Order in the matter of Sibar Autoparts Ltd for exemption application under Regulation 11(1) of SEBI (SAST) Regulations, 2011

WTM/PS/09/CFD-DCR-1/MAY/2014

SECURITIES AND EXCHANGE BOARD OF INDIA ORDER In the matter of proposed acquisition of equity shares of Sibar Autoparts Limited - Application filed under regulation 11(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

1. Sibar Autoparts Limited (hereinafter referred to as "the Target Company") is a public limited company, having its registered office at D.No. D4 and D5, Industrial Estate, Renigunta Road, Tirupati - 517506. The shares of the Target Company are listed on the Bombay Stock Exchange Limited ("BSE").

2. The Target Company filed an application dated December 16, 2013 with the Securities and Exchange Board of India (hereinafter referred to as "the SEBI"), on behalf of its promoters, namely, Mr. P. Madhupratap, Mrs. P. Sugunamma, Mrs. P. Annapoorna, Mr. P. Ravichandra and Mrs. P. Charitha (hereinafter referred to as "the Acquirers"), 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 regulation 3(2) of the Takeover Regulations in respect of the proposed acquisition of shares of 40,00,000 equity shares on conversion of interest free unsecured loan of 4 crore. As this application was not in the format as specified under the Takeover Regulations, the Target Company was accordingly informed. Subsequently, the Target Company vide letter dated January 07, 2014, filed the application dated December 18, 2013, as per format, on behalf of the Acquirers. In terms of the application :

(i) The Company was originally incorporated as a private limited company in the year 1983. Initially, the Target Company set-up a foundry division for manufacturing Aluminum Alloy Gravity Castings. In the year 1987, the Target Company expanded its activities to manufacture Hard Chrome Plated Cylinder Blocks for I.C. Engines. The Company also starting exporting its goods to European countries. The exports were made for 174 lakhs in 1993-1994.

(ii) In the year 1994, the Target Company was converted into a public limited company and its IPO, for issuing 35,00,000 equity shares of 10/- each, was over-subscribed by 18 times. The post issue equity capital was 553.41 lakhs comprising of 55.341 lakh equity shares of 10/- each. The funds were utilized for increasing the production capacity of manufacturing Cylinder Blocks. (iii) During the course of implementation, Bajaj Auto Limited had approached the Target Company for development of cylinders for its two wheeler vehicles. The Target Company obtained orders worth 1 crore per month. The Target Company had approached the IDBI Bank for a term loan of 2.25 crore to meet the part of the cost of setting up the chrome plating plant. Due to substantial orders from Bajaj Auto, the Company Concentrated more on orders of Bajaj Auto with an expectation to get major share in the replacement market. (iv) After continuous supply of cylinders for a period of six year, Bajaj Auto stopped purchasing cylinders from the Target Company due to change of technology from two-stroke to four-stroke scooter segment of motor cycle division.

As a result, the turnover of the company reduced from 1 crore per month to almost zero level. However, due to the importance given for the orders from Bajaj Auto, the Target Company lost contacts with export buyers and also with other local buyers. (v) The Target Company received orders from Electrolux, Italy as 'OEM' supplier and supplied for one and half year. However, due to 'the banker's problem', it could not supply the orders for which there was a Letter of Credit. (vi) In view of liquidity problems, the Target Company could not honour its repayment obligations to its bankers/financial institutions. The Company incurred huge losses during the year 2004-05 to 2006-07 and the networth of Target Company became negative. (vii) The State Bank of India (SBI), Central Bank of India (CBI) and IDBI Bank had approached the Debts Recovery Tribunal ("DRT") for the recovery of their outstanding amounts. The details of the outstanding amount due from the Target Company was as follows - Name of bank Amount (in ₹ crore) State Bank of India 1.44 Central Bank of India 5.35 IDBI Bank 4.04 Total 10.83 (viii) SBI had also filed a winding up petition vide Company Petition No. 85/2010, before the Hon'ble Andhra Pradesh High Court.

(ix) The Bankers had invoked the provisions of the SARFAESI Act (the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) and issued notice for sale of pledged properties of the Target Company. The operations of the Target Company came to standstill on account of pressure from the Financial Institutions/Banks. (x) To come out of the pressure from Banks/Financial Institution and the court cases, the Target Company approached Banks / Financial Institution for a One Time Settlement ("OTS"). (xi) The Banks accepted the OTS and such OTS payments were time bound and any delay in payment would have result in winding up of the Target Company. (xii) The Target Company could not raise any deposits or debenture as its networth was in the negative. Therefore, in order to meet the payments under the OTS, it had become obligatory for the promoters to bring the funds by way of interest free unsecured loans. (xiii) In view of the same, the promoters' family members (the Acquirers) have brought in a sum of 5.8 crore by way of interest free unsecured loan to meet OTS obligation.

(xiv) The Target Company, now, desires to manufacture the products on its own. This will increase the turnover and profitability of the Target Company. To manufacture the products, the company wants working capital limits. The Target Company has approached Banks. As, the networth of the Target Company is negative, Banks have expressed their inability to finance and advised the Target Company to improve the networth. Therefore, Target Company proposes to convert the unsecured loans into equity shares to improve the networth of the Target Company and that out of the amount brought in by the promoters, it is proposed to convert interest-free unsecured loan to the tune of 400 lakhs into equity on a preferential basis. The details of amounts proposed to be converted into equity are given below : Name Relationship Amount in (₹) lakhs P. Madhupratap Son of Mr. P. Veeranarayana 150.00 (Vice Chairman and Managing Director) P. Sugunamma Shareholder and wife of Mr. P. 200.00 Veeranarayana

P. Annapurna Shareholder and wife of P. 30.00 Madhupratap P. Ravichandra Shareholder and Son of Mr. P. 10.00 Veeranarayana P. Charitha Shareholder and wife of P. 10.00 Ravichandra Total 400.00 (xv) Due to the financial crisis, the Target Company was not able to pay the listing fee to the BSE. Therefore, the trading in the equity shares were suspended. During the year 2012, the fees and penalties were paid and therefore the suspension was vacated. Post the resumption of trading, the maximum price was 7.60/- and the minimum price was 3.43/-. As the face value of the share is 10/-, it is proposed to allot shares at 10/-. (xvi) After improving the networth, the Target Company will be in a position to raise credit limits from the Banks/ Financial Institutions and would be able to manufacture products. The same would revive its activities in a big way by concentrating on exports and introduce new products. (xvii) No change of control of the Target Company would result on account of the proposed acquisition. (xviii) The equity shares proposed to be allotted to the promoters group shall be subject to a lock-in for a period of 3 years as per the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 ("ICDR Regulations").

(xix) The proposed conversion of unsecured loan into equity by way of preferential allotment would increase, which would trigger the Takeover Regulations. In view of the above grounds, the Target Company has sought exemption for the Acquirers from the applicability of the Takeover Regulations, 2011 in respect of the increase in the shareholding of the promoters from 25.47% to 56.62% on account of the conversion of unsecured loan into equity in favour of the Acquirers. 3. I have considered the application of the Target Company, the documents attached thereto and other material available on record. The Company/Acquirers have proposed to convert the 4 crore unsecured loan, out of the 5.8 crore (brought in by the promoters to pay the OTS promised by the Company to the banks/financial institutions), into equity shares at a price of 10/- per share, in order to improve the Target Company's networth and in turn to avail credit from banks for its business purposes. It is submitted that the promoters had stepped in and infused the required funds, in the nature of interest-free unsecured loans, when the Target Company did not have any other opportunity to raise funds to satisfy the OTS.

4. I note that the Acquirers hold 9,46,780 shares constituting 17.11% and the same would increase to 51.88% pursuant to the proposed acquisition of equity shares on account of conversion of the unsecured loans to the tune of 4 crore. The shareholding of the Acquirers prior to the proposed acquisition and thereafter would be as follows :

Name of acquirers Pre issue holding Post issue holding No of shares % of holding No of shares % of holding P. Madhupratap 197100 3.56 1967100 17.80 P. Sugunamma 378680 6.84 2378680 24.95 P. Annapoorna 200000 3.61 500000 5.24 P. Ravichandra 131000 2.37 231000 2.42 P. Charitha 40000 0.72 140000 1.47 Total 946780 17.11 4946780 51.88

5. As per the shareholding pattern of the Target Company as on March 31, 2014, the total shareholding of the promoter group was at 30.18% (the promoters including the Acquirers, but excluding APIDC, held 25.66%). Consequent to the proposed acquisition, the total shareholding of the promoter group would also increase from 30.18% to 59.47% (these percentages have changed in view of the slight increase in the promoters' shareholding (compared with the shareholding as on December 31, 2013) as per the shareholding pattern as on March 31, 2014). If APIDC is excluded from the computation, the increase in shareholding/voting rights would be from 25.66% to 56.85%. The proposed increase of the promoters' shareholding would mandate a public offer as stipulated under regulation 3(2) of the Takeover Regulations unless exempted from such requirement, by SEBI, in terms of regulation 11of the said regulations.

6. The Target Company /Acquirers have submitted that if such conversion is done, the networth of the Target Company would improve and has provided its projection as follows :

Year 2012-13 Networth before conversion (Rs. in lacs) Networth after conversion (Rs. in lacs)

Equity 553.51 953.51 Reserve (747.80) (747.80) Networth (197.29) 205.71

By improving its networth, the Target Company would be in a position to avail credit facilities from banks/financial institutions to funds its projects and expand business. The same would in turn be profitable to all the shareholders.

7. I also note that the price of allotment of the proposed shares is fixed at 10/-. The Target Company has submitted that upon resumption of the trading i.e. from April 2012, the maximum price of the shares is 7.60/- and minimum price is 3.43/-. However, it has been proposed to allot the shares on preferential basis at the face value of 10/- per share on conversion of the 4 crore unsecured loan. The proposed allotment at 10/- per share is higher than the maximum price of 7.60/- per shares. Therefore, it may not be said that the Acquirers are being allotted shares at price which would give them any unfair advantage.

8. The equity shares proposed to be allotted to the Acquirers (part of promoter group) shall be locked in for a period of three years in terms of the ICDR Regulations. There would also be no change in control over the Target Company consequent to the proposed acquisition as shares are proposed to be acquired by the Acquirers who are part of the promoter group who are already in control. The Board of Directors in their meeting held on December 14, 2013 have decided to convert the interest free unsecured loan of 4 crore into equity capital, subject to the approval of SEBI. Further, in the EGM held on January 23, 2014, the shareholders of the Target Company have also approved the preferential allotment of 40,00,000 equity shares of 10/- each. Pursuant to the proposed allotment, the public shareholding would be 40.53%, which percentage is above the minimum statutory level (of 25%) prescribed under the Securities Contracts (Regulation) Rules, 1957 read with the Listing Agreement.

9. Considering the foregoing observations and the grounds put forth by the Acquirers/Target Company for seeking exemption, I am of the view that this is a fit case for granting exemption to the Acquirers/promoters from the applicability of regulation 3(2) of the Takeover Regulations.

10. Accordingly, 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 SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, hereby grant exemption to the proposed Acquirers, namely, Mr. P. Madhupratap, Mrs. P. Sugunamma, Mrs. P. Annapoorna, Mr. P. Ravichandra and Mrs. P. Charitha, from complying with the requirements of regulation 3(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, with respect to its proposed acquisition of 40,00,000 shares of 10/- each by way of preferential allotment by the Target Company i.e., Sibar Autoparts Limited, against conversion of unsecured loan of 4 crore, which may increase the shareholding/voting rights of the Promoter group in the Target Company from 30.18% to 59.47%.

11. The exemption is granted subject to the following conditions : (i) The proposed acquisition shall be in accordance with the relevant provisions of the Companies Act, 2013, the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, the Listing Agreement and all other applicable laws. (ii) The allotment of equity share as proposed in the application shall be completed within a period of 15 days of the date of this order. (iii) On acquisition of equity shares, the applicant shall file a report with SEBI in the manner specified in regulation 10(7) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, within 21 days from the date of the allotment. (iv) The exemption is only limited to the requirements of making open offer under regulation 3(2) of the Takeover Regulations and shall not extend to other obligations (e.g. disclosure requirements under Chapter V of the said Takeover Regulations, Listing Agreement or any other law) of the GoI/Target Company.

12. Accordingly, the application dated December 16, 2013 read with the revised application dated December 18, 2013, filed by the Sibar Autoparts Limited on behalf of the Acquirers is disposed off.

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Date : May 23, 2014 Place : Mumbai