Order in the matter of IEC Education limited under regulation 4 of SEBI(SAST) Regulation

1. IEC Education Limited (hereinafter referred to as the target company) is a company incorporated under the Companies Act, 1956, having its Registered Office at KRM Centre, 5 Sant Nagar, East of Kailash, New Delhi-110065. The equity shares of the target company are listed on the Bombay Stock Exchange Limited, the Delhi Stock Exchange Limited and Jaipur Stock Exchange Limited. Mr. R.L. Gupta, vide letter dated June 7, 2010, filed an application on behalf Mrs. Sneh Lata Gupta and Mrs. Sonia Gupta (hereinafter referred to as the acquirers), with the Securities and Exchange Board of India (hereinafter referred to as SEBI) under Regulation 4 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the Takeover Regulations). The said application is filed in respect of the proposed acquisition of 5,14,600 (constituting 3.37% of the total share capital/voting rights of the target company) shares of the target company by the acquirers. It is stated in the application that the acquirers belong to the promoter group of the target company which holds 85,81,728 equity shares constituting 56.24% of the total share capital/voting rights of the target company.

2. As per the application, the target company had availed a loan of `183.75 lakhs from the Central Bank of India (hereinafter referred to as the said Bank) on December 8, 1998 to meet its fund requirements for the expansion plans and that its promoters namely, Mr. S. L. Gupta (since deceased on April 1, 2001), Mr. R. L. Gupta and some of their family members had pledged an aggregate of 10,22,450 equity shares with the said Bank as security. It was further stated that the accumulated losses in the target company as on March 31, 2004, were to the tune of `9,07,47,601.43/-and that it had failed to make the repayment of the aforesaid loan amount on the due dates. The application further stated that on March 20, 2004, the Bank had served a legal notice on the target company to repay the entire loan amount along with interest @ 17% immediately and that the Bank had invoked the pledge and transferred 10,22,450 equity shares (which were pledged by the promoters) in its own name. As per the application, the target company, thereafter, had assured the Bank that, it would make full and final settlement of its dues to which the Bank had, in turn, assured that although the pledge had been invoked, the properties continue to remain as collateral for the loans extended by it, and that as and when the payments are made to the Bank, the same would be released back in the respective holder’s names.

It was further stated that on full settlement of the loan amounts, as per the request of the target company, the Bank (out of the shares pledged with it) had already released 3,26,850 equity shares (4.67% of the then total share capital/voting rights of the target company) and 1,81,000 equity shares (2.58% of the then total share capital/voting rights of the target company) to the respective holder’s accounts during the financial years ended March 31, 2007 and March 31, 2008 respectively. According to the acquirers, the said acquisitions were well within the limits as specified under the Takeovers Regulations. It was further submitted in the application that remaining 5,14,600 shares (representing 3.37% of the present paid up capital of the target company) has to be released back to the account of the acquirers. It was further stated that the aforesaid proposed acquisition would collectively increase the voting rights of the promoter group (which includes the acquirers also) from 56.24% to 59.61% and therefore would trigger Regulation 11(2) of the Takeover Regulations. Hence the application is filed by the acquirers seeking exemption from the applicability of the said Regulation inter alia on the following grounds:

i. The proposed acquisition is merely a return of the shares pledged by the promoters with the Bank as a security for the term loan availed by the target company. ii. The acquirers shall not pay any consideration for such return of shares as the shares were only transferred to create the security for the loan under Loan and Hypothecation Agreement. iii. The proposed acquisition of shares would not result in change in control as the acquirers belongs to the promoter group of the target company and are already in control over the target company. iv. Even after the invocation of pledge, the shares were retained by Central Bank of India as a security towards the loan amounts and had not sold even a single share in the market. The objective of invoking the pledge was only to enforce the repayment of term loan. v. The entire amount of loan due to the Bank has already been paid off, but the shares transferred in their name are still standing to their credit. vi. The acquisition is not prejudicial to the interest of the investors as even after the acquisition of shares, the shares held by public at large would remain intact. vii. Even after the proposed acquisition of equity shares by the acquirers, the public shareholding would continue to be higher than the minimum required for continuous listing in terms of Clause 40A of the Listing Agreement.

3. The shareholding pattern of the target company (before and after the proposed acquisition) as per the aforesaid application is as under:-

Particulars Number of Before Proposed Acquisition No. of shares to be After Proposed registered Acquired Acquisition shareholders as on date of application No. of % No. of % No. of % Shares Shares Shares Promoters Group (A): Acquirers 2 3,11,395 2.04 5,14,600 3.37 8,25,995 5.41 Promoters (other than 15 82,70,333 54.2 82,70,333 54.2 the acquirers) Sub Total (A) 17 85,81,728 56.24 90,96,328 59.61 Non-Promoters’ holding(B) : FIs/Banks 2 5,14,700 3.37 (5,14,600) (3.37) 100 0.00 FIIs/NRIs/OCBs 43 6,75,033 4.42 6,75,033 4.42 Public 5536 54,88,539 35.96 54,88,539 35.96 Sub Total(B) 5581 66,78,272 43.76 61,63,672 40.39 GRAND TOTAL (A+B) 5598 1,52,60,000 100 1,52,60,000 100

4. The aforesaid application dated June 7,2010 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 has recommended as under:

“Panel observed that the proposed acquisition is through release of shares which were pledged by the promoters and invoked by the bank on default of the Company in repayment of its loan. Since pledge of shares by promoters in favour of banks and FIs is exempted from the applicability of regulations 10, 11 and 12 of the SAST Regulations, the return of the said shares to the promoters is merely a technical acquisition and deserves to be exempted in normal course. It was also observed that after the proposed acquisition by the promoters, the shareholding of public will still remain above 25% of the Target Company’s total paid up capital. The panel therefore recommended the exemption.”

5. I have considered the application dated June 11, 2010, the recommendation of the Takeover Panel, and other relevant material available on record. In terms of the application, the promoters of the target company had pledged their shares against loan received by the target company from the Bank. It is submitted in the application that the target company had made a payment of `1,45,00,000/- by way of an account payee cheque dated August 22, 2006 towards the full and final settlement of the outstanding loan with the Bank. A copy of the letter dated September 5, 2006 from Bank (to the target company) has also been enclosed with the aforesaid application, which inter alia states “……we have to confirm that your all accounts with us have been adjusted in full through compromise and nothing is due from you”. The acquirers have further stated that the Bank had already returned part of the shares which were pledged with it. The increase in the shareholding/voting rights of the promoter group (including the acquirers) pursuant to the proposed release of shares to the acquirers is 3.37% (which were earlier pledged by the promoters) of the paid up capital of the target company. There would not be any change in control over the target company pursuant to such increase, as the acquirers belong to the promoter group which is already having control over it. I also note that even after the proposed acquisition, the public shareholding in the target company would remain above 25%, the level required for continuous listing in terms of the Listing Agreement. Having considered the application, I agree with the recommendations of the Takeover Panel and consider the present case a fit one for granting exemption from the provisions of Regulation 11(2) of the Takeover Regulations.

6. In view of the above findings, 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 Mrs. Sneha Lata Gupta and Mrs. Sonia Gupta, from complying with the requirements of Regulation 11(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 in respect of their proposed acquisition of 5,14,600 equity shares of `10/- each of the target company, namely IEC Education Limited through the release of shares pledged with the Central Bank of India.

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

a. The statements/averments made/facts or figures given in the application are true and correct to the best knowledge of the acquirers.

b. The acquirers along with others in promoter group shall ensure compliance with the statements, disclosures and undertakings made in the application.

8. 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 (e.g. disclosure requirements under Chapter II), the Listing Agreement or any other law.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

PLACE: MUMBAI DATE: OCTOBER 22, 2010.