Order in the matter of proposed increase in voting rights in Deccan Chronicle Holdings Ltd- exemption application filed under regulation 4(2) of the SEBI(SAST) Regulations

1. Deccan Chronicle Holdings Limited (hereinafter referred to as the target company) is a company incorporated under the Companies Act, 1956, having its registered office at 36, Sarojini Devi Road, Secunderabad - 500003. The equity shares of the target company are listed on the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited. Emkay Global Financial Services Limited, vide letter dated February 2, 2011 filed an application dated February 1, 2011 (hereinafter referred to as the application) under Regulation 4(2) read with Regulation 3(1)(l) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the Takeover Regulations) on behalf of Mr. T. Venkattram Reddy, Mr. T. Vinayak Ravi Reddy, Mr. P.K Iyer and Mrs. T. Urmila Reddy (hereinafter collectively referred to as the acquirers). The said individuals are the promoters of the target company. It was stated in the application that the target company proposes to buy-back upto 3,45,00,000 fully paid-up equity shares of `2/-each which represents 14.17% of the paid-up equity share capital of the target company, through stock exchanges. The application further mentioned that the buy-back proposal was approved through postal ballot by the shareholders of the target company on January 4, 2011. As per the application, as on December 31, 2010, the acquirers are holding 15,42,82,250 equity shares representing 63.37% of the shareholding/voting rights in the target company and that their voting rights may increase to 73.83% assuming successful buy-back of 3,45,00,000 equity shares by the target company. As the proposed buy-back by the target company would increase the voting rights of the acquirers from 63.37% to 73.83% thereby requiring them to comply with the requirements of Regulation 11(2) of the Takeover Regulations, the application has been made seeking exemption from SEBI in respect of making a public announcement as provided under the aforesaid regulation, inter alia on the following grounds:

a) There is no direct acquisition of shares or voting rights by the acquirers and that the increase in the voting rights from the current holding (63.37%) to 73.83% is on account of reduction in capital, assuming successful buy-back of 3,45,00,000 equity shares. b) The increase in voting rights of the acquirers to 73.83% would not result in any change in control over the target company as the acquirers are already in control. c) Even after buy-back of equity shares by the target company (in case of 100% response), the public shareholding in the target company will remain at a level more than 25%. d) All the acquirers have undertaken vide a deed of undertaking dated November 12, 2010 that they will not participate in the proposed buy-back.

2. The shareholding pattern of the target company (as given in the application) before and after the proposed buy-back (assuming 100% response to the same) is given below: Before the Proposed buy- After the Proposed buy-back back No. of % of % of Shareholders registered Shares/ No of Shares/ Category No of Shares/ Shareholders total Shares/ total total voting voting total voting voting rights held rights rights held rights held held Promoters (the acquirers 4 15,42,82,250 63.37% 15,42,82,250 73.83% herein) FIs/ Banks, MFs 19 2,87,88,720 11.82% FIIs/ NRIs/ 645 3,76,05,632 15.45% 5,46,89,969 26.17% OCBs Public 31,693 2,27,95,617 9.36% Total 32,361 24,34,72,219 100% 20,89,72,219 100%

3. The aforesaid application was forwarded by SEBI to the Takeover Panel in terms of Regulation 4(4) of the Takeover Regulations. Thereafter, the Takeover Panel vide report dated March 02, 2011, has recommended as under:

“………… the proposed buyback through Stock Exchanges will provide an exit option to those public share holders who desire to exit. Further, it will enhance overall share holder’s value. It was also noticed that after the proposed buyback the public share holding shall continue to be above 25%, i.e. above the minimum level of public share holding.

Considering all these aspects, the panel found the proposal to be in the interest of the public share holders and recommended exemption from the applicability of regulation 11(2) of the Takeover Regulations subject to the Target Company/Acquirers complying with the relevant provisions of the Companies Act, 1956, Sebi Regulations and listing agreements.” 4. While the matter was under consideration by SEBI, Emkay Global Financial Services Limited vide an electronic mail dated March 22, 2011 informed that the promoters/acquirers were holding 14,90,77,250 equity shares representing 60.88% of the total share capital in the target company as on September 30, 2008 and that pursuant to the ‘SEBI Circular dated October 30, 2008’, the promoters/acquirers had during November 2008, acquired 52,05,000 equity shares (representing 2.13% of the then share capital) of the target company, availing the creeping acquisition benefit of 2.13% out of the 5% limit provided under the second proviso to Regulation 11(2) of the Takeover Regulations. It was further informed that the acquirers have not acquired shares after November 2008. The said electronic mail attached therewith a statement providing the break-up of the acquisition by the acquirers along with the purchase dates, which were made under the second proviso to Regulation 11(2) of the said Regulations.

5. I have considered the application, the subsequent information filed by the acquirers, the recommendation of the Takeover Panel and other relevant material available on record. The application has been made seeking exemption from complying with the open offer requirements stipulated under Regulation 11(2) of the Takeover Regulations in respect of the increase (from 63.37% to 73.83%) in the voting rights of the acquirers which may result out of a proposed buy-back offer by the target company. In this regard, I have perused the certified true copy of the special resolution passed by the shareholders on January 4, 2011 through postal ballot. As per the said resolution, the consent of the company was accorded to the board at its sole option at such time as it may consider appropriate to purchase the (target) company’s fully paid up equity shares of `2/- each at a price not exceeding `180/- per share for an aggregate amount not exceeding `270 crores. The said proposed buy-back when completed and assuming 100% response to the same, would increase the voting rights of the acquirers in the target company from 63.37% to 73.83% though the number of shares held by them would remain the same at 15,42,82,250.

It is noted that the aforesaid increase in the voting rights of the acquirers is only incidental to the buy-back offer of the target company. Further, it has been submitted by the acquirers that the said increase would not result in any change in control over the target company, as the acquirers (promoters) are already in control over the target company. As stated above, the acquirers have also undertaken that they would not offer shares in the proposed buy-back offer of the target company. It is also noted that, in the application, it is stated that the target company would buy-back the shares through the stock exchange mechanism. I also note that pursuant to the proposed buy-back (even in case of 100% response), the public shareholding in the target company would be at a level more than what is specified in Clause 40A of the Listing Agreement. Therefore, on taking into consideration that the proposed increase in the voting rights of the acquirers would not result in any change in control over the target company; the public shareholding would continue to remain at a level mandated by the listing agreement; the offer price (maximum price not exceeding `180/-) is above the minimum offer price (of `121.94/-) computed in accordance with the Takeover Regulations; and also that the proposed buy-back through the stock exchanges would provide an exit option to those shareholders who desired to exit from the target company, I am in agreement with the recommendation of the Takeover

Panel in granting exemption to the acquirers from the applicability of Regulation 11(2) of the Takeover Regulations.

6. After having decided to grant exemption to the acquirers, I also note that the acquirers had filed a similar application earlier in respect of the increase in their voting rights in the target company consequent to a proposed buy-back authorized by the shareholders of the target company during January 2009. At that point in time, an application was made by the acquirers herein seeking exemption from the requirements of Regulation 11(2) of the Takeover Regulations in respect of the increase from 63% to 73.51% in their voting rights consequent to the said buy-back offer proposed by the target company. The said application was allowed and exemption was granted by SEBI vide an Order dated July 20, 2009. Thereafter, the target company had made the buy-back offer during August, 2009, wherein 4.84% of the total voting capital of the target company was bought back. As a result of the same, the voting rights of the acquirers (the promoters) in the target company went up from 63% to 63.37% of the total voting capital of the target company. The present buy-back offer shall also consequently increase their voting rights from 63.37% to 73.83% (assuming 100% response) in the target company, as stated above in this Order. This is the second time the acquirers are approaching SEBI for grant of exemption in respect of the increase in their voting rights due to a proposed buy-back offer by the target company. Repeated buy-back offers by a company is not something that SEBI, as a regulator, would like to encourage, given the fact that it could be misused by entities to consolidate their holding at the expense of the company.

7. Further, I also note that the acquirers have stated that they were holding 60.88% of the total share capital in the target company as on September 30, 2008. Thereafter, they had acquired 2.13% of the share capital during November 2008, which increased their shareholding to 63.01%. The aforesaid market purchase of 2.13% was done by the acquirers utilizing the creeping acquisition benefit provided under the second proviso to Regulation 11(2) of the Takeover Regulations. The said proviso enables a person to acquire a maximum of 5% without having to make a public announcement subject to the conditions imposed therein and the guidance in the interpretative circular of SEBI dated August 6, 2009 issued in that regard. As noted above, the acquirers have already availed 2.13% of the available 5% as provided under the second proviso to Regulation 11(2) of the Takeover Regulations. Further, as mentioned above, the target company has already offered to buy-back its securities once before and consequently, the promoter holding has also increased. The target company would again be coming out with another buy-back offer, which would consequently increase the acquirers’ voting rights from 63.37% to 73.83% (in case of 100% response). Therefore, in such circumstances, if the voting rights exercisable by the acquirers actually increase to 73.83% as proposed, they would be deemed to have exhausted the 5% acquisition limit permissible under the second proviso to Regulation 11(2) of the Takeover Regulations. Further, noting the repeated buy-back offers by the target company and the acquirers seeking exemption twice from complying with the open offer requirements in respect of increase in their voting rights consequent to buy-back offers, it would only be reasonable to advise the acquirers not to seek exemption from the applicability of the Takeover Regulations in respect of any increase in voting rights pursuant to any further buy-back offers by the target company.

8. In view of the foregoing, 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 Mr. T. Venkattram Reddy, Mr. T. Vinayak Ravi Reddy, Mr. P.K Iyer and Mrs. T. Urmila Reddy from complying with the provisions of Regulation 11(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 with respect to their increase in voting rights from 63.37% to 73.83% consequent upon the proposed buy-back of equity shares by the target company, Deccan Chronicle Holdings Limited. Accordingly, the application dated February 1, 2011 made by the aforesaid acquirers is disposed off.

9. The exemption so granted is subject to the following conditions:

i. The statements/averments made and facts/figures given by the acquirers in their application and in the subsequent correspondence are true and correct to the best knowledge of the acquirers. ii. The acquirers shall ensure compliance with the statements, disclosures and undertakings made in the application and in subsequent correspondence. iii. The proposed buy-back of equity shares shall be in accordance with the provisions of the Companies Act, 1956, the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 1998, the Listing Agreement and other applicable laws.

10. The acquirers are further directed not to seek any further exemption pursuant to any further buy-back offers by the target company, for the reasons stated above in this Order.

11. The exemption 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, 1997 (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 : APRIL 15, 2011