Order in the matter of proposed acquistion of shars of AIA Engineering Limited

WTM/PS/CFD/DCR/10/OCT/2012 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER IN THE MATTER OF PROPOSED ACQUISITION OF SHARES OF AIA ENGINEERING LIMITED – APPLICATION FILED UNDER REGULATION 11(1) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 2011

1. AIA Engineering Limited (hereinafter referred to as “the Target Company”) is a company incorporated under the Companies Act, 1956, having its registered office at 115, GVMM Estate, Odhav Road, Ahmedabad - 382410. The issued, subscribed and paid-up share capital of the Target Company is 9,43,20,370 shares of Rs.2/- each. The equity shares of the Target Company are listed on the Bombay Stock Exchange Limited (BSE) and the National Stock Exchange of India Limited (NSE). 2. M/s. Grey Cast Foundry Works (hereinafter referred to as the "Acquirer"), a partnership firm through its partner Mr. Bhadresh K. Shah, filed an application dated January 30, 2012 with the Securities and Exchange Board of India (hereinafter referred to as "SEBI"), under regulation 11(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as the "Takeover Regulations"), seeking exemption from the applicability of the provisions of regulation 3(2) read with regulation 5(1) of the Takeover Regulations, in respect of its proposed acquisition of 1,41,48,050 shares (15% shares/voting rights) in the Target Company through purchase from Bhadresh K Shah (HUF), a promoter entity of the Target Company. It is stated in the application that : a) The Acquirer is a partnership firm consisting of the following partners - Mr. Bhadresh K. Shah (Managing Partner), Bhadresh K Shah (HUF) [the proposed seller] and Vrindavan Alloys Private Limited; b) The Acquirer has been shown in the Annual Report for 2010-2011 (in Annexure D) as forming part of the 'Group' within the meaning as defined in the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act); c) At present the Acquirer does not directly hold any shares in the Target Company. However, its partners, Mr. Bhadresh K. Shah, in his individual capacity holds 42% shares and Bhadresh K Shah (HUF) holds 19.62% shares in the Target Company;

d) The control of the Target Company is with its promoter Mr. Bhadresh K. Shah; e) The Acquirer proposes to acquire 1,41,48,050 equity shares (approximately 15% shares/voting rights) from Bhadresh K Shah HUF (out of its holding of 19.62% equity shares in the target company) through Block Deals on the stock exchange at the market rate on the date of purchase; f) The paid-up share capital of the Target Capital would remain the same after the proposed acquisition. 3. As the proposed acquisition would increase the holding of the Acquirer from 0% to 15%, the application has been made seeking exemption from the applicability of regulation 3(2) read with regulation 5(1) of the Takeover Regulations on the following grounds : i. The Target Company is promoted by Mr. Bhadresh K. Shah and has been declared as a promoter in the disclosures made to SEBI and the stock exchanges; ii. Mr. Bhadresh K Shah holds 42% shares; his wife and 2 daughters hold 0.02% and his HUF holds 19.62% in the Target Company. Mr. Bhadresh K Shah along with the persons acting in concert holds 61.65% shares in the Target Company; iii.

In the Offer Document of November 2005, it has been specifically stated that the Target Company has acquired the entire business of the Acquirer from December 31, 2004 and all liabilities and assets of the Acquirer have been taken over by the Target Company. The association between the Target Company and the Acquirer is old; iv. Vrindavan Alloys Private Limited (a partner of the Acquirer) has also been shown as a promoter and a promoter group company in the Prospectus dated November 29, 2005. Mr. Bhadresh K. Shah and his wife are the promoters of the entity and hold 99% in it; v. On an examination of the holding in the Target Company, the Acquirer and Vrindavan Alloys Private Limited, it can be seen that Mr. Bhadresh K Shah being a promoter is also a major holder in the said entities; vi. Exemptions available under regulation 10(1)(a)(ii), (iv) and (v) of the Takeover Regulations do not apply to the Acquirer in respect of its proposed acquisition of shares; vii. In the proposed acquisition, no outsider or stranger is acquiring shares of the Target Company as the acquisition takes place between the seller who is the promoter and the Acquirer (the proposed purchaser) who is also from the promoter/group of the Target Company; viii.

The application is filed on the belief that the acquisition is on principle, exempted from making an open offer. SEBI does not require any open offer in spirit, when no additional voting rights are acquired and when the acquisition is made by a group of the promoter;

ix. There is no change of control in the Target Company, as even after the proposed acquisition, the control would be with the promoter as was before the proposed acquisition. The voting rights of the promoter also remain the same. 4. The Acquirer also made further submissions vide their letters dated February 18, 2012, February 27, 2012, April 19, 2012, April 23, 2012, May 15, 2012, in response to certain queries from SEBI, in respect of the application. 5. The application of the Acquirer was referred to a Panel of Experts ("the Panel") to make recommendation thereon, in terms of the proviso to regulation 11(5). After examining the matter, the Panel, vide its Report dated July 30, 2012, recommended as under : "Recommendation: It was observed by the Panel that the proposed transaction is between the promoter (Bhadresh K. Shah HUF) and GCFW, a promoter group entity in which 100% profit sharing ratio is held by promoters Bhadresh K. Shah, Bhadresh K. Shah HUF (wife and 2 daughters) and a promoter company, VAPL. There will be no change in control or management of the Target Company as a result of the proposed transfer.

Further, the Panel was of the view that the exemption, if granted, will not affect or prejudice the interest of the shareholders of the Target Company in any manner. Accordingly, the Panel recommends exemption to the applicants as prayed for in their application for exemption." [Emphasis supplied] 6. I have considered the application of the Acquirer, the subsequent responses/clarifications from the Acquirer in respect of certain queries of SEBI, the Report of the Panel and other material available on record. The Acquirer proposes to acquire 15% shares/voting rights in the Target Company from one of the promoters of the Target Company, Bhadresh K. Shah (HUF) [the proposed seller]. It has been submitted before SEBI that the reason for the proposed transfer to the Acquirer is a part of the restructuring of shareholding amongst the family members of the promoter family/promoter group in the Target Company. The said acquisition would result in the increase of the individual shareholding of the Acquirer from 0% to 15% in the Target Company. The shareholding of the Acquirer together with persons acting in concert [except the transferor] shall increase from 42.04% to 57.04% in the Target Company, which percentage increase is beyond the threshold limit mentioned under regulation 3(2) of the Takeover Regulations. Therefore, exemption has been sought from complying with the open offer requirements stipulated under regulation 3(2).

7. The promoter/promoter group's holding is at 61.65% (5,81,49,120 shares), as per the shareholding pattern of the Target Company as on March 31, 2011. The following persons belong to the "Promoter and Promoter Group", as per the disclosures to the stock exchange : a) Mr. Bhadresh K. Shah (holding 42%) b) Bhadresh K Shah HUF (holding 19.62%) c) Bhadresh K Shah and Gita B Shah (holding 0.01%) d) Mrs. Khusali B Shah (holding 0.01%) e) Mrs. Bhumika B Shah (holding 0.01%) f) Mrs. Gita B Shah (holding 0.01%) Total : 61.65% Bhadresh K Shah HUF consists of Mr. Bhadresh K Shah, his wife and two daughters. I note that Ms. Bhumika B Shah, Ms. Khusali B Shah and Ms. Gita B. Shah, who are the promoters of the Target Company and the members of Bhadresh K Shah HUF have given their consent for the proposed transfer of 15% shares/voting rights to the Acquirer. 8. I also note that the Acquirer is a partnership firm in which Mr. Bhadresh K. Shah, Bhadresh K Shah HUF (wife and two daughters) and Vrindavan Alloys Private Limited are the partners. The profit/loss sharing ratio among the partners is stated to be as under :

Name of the partner % share of profit/loss Bhadresh K. Shah 68% Bhadresh K Shah HUF 2% Vrindavan Alloys Private Limited (99% shares held by Mr. 30% Bhadresh K Shah and his wife) Total 100% It is noted that the promoters of the Target Company have 100% share of profit or loss in the Acquirer.

9. I note that out of the shareholding of 19.62%, held by of Bhadresh K Shah HUF, 15% shares are now proposed to be transferred to the Acquirer through Block Deals to be executed on the stock exchange platform at the market price on the date of the transaction, in terms of the application. The shareholding pattern of the promoter group before and after the proposed acquisition by the Acquirer, as mentioned in the application as well as subsequent correspondence, is given in a diagrammatic representation below :

Pre-Transfer Post-Transfer

Bhad resh K Gray Cast Shah HUF Foundry Works*: 15% 1. (Pro posed Transferor) : 19.61% Bhadresh K 2. Shah HUF: 4.61% (PAC) Shareholding pattern S hareholding pattern

Bhadresh K Shah and his family Bhadresh K Shah and his family 3m.e m bers: 42.04% members: 42.04% Bhadresh K 4.61% Bhadresh K 19.61% Shah HUF Shah HUF _________________________ Gray Cast Foundry Works*: 15% Prom oters (Total ): 61.65% Promoters (Total): 61.65% Non-Promoters: 38.35% Non-Promoters: 38.35% Total : 100% Total : 100% * - the Acquirer (the proposed purchaser)

10. The shareholding of the promoter group (without the shareholding of Bhadresh K Shah HUF) is 42.03%. As stated above, the shareholding of the Acquirer together with persons in the promoter group (who are PACs) except Bhadresh K Shah HUF, would increase from 42.03 to 57.03%. This increase is beyond the creeping threshold limit (of 5%) mentioned under regulation 3(2) of the Takeover Regulations. I note that there is no fresh acquisition of shares by the promoter group and the pre-acquisition and post acquisition shareholding of the promoter group would remain the same at 61.65%. A portion i.e., 15% shareholding of one promoter - Bhadresh K Shah HUF would be transferred to the Acquirer in whom the promoters of the Target Company are the partners. Two among the promoters, Mr. Bhadresh K Shah and his wife have 99% shareholding in Vrindavan Alloys Private Limited, who is another partner of the Acquirer. In effect, the Acquirer is controlled by the promoters of the Target Company as they have 100% profit/loss sharing in it, as stated above. It has been submitted that either party to the aforesaid transaction is a promoter of the Target Company and that since the Acquirer does not have any individual shareholding in the Target Company at present, no disclosure of its shareholding was made. It has also been stated that it is for the aforesaid reason thatthe automatic exemption available under regulation 10(1)(a)(ii) and (iv) were not available to the Acquirer and hence the application has been filed for seeking exemption for the proposed transaction.

11. As stated earlier, the Acquirer is a partnership firm whose partners are Mr. Bhadresh K Shah, Bhadresh K Shah HUF and Vrindavan Alloys Private Limited (in which 99% shares are held by Mr. Bhadresh K Shah and his wife). Further, the Acquirer is mentioned in the list of persons forming the "Group" as defined under the MRTP Act. In effect, no third party who is stranger to the promoter/promoter group is acquiring the shares. There would no change in the shareholding of the promoter/promoter group after the proposed acquisition by the Acquirer. It is only the manner of holding of shares in the promoter group which undergoes a change in that Bhadresh K Shah HUF would, after the proposed transaction hold 4.92% shares/voting rights and the Acquirer would be holding 15% (from nil %).

12. I also note that there would be no change in the management or control in the Target Company as a result of the proposed transaction between the Acquirer and the proposed seller. Further, as long as the constitution of the partners in the Acquirer remains the same, there shall be no effective change in the manner of exercise of 15% voting rights proposed to be acquired in the Target Company. I also note that there would not be any reduction in the shareholding of the public shareholders in the Target Company pursuant to the proposed transfer of 15% shares.

13. For the foregoing reasons, I agree with the recommendation of the Takeover Panel and consider the present case a fit one for granting exemption to the Acquirer and its PACs from complying with the requirements of regulation 3(2) of the Takeover Regulations.

14. In view of the above, 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 11(5) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, hereby grant exemption to the acquirer, M/s. Grey Cast Foundry Works from complying with the requirements of regulation 3(2) thereof in respect of its proposed acquisition of 1,41,48,050 (15%) equity shares of face value Rs.2/- each of the target company, AIA Engineering Limited.

15. The exemption is granted subject to the following conditions: a) The proposed acquisition shall be completed within a period of 30 days from the date of this Order and the Acquirer shall file a report with SEBI in the manner provided in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 within 21 days from the date of completion of the acquisition; b) If there is any change in the constitution of the partners in M/s. Grey Cast Foundry Works, i.e., the acquirer, the same may attract the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 as may be applicable at that point of time; c) The statements/averments made or facts/figures given in the application and in the subsequent correspondence by the said acquirer are true and correct to its best knowledge; d) The acquirer/target company shall ensure compliance with the statements, disclosures and undertakings made in the application and subsequent correspondence; and e) This exemption is limited to the requirements of making open offer under regulation 3(2) of said Takeover Regulations and shall not extend to other obligations (e.g. disclosure requirements under Chapter V of the Takeover Regulations, the Listing Agreement or any other law) by the Target Company and the Acquirer.

16. The exemption so granted above shall not be construed as an exemption from the requirements of any other provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (e.g. disclosure requirements under Chapter II), the Listing Agreement or any other law.

Date : October 05, 2012 PRASHANT SARAN Place : Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA