Order in the matter of exemption application of Max Financial Services Limited

SEBI/WTM/SR/CFD–DCR/ 51 /10/2016 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 MAX FINANCIAL SERVICES LIMITED (ERSTWHILE MAX INDIA LIMITED) BY NEEMAN FAMILY FOUNDATION.

Background –

1.1 Max Financial Services Limited (earlier known as Max India Limited) (“Target Company”) is a Public Listed Company incorporated under the Companies Act, 1956 (“Companies Act”). The shares of the Target Company are listed on BSE and the National Stock Exchange of India Limited (“NSE”).

1.2 Vide an application dated November 26, 2014 alongwith a letter dated July 28, 2016 (Collectively referred to as the “Application”), Neeman Family Foundation (“Proposed Acquirer/Applicant”) sought exemption from the applicability of Regulations 3, 4 and 5 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”) in respect of the proposed indirect acquisition and control of 30.29% of the shareholding and voting rights in the Target Company.

1.3 From the aforesaid Application, the following is noted –

A. The Individual Promoters of the Target Company are Mr. Analjit Singh and his wife, Mrs. Neelu Analjit Singh; their children, viz. Ms. Piya Singh; Mr. Veer Singh and Mrs. Tara Singh Vachani.

B. The shareholding pattern in the Target Company is as under –

TABLE I – SHAREHOLDING IN THE TARGET COMPANY FOR THE QUARTER ENDED JUNE 30, 2016 (SOURCE: BSE WEBSITE) SR. SHAREHOLDERS EQUITY SHARES HELD NO. NUMBERS % OF SHARE CAPITAL A. PROMOTER AND PROMOTER GROUP 1. MR. ANALJIT SINGH 10,000 0.00 2. MRS. NEELU ANALJIT SINGH 1,00,000 0.04 3. MS. PIYA SINGH 1,10,333 0.04 4. MR. VEER SINGH 1,00,500 0.04 5. MRS. TARA SINGH VACHANI 1,00,000 0.04 6. LIQUID INVESTMENT AND TRADING CO. PVT. LTD. (“LIQUID INVESTMENT”) 2,38,18,876 8.92 7. MOHAIR INVESTMENT AND TRADING CO. PVT. LTD. (“MOHAIR INVESTMENT”) 80,86,560 3.03 8. BOOM INVESTMENT PVT. LTD. (“BOOM INVESTMENT”) 56,04,010 2.10 9. MEDICARE INVESTMENTS LTD. (“MEDICARE INVESTMENTS”) 1,15,98,007 4.34 10. MAXOPP INVESTMENTS LTD. (“MAXOPP INVESTMENTS”) 1,000 0.00 11. CHEMINVEST LTD. (“CHEMINVEST”) 99,71,065 3.73 12. PEN INVESTMENTS LTD. (“PEN INVESTMENTS”) 18,81,110 0.70 13. P V T INVESTMENT LTD. (“PVT INVESTMENT”) 58,536 0.02 14. PIVET FINANCE LTD. (“PIVET FINANCE”) 17,58,374 0.66 15. MAXPAK INVESTMENT LTD. (“MAXPAK INVESTMENT”) 5,58,200 0.21 16. MAX VENTURES INVESTMENT HOLDINGS PVT. LTD. (“MAX VENTURES”)* 1,75,46,167 6.57 TOTAL 8,13,02,738 30.45 B. PUBLIC SHAREHOLDING 18,57,20,161 69.55 C. GRAND TOTAL (A + B) 26,70,22,899 100.00 * Entity was earlier known as Dynavest India Private Limited.

i. From Table I, it is observed that the Promoters (Sr. no. 1–5) collectively hold 420833 equity shares (0.16%) in the Target Company. Further, the aforementioned Promoters hold 80881905 equity shares (30.29%) in the Target Company through eleven unlisted Group Investment Companies (Sr. no. 6–16). ii. The entities within the Promoter Group at Sr. no. 6–15 i.e. Liquid Investment; Mohair Investment; Boom Investment; Medicare Investments; Maxopp Investments; Cheminvest; Pen Investments; PVT Investment; Pivet Finance and Maxpak Investment, have inter se cross holdings. iii. The entity at Sr. no. 16 i.e. Max Ventures, is privately owned by Mr. Analjit Singh (5000 equity shares) and Mrs. Neelu Analjit Singh (4970 equity shares) alongwith their children, viz. Ms. Piya Singh (10 equity shares); Mr. Veer Singh (10 equity shares) and Mrs. Tara Singh Vachani (10 equity shares) [Refer to paragraph 2.8 at page 14].

C. Proposed Acquirer/Applicant – Neeman Family Foundation – i. The individual Promoters i.e. Mr. Analjit Singh and his wife, Mrs. Neelu Analjit Singh, intend to restructure and simplify their shareholding (direct and indirect) in the Target Company for meeting the objective of ensuring smooth succession and inheritance by their children, viz. Ms. Piya Singh; Mr. Veer Singh and Mrs. Tara Singh Vachani.

ii. For fulfillment of the said objective, a Family Trust, viz. “Neeman Family Foundation” i.e. the Proposed Acquirer/Applicant, was created and settled by a Deed of Trust dated November 12, 2010, entered into between Mr. Analjit Singh (acting in the capacity of Settlor of the Trust) and Mr. Analjit Singh and Mrs. Neelu Analjit Singh (acting in the capacity of Trustees of the Trust). The salient features of the Trust i.e. Neeman Family Foundation, are detailed below – a. The beneficiaries of the Trust are Mr. Analjit Singh and his wife, Mrs. Neelu Analjit Singh alongwith their children, Ms. Piya Singh; Mr. Veer Singh and Mrs. Tara Singh Vachani. b. Upon demise/insolvency of any of the children, his/her beneficial ownership, interest, rights and/or share in the Trust Property (including shares held in the Target Company) will vest in his/her biological children and heirs in accordance with the Trust Deed. c. Upon renouncement by a beneficiary of his/her beneficial ownership interest, rights and/or share in the Trust Property including shares held in the Target Company, the same will –  be retained by the Trust and upon dissolution of the Trust, distributed amongst the remaining beneficiaries in equal parts if such renouncement happens prior to completion of 10 years from the date of Trust Deed; OR  vest in his/her biological children and heirs, if the renouncement happens after completion of 10 years from the date of the Trust Deed. d. The beneficiaries are not entitled to transfer their beneficial ownership interest, rights and/or share in the Trust Property to any third party except to other beneficiaries named in the Trust Deed. e. The Governing Body of the Trust comprises of eight Trustees consisting of Mr. Analjit Singh (also the first Managing Trustee of the Trust), Mrs. Neelu Analjit Singh, their three children (i.e. Ms. Piya Singh, Mr. Veer Singh and Mrs. Tara Singh Vachani) and three External Trustees. f. Decision making by the Trust: Until attaining the age of 72 years, Mr. Analjit Singh has the sole and exclusive control over all decisions of the Trust including in respect of the shares held in the Target Company.

If Mr. Analjit Singh predeceases or becomes incapacitated before attaining 72 years, all his rights and powers are to be exercised by Mrs. Neelu Analjit Singh together with the simple majority of the external Trustees until she attains the age of 72 years. Subject to the above, after Mr. Analjit Singh attains 72 years or on his demise, all decisions in respect of the Trust are to be taken by the surviving individual Promoters (acting as Trustees) unanimously. However, in the event of a dissent amongst the surviving individual Promoters, the matter is to be decided by the external Trustees by way of a simple majority. In respect of certain key issues at the Target Company’s level, if the external Trustees are not able to decide within a specified time frame, the matter is automatically referred to all the Trustees of the Trust who are required to take a decision by way of a simple majority. g. Dissolution of the Trust: After attaining the age of 72 years or on the demise of Mr. Analjit Singh, whichever is earlier, if all the surviving beneficiaries unanimously agree and jointly instruct the Trustees in writing to dissolve the Trust, the Trustees shall dissolve the Trust and distribute the Trust Property (including shares held in the Target Company) amongst the beneficiaries in equal parts.

D. Acquisition by Neeman Family Foundation – the Proposed Acquirer/Applicant – i. It is proposed that the equity shares held directly and indirectly, by the individual Promoters in the Target Company constituting 30.29%, will be consolidated in Max Ventures after completion of the following steps:

a. Step 1 – The five individual Promoters (refer to Sr. No. 1–5 of Table I at page 2) while retaining 410000 equity shares, will transfer 10,833 equity shares [10333 equity shares from Ms. Piya Singh and 500 equity shares from Mr. Veer Singh] to Max Ventures. As stated at paragraph 1.3(iii), Max Ventures is privately owned by Mr. Analjit Singh and his wife, Mrs. Neelu Analjit Singh alongwith their children, viz. Ms. Piya Singh; Mr. Veer Singh and Mrs. Tara Singh Vachani.

b. Step 2 – Court–approved restructuring and merger of entities within the Promoter Group in terms of Sections 391–394 of the Companies Act (refer to Sr. No. 6–15 of Table I at page 2) as under (The mergers will occur concurrently) – i. First Merger – Medicare Investments; Maxopp Investments; Cheminvest; Pen Investments; PVT Investment; Pivet Finance; Maxpak Investment and Moav* will be merged into Max Ventures;

(*Moav is not a Promoter entity of the Target Company. Mrs. Tara Singh Vachani, Promoter of the Target Company and also beneficiary of Neeman Family Foundation – the Proposed Acquirer/Applicant is a Director in Moav. Further, Moav is a shareholder in Maxpak Investment holding one share. Neeman Family Foundation – the Proposed Acquirer/Applicant has submitted that Moav will be merged into Max Ventures.) ii. Second Merger – Boom Investment will be merged into Mohair Investment; iii. Third Merger – Mohair Investment will be merged into Liquid Investment; iv. Fourth Merger – Liquid Investment will be merged into Max Ventures. v. Consequences of the Mergers –  The equity shareholders of Liquid Investment are Boom Investment, Mohair Investment and Mr. Analjit Singh (Mr. Analjit Singh holds 100 shares as the Managing Trustee of Neeman Family Foundation – the Proposed Acquirer/Applicant.  Pursuant to the mergers of Boom Investment into Mohair Investment (Second Merger) and Mohair Investment into Liquid Investment (Third Merger), Neeman Family Foundation – the Proposed Acquirer/Applicant becomes the sole shareholder of Liquid Investment.  Once, Liquid Investment merges into Max Ventures (Fourth Merger), Max Ventures will allot its shares to Neeman Family Foundation – the Proposed Acquirer/Applicant.  Post such allotment, Neeman Family Foundation – the Proposed Acquirer/Applicant will be holding more than 50% of the equity share capital of Max Ventures.  As a result, the merger will result in change of control of the Target Company from Max Ventures to Neeman Family Foundation – the Proposed Acquirer/Applicant. vi. The aforesaid Court–approved restructuring and merger will be exempt under Regulation 10(1)(d)(iii) of the Takeover Regulations. Neeman Family Foundation – the Proposed Acquirer/Applicant undertakes to comply with the conditions of such exemption under the said Regulation 10(1)(d)(iii). vii. As a result of the steps contemplated above, almost the entire Promoters’ shareholding of 30.29% (excluding the 410000 equity shares to be retained by the five individual Promoters) in the Target Company will be consolidated and held by Max Ventures.

c. Step 3 – i. Upon consolidation of 30.29% under Max Ventures [whose shareholders will be Neeman Family Foundation – the Proposed Acquirer/Applicant alongwith Mr. Analjit Singh (holding 5000 shares) and Mrs. Neelu Analjit Singh (holding 4970 shares) alongwith their children, viz. Ms. Piya Singh (holding 10 equity shares); Mr. Veer Singh (holding 10 equity shares) and Mrs. Tara Singh Vachani (holding 10 equity shares)], Neeman Family Foundation will hold a significant majority of the equity share capital of Max Ventures, which will depend upon the swap ratio determined/approved by the shareholders and the relevant Hon’ble Courts. ii. Thereafter, it is proposed that Mr. Analjit Singh and Mrs. Neelu Singh alongwith their children will transfer the entire equity shares (10000 shares) held by them in Max Ventures to Neeman Family Foundation – the Proposed Acquirer/Applicant, by way of a settlement. iii. Pursuant to such transfer, Neeman Family Foundation – the Proposed Acquirer/Applicant will own 100% of the equity share capital of Max Ventures. iv. Given that the aforesaid transfer of 10000 equity shares of Max Ventures, by Mr. Analjit Singh and Mrs. Neelu Singh alongwith their children to Neeman Family Foundation – the Proposed Acquirer/Applicant, may not strictly fall under any specific clause of Regulation 10 of the Takeover Regulations, the Proposed Acquirer/Applicant has submitted that the same will trigger public offer requirements under Regulations 3, 4 and 5 of the Takeover Regulations.

d. In addition to the proposal for transfer of 10000 equity shares of Max Ventures, by Mr. Analjit Singh and Mrs. Neelu Singh alongwith their children to Neeman Family Foundation – the Proposed Acquirer/Applicant, at present the paid-up equity share capital of Max Ventures is ₹1 Lakh, held by Mr. Analjit Singh and Mrs. Neelu Singh alongwith their children. Max Ventures has outstanding share application money of ₹87 Crores against allotment of its equity shares to Neeman Family Foundation – the Proposed Acquirer/Applicant.

E. Submissions made by Neeman Family Foundation – the Proposed Acquirer/Applicant for exemption from the provisions of the Takeover Regulations.

i. Specific exemptions have been sought from SEBI for the potential public offer requirements under the Takeover Regulations for – a. Allotment of equity shares by Max Ventures to Neeman Family Foundation – the Proposed Acquirer/Applicant, against the outstanding share application money of ₹87 Crores; b. Consolidation of Promoters’ shareholding of 30.29% in the Target Company under Max Ventures; and c. Transfer of 10000 equity shares of ₹10 each in the equity share capital of Max Ventures by Mr. Analjit Singh and Mrs. Neelu Singh alongwith their children to Neeman Family Foundation – the Proposed Acquirer/Applicant.

ii. In its Application dated November 26, 2014, Neeman Family Foundation – the Proposed Acquirer/Applicant submitted as under – a. The Trust is a Family Trust settled by Mr. Analjit Singh. b. The sole and exclusive beneficiaries of the Trust are the individual Promoters. No other third party is a beneficiary. c. The beneficiaries are not entitled to transfer their beneficial ownership interest, rights and/or share in the Trust Property to any third party except to other beneficiaries named in the Trust Deed. d. Upon demise/insolvency of a beneficiary, his/her beneficial ownership interest in the Trust property will vest in his/her biological children and heirs. e. Mr. Analjit Singh has the sole right to revoke the Trust until he attains the age of 72 years. Upon revocation of Trust by Mr. Analjit Singh, the Trust Property (including shares held in the Target Company) is required to be transferred to Mr. Analjit Singh (80%) and Mrs. Neelu Singh (20%) and no one else. f. It is evident that the legal and beneficial owners of the shares and voting rights indirectly held by the Trust in the Target Company will continue to be the individual Promoters.

Therefore, there is no change of ownership of 30.45% Promoter shareholding in the Target Company, as a result of the entire exercise. g. There will also be no change of control of the Target Company on completion of all the contemplated steps as mentioned in the Application and that the individual Promoters shall continue to exercise control over the Target Company through the Trust. h. The Trust was created by Mr. Analjit Singh for the benefit of himself; his wife, Mrs. Neelu Analjit Singh and their children. The Trust can be identified as a shadow or an alter ego of these persons. Though the Trust may not qualify as an ‘immediate relative’ under the Takeover Regulations, the transfer of shares by Mr. Analjit Singh and Mrs. Neelu Singh to the Trust and/or allotment of majority equity shares by Max Ventures to the Trust is in effect a transfer/allotment of shares by the aforesaid two persons to themselves and to their children. Therefore, in view of the spirit and intent behind the said provision exempting transfer of shares inter se between immediate relatives, the instant case merits an exemption under Regulation 10(1)(a)(i) of the Takeover Regulations. i. Further, though the Trust may not technically qualify as a ‘promoter’, in view of the intent and spirit behind the provision exempting transfer of shares inter se between persons named as Promoters in the last 3 years filings, the instant case merits exemption under Regulation 10(1)(a)(ii) of the Takeover Regulations. j. Regulation 10(1)(g) of the Takeover Regulations exempts “acquisition of shares by way of transmission, succession or inheritance”.

While the instant case may not fall strictly within the ambit of the said Regulation, given that the sole purpose of creation of the Trust is to ensure hassle-free succession to the family wealth and assets (including shares of Target Company) from Mr. Analjit Singh and Mrs. Neelu Singh to the children and that the Trust is for the benefit of the individual Promoters, it can be argued that the instant case merits exemption on the same rationale on which specific exemption under the said Regulation is provided.

iii. In addition to the above, the following issue–specific submissions were also made by Neeman Family Foundation – the Proposed Acquirer/Applicant, vide letter dated April 24, 2015, – a. Enforceability – While a Trust does not have a separate legal personality, the Trustees of the Trust are legally required to ensure compliance with all applicable Laws and Regulations. In fact, most of the alternate investment funds/venture capital funds registered with the Securities and Exchange Board of India (“SEBI”) are set up as Trusts. Therefore, Trusts as a separate class of entities are already recognized by SEBI under its Regulations. b. Transparency - Trusts will be subject to all the Regulations as applicable to any other person. c. Control – The individual Promoters will be in control of Neeman Family Foundation – the Proposed Acquirer/Applicant and therefore continue to control the Target Company. The reorganization for which the exemption is being sought will not result in any change of control in the Target Company. If there is any change in control of Neeman Family Foundation – the Proposed Acquirer/Applicant resulting in a change of control of the Target Company in the future, the same shall be subject to the provisions of applicable Laws including the Takeover Regulations and the Trust undertakes to comply with the same.

d. Benefit to Investors – There will be no change in control or management of the Target Company pursuant to the abovementioned reorganization. Further, the existing Promoters are not receiving any monetary consideration pursuant to such reorganization. Therefore, the proposed reorganization will not affect or prejudice the interest of the public shareholders in any manner. e. Inheritance Tax – The reorganization is being contemplated as part of a succession plan for the assets of Mr. Analjit Singh and his family to mitigate any disputes amongst family members in the future. The objective is not to avoid Inheritance Tax. In fact, there is no Inheritance Tax under Indian laws. The Promoters and Neeman Family Foundation – the Proposed Acquirer/Applicant will abide by all applicable Laws and will continue to pay taxes to the relevant authorities as and when they are due.

1.4 Thereafter, as advised by SEBI, Neeman Family Foundation – the Proposed Acquirer/Applicant, vide letter dated September 18, 2015, also forwarded the shareholding pattern of the Promoter Companies [Entities at Sr. No. 6–16 of Table I] of the Target Company.

Observations of the Takeover Panel on the Application made by Neeman Family Foundation – the Proposed Acquirer/Applicant –

2.1 The Application including the other material/submissions made by Neeman Family Foundation – the Proposed Acquirer/Applicant, was forwarded to the Panel of Experts (“Takeover Panel”) in terms of the proviso to Regulation 11(5) of the Takeover Regulations. In the meeting of the Takeover Panel held on September 19, 2015, it was observed that the existing Promoters propose to transfer their shareholding to a Trust, wherein, in addition to the existing Promoters, the Trustees will comprise of three external persons (not belonging to the existing Promoter Group or their family members). The Panel recommended that the representatives of Neeman Family Foundation – the Proposed Acquirer/Applicant may be called for representing their case including whether they are prepared to submit an alternative proposal restricting Trustees only to family members/Promoters.

2.2 With respect to the above recommendation of the Panel, Neeman Family Foundation – the Proposed Acquirer/Applicant, vide its letter dated October 16, 2015, inter alia made the following submissions:

i. Neither the external Trustees nor any third party (unrelated to the individual Promoters’ family) have or will have any beneficial interest in the Trust Property including the shares held in the Target Company. ii. An undertaking to this effect can be provided, if required.

iii. The external Trustees have been appointed by Mr. Analjit Singh owing to their acumen, extensive experience and their long term association with the individual Promoters not only as advisors but also as close family friends.

iv. Under law, the Trustees (including the external Trustees) have a fiduciary duty towards the beneficiaries of the Trust similar to the fiduciary duty that Directors on the Board of a Company owe to its shareholders. As per the Trust Deed, the voting by the external trustees is limited only to a few circumstances as under: a. Until attaining the age of 72 years or until his demise, whichever is earlier, Mr. Analjit Singh has the sole and exclusive control over all decisions of the Trust including with respect to the shares held in the Target Company, except that any decision taken by him cannot be implemented if 4 out of 5 votes that are available with the remaining Trustees are cast against his decision (with each of the children having a single vote); b. In the event Mr. Analjit Singh predeceases or becomes incapacitated before attaining the age of 72 years, all his rights and powers are to be exercised by Mrs. Neelu Analjit Singh together with a simple majority of the external Trustees until she attains the age of 72 years; c. Subject to (b) above, after Mr. Analjit Singh attaining the age of 72 years or his demise/incapacitation, all decisions in respect of the Trust are to be taken by the surviving individual Promoters (acting as Trustees) unanimously. However, in the event of a dissent amongst the surviving individual Promoters with respect to any matter, the matter is to be decided by the external Trustees by way of a simple majority. If such matter cannot be decided by the external Trustees, such matter cannot be implemented. In respect of certain key matters, if the external Trustees are not able to decide within a specified time frame, the matter is automatically referred to all the trustees of the Trust who are required to take a decision by way of a simple majority, failing which there is a process for liquidating the relevant asset (with the help of investment banks identified in trust deed) in relation to which the decision could not be taken and distributing all the proceeds to the beneficiaries.

v. The reason for creating the Trust is essentially to provide an institutionalized framework of governance with respect to voting on the shares held in the Target Company and the external Trustees’ role is to guide and help the family if there is a lack of consensus amongst the family and more importantly to prevent such lack of consensus leading to an impasse with respect to any matter the target company proposes to its shareholders. In any event, all decisions taken by the external Trustees have to be for the sole and exclusive benefit of the beneficiaries (individual Promoters and their legal heirs) of the Trust and cannot be for the benefit of any of the external Trustees or unrelated third parties.

vi. Under Regulation 10(1)(a)(iii) of the Takeover Regulations, if the individual Promoters or their investment companies transfer the shares held by them in the Target Company to a new company in which 100% of the shareholding is held by the individual Promoters, such transfer will qualify for an automatic exemption irrespective of the composition of the Board of Directors of such company. In other words, if the Board of such company had Independent Directors, who by law, have a right to vote on all matters presented to the Board (including with respect to any decisions related to shares held by such company in the Target Company), it will still have been eligible to claim the exemption under the above-mentioned Regulation. According to the Trust, the restructuring of ownership to the Trust is no different from a transfer to a company and the position of external Trustees is no different from the position of Independent Directors on the Board of a company. vii. Neeman Family Foundation – the Proposed Acquirer/Applicant also submitted that the objective of the Takeover Regulations is to provide a fair exit to the public shareholders of a listed company if there is a substantial acquisition of shares or takeover of such company. In this case, the individual Promoters will neither be selling their shares in the Target Company nor transferring control. The individual Promoters will continue to be the Promoters of the Target Company and no unrelated third party will become a Promoter or acquire control by virtue of the re-organization. It is only the manner in which the shares of the Target Company are held which will change pursuant to the proposed reorganization. It is also submitted that the proposed reorganization will not result in any change in the shareholding/voting rights of the public shareholders of the Target Company and will not prejudice their interest in any manner.

2.3 Subsequently, vide an email dated October 23, 2015, it was submitted on behalf of Neeman Family Foundation – the Proposed Acquirer/Applicant that they were willing to make amendments to the Trust Deed to make it clear that – i. The beneficiaries of the Trust will always be the individual Promoters and their legal heirs and successors; ii. Neither the external Trustees nor any other unrelated third parties will have any beneficial interest in the Trust property including in the shares of the Target Company; iii. The role of the Trustees including the external Trustees is restricted to administration of the Trust property and any decisions taken by them have to be for the sole and exclusive benefit of the individual Promoters and their legal heirs and successors.

2.4.1 The matter was thereafter taken up for deliberation by the Takeover Panel in its meeting held on January 7, 2016. The representatives of Neeman Family Foundation – the Proposed Acquirer/Applicant presented the facts of the case before the Panel.

2.4.2 Thereafter, the representatives of Neeman Family Foundation – the Proposed Acquirer/Applicant were advised to furnish an explanation detailing the rationale for their claim that there is no change in control pursuant to the proposed transaction and inclusion of external Trustees. They were also advised to suggest any additional safeguards to address the issue of change in control.

2.4.3 Accordingly, the representatives of Neeman Family Foundation – the Proposed Acquirer/Applicant made additional submissions vide letter dated February 11, 2016. In this letter, it was inter alia submitted that the external Trustees have a right to decide on matters involving the Trust on their own in the rarest of rare circumstances i.e. only after Mr. Analjit Singh attains the age of 72 years or his demise/incapacitation and only if there is no unanimity amongst the family Trustees on any particular matter(s) concerning the Trust proposed by the Target Company to its shareholders and only on that occasion and for those specific matter(s). It was also submitted that the external Trustees cannot be said to acquire control by merely getting the right to vote on a particular occasion on a matter which is indeterminate till the occasion arises. Such temporary and occasion based, transient and non-recurring right cannot be treated as acquisition of control.

2.5 Thereafter, the matter was again considered by the Panel in its meeting held on March 19, 2016, wherein the following recommendation was made:

“In case of (the Proposed Acquirer/Trust) Max India Ltd., the Panel took note of the additional submissions made by the applicant regarding external Trustees. It was noted that the Trust Deed provides for three external Trustees. However, their role arises only in specific circumstances. In light of the facts, Panel recommended for grant of exemption subject to the condition that the applicant provides undertakings to SEBI as in other similar cases of transfer of individual Promoter shareholding to Trust. Further, as and when circumstances arise where external Trustees have a role in the decision making, the Trustees must at that point of time, approach SEBI/ Takeover Panel under the regulations prevailing at that point of time for exemption, if any.”

2.6 In compliance with the Panel’s recommendation, Neeman Family Foundation – the Proposed Acquirer/Applicant, vide letter dated April 18, 2016, undertook as follows:

i. “The basis of the exemption sought by us is that the holding of Neeman Family Foundation (the 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.

ii. The Trust Deed for the Trust shall be amended to contain the following covenants and the Trust undertakes as follows: a. Any change in the trustees/beneficiaries and any change in ownership or control of shares or voting rights held by the 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. iii. Further, 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. iv. 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 transfer to the Trust. …”

2.7.1 Vide e-mail dated June 14, 2016, SEBI advised Neeman Family Foundation – the Proposed Acquirer/Applicant, to submit the following information, viz. – i. Date when the Target Company’s name was changed and the reasons therefor; ii. Latest shareholding pattern of the Target Company; iii. Whether the name of Max Ventures had undergone any change and the details pertaining to the same; iv. The status of mergers of companies as mentioned by Neeman Family Foundation – the Proposed Acquirer/Applicant in the Application.

2.7.2 In its response to the abovementioned queries, vide letter dated June 15, 2016, Neeman Family Foundation – the Proposed Acquirer/Applicant, submitted as under:

i. The name of the Target Company was changed from Max India Limited to Max Financial Services Limited with effect from February 1, 2016. The same was pursuant to the Order of the Hon’ble High Court of Punjab and Haryana dated December 14, 2015, sanctioning the composite scheme of demerger amongst Max India Limited, Taurus Ventures Limited and Capricorn Ventures Limited. The demerger resulted in three separate companies namely, the Target Company i.e. Max Financial Services Limited (demerged entity, formerly Max India Limited), Max India Limited (resultant company 1, formerly Taurus Ventures Limited) and Max Ventures and Industries Limited (resultant company 2, formerly Capricorn Ventures Limited). ii. Shareholding pattern of the Target Company, Max India Limited and Max Ventures and Industries Limited as on March 31, 2016, was also provided.

iii. The name of Dynavest India Private Limited was changed to Max Ventures Investment Holdings Private Limited w.e.f. May 1, 2015. iv. The following proposed mergers are under consideration by the Hon’ble High Court of Delhi. i.e. a. Merger of Medicare Investments, Maxopp Investments, Cheminvest, Pen Investments, PVT Investment, Pivet Finance, Maxpak Investment and Moav with Max Ventures; b. Boom Investment with Mohair Investment and c. Trophy Holding Private Limited (“Trophy”) with Liquid Investment. [Trophy is a not a Promoter entity of the Target Company but is a holder of preference shares issued by Medicare Investments, Maxopp Investments, Cheminvest, Maxpak Investment, Boom Investment and Liquid Investment. Trophy has been mentioned in the Application by Neeman Family Foundation – the Proposed Acquirer/Applicant since it would be merged with Liquid Investment.]

2.8 Neeman Family Foundation – the Proposed Acquirer/Applicant subsequently forwarded the shareholding pattern of Max Ventures vide its letter dated June 16, 2016. As per the said shareholding pattern, it is noted that the total capital comprised of 10,000 shares of Max Ventures and the same were held as follows – 5000 shares held by Mr. Analjit Singh, 4970 shares held by Mrs. Neelu Analjit Singh and 10 shares each held by Ms. Piya Singh, Mr. Veer Singh and Mrs. Tara Singh Vachani. Further, the aforesaid persons also executed individual Undertakings each dated June 16, 2016, to the effect that they have no objection to the proposed transfer of equity shares held by them in Max Ventures to Neeman Family Foundation – the Proposed Acquirer/Applicant and that the said transfer is voluntary in nature and taking place in pursuance of their internal family arrangement.

Consideration of Issue and Findings –

3.1 I have considered the Application, the subsequent correspondence from Neeman Family Foundation – the Proposed Acquirer/Applicant, the recommendation of the Takeover Panel and other material available on record. In this regard, I note the following –

3.1.1 At the outset, the Application is made in respect of the Target Company, Max Financial Services Limited (erstwhile Max India Limited). In the Application submitted by Neeman Family Foundation – the Proposed Acquirer/Applicant [Refer to paragraph 1.3D at pages 4–5], the following was stated – i. Neeman Family Foundation – the Proposed Acquirer/Applicant will indirectly acquire 80881905 equity shares and voting rights (constituting 30.29% of the total shareholding of the Target Company) from the Promoter/Promoter Group of the Target Company.

ii. The shares held by individual Promoters and the investment Companies within the Promoter Group to the extent of 30.29% will be consolidated in Max Ventures through the proposed transfers and mergers (subject to approval by the concerned Courts). iii. Neeman Family Foundation – the Proposed Acquirer/Applicant will be able to exercise the control and voting rights through Max Ventures on whom the aforesaid quantity of shares will be consolidated. Max Ventures is privately and equally owned by Mr. Analjit Singh and Mrs. Neelu Analjit Singh. iv. Thereafter, Mr. Analjit Singh and his wife, Mrs. Neelu Analjit Singh alongwith their children, will transfer 10000 equity shares owned by them in Max Ventures to Neeman Family Foundation – the Proposed Acquirer/Applicant. v. There will an allotment of equity shares by Max Ventures to Neeman Family Foundation – the Proposed Acquirer/Applicant, against the outstanding share application money of ₹87 Crores. vi. All the aforementioned proposed transactions, if consummated, will give majority control to Neeman Family Foundation – the Proposed Acquirer/Applicant, in Max Ventures, thereby allowing it to exercise the voting rights and control over the Target Company, as proposed.

3.1.2 Neeman Family Foundation – the Proposed Acquirer/Applicant is stated to be formed as a Trust for the sole and exclusive benefit of Mr. Analjit Singh and his wife, Mrs. Neelu Analjit Singh alongwith their children, Ms. Piya Singh; Mr. Veer Singh and Mrs. Tara Singh Vachani and their legal heirs and successors, with a view to facilitate smooth succession and inheritance of the family assets of Mr. Analjit Singh and his wife. The beneficiaries of Neeman Family Foundation – the Proposed Acquirer/Applicant, are Mr. Analjit Singh, his family members and their heirs.

3.1.3 Neeman Family Foundation – the Proposed Acquirer/Applicant has eight Trustees including three external Trustees. The concern regarding the external Trustees has been clarified by Neeman Family Foundation – the Proposed Acquirer/Applicant stating that the external Trustees will only have a limited role in voting and only when there is a dissent amongst the surviving individual Promoters [Refer to paragraph 2.2.(iv)(c) at page 10]. Those matters which cannot be decided by the external Trustees will not be implemented. The Takeover Panel has also observed that the role of the external Trustees arises only in specific circumstances. Neeman Family Foundation – the Proposed Acquirer/Applicant has stated that external Trustees and unrelated third parties will not have any beneficial interest in the Trust Property including the shares of the Target Company. However, as and when the external Trustees acquire or assume any role in the decision making for Neeman Family Foundation – the Proposed Acquirer/Applicant, the Trustees should at that point in time approach SEBI under the prevalent Regulations and seek exemption from open offer requirements, if any.

3.1.4 There will be no change in control of the Target Company pursuant to the proposed transactions as the change will only be in the manner of holding the shares by the individual Promoters. Further, there will be no change in the public shareholding in the Target Company pursuant to the proposed transactions.

3.2 Considering the observations contained in the preceding paragraphs and also the fact that Neeman Family Foundation – the Proposed Acquirer/Applicant, has consented and provided an Undertaking as recommended by the Takeover Panel, I am of the view that exemption as sought for in the Application (read with further correspondences/submissions/clarifications) be granted to Neeman Family Foundation – the Proposed Acquirer/Applicant, 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/Applicant, viz. Neeman Family Foundation, from complying with the requirements of Regulations 3, 4 and 5 of the Takeover Regulations with respect to its proposed indirect acquisition/exercise of voting rights in respect of 30.29% equity shares and control in the Target Company, viz. Max Financial Services 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 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. iii. The statements/ averments made or facts and figures mentioned in the Application and in the subsequent correspondence by the proposed acquirer are true and correct. iv. Any change in the trustees/beneficiaries and any change in ownership or control of shares or voting rights held by the Acquirer shall be disclosed to the concerned Stock Exchanges. v. 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 Acquirer.

vi. 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. vii. 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 transfer of shares of the Target Company to the Acquirer. viii. Neeman Family Foundation – the Proposed Acquirer/Applicant, its beneficiaries and Trustees, transferors shall honour their undertaking and shall also ensure compliance with the statements, disclosures and undertakings made in the Application and in their subsequent correspondence. ix. As and when circumstances arise where external Trustees have a role in the decision making, the Trustees of Neeman Family Foundation – the Proposed Acquirer/Applicant, should at that point in time approach SEBI under the Regulations prevailing at that point in time for exemption, if any. x. Neeman Family Foundation – the Proposed Acquirer/Applicant shall also ensure that the covenants in the Trust Deed are not contrary to the above conditions and undertaking provided by the transferors. In such case, the Trust Deed 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 Takeover 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 November 26, 2014 alongwith letter dated July 28, 2016 (read with further correspondences/submissions/clarifications) filed by Mr. Analjit Singh, Managing Trustee of Neeman Family Foundation – the Proposed Acquirer/Applicant, is accordingly disposed of.

Place: Mumbai S. RAMAN Date: October 3, 2016 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA