Order in the matter of UCAL Fuel Systems Limited

1.0 BACKGROUND 1.1 Ucal Fuel Systems Limited (hereinafter referred to as the target company) is a company registered under the Companies Act, 1956, having its registered office at Raheja Towers, Delta Wing-Unit 705,177, Annai Salai, Chennai-600002, Tamilnadu. The equity shares of the target company are listed on the National Stock Exchange of India Limited (hereinafter referred to as NSE), Bombay Stock Exchange Limited (hereinafter referred to as BSE) and the Madras Stock Exchange Limited (hereinafter referred to as MSE).

2.0 APPLICATION FOR EXEMPTION

2.1 Minica Real Estate Private Limited, vide letter dated April 28, 2009 (received on May 05, 2009) made an application to the Securities and Exchange Board of India (hereinafter referred to as SEBI) 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). The said application was filed on behalf of Minica Real Estate Private Limited, Dr. V Krishnamurthy, Mr.

Jayakar Krishnamurthy, Southern Ceramics Private Limited, Sujo Land & Properties Private Limited and Carburettors Limited (hereinafter referred to as the acquirers). Further, it is stated that Mr. Jayakar Krishnamurthy is son of Dr. V Krishnamurthy, who also holds shares in Southern Ceramics Private Limited and Sujo Land & Properties Private Limited. Further, in terms of the application, Mr. Jayakar Krishnamurthy hold shares in Minica Real Estate Private Limited. In view of the above, it was stated in the application that all the acquirers come under the promoters/ persons acting in concert (PAC) category of the target company. It was stated that the acquirers intend to subscribe Rs. 15 crores to the equity capital of the target company. As per the application, the said infusion is for the purpose of preventing the target company from becoming a sick company and also for the critical fund requirement of its wholly owned subsidiary namely, AMTEC Precision Products Inc. (hereinafter referred to as AMTEC), based in the United States of America. It is further stated that the acquirers propose to subscribe for equity shares for Rs. 29 crores by infusion of funds to an extent of Rs. 15 crores and by conversion of unsecured loan to an extent of Rs. 14 crores, through preferential allotment. In terms of the application, the shareholding of the acquirers along with the persons acting in concert would increase from the present 53.25% to 70.26%. Accordingly, the acquirers filed the present application seeking exemption from the provisions of Regulations 10, 11(1) and 12 of the Takeover Regulations inter alia among the following grounds:

i. The acquirers intend to subscribe to the equity capital of the target company to prevent it from becoming a sick company and for the fund requirement of its wholly owned subsidiary AMTEC. The acquirers (except Carburettors Limited) would infuse funds aggregating to Rs.15 crores for which the target company proposed to issue equity shares, while in the case of Carburettors Limited an amount of Rs.14 crores, out of the total of Rs.24 crores earlier advanced by it as unsecured loan in April, 2008 was proposed to be converted into equity.

ii. The target company had an initial investment of Rs.100 crores in AMTEC which was financed through State Bank of India (SBI) and Export-Import Bank of India (EXIM Bank). AMTEC suffered considerable cash loss in the year 2005-2006 even though the customer demand was high. AMTEC had also taken loans from SBI, EXIM Bank, Bank of India and had also taken loans and advances from the target company. The target company had borrowed heavily to sustain the operation of AMTEC and that it had also given corporate guarantee to the loans obtained from SBI and EXIM Bank to AMTEC.

iii. In order to meet the aforesaid fund requirement, the target company decided to allot equity shares to the acquirers on a preferential allotment basis. There would not be any change in control pursuant to the proposed preferential allotment as the acquirers belonged to the promoter group.

2.2 The shareholding pattern of the target company before and after the proposed preferential allotment (in terms of the application) is as under:

Category No. of Before the proposed No. of After the proposed shareholders acquisition shareholders acquisition No. of % No. of % shares shares Promoters: Indian Promoters: a. Individuals 6 242748 51.50 7 951164 4.30% b. Bodies corporate 2 7156826 1.75 5 14666035 66.32% Foreign Promoters Individuals - - Total – A 8 7399574 53.25 12 15617199 70.62% Public Shareholding Institutions Mutual Funds/UTI 10 7120 0.05 10 7120 0.03% Financial Institutions/Banks 3 8600 0.06 3 8600 0.04% Insurance Companies 1 38200 0.27 1 38200 0.17% Foreign Institutional 5 204666 1.47 5 204666 0.93% Investors.

Sub-Total 19 258586 1.86 19 258586 1.17% 2. Non-Institutions a. Bodies Corporate 574 899303 6.47 574 899303 4.07% b. Individuals 18152 5246600 37.76 18152 5246600 23.73% c. Non-resident Indians 139 91937 0.66 139 91937 0.41% Sub Total 18865 6237840 44.89 18865 6237840 28.21% Total B 18884 6496426 46.75 18884 6496426 29.38% Grand Total A+B 18892 13896000 100.00 18896 22113625 100.00%

3.0 RECOMMENDATION OF THE TAKEOVER PANEL

3.1 The aforesaid application dated April 28, 2009 was forwarded to the Takeover Panel by SEBI. The Takeover Panel vide report dated June 11, 2009 has returned the said application with an observation that the proposal had not been approved by the shareholders of the target company. The Takeover Panel informed SEBI to advise the target company to seek the approval of its shareholders and thereafter approach SEBI for exemption. Thereafter, Minica Real Estates Private Limited (one of the acquirers), vide letter dated August 19, 2009 informed SEBI that the shareholders of the target company at the Extra Ordinary General Meeting held on August 19, 2009, unanimously approved the proposed preferential issue of 82,17, 625 equity shares of Rs.10/- each at a premium of Rs.26.35 per share to the promoters/persons acting in concert group. It also enclosed a copy of the proceedings of the said Extra Ordinary General Meeting and the certified true copy of the resolution passed by the shareholders at the said meeting.

3.2 Subsequently, the Takeover Panel vide report dated August 24, 2009 had given its recommendation as stated below:

“The panel discussed the proposal at length and observed that the Target Company has extended its guarantee for Rs. 162.05 crores as on 31/3/2009 in respect of loans taken by AMTEC and in case the AMTEC is not given the desired financial support to come out of its financial crisis the guarantee obligations will devolve on the Target Company. Further, in such an event the cash advances amounting to Rs. 37 crores as on 31/3/2009 given to AMTEC by the Target Company from time to time may become infructuous. The above implications are likely to have serious adverse effect on the Target Company’s operations. It was also observed that as per the Target Company’s perception there is a scope for AMTEC to establish itself in the US market if it is supported over the next few months. SBI and Exim Bank have also favorably considered the restructuring of their facilities. The infusion of funds into AMTEC by Target Company through the proposed preferential allotment of equity shares and conversion of unsecured loan of Rs. 14.42 crore will certainly reduce the interest burden of the Target Company and give it more leverage to borrower funds in future. All this would be in overall interest of the Target Company and its public shareholders.

The proposal for preferential allotment of equity shares to the promoters has been approved by the Company’s shareholders at its EGM held on 19/8/2009. Considering the aforesaid factors and the shareholders approval to the proposal for preferential allotment, the panel recommended the grant of exemption to the Acquirers and PACs subject to the compliance of the provisions of the Companies Act, FEMA and SEBI Regulations including the provisions relating to pricing formula, lock-in period and listing requirements.”

4.0 FINDINGS

4.1 I have considered the application dated April 28, 2009, the submissions made by the acquirers vide their various letters, the recommendations of the Takeover Panel and other relevant material available on record.

4.2 I note that the acquirers propose to acquire 82,17, 625 equity shares of the target company by way of preferential allotment. The said proposal includes the acquisition of 39,67,129 equity shares of the target company by Carburretors Limited (one of the acquirers) against the conversion of Rs.14.42 crore unsecured loan, which is a part of Rs.24 crores earlier advanced by it to the target company. Pursuant to the proposed preferential allotment, the shareholding of the four acquirers (except Carburretors Limited and Dr. V Krishnamurthy) would increase from nil to 17.69% and the shareholding of the promoter group (including the acquirers) would increase from 53.25 % to 70.62 % of the post-issue capital. I note that the acquirers had submitted that the reason for their proposed acquisition is to prevent the target company from becoming a sick company and also to meet the fund requirements of AMTEC. It is submitted in the application that the target company is under obligation to support the operations of AMTEC as it had huge borrowings from the banks as well as from the target company. It was also submitted that AMTEC had approached State Bank of India, Chicago, USA, for restructuring its facilities and that the said bank has agreed to restructure the facilities subject to the covenant that AMTEC will raise additional long term funds from the target company. The acquires also submitted that the EXIM Bank had also agreed to grant further funds to the target company on favourable terms with respect to interest and repayment and accordingly, the target company had then approached its promoters/PACs for funding support. I also note the submission that the promoters and their PACs have agreed to bring in Rs.15.45 crores in addition to Rs. 24 crores already brought in by them into the target company. The acquirers had also proposed that Rs.14.42 crores out of the total amount of Rs. 24.00 crores brought in earlier by Carburettors Limited, be converted into equity shares. I note that the shareholders of the target company have also approved the said preferential issue to the acquirers in the extraordinary general meeting held on August 19, 2009.

4.3 I also note the observation of the Takeover panel that the target company had extended its guarantee for Rs. 162.05 crores as on March 31, 2009 in respect of loans taken by AMTEC and observed that in case AMTEC is not given the desired financial support to come out of its financial crisis, the guarantee obligations would devolve on the target company. It was further observed that the cash advances amounting to Rs. 37 crores as on March 31, 2009 given to AMTEC by the target company from time to time may become infructuous and that the above implications are likely to have serious adverse effect on the target company’s operations. It was noted that SBI and EXIM Bank have also considered the restructuring of the facilities extended to AMTEC. The Takeover Panel was of the view that the infusion of funds into AMTEC by the target company through the proposed preferential allotment of equity shares and the conversion of the unsecured loan of Rs. 14.42 crore will reduce the interest burden on the target company and give it more leverage to borrower funds in future. I note that the Panel is in favour of the proposed preferential allotment to the acquirers as the same would be in overall interest of the target company and its public shareholders and the panel recommended the grant of exemption to the acquirers subject to the compliance of various provisions of law including the provisions relating to pricing formula, lock-in period and listing requirements.

4.4 I find that Mr. Jayakar Krishnamurthy, Southern Ceramics Private Limited, Sujo Land & Properties Private Limited and Minica Real Estates Private Limited have proposed to acquire 17.69% of the voting rights in the target company, which would trigger Regulation 10 of the Takeover Regulations. The shareholding of the promoter group (including the acquirers) would increase from 53.25 % to 70.62 % of the post-issue capital thereby triggering Regulation 11 (1) & (2) of the Takeover Regulations. Since, there is no change in control, the application for exemption under Regulation 12 of the Takeover Regulations is not considered. In view of the above facts and circumstances of this case, I agree with the recommendation of the Takeover Panel and consider the present case as a fit case for granting exemption from making a public announcement as required under Regulations 10 and 11 (1) & (2) of the Takeover Regulations.

5.0 ORDER

5.1 In view of the above finding, 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 Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the acquirers, namely Dr. V. Krishnamurthy, Carburettors Limited, Mr. Jayakar Krishnamurthy, Southern Ceramics Private Limited, Sujo Land & Properties Private Limited and Minica Real Estates Private Limited, from complying with the provisions of Regulations 10 and 11 (1) & (2) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 with regard to their proposed acquisition of 82, 17, 625 equity shares, @ of Rs. 36.35 per share of Ucal Fuel Systems Limited, which includes the allotment of 39,67,129 equity shares on preferential basis to Carburretors Limited against the conversion of Rs.14.42 crore unsecured loan, subject to the condition that the acquirers shall ensure compliance with the statements, disclosures and undertakings made in the application and that the proposed preferential allotment of equity shares shall be in accordance with the Companies Act, 1956, the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, the Listing Agreement and other applicable laws.

5.2 This exemption shall not be construed as exemption from requirements of any other provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations (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: September 03, 2009