Order in the matter of Samtel Color Ltd

1.1 Samtel Color Limited (hereinafter referred to as ‘the target company’) is a company incorporated under the Companies Act, 1956, having its registered office at 52, Community Centre, New Friends Colony, New Delhi-110065. The equity shares of the target company are listed on the Bombay Stock Exchange Ltd. (BSE) and the National Stock Exchange of India Ltd. (NSE), Delhi Stock Exchange Ltd. (DSE), Bangalore Stock Exchange Ltd.(BgSE) and Calcutta Stock Exchange Ltd.(CSE)

1.2 Teletube Electronics Ltd. and CEA Consultants Pvt. Ltd (hereinafter referred to as ‘the acquirers’) are part of the promoter group of the target company and currently hold 52,10,922 shares constituting 11.18% of the paid up capital of the target company.

2.0 APPLICATION FOR EXEMPTION

2.1 Vide letter dated 09.01.2008, CEA Consultants Pvt. Ltd., one of the acquirers forwarded an application to the Securities and Exchange Board of India (SEBI) made under regulation 4(2) read with regulation 3(1) (l) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, (hereinafter referred to as “the Takeover Regulations’).

2.2 The said application has been filed seeking exemption from the applicability of Regulation 11(1) of the Takeover Regulations with respect to the proposed acquisition of 46,51,163 equity shares of Rs. 10 each at a premium of Rs. 11.50 per share and 23,25,581 equity shares (considering conversion of warrants) of Rs. 10 each at a premium of Rs. 11.50 per share of the target company by way of preferential allotment. The exemption has been sought submitting inter alia the following:

i. The target company experienced severe liquidity crisis due to various reasons over the last two years. Due to the same, the target company applied under scheme of Corporate Debt Restructuring (CDR) framed by RBI. ii. The CDR scheme was sanctioned by CDR cell of RBI vide letter No. CDR(AG)/721/2007-2008 dated 27.09.2007. iii. In terms of the CDR scheme, the promoters have to infuse Rs. 15 crore as part of their share of the restructuring scheme sanctioned by CDR cell of RBI. Out of this 15 crore, Rs. 10 crore to be bought within 3 months and remaining Rs. 5 crore within 12 months from the approval of the CDR scheme.

iv. The equity shares and warrants are being issued to the acquirers in order to comply with the scheme of CDR approved by CDR cell of RBI. v. The approval of the shareholders of the target company has been taken on 29.11.2007. vi. The acquirers proposes to acquire 46,51,163 shares at Rs. 21.50/- (including a premium of Rs. 11.50/-) and 23,25,581 warrants having optional right conversion into equity shares at the same price. vii. The said equity shares and warrant will be issued in the manner and at the conversion price computed in accordance with Chapter XIII of the SEBI DIP Guidelines. viii. Teletube and CEA Consultants hold 10.11% and 1.07% respectively in the target company and pursuant to the acquisition of shares and warrants (after conversion) their shareholding will increase to 15.40% and 7.35% respectively in the target company. Collectively, the holding of the acquirers would increase from 11.18% to 22.75% considering fully diluted voting capital. ix. The holding of the total promoter group would increase from 41.06% to 48.74% considering conversion of warrants and fully diluted voting capital. x. As the increase in the total promoter holding would be more than 5% of the creeping limit available, Regulation 11(1) of the Takeover Regulations would get attracted. The acquirers belong to the promoter group and there would not be any change in the control over the target company pursuant to the said acquisition by the acquirers. xi. The CDR scheme will become non-operational and jeopardized if the promoters are not able to bring their shares of contribution in the target company.

3.0 RECOMMENDATION OF THE TAKEOVER PANEL

3.1 The aforesaid application dated 09.01.2008 in terms of sub-regulation (4) of Regulation 4 of the Takeover Regulations was forwarded to the Takeover Panel and the Takeover Panel vide its report dated 21.02.2008 has recommended as under:

“the acquirers are infusing funds into the target company as per the Corporate Debt Restructuring Scheme approved by the CDR cell. The Scheme may become non-operational if the funds to the extent of Rs. 15 crore are not infused in by the promoters which in turn may affect the revival/rehabilitation of the target company. The acquirers belong to the promoter group and there would not be any change in control over the target company pursuant to the said acquisition by the acquirers. The proposed preferential allotment of equity shares and warrants in accordance with the pricing formula laid down in the Chapter XIII of the SEBI (DIP) Guidelines, appears to be in the larger interest of the company and beneficial to the public shareholders. The Panel therefore, recommends grant of exemption to the acquirers.”

4.0 FURTHER SUBMISSIONS

4.1 The target company and the acquirers, vide their letters dated 27.02.2008, have submitted that the following disclosures were made in the explanatory statement pursuant to section 173 (2) of the Companies Act, 1956 in respect of the resolution No. 10 to the Notice convening the Annual General Meeting (AGM) dated 29.10.2007 issued to the shareholders of the target company:

i. The equity shares to be issued, as per the issue price of Rs. 21.50 per equity shares (inclusive of a premium of Rs. 11.50 per share) which is in accordance with Chapter XIII of SEBI (Disclosure and Investor Protection) Guidelines, 2000. ii. The disclosures regarding identity of the acquirers were specified in the Notice convening the AGM of the target company. iii. The purpose and reasons for making preferential allotment by the target company to the promoter group companies was to comply with CDR Scheme of target company sanctioned by CDR Cell of RBI vide letter dated 27.09.2007 according to which the promoters of the target company have to infuse 15 crore of equity shares as their contribution as part of the restructuring scheme. iv. No change in the Board of Directors of the target company is proposed since the acquirers are the promoter companies. Due to the preferential allotment, the holding of the acquirers along with the whole promoter group will increase from 41.06% to 48.74% in the target company. v. No change in the management of the company is proposed even after the preferential allotment to the promoter group companies. 4.2 It was further submitted that the prospective acquirer of the target company being interested party, abstained from the voting on the special resolution passed at the AGM of the target company held on 29.11.2007. The facility of voting through postal ballot for passing special resolution under section 81(1A) of the Companies Act, 1956 was not available, since Rule 4 of the Companies (Passing of the Resolution by Postal Ballot) Rules, 2001 does not list the passing of the such resolution under section 81(1A) of the Companies Act, 1956 for the issue and allotment of equity shares and warrants to be compulsorily passed by postal ballot. It was also submitted that since the target company has more than 27,000 shareholders and is undergoing financial restructuring under CDR Scheme, the target company in order to reduce costs did not get the resolution passed through postal ballet. In view of the above reasons, the target company requested SEBI for waiver of the requirement of passing of resolution by Postal ballot and sought exemption from complying with the postal ballot process.

5.0 FINDINGS AND SUBMISSIONS

5.1 I have carefully considered the application dated 09.01.2008, the letters 27.02.2008 sent by the target company and have taken into consideration the recommendations of the Takeover Panel, submissions of the acquirer and relevant material available on record.

5.2 I note that the target company suffered severe liquidity crisis due to various reasons over last two years and that the proposed preferential allotment is for the purpose of improving the financial condition of the target company. I note that the acquirers who are the part of the promoter group propose to infuse Rs. 15 crore for the revival of the target company. I note that the CDR Cell of the Reserve Bank of India (RBI) granted its approval to the restructuring proposal of the target company on 27.09.2007.

5.3 I note that the target company proposes to make preferential allotment of 46,51,163 equity shares of Rs. 10 each at a premium of Rs. 11.50 per share and 23,25,581 warrants having optional right of conversion into equity shares of Rs. 10 each at a premium of Rs. 11.50 per share of the target company. In terms of the aforesaid CDR Scheme, the acquirers / promoters of the target company are bringing in their contribution in the form of equity participation in the company. Further as per the CDR scheme, the promoters have to infuse Rs. 15 crore as a part of their share of the restructuring scheme. It is pertinent to note that if the shares are not allotted to the promoters then it would result in failure of the CDR proposal, thereby causing extreme financial burden on the target company and resulting in loss to the shareholders. The proposed allotment shall not, in any way, prejudice the interests of any shareholder or creditor of the company and that there would not be any change in control over the target company after the proposed preferential allotment to acquirers who are part of promoter group of the target company.

5.4 I have noted that the intention of the acquirers is to revive the operations of the target company and that in the absence of infusion of capital by the acquirers, there is no possibility of revival of the operations of the target company.

5.5 I further note that the AGM for passing the special resolution under section 81(1A) in respect of the proposed preferential allotment to the acquirer was held on 29.11.2007. In the notice dated 29.10.2007 sent to the shareholders in terms of section 173 (2) of the Companies Act, 1956, the company had proposed to the shareholders that the proposed preferential allotment to the acquirer would be pursuant to and in accordance with the SEBI (Disclosure and Investor Protection) Guidelines, 2000 and subject to other approvals, permissions, etc. In accordance with section 173 (2) of the Companies Act, in the explanatory statement forming part of the Notice of Annual General Meeting, the target company had inter alia disclosed the identity of proposed allottee (the acquirer), the object and intention of the proposed preferential allotment, consequential changes, if any, in the Board of Directors of the target company and in voting rights, the shareholding pattern of the target company indicating that the acquirer being part of the promoter group who are in control of the target company, the proposed allotment would not result in change in control over the target company. I further note that the total holding of CEA Consultants Pvt. Ltd, and Teletube Electronics Ltd., including the acquirers (promoter group) would increase from 41.06% to 48.74% in the target company considering conversion of warrants and fully diluted voting capital.

5.6 I also note from submissions of the target company that the acquirers being interested party abstained from voting on the special resolution. I have also taken note of the submission by the target company that the special resolution required under section 81 (1A) of the Companies Act has been passed by the shareholders of the company after making all requisite disclosures to the shareholders in the notice of EGM and explanatory statement thereto and that the condition of providing facility of voting through postal ballot would involve additional time, efforts and costs which the target company cannot afford. In view of these facts, I am of the view that condition of passing special resolution under section 81 (1A) of the Companies Act by providing facility of voting through postal ballot may not be insisted in this case.

5.7 In view of the above facts and circumstances of this case, I agree with the recommendations of the Takeover Panel and consider the present case as a fit case for granting exemption from making a public announcement as required under regulation 11 of the Takeover Regulations.

6.0 ORDER

6.1 In view of the above findings, I, in exercise of the powers conferred upon me by virtue of section 19 of the Securities and Exchange Board of India Act, 1992 read with sub - regulation (6) of regulation 4 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the acquirers, namely Teletube Electronics Ltd. and CEA Consultants Pvt. Ltd. from complying with the provisions of Regulation 11 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 with regard to the proposed preferential allotment of 6,97,6744 equity shares/ warrants of the target company subject to the conditions that the acquirer and the target company shall ensure – i. that in respect of the proposed preferential allotment the relevant norms including the norms regarding the pricing specified in SEBI (Disclosure and Investor Protection) Guidelines, 2000 are observed and complied with;

ii. that there is no reduction in the minimum level of public shareholding required as per the listing agreement pursuant to the proposed preferential allotment and the minimum level of public shareholding at 25% of the enhanced paid up capital of the target company is maintained. 6.2 The acquirer shall complete the proposed transaction within 30 days from the date of the order and intimate to stock exchanges in terms of Regulation 3(3) and file a report with SEBI in the manner specified in Regulation 3(4) read with 3(5) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 confirming compliance including conditions specified in this order.

PLACE: MUMBAI T. C. NAIR DATE : 02.06.08 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA