Order in the matter of exemption application of Gold Rock Investments Limited

SEBI/WTM/SR/CFD–DCR/57/09/2017 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 GOLD ROCK INVESTMENTS LIMITED.

Background –

1.1 Gold Rock Investments Limited (“Target Company”) was incorporated under the Companies Act, 1956, on February 2, 1978. The Registered Office of the Target Company is at 714, Raheja Chambers, 213, Nariman Point, Mumbai–400021. The shares of the Target Company are listed on BSE Limited (“BSE”).

1.2 SEBI received an application dated December 20, 2016 (“Application”) from Shrinathji Trust (“Acquirer Trust”) (represented by its Trustee – Mr. Sanjeev Shriya) seeking exemption from the applicability of Regulation 3(1) read with Regulation 3(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 and control of the shareholding and voting rights in the Target Company.

1.3 Regulation 3(1) and Regulation 3(3) of the Takeover Regulations state as follows – “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) … (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. Bal Krishna Shriya is one of the Promoters and Executive Director of the Target Company. Bal Krishna Shriya holds 34.37% of the total paid-up share capital of the Target Company. Bal Krishna Shriya has established a private family trust by the name of Shrinathji Trust (“Acquirer Trust”), to give effect to a family arrangement for the benefit of his family and to streamline succession and welfare of his assets in a non-commercial transaction. Bal Krishna Shriya intends to settle the shares of the Target Company, owned and held by him, in Shrinathji Trust for the benefit of his son, Mr. Sanjeev Shriya (who is also the Managing Trustee of Acquirer Trust), his daughter-in-law, Mrs. Gauri Shriya and his two grand-daughters, Vidushie Shriya and Vani Shriya.

Acquirer Trust – Shrinathji Trust Settlor Trustees Beneficiaries Bal Krishna Shriya Sanjeev Shriya (Managing Trustee) Sanjeev Shriya – Son of Bal Krishna Shriya Bal Krishna Shriya Gauri Shriya – Wife of Sanjeev Shriya Gauri Shriya – Wife of Sanjeev Shriya Vidushie Shriya – Daughter of Sanjeev Shriya Vani Shriya – Daughter of Sanjeev Shriya Lineal descendants of Bal Krishna Shriya ii. The proposed transfer by way of gift of 34.37% shareholding in the Target Company by Bal Krishna Shriya to Acquirer Trust is only an internal reorganization of the promoter shares within the Shriya family and there will be no change in control or management of the Target Company, pursuant to gift of shares to Acquirer Trust. The gift will not affect or prejudice the interests of the public shareholders of the Target Company in any manner.

iii. The proposed transfer will not result in any change in the shareholding pattern of the promoter group of the Target Company.

Details of the Proposed Acquisition – i. It is proposed that Bal Krishna Shriya will transfer, by way of gift, all of his 34.37% shareholding in the Target Company to the Acquirer Trust, which would result in the Acquirer Trust become part of the controlling shareholders of the Target Company.

ii. The shareholding pattern of the promoter and promoter group of the Target Company (before and after the proposed acquisition of shares by Acquirer Trust) is as follows:

Table A Name Pre – Acquisition Post – Acquisition Shares % Shares % 1. Bal Krishna Shriya 2,70,000 34.37% 0 0 2. Acquirer Trust i.e. Shrinathji Trust 0 0 2,70,000 34.37% 3. Gauri Shriya 2,45,000 31.19% 2,45,000 31.19% 4. Sanjeev Shriya 38,000 4.84% 38,000 4.84% 5. Vidushie Shriya 8,650 1.10% 8,650 1.10% 6. Vani Shriya 8,550 1.09% 8,550 1.09% Total 5,70,200 72.58% 5,70,200 72.58% iii. The Acquirer Trust is neither a promoter of the Target Company nor an existing person acting in concert with the promoters of the Target Company. The Acquirer Trust is a new entity incorporated recently, on or around July 02, 2016. The acquisition by the Acquirer Trust of 34.37% shareholding in the Target Company will be a first time acquisition in the Target Company, which is a listed company subject to the Takeover Regulations. iv. With acquisition of 34.37% shareholding in the Target Company, ordinarily, the Acquirer Trust may have to make an open offer for acquiring shares of, and voting rights in, the Target Company in accordance with regulation 3 of the Takeover Regulations, in as much as, the Acquirer Trust will acquire shares beyond the threshold limits and such acquisition will entitle the Acquirer Trust to exercise more than 25% of the voting rights in the Target Company.

Grounds for seeking exemption – i. The acquisition, pursuant to settlement by way of gift, is only an internal reorganization of the promoter shareholding of the target company within the Shriya family for the benefit of the members of the Shriya family. ii. The acquisition is not a commercial transaction. iii. There will be no change in control or management of the target company pursuant to the proposed transfer. iv. The trustees of the Acquirer Trust, through whom control is exercised over the assets of the Acquirer Trust, are promoters of the Target Company in their personal capacity (as specified in the shareholding pattern filed under regulation 31 of the Listing Regulations as of September 30, 2016). They together with the transferor (Bal Krishna Shriya) and persons acting in concert with them are, in their personal capacity, in joint control (directly and indirectly) of the Target Company since February 02, 1978.

v. The Acquirer Trust (through Mr Sanjeev Shriya) and their other trustees are already in control of the Target Company and there will consequently be no change in, or acquisition of, control or management of the Target Company pursuant to settlement by way of gift of shares to the Acquirer Trust. vi. In any event, since the Trust has been set up for the benefit of the members of the Shriya family, the trustees of Acquirer Trust will exercise control only as part of the Shriya family. Therefore, regardless of whether Mr. Sanjeev Shriya exercises control in his individual capacity or in his capacity as the Managing Trustee of Acquirer Trust, the Shriya family would continue to be in control of the Target Company. There will be no change in the promoter group of the Target Company pursuant to settlement by way of gift of shares held by Bal Krishna Shriya in the Target Company to the Acquirer Trust. The change in the identity of persons who will indirectly exercise voting rights over the Target Company through the Acquirer Trust will only be between persons who, in their personal capacity, are already promoters of the Target Company. vii. The acquisition for which exemption is sought will not affect or prejudice the interest of the public shareholders of the Target Company in any manner. There will be no change in control, management, promoter group or shareholding of the Target Company pursuant to the acquisition.

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

A. Takeover Panel’s Recommendations –

2.1 The Application 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 April 19, 2017. The Takeover Panel made the following observations – “The Panel reiterated its recommendation that they shall consider the cases after the applicants submit the revised/amended trust deed(s) with SEBI incorporating the undertakings given by them. Therefore, all the cases placed before the panel were deferred to the next meeting except one case wherein executed Trust Deed had already been submitted.”

2.2 Vide e–mail dated April 20, 2017, SEBI advised the applicant as under – “With respect to the captioned application, it is requested to provide the amended trust deed incorporating the following:-

1. The following revisions/inclusions may be made to the trust deed:- i. The Trust Deed must contain the following covenants:- a. Any change in the trustees/beneficiaries and any change in ownership or control of shares or voting rights held by 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 Trustees but also indirectly with the beneficiaries. ii. 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 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 Trusts.

2. Additionally, Clause 5.3 and 8.1.9 may be deleted and Clause 8.1.16, 13.7 and 8.3 may be modified such that any trustee of the trust may only be a promoter or his/her immediate relative. 3. You may note that the next Takeover Panel meeting is scheduled to be held on May 07, 2017. You may thus provide the amended/revised trust deed before May 1, 2017 for the same to be considered in the said meeting.”

2.3 Further, vide e-mail dated April 21, 2017, SEBI advised the applicant as under – “… .Based on the recommendation of the Takeover Panel, you are advised to submit the revised/amended trust deed(s) with SEBI incorporating the undertakings given at the time of making application, if any, including the following:

a. Any change in the trustees / beneficiaries and any change in ownership or control of shares or voting rights held by 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 Trustees but also indirectly with the beneficiaries c. The Trust agreement shall not contain any limitation of liability of the trustees / beneficiaries in relation to the provisions of the SEBI Act and all regulations framed thereunder d. 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 transfers to the Trusts e. The trust shall confirm, on an annual basis, that it is in compliance with the exemption order passed by SEBI. The said confirmation shall be furnished to the company which it 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 f. The trust shall get the compliance status certified from an independent auditor annually and furnish the same to Stock Exchange for public disclosure with a copy endorsed to SEBI for its records g. The trustees and beneficiaries of the trust shall only be individual promoters or immediate relative of the said promoter(s) or their lineal descendants h. No power of trustees shall be delegated (directly or indirectly) to persons other than the individual promoters or immediate relative of the said promoter(s) or their lineal descendants

If the above is acceptable to you, kindly file the amended trust deed(s), else furnish your comments so that the application can be processed further. You may also note that the next Panel meeting is scheduled to be held in the first week of May 2017. To enable us to place the captioned matter in the ensuing Panel meeting, your response /amended trust deed(s) may be filed with SEBI latest by May 1, 2017.”

2.4 Thereafter, vide letter dated May 15, 2017, the applicant submitted the signed copy of the first amendment to the trust deed.

B. Takeover Panel’s Recommendations –

2.5 The Application dated December 20, 2016, was deliberated by the Takeover Panel in its meeting held on June 03, 2017. The Takeover Panel made the following observations – “In the case of Gold Rock Investments Ltd, the Panel took note of the revised executed trust deed submitted by the applicants and the incorporation of the necessary undertakings in the trust deed. The Panel recommended exemption in the matter subject to the applicant submitting the registered amended trust deed.”

2.6 Vide e-mail dated June 22, 2017, the applicant was advised to provide a copy of the registered amended trust deed.

2.7 Thereafter, vide an e–mail dated August 08, 2017, the duly executed and notarized first amendment to the trust deed was submitted by the applicant to SEBI.

Consideration of the Application and Findings –

3.1 I have considered the Application alongwith further correspondence/submissions/clarifications submitted by the Acquirer Trust; 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 the shareholding and voting rights in the Target Company i.e. Gold Rock Investments Limited.

B. The aforesaid acquisition is proposed to be made by Shrinathji Trust i.e. the Proposed Acquirer, in the following manner –

Table C Name Pre – Acquisition Post – Acquisition Shares % Shares % A. Promoter Group 1. Promoter group other than acquirer 5,70,200 72.58 3,00,200 38.21 2. Acquirer Trust i.e. Shrinathji Trust 0 0 2,70,000 34.37 Total 5,70,200 72.58 5,70,200 72.58

B. Public Shareholding Institutions - - - - Non-Institutions 2,15,400 27.42 2,15,400 27.42 Total 2,15,400 27.42 2,15,400 27.42

C. Total (A + B) 7,85,600 100.00 7,85,600 100.00 i. The proposed acquisition in the Target Company would entitle the proposed Acquirer Trust to exercise 34.37% of the voting rights in the Target Company.

C. The proposed acquisition is pursuant to a private family arrangement intended to streamline succession and welfare of the Shriya Family and will not prejudice the interest of the public shareholders.

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 Promoters Group and the pre-acquisition and post-acquisition shareholding of the Promoter Group in the Target Company will remain the same at 72.58%.

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 recommended grant of exemption to the Proposed Acquirer/Applicant subject to them submitting the registered amended Trust Deed.

I. The revised registered amendment to the Trust Deed of the Applicant/Acquirer Trust was submitted to SEBI vide an e–mail dated August 8, 2017.

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. Shrinathji Trust (represented by their Trustee – Mr. Sanjeev Shriya), from complying with the requirements of Regulation 3 of the Takeover Regulations with respect to the proposed acquisition/exercise of voting rights in respect of the Target Company, viz. Gold Rock Investments 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 Acquirers are true and correct. iv. 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 of the Proposed Acquirer. v. There shall be no limitation of liability of the Trustees/beneficiaries in relation to the provisions of the SEBI Act and all Regulations framed thereunder. vi. The Proposed Acquirers shall honour their undertakings and shall also ensure compliance with the statements, disclosures and undertakings made in the Application and in the subsequent correspondence. vii. The Proposed Acquirer shall confirm, on an annual basis, that they are 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. viii. 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. ix. 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 Acquirers. x. The Proposed Acquirer shall also ensure that the covenants in the Trust Deeds are not contrary to the above conditions and undertaking provided by the transferors. In such case, the Trust Deeds shall be suitably modified and expeditiously reported to SEBI.

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 December 20, 2016 (read with further correspondence/submissions/ clarifications) filed by Shrinathji Trust (represented by their Trustee – Mr. Sanjeev Shriya), is accordingly disposed of.

Place: Mumbai S. RAMAN Date: September 5, 2017 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA