Order in the matter of proposed increase in voting rights of promoter group in M/s ECE industries Limited

1. ECE Industries Limited (hereinafter referred to as the target company) is a company incorporated under the Companies Act, 1956, having its registered office at “ECE House” 28-A, Kasturba Gandhi Marg, New Delhi-110001. The equity shares of the target company are listed on the National Stock Exchange of India Limited (hereinafter referred to as NSE) and the Bombay Stock Exchange Limited (hereinafter referred to as BSE). Sobhagya Capital Options Limited, the merchant banker, vide letter dated August 6, 2011 filed an application with the Securities and Exchange Board of India (hereinafter referred to as SEBI) under Regulation 4(2) 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 Mrs. Jayshree Mohta, Jay Shree Tea & Industries Limited, Essel Mining & Industries Limited, UCO Bank A/c-Birla Education Trust, Mr. Kumar Mangalam Birla, Mr. Prakash Kumar Mohta, Mr. Sakate Khaitan, Jayashree Finvest Private Limited and Bhiragacha Finance Company Private Limited (hereinafter collectively referred to as the acquirers).

The said application was filed seeking exemption from SEBI for the acquirers from making a public announcement under Regulation 11(1) of the Takeover Regulations in respect of their increase in voting rights in the target company pursuant to a proposed buy-back offer of the target company. In terms of the aforesaid application, the acquirers belong to the promoter group of the target company. According to the application, the board of directors of the target company in their meeting held on July 5, 2011 had approved the proposal for buying back the target company’s fully paid up equity shares of face value of `10/- each, not exceeding 8,75,000 equity shares (the maximum offer shares) and a minimum number of 2,00,000 equity shares (the minimum offer shares), from the open market using the electronic trading facilities of the BSE and/or the NSE, from the existing shareholders other than those from the promoter group at a price not exceeding `145/- per equity share payable in cash for an aggregate amount not exceeding `1268.75 lakhs (the maximum offer size). It is stated in the application that the acquirers, at present, are holding 41,18,587 equity shares representing 46.93% of the total paid up share capital of the target company.

It is also stated therein that during the financial year 2011-12, the promoter group of the target company had acquired 2,25,000 equity shares representing 2.56% of the paid up share capital of the target company by way of purchases from open market. The said acquisition had increased their holding from 44.36% (as it then was before the said 2.56% purchase) to the present holding of 46.93%. The application stated that, except for the above purchase, none of the constituents of the promoter group has acquired any shares of the target company till date. The aforesaid application has been filed on behalf of the acquirers seeking exemption from the applicability of Regulation 11(1) of the Takeover Regulations as the proposed buy-back, if fully successful, would increase the voting rights of the acquirers from 46.93% to 52.13% in the target company, thereby triggering Regulation 11(1) of the Takeover Regulations, inter alia on the following grounds:

i. There is no direct acquisition of shares or voting rights by the acquirers and the possible increase in the voting rights of the acquirers beyond the permissible creeping acquisition limit of 5% in the current financial year ending on March 31, 2012 would be incidental to the proposed buy-back by the target company on account of reduction of its share capital (assuming successful buy back of more than 4,32,000 shares in the current financial year). ii. There would not be any significant or material impact on the operations of the target company due to the buy-back. iii. Increase in voting rights of the acquirers is incidental to the buy-back proposal of the target company and is not an active acquisition. Even after the buy-back (in case of 100% response), the public shareholding in the target company would be at a level more than what is required for meeting the requirements of the listing agreement and the promoters holding will be well below 55% of the post buy-back paid up equity capital. iv. The buy-back is proposed at `145/- which is at a premium of 18.95% and 18.13% over the closing price at BSE and NSE respectively as on July 4, 2011 (the day preceding the date of the board meeting approving the buy-back). The proposed buy-back through stock exchanges would provide an exit option to the public shareholders. v. The buy-back is being proposed by the target company to maximize returns to investors and enhance overall shareholder value by returning surplus cash to the shareholders. It would lead to the reduction in the outstanding number of equity shares and consequently lead to the increase in “Earnings per share” and improvement in “Return on Net Worth” and other financial ratios of the company in future, thereby creating long term shareholder value for the continuing shareholders. Besides, it would also provide an exit opportunity to those public shareholders who desire to exit in an investor friendly manner. vi. There would not be any change in the management control over the target company pursuant to the resultant increase in the shareholding of the acquirers.

2. The shareholding pattern (as given in the application) in the target company before and after the proposed buy-back (assuming 100% response) is given below:

Before the Proposed buy- After the Proposed buy-back back* No. of registered Shareholders Shareholders as % of % of Category on August 4, No of Shares/ No of Shares/ Shares/ Shares/ 2011 total voting total voting total voting total voting rights held rights held rights held rights held SHAREHOLDING OF PROMOTER AND PROMOTER GROUP (ACQUIRERS) Indian- 4 2,84,956 3.25 2,84,965 3.61 Individual/HUF Bodies Corporate 4 35,00,333 39.88 35,00,333 44.30 Others - - - - - Foreign - - - - - SUB TOTAL (A) 9 41,18,587 46.93 41,18,587 52.13 PUBLIC SHAREHOLDING FIs/ Banks/Insurance 4 3,56,098 4.06 Company Non-Institutions Bodies Corporate 203 20,19,760 23.01 Individuals 5596 19,29,313 21.98 NRIs/ OCBs 47 2,90,107 3.31 Clearing Member 63 62,295 0.71 37,82,723 Others 1 150 0.00 47.87 SUB TOTAL (B) 5914 46,57,723 53.07 Total (A) + (B) 5923 87,76,310 100.00 79,01,310 100.00

[* The post buy-back shareholding/voting rights of different categories of shareholders may differ depending upon the actual number of equity shares bought back]

3. Thereafter, the aforesaid application was forwarded to the Takeover Panel, by SEBI, in terms of Regulation 4(4) of the Takeover Regulations. Subsequently, the Takeover Panel, vide report dated August 26, 2011, has recommended as under:

“The Panel observed that the buy-back price of Rs. 145/- per equity share was at a premium of 18.95% and 18.13% over closing price at BSE and NSE respectively. Further, it was observed that the proposed buy-back will provide exit option to those public share holders who desire to exit and the same will also enhance the overall share holders value. In view of these facts and also in view of the fact that the public share holding even after successful completion of buy-back will be 47.87% i.e. much above the threshold level of 25% for public shares holding, the panel found the proposal in the interest of the public share holders and recommended exemption from the applicability of regulation 11(1) of the SEBI (SAST) Regulations, subject to the Target Company/Acquirers complying with the relevant provisions of the Companies Act, 1956, SEBI Regulations and Listing Agreement(s).”

4. I have considered the application filed on behalf of the acquirers seeking grant of exemption, the recommendation of the Takeover Panel and other relevant material available on record. It is noted from the application that the board of directors in their meeting held on July 5, 2011 resolved to buy-back upto 8,75,000 equity shares (comprising 8.42% of the total paid up equity capital and free reserves of the target company as on March 31, 2011) from the existing shareholders. Pursuant to the successful buy-back by the target company, the voting rights of the acquirers in the target company would increase from 46.93% to 52.13%, though the number of shares held by them would remain the same at 41,18,587. The said increase in the voting rights is incidental to the buy-back offer by the target company. I further note that the offer for buy-back of shares would be available only for shareholders other than the promoter group. In other words, the promoter group/acquirers would not participate in the proposed buy-back offer. The proposed buy-back offer would also not result in any change in the management control over the target company.

As per the application, even after the buy-back (assuming 100% response), the public shareholding in the target company would be at 47.87% which is more than what is required for meeting the minimum public shareholding requirements specified in Clause 40A of the Listing Agreement. I note that the proposed buy-back would be done through open market (through the stock exchanges) in terms of the Securities and Exchange Board of India (Buy-Back of Securities) Regulations 1998. Further, it has been submitted that the proposed buy-back would be made at a price of `145/- per equity share and the same is at a premium of 18.95% and 18.13% over the closing price at BSE and NSE respectively, as on July 4, 2011. It has been submitted that the said buy-back is proposed by the target company to maximize returns to investors and enhance overall shareholders value and that it would also provide an exit opportunity to those shareholders who decide to exit. On considering the aforesaid reasons and grounds, I am inclined to agree with the recommendation of the Takeover Panel and find that the present case is a fit one for granting exemption to the acquirers from the applicability of Regulation 11(1) of the Takeover Regulations.

However, the said exemption shall be subject to the target company/acquirers complying with relevant provisions of the Companies Act, 1956, relevant SEBI Regulations and the Listing agreement.

5. 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 Mrs. Jayshree Mohta, Jay Shree Tea & Industries Limited, Essel Mining & Industries Limited, UCO Bank A/c - Birla Education Trust, Mr. Kumar Mangalam Birla, Mr. Prakash Kumar Mohta, Mr. Sakate Khaitan, Jayashree Finvest Private Limited and Bhiragacha Finance Company Private Limited, from complying with the provisions of Regulation 11(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 with respect to their proposed increase in voting rights from 46.93% to 52.13% (assuming 100% response to the proposed buy-back)

consequent upon the proposed buy-back upto 8,75,000 equity shares by the target company, ECE Industries Limited.

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

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

7. This exemption shall not be construed as an exemption from the requirements of 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.

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA PLACE: MUMBAI DATE: OCTOBER 18, 2011