Order in the matter of Lyka Labs Limited

WTM/PS/199/CFD/MAR/2016 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER In the matter of application filed under regulation 11(3) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 seeking exemption from making public announcement and open offer with respect to proposed acquisition of shares and voting rights of Lyka Labs Limited

1. Narendra I. Gandhi (HUF) and Enai Trading and Investments Private Limited (“the proposed acquirers” or “applicants”), vide application dated February 05, 2015, filed under regulation 11(3) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“the Takeover Regulations”), sought exemption from complying with the requirements of regulation 3(1) of the Takeover Regulations, with respect to their proposed acquisition of shares of Lyka Labs Limited (“the target company”). As per the application, the proposed acquirers are the promoters of the target company and holding 23.30% shares and that the target company had decided to make preferential allotment of warrants which would be converted into equity shares and thereby increasing their shareholding to 28.28%. The proposed acquisition may trigger regulation 3(1) mandating the proposed acquirers to make an open offer unless exempted by SEBI under regulation 11(5) of the Takeover Regulations. The following were inter alia stated in the application:

(a) The target company is a public listed company, listed on BSE and NSE. (b) The promoters of the target company are holding 23.30% shares. (c) The financial condition and performance of the target Company has been deteriorating over the past few years and the target company is in urgent need of working capital funds. (d) In view of the precarious financial condition of the target company, the lenders (Banks) have stipulated that certain amount of capital contribution must be brought in by the promoters as a condition precedent to disbursement of further funds by them to the target company. (e) The promoters intend to infuse further capital by acquiring warrants through preferential allotment of warrants.

(f) The warrants are proposed to be issued to the proposed acquirers in two tranches – Series I and Series II warrants. (g) After conversion of Series I warrants into equity, the promoters’ holding will increase to 24.90% which is within the threshold of 25%. Their shareholding would increase to 28.28% after the conversion of Series II warrants. The same would trigger regulation 3(1) of the Takeover Regulations. (h) Grounds: i. The financial condition and performance of the target company has been deteriorating over the past few years and the Company has suffered losses. Unfortunately, fire broke out in the Lypholization plant of the Company situated at Ankleshwar causing loss of approximately Rs.4.5 crore in October 2013. The same had further worsened the financial situation of the company. The accumulated losses of the company is 42.97 crore as at June 30, 2014 and the preferential allotment was for survival and strengthening the financial position of the target company. ii. The main object of the proposed acquisition of warrants of the target company by the acquirers is to satisfy the stipulation of the lenders for disbursement of advances for the working capital.

Increase of the promoters’ stake by way of acquisition of further equity is only incidental. iii. The proposed acquirers are the original promoters of the target company and were holding more than 50% shares. Their shareholding was reduced below 25% because of preferential allotment to institutional buyers and other non-promoter individuals and the shareholding of promoters. iv. The lenders of the company have stipulated that certain amount of capital contribution must be brought in by the promoters as a condition precedent for disbursement of further funds by them to the target company. Therefore, the promoters have no option but to infuse funds in the company through equity. A letter from Dena Bank was enclosed. v. Due to weak financial condition of the target company, no new/existing investors are ready to invest any funds in the company and therefore the only option with the company is to make a preferential allotment to the promoters. The financial health of the promoters is equally weak and they cannot afford to make open offer at this stage. vi. The proposed acquisition will not result in any change in the management of the company. vii.

The proposed acquisition would not affect the rights of existing shareholders and the same shall help the company to run its business more effectively and efficiently by raising additional finance to meet its working capital requirements and improve the financial health of the company.

2. On a consideration of the application along with the documents submitted by the proposed acquirers, SEBI was prima facie not in favour of granting the exemption for the following reasons:

a. The main object for proposed acquisition of warrants stated under 'grounds for exemption' is to satisfy the stipulations of the lenders for disbursement of advances for the working capital. It was observed that the letter from Dena Bank does not specifically stipulate any fresh infusion of funds by the promoters as a condition precedent for disbursement of further funds by the Bank. Further, no other document has been brought on record by the applicants to support the aforesaid ground for claiming exemption.

b. On examining the financials of the Target Company, it was observed that loans were given to related party (Rs. 6.5 cr to Lyka Healthcare Ltd and Rs. 5.025 cr to Mr. N. I. Gandhi), amount due from related parties (Rs. 9.98 cr from Lyka Exports Ltd.), there was significant cash and bank balance (Rs. 6.51 cr). It appears that the target Company may have sufficient resources to meet its working capital requirements. Also, in the quarter ended September 2014, the company had declared net profit of Rs. 8.32 crores.

c. With regard to the ground for exemption that Acquirers are the original promoters of the Target Company and were holding more than 50% shares, it may be noted that since 2006, the promoter’s shareholding has been below 25%. Further, the past shareholding of the Acquirers has no relevance for determining whether the Acquirers would trigger open offer on account of the proposed transaction.

d. The claim that the financial health of the promoters is weak and they cannot afford to make open offer at this stage is not a valid ground for claiming exemption from the obligation to make an open offer.

e. If exemption is granted, the promoters will be able to consolidate their holding without making an open offer. This would affect the rights of the public shareholders as it would deprive them of an opportunity for exit.

The same were informed to the proposed acquirers vide SEBI letter dated June 18, 2015. The proposed acquirers were also granted an opportunity of personal hearing on July 02, 2015. The same was rescheduled to July 13, 2015.

3. On the date of personal hearing (i.e. July 13, 2015), Mr. Narendra I. Gandhi, Mr. Kunal Gandhi, Mr. Piyush G. Hindia (C.S.) and Mr. Yogesh Babulal Shah (CFO) appeared and made oral submissions. As requested, liberty was granted to file written submissions along with documents, if any, within a period of 7 days. Pursuant to the personal hearing held on July 13, 2015 in the matter, the proposed acquirers, vide letter dated July 21, 2015, filed their written submissions, wherein the proposed acquirers have inter alia submitted that – (a) The financial condition and performance of the Company was deteriorating over the past few years and it was unable to carry on operations due to inadequate working capital finance. Dena Bank had recognized this position and noted the same in their letter dated January 23, 2015.

(b) It has received notice dated November 07, 2014 from the Bank of Maharashtra under the SARFAESI Act to handover the possession of secured assets to the Bank in case the Company fails to pay the dues to the Bank. The Company also received a demand notice from the Ministry of Chemicals and Fertilizers to deposit an amount of Rs.20 crore as DPEA liability under the Drugs (Prices Control) Order 1979. The Company had suffered a major financial set back in October 2013 when a major fire broke out in its Lyphilization plant at Ankaleshwar. Besides huge losses, the production was also suspended for 4 months. The Company sold its plant at Tarapur for an amount of Rs.38.61 crore in 2014 to improve liquidity.

(c) Dena Bank had categorically stated that additional finance could be sanctioned to the Company only if fresh capital is infused into the Company by the promoters. In response to the persistent demand for additional capital, Dena Bank vide letter dated July 20, 2015 reiterated that for availing additional credit facilitities, the promoters should infuse Rs.4.20 crore by way of equity.

(d) In view of such requirement, the promoters have decided to subscribe to shares to bring in funds into the operations of the Company.

(e) The special resolution approving the allotment of Series II warrants (i.e. 1040000 warrants convertible into shares of face value Rs.10/- each) was passed in the EGM dated January 23, 2015. As the promoters were interested parties, they did not attend the meeting and the independent directors had conducted the said meeting. The public shareholders had unanimously approved the proposal and there was not a single vote against the resolution.

(f) The explanatory statement clearly mentioned that the conversion of warrants would result in the promoters crossing 25%, attracting the obligation to make an open offer. The shareholders were also informed that the promoters would seek exemption from SEBI for such obligation and only after receipt of such exemption the warrants would be allotted.

(g) SEBI had granted exemption in the matters of Refex Refrigerants Limited (SEBI Order dated October 15, 2010), Victory Paper and Boards (India) Limited (SEBI Order dated February 02, 2007), S M Energy Teknik and Electronics Limited (SEBI Order dated August 11, 2008) and Expo Gas Containers Limited (SEBI Order dated April 27, 2010), while considering the weak financial position of the said companies.

(h) The proposed acquirers have, in view of their submissions, requested SEBI to grant exemption from the requirement to make open offer in respect of their proposed transaction.

4. The application along with the submissions made by the proposed acquirers was referred to the Panel in terms of regulation 11 of the Takeover Regulations. The Panel, in the meeting held on September 19, 2015 did not recommend exemption as sought for in the application. The following is the extract of minutes of the meeting of the Panel pertaining to the instant matter:

“In case of Lyka Labs Limited, the Panel observed that the proposed infusion of capital by the existing promoters is not pursuant to CDR/JLF etc. and it is not obligatory on the existing promoters only to infuse the capital. Further, it was observed that the interest of public investors would not be served as the proposed conversion price of the warrants is significantly lower than the current prevailing market price (as on the date of Panel meeting). In view of the above, Panel did find any justification for granting exemption to the applicants from the applicability of SAST regulations and accordingly, recommended rejection for the same.”

5. Pursuant to the above, SEBI vide letter dated October 09, 2015 informed the observations of the Panel to the proposed acquirers and also intimated that they were afforded an opportunity of personal hearing on October 20, 2015. The date of personal hearing was rescheduled to November 04, 2015 on the request of the applicants. On the date of personal hearing, the proposed acquirers were represented by Mr. Narendra I. Gandhi, Mr. R.S. Loona, Advocate and others. The learned advocate filed written submissions dated November 04, 2015 and made submissions. The learned advocate also submitted that they would inform SEBI with respect to the letter dated June 05, 2015 inviting the target company for the meeting of the joint lenders forum.

6. The following were inter alia the submissions made vide the aforesaid written submissions:

1. With respect to the observation of the Panel that the proposed infusion of the capital by existing promoters is not pursuant to CDR/JLF etc. and it is not obligatory on the existing promoters only to infuse the capital, the proposed acquirers made the following submissions:

a. The above observation of the Panel is factually incorrect and legally untenable. In the past, SEBI has been giving exemption in such cases where financial condition of the companies had become weak. This has been done with a view to prevent the company from becoming a sick company has also to prevent the erosion of shareholders value including public shareholders. If a company had become a sick company under Sick Industrial Companies Act (SICA) or its scheme had been worked under Corporate Debt Restructuring (CDR) or debt is converted into equity under Strategic Debt Restructuring (SDR) then such a scheme/conversion of debt is automatically exempted under regulation 10 and there is no need for such company to approach SEBI/Takeover Panel for exemption. To protect the company from going into liquidation due to deteriorating financial condition, SEBI has in the past in the following cases granted exemption from applicability of open offer requirements under the SEBI Takeover Regulation: i. In the matter of Refex Refrigerants Limited (SEBI Order dated October 15, 2010). ii. In the matter of Victory Paper and Boards (India) Limited (SEBI Order dated February 02, 2007). iii. In the matter of S M Energy Teknik & Electronics Limited (SEBI Order dated August 11, 2008). iv. In the matter of Expo Gas Containers Limited (SEBI Order dated April 27, 2010).

b. Though the Company’s case is not yet referred to CDR, the Company’s account has been reported as SMA-2 by Dena Bank and as such Joint Lenders Forum (JLF) is now seized of the matter. A copy of Dena Bank’s letter dated June 05, 2015 was enclosed. According to the applicants, this letter was inadvertently not furnished earlier to SEBI.

c. That the financial condition and performance of the Company has been deteriorating over the past few years. The company had provided detailed information in its letter dated July 21, 2015 with reference to – i. letters of Dena Bank and Bank of Maharashtra pointing out liquidity crunch being faced by the Company and SARFAESI action initiated by them; ii. Demand Notice issued by Ministry of Chemicals and Fertilizers in respect of DPEA liability of Rs.20 crores under the Drugs (Prices Control) Order, 1979; iii. major financial set back in October 2013 due to major fire in the Company’s plant at Ankleshwar; iv. Sale of Plant at the Company’s factory at Tarapur to improve the liquidity; v. Receipt of demand notices from statutory authorities for defaults related to PF, ESIC, TDS, etc.

d. Besides the aforesaid financial problems highlighted earlier to SEBI, the Company is facing another serious problem with regard to refund of the public deposits which it had raised under section 58A of the Companies Act, 1956. As on March 31st, 2014 the company was required to refund a sum of Rs.17.23 Crores being the public deposits with interest by March 31, 2015 as per section 74 of the Companies Act, 2013. As the Company was unable to refund the said amount, it has approached Company Law Board (CLB) for extension of time vide its petition dated March 31st, 2015. If the company is not able to raise funds it would default in refunding the deposit amounts to small investors.

All the aforesaid facts clearly indicate the poor financial condition of the Company which can improve only with infusion of additional finance and that additional finance can be sanctioned to the Company by Dena Bank only if fresh capital is infused into the Company by the promoters as margin money. This position has been categorically stated by Dena Bank in its letters dated January 23, 2015 and July 20, 2015.

e. As regards, the Panel’s observation that ‘it is not obligatory on the existing promoters only to infuse the capital’, the proposed acquirers submitted that such observation is ‘not based on ground reality’. Dena Bank vide its letter dated July 20, 2015 has categorically stated that for availing additional credit facilities ‘the promoters are required to infuse Rs.4.20 cores by way of equity in the Company so as to consider the Company’s request for additional limit.

f. The Bankers’ insistence on equity contribution by the promoters is as per normal banking practice where the lender requires adequate stake/commitment of promoters in the project. The applicants have already pledged their shares in favour of, and given guarantees to, the bankers to secure the loans granted by the banks to the Company. Hence, the applicants have no other option but to infuse more funds to protect their huge investment in/exposure to the company’s project even when no other investor is willing to take exposure due to weak financial health of the company. Company’s management had several informal meetings with Investment Bankers in respect of bringing funds in the Company but nothing could materialize. Further, the Bankers of the Company have been continuously insisting the promoters to infuse additional funds and increase the stake in the Company beyond 25%.

g. It is not that the applicants/promoters are averse to infusion of funds by third parties but due to financial problems of the company no investor is interested to invest in the Company at this stage. In the past, the company had made preferential issue to various other entities. In 2005, the company had made a preferential allotment of 16,50,000 shares consisting 7.65% of the company to Clearwater Corporation (Foreign Institutional Investor). Due to such allotment, the promoters’ shareholding came below 25%. Therefore, it may be seen that the promoters have always kept the company’s interest supreme over their own interest.

2. With respect to the observation of the Panel that the interest of public investors would not be served as the proposed conversion price of the warrants is significantly lower than the current prevailing market price (as on the date of panel meeting), the proposed acquirer made the following submissions:

a. The conversion price of the warrants is decided as per the pricing formula provided by SEBI in SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2009 and the shareholders of the Company have decided to allot the warrants at the price of Rs.28/- (slightly higher than Rs.26.74/- price determined as per SEBI pricing formula). The shareholders unanimously passed special resolution to this effect. Only public shareholders participated and the general body meeting was presided over by an independent director. Being interested party, no promoter had participated in the proposal for allotment of warrants to the applicants.

b. As per SEBI formula, the current market price of the Company’s shares has no relation with the already agreed conversion price, as per SEBI formula. ‘Relevant Date’ for determining price for warrants under preferential allotment is ’30 days’ prior to the shareholders’ meeting. Market price may go up or down after allotment of warrants/equity and cannot alter the price determined as per SEBI pricing formula. In many past occasions, the applicants have converted their convertible securities at much higher price than the prevailing market price on the day of conversion. Details whereof are as follows:

Date of Shareholders’ Number of Issue/conversion Market Price resolution approving underlying Price as approved on the day of allotment Equity Shares by shareholders conversion 24.03.2004 400000 33.00 32.10 30.05.2006 100000 64.00 48.25 13.01.2007 100000 64.00 47.15

31.03.2007 375000 41.50 32.55 05.07.2007 200000 68.00 47.60 31.03.2008 275000 41.50 37.95 31.03.2008 520000 55.00 37.95 11.06.2008 650000 41.50 36.60 It is clear from above that at many occasions; the applicants had converted their convertible securities at much higher price than the prevailing market price. The market price of the shares of the Company is under nobody’s control and current rise in the price is mainly due to overall boom in pharma sector.

c. The applicants had submitted their exemption application to SEBI on February 05, 2015 i.e. nearly 9 months ago, when the price was not so high. The market price went up during the subsequent period but it could have gone down also, as it happened on several occasions as mentioned above.

d. In view of the aforementioned, the Takeover Panel has erred in holding that the interest of public investors would not be served as the proposed conversion price of the warrants is significantly lower than the current prevailing market price (as on the date of panel meeting). Further, current market price becomes irrelevant as the promoters equity contribution would be a long term investment and subjected to lock-in for a period of 3 years as per ICDR Regulations, thereby prohibiting any immediate benefit arising out of sale of such shares.

3. The proposed acquirers submitted that the shareholders are owners of the Company and the principle of shareholders supremacy is well recognized. Under the Companies Act, all major decisions have to be taken with the shareholders’ approval and consent. No court/tribunal can sit over their judgment and decide what is in their interest. As per the principle of shareholders democracy the majority decision will prevail unless the meeting is not validly convened or held. In the instant case, the company had informed the shareholders about the financial difficulties being faced by it. After considering all the relevant factors, the public shareholders of the company have unanimously approved the allotment of warrants to the applicants at Rs.28/-. The Shareholders understand their interest very well and any assumption to the contrary is not legally tenable.

4. The special resolution approving the allotment of Series II warrants was passed by the public shareholders in the Extra Ordinary General Meeting held on January 23, 2015. The promoters being interested parties had not participated in the meeting. The said meeting was conducted by the Independent Director. The public shareholders (who constitute more than 75% of the total shareholdings) unanimously passed the special resolution in respect of allotment of warrants and not a single shareholder voted against the resolution. The Scrutinizer’s report was referred. The explanatory statement in this regard clearly state as follows: “….the promoters are considering to infuse more equity in your company but this may result in promoters shareholding crossing 25% of the Company’s total equity capital, thereby attracting the promoters obligation to make an open offer to public shareholders as per regulation 3(1) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SEBI SAST Regulations). The promoters have therefore decided to apply to Securities and Exchange Board of India (SEBI) for exemption from open offer requirement as per regulation 11 of SEBI SAST Regulations, the Company shall allot further 10,40,000 Warrants (Series-II) to the same promoter group entities namely N.I.Gandhi (HUF) and Enai Trading and Investments Pvt. Ltd….”

It is clearly established that every shareholder was informed about the acquirer’s obligation to make an open offer and about the acquirers’ intention to apply for exemption to SEBI. The shareholders of the Company approved the proposed allotment. The Registrar and Transfer Agent (RTA) of the Company namely Sharex Dynamics India Private Limited had confirmed the delivery of Notice of the Meeting along with explanatory statement through Electronic mode to shareholders who have registered their Email id with them and other shareholders have been sent notice through courier namely City Express Logistics, Mumbai. Even e-voting facility was provided to shareholders who have not registered their email id with the RTA. Nome of the shareholders had voted against the resolution in respect of allotment of Series-II warrants.

If the Applicants are not permitted to infuse funds by way of equity contribution, the same would not only be prejudicial to the interest of the Company but it will also adversely affect the interest of public shareholders, public deposit holders, employees and creditors of the Company.

5. It was submitted that the promoters were controlling the company from its inception and were holding more than 50% shares in the Target Company in the year 2003. The Company was in need of funds for its growth and therefore the Target Company had made preferential allotment to third parties and as a result of the same the shareholding of the promoters was reduced. Past shareholding of the promoters have significant relevance to establish that the promoters were original promoters and holding substantial shareholding in the Target Company in past and controlling the Target Company from inception. The shareholding of the promoters never came below 15% and triggering percentage was 15% under the Takeover Regulations, 1997. The same was repealed by the New Takeover Regulations of 2011 and triggering limit was increased to 25% from the earlier limit of 15%. Had the law not been changed in 2011 for raising the threshold limit from 15% to 25%, the applicants would not have been required to seek exemption for increasing their shareholding beyond 25%.

6. It was submitted that public shareholders had taken an informed decision and approved the resolution unanimously. Further there will not be any change in control of the Company and hence exemption would not affect the rights of the public shareholders.

7. In view of their submissions, the proposed acquirers stated that the concerns raised by the Takeover Panel are misplaced and requested that the exemption application may be considered favorably.

7. Thereafter, vide letter dated November 18, 2015, the proposed acquirers informed that the meeting of the Joint Lenders Forum (JLF) was convened on December 03, 2015 to discuss about the financial difficulties being faced by the company and to decide the corrective action plan. A letter dated November 17, 2015 of Dena Bank convening such meeting was enclosed.

8. Subsequently, the proposed acquirers, vide letter dated December 04, 2015 forwarded a copy of the minutes of the JLF meeting held on December 03, 2015. The relevant portion is reproduced below:

“………….. Thereafter, Shri N.I. Gandhi, promoter of the Company briefly highlighted the reasons of financial stress as under: 1. Fire at Ankleshwar Plant causing loss of approximately Rs.10 crores. 2. Rs.10 crore paid to the Government of India on account of alleged Drug Price Equalization Account (DPEA) liability. 3. Mandatory refund of deposits due to changes in the Companies Act, 2013. 4. Heavy penalties paid on account of delays in payment of Statutory dues to Government Authorities.

Due to the above reasons, Company’s bank account became irregular on account of non servicing of interest and installment in time. The JLF observed that the Account with all the Banks is overdue and classified as SMA2.

The JLF discussed the issue at length and in order to improve the financial position and various financial ratios of the Company, the JLF stipulated that Promoters are required to infuse fresh equity in the Company to the extent of Rs.4.20 crore immediately under Corrective Action Plan.

It was also informed that the Promoters have already infused Rs.1.28 crore till date and balance amount of Rs.2.91 crore is yet to be infused awaiting necessary approval by the Regulatory Authority…….. ”

9. The proposed acquirers, vide letter dated March 07, 2016, while reiterating their request for exemption had submitted that the Company is desperately in need of funds for expansion, working capital requirement and to make the repayment to fixed deposit holders as per CLB Order dated January 22, 2016. A copy of the CLB order was enclosed.

10. I have considered the application, the submissions made by the proposed acquirers, the material submitted by them and the recommendation/observations of the Panel. I note that the proposed acquirers have already acquired equity shares on conversion of Series I warrants. Pursuant to the same, the shareholding/voting rights of the promoters of the target company has increased from 23.30% to 24.90%. The proposed acquirers have proposed to acquire 10,40,000 warrants (Series II warrants) {520000 warrants each to Narendra I. Gandhi and Enai Trading}, subject to exemption from SEBI, convertible into equal number of equity shares of Rs.10/-. As per the application and submissions, this proposed acquisition of warrants and subsequent conversion into equity shares would increase the shareholding of the promoters from 24.90% to 28.28%. As the proposed acquisition would increase the shareholding/voting rights of the promoters beyond 25%, such transaction would trigger regulation 3(1) of the Takeover Regulations.

11. The Takeover Panel has observed that the proposed infusion of capital by the existing promoters is not pursuant to JLF/CDR. In this regard, I note that when the applicants had filed the application (seeking exemption), they had mentioned that Dena Bank, vide letter dated January 23, 2015, had asked the company to infuse fresh capital as a condition precedent for disbursement of further funds. I have perused this letter and note that the Dena Bank has only observed “…the operation of the company is facing liquidity crunch. To sort out the same it is advisable that the company should infuse fresh capital or increase their networth so as to improve the financial ratio of the company”. The SEBI letter dated June 18, 2015 had mentioned that Dena Bank did not specifically stipulate any fresh infusion of funds by the promoters as a condition precedent for disbursement of further funds by the Bank and that no other document was submitted by the applicants to support their ground for claiming exemption. Thereafter, vide its submissions dated July 21, 2015,the Company submitted that Dena Bank vide its letter dated July 20, 2015 has stipulated that for additional credit facilities, the promoters were required to infuse Rs.4.20 crore by way of equity in the company. Therefore, it can be seen that the ‘stipulation’ as referred to by the applicants is only from the Dena Bank.

12. The applicants, vide submissions dated November 04, 2015, had also referred to a letter dated June 05, 2015 (according to the applicants this letter was inadvertently not produced before), wherein the Bank has mentioned that the account was reported as SMA-2 and informed the company regarding the JLF meeting convened on June 16, 2015. Thereafter, the applicants had referred to the minutes of the meeting of JLF held on December 03, 2015, wherein the JLF has, in order to improve the financial position and various financial ratios of the target company, stipulated the promoters to infuse fresh equity in the target company to the tune of Rs.4.20 crore immediately under the Corrective Action Plan. From the above minutes of JLF, it is clear that the JLF has not approved any restructuring scheme for restructuring the loans of the company. Therefore, the minutes dated December 03, 2015 of JLF cannot be equated to a “restructuring scheme” envisaged under the relevant circulars of the Reserve Bank of India (RBI) with respect to Revitalising Distressed Assets/Strategic Debt Restructuring Scheme. From the same, it can be seen that as on date there is no “Restructuring Scheme” sanctioned by the JLF for restructuring the loan account/s of the company. In view of the above, I agree with the observation of the Takeover Panel that the proposed infusion of capital by the promoters is not pursuant to any restructuring scheme approved by the JLF.

13. The Panel has also observed that the interest of investors would not be served as the proposed conversion price of the warrants is significantly lower than the market price as on the date of the meeting of the Panel. The proposed acquirers have agreed to subscribe to warrants at a price of Rs.28/-. The share price on the date of Panel’s meeting on September 18, 2015 was Rs.71.60/- and the current market price (as on March 22, 2016) is around Rs.82/-. According to the proposed acquirers, the conversion price of the warrants is decided as per the pricing formula provided by SEBI in SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2009 and the shareholders of the Company have decided to allot the warrants at the price of Rs.28/-, which is slightly higher than Rs.26.74/- the price determined as per SEBI pricing formula. The proposed acquirers have also contended that as per the pricing formula, the current market price of the shares of the target company has no relation with the already agreed conversion price, as per SEBI formula. In this regard, I note that the applicants wish to take advantage of a subsequent event being the JLF meeting held on December 03, 2015, whereas they are averse to the consideration of subsequent price rise of the company’s shares vis-à-vis the proposed acquisition price. It can be seen that the proposed acquisition price is significantly less than the market price. Considering the same, it is observed that if exemption is allowed without an open offer, the same may place the promoters at an advantageous position as compared to the other shareholders of the company. For the above reasons, I agree with the Takeover Panel that the interests of investors would not be served if the exemption is allowed at the proposed acquisition price.

14. The applicants have also stated that the company is facing another serious problem with respect to refunds of public deposits raised by it under section 58A of the Companies Act, 1956. It is also stated that the company has approached the Company Law Board (CLB) for seeking extension of time. The applicants have also enclosed copy of the CLB’s Order dated January 22, 2016, granting extension of time to pay the fixed deposits as directed therein. I have perused such submissions and documents and note that the same would not be a reasonable ground for granting exemption from an open offer pursuant to the proposed acquisition as per the application.

15. In view of the above reasons and considering the observations of the Takeover Panel, I do not find merit in the application filed by the applicants seeking exemption from the requirement under regulation 3(1) of the Takeover Regulations with respect to their proposed acquisition. I, accordingly reject the application.

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Date: March 31st, 2016 Place: Mumbai