Shareholding as of June 2018 31, 2019(post preferential 30, 2019(post conversion allotment) of warrants) Promoter 56,00,000 73.65% 56,00,000 45.99% 1,83,80,000 73.65% Group along with PAC

Public 20,04,000 26.35% 65,76,000 54.01% 65,76,000 26.35% b) The Target Company issued 45,72,000 shares to non-promoter shareholders on a preferential basis on September 01, 2018, leading to a reduction in the shareholding of the promoter group in the target company 73.65% to 45.99% of the paid up equity share capital of the Company. On the same day, the Target Company issued 1,27,80,000 warrants to members of the promoter group of the Company entitling the holders to apply for and get allotted one equity share of the Target Company for each warrant held by them. These warrants were converted by the promoter group entities in two tranches – on April 25, 2019 and May 02, 2019 – leading to an increase in the promoter shareholding in the Target Company to 62%, post the first conversion, and then to 73.65%, post the second round of conversion of warrants.

Grounds for Seeking Exemption c) The shareholding of the promoter group in the Target Company post conversion of warrants is 73.65%, which is the same as at the time of the IPO. The ups and downs in the percentage of shareholding is due to corporate actions – preferential allotment and conversion of warrants.

d) The Target Company had considered the percentage holding of shares on a diluted basis and therefore was under the bonafide belief that the conversion of the warrants did not trigger an obligation to make an open offer. e) These corporate actions were duly approved by the members of the target company in an EGM held on May 30, 2018. f) The total number of shareholders in the target company at the time of allotment of warrants was 94 and company continued to have the same number of shareholders even at the time of conversion of warrants. It can be noted from this that the public shareholders of the Target Company have not been affected in any manner. g) The Target Company is in need of funds for its growth and expansion. Future projects of the company are dependent on the funds infused by the promoter group. h) The Covid 19 pandemic has had a substantial impact on the operations of the company and if promoters are directed to make an open offer at this point then it will lead to cash flow issues in the Company.

Consideration

4. I have considered the Application submitted by the Applicant and other materials available on record. Without reiterating the facts as stated above, the following aspects are noted:  The Applicants are part of the promoter group of the Target Company and were holding 73.65% of the paid up equity share capital of the Company post the initial public offering in 2016.  The Target Company issued 45,72,000 shares to non-promoter shareholders on a preferential basis on September 01, 2018, leading to a reduction in the shareholding of the promoter group in the target company from 73.65% to 45.99%. On the same day, the Target Company issued 1,27,80,000 warrants to members of the promoter group of the Company. The applicants/promoters who were allotted 1,27,80,000 warrants, exercised these warrants in two tranches leading to an increase in the promoter shareholding in the Target Company from 45.99% to 62%, post the first conversion on April 25, 2019, and then to 73.65% on May 02, 2019 post the second conversion. 5. The relevant provisions of the Takeover Regulations reads as follows: Regulation 3(2) reads as under- “(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:”

Regulations 13(2)(b), further provides as under,- “b. pursuant to an acquirer acquiring shares or voting rights in, or control over the target company upon converting convertible securities without a fixed date of conversion or upon conversion of depository receipts for the underlying shares of the target company shall be made on the same day as the date of exercise of the option to convert such securities into shares of the target company;”

6. I, therefore, note that conversion of warrants which led to an increase in shareholding of the promoter group from 45.99% to 62% and from 62% to 73.65% has triggered an obligation to make an open offer as per regulation 3(2) and a public announcement for making such an open offer should have been made on the same day as the date of conversion of the warrants as per Regulation 13(2)(b). 7. I note from the Application that the acquirers have failed to make an open offer within the time stipulated under the Takeover Regulations and has thereafter filed an application seeking exemption from obligation to make the open offer post the conversion of the warrants.

8. I, therefore, find it appropriate to consider the scope of the power of the Board to grant an exemption for the obligation to make an open offer under regulation 11of the Takeover Regulations. 9. In this regard, I note that the Hon’ble Securities Appellate Tribunal in the matter of Karvy Financial Services Limited v. SEBI (Appeal No. 479 of 2016: Date of Decision 26.04.2018), while examining the scope of SEBI’s power to grant post facto exemption from the obligation to make an open offer had held as under,- “…regulation 11(1) provides that SEBI may for reasons recorded in writing grant exemption from the obligation to make an open offer ‘for acquiring shares’. The words ‘for acquiring shares’ in regulation 11(1) clearly postulates that grant of exemption is in relation to shares to be acquired and not already acquired. Thus, reading regulation 3(1) together with regulation 11(1) it becomes evident that application seeking exemption from making public announcement of open offer has to be made before acquiring the shares and not after acquiring the shares.”

10. The Hon’ble Tribunal further observed in the matter “…in that exceptional circumstances application seeking exemption from making open offer could be entertained after acquisition of shares”. 11. I, therefore, note that the Hon’ble Tribunal has observed that power to grant exemption from an obligation to make an open offer as a general rule can be exercised by SEBI only in case an application is preferred by an acquirer prior to making an acquisition and the exemption power should only be exercised in exceptional cases in case of applications made post facto. 12. In the present matter, I note that the Applicant has stated that they have made a post facto application as it was their understanding that the diluted shareholding of the promoter group (shareholding along with warrants held by them) would be considered for the purpose of calculating the shareholding thresholds under the Takeover Regulations. I find no merit in the said submission as Regulation 13(2)(b) specifically provides that in case of convertible securities, the public announcement for an open offer should be made on the same day as the date of conversion of such securities. In view of the above, I am of the view that the exemption sought by the applicant cannot be granted in the present matter.

Order–

13. 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 Takeover Regulations, hereby reject the request for exemption sought by the Applicant from complying with the requirements of Regulation 3 of the Takeover Regulations with respect to the acquisition of shares in the Target Company as mentioned in the Application. 14. The Application dated March 31, 2020, is accordingly disposed of.

Place: Mumbai G. MAHALINGAM Date: October 23, 2020 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA