Order the matter of GIVO Ltd

1. Givo Limited (hereinafter referred to as the target company) is a company incorporated under the Companies Act, 1956, and having its registered office at 42nd Mile Stone, Delhi-Jaipur Highway, Kherki Daula, Gurgaon-122001, Haryana. The equity shares of the target company are listed on the Bombay Stock Exchange Limited (hereinafter referred to as BSE). Thakral Brothers (Pte) Limited (hereinafter referred to as the acquirer), vide letter dated January 18, 2010 filed an application with Securities and Exchange Board of India (hereinafter referred to as SEBI) under Regulation 4 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the Takeover Regulations). It is stated in the said application that the acquirer though, does not hold any shares in the target company, belongs to the promoter group of the target company that holds 64.17% of the total equity capital of the target company. According to the acquirer, the target company had taken External Commercial Borrowings (ECB) of Rs. 11.97 Crores from it in October 1997 for its working capital requirements with the approval of Reserve Bank of India (RBI).

It was stated that the repayment of the ECB, though was to be made within three years, the target company was unable to pay the same. It was also stated that the target company was a sick company till 2006. According to the acquirer, the target company, vide letter dated November 19, 2009 had shown its intention to liquidate the entire ECB liability by way of converting them into equity shares, through the proposed preferential allotment of 2,28,00,000 at Rs. 5.25 (including premium of Rs. 2.25) per share which has been arrived at on the basis of taking December 12, 2009 as the “Relevant Date” in accordance with the provisions relating to the preferential allotment in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (hereinafter referred to as the ICDR Regulations). The acquirer has stated that the proposed preferential allotment is in accordance with the guidelines on the conversion of ECB into equity shares contained in Master Circular No. 2/2009-10 dated July 1, 2009 issued by RBI. According to the acquirer, pursuant to the proposed preferential allotment, its shareholding would increase from ‘nil’ to 28.32% and that of the promoter group (including the acquirer) from 64.17% to 74.31% of the equity capital of the target company.

2. In view of the above, the present application is filed seeking exemption from the applicability of the provisions of Regulation 11(2) of the Takeover Regulations inter alia on the following grounds:

i. The proposed preferential allotment is to be made to the main promoter of the target company, who already holds control over it and there would be no change in control of the target company except increase in its shareholding. ii. The board of directors of the target company believes that the proposed preferential issue would be in the best interest of the target company and its shareholders. iii. The shares to be allotted on preferential basis shall be subjected to lock-in provisions of the relevant regulations and shall rank pari-passu with uniform voting rights with the existing shares. iv. The proposed preferential allotment would be by way of conversion of ECB liability and does not involve any cash out flow. v. The proposed preferential allotment was approved by the shareholders of the target company through a special resolution pursuant to Section 81(1A) of the Companies Act, 1956 in their Extra Ordinary General Meeting held on January 11, 2010.

3. The shareholding pattern of the target company before and after the proposed preferential allotment (as mentioned in the application) is as under: Shareholders’ Number of Before the proposed After the proposed category registered acquisition acquisition shareholders as on the date of application Number of Percentage of Number of Percent shares/ total shares/ total shares/ voting age of voting rights voting capital rights shares/ held held total voting rights Promoter group 6 37,022,100 64.17 37,022,100 45.99 Acquirers NIL NIL 0.00 22,800,000 28.32

FIs/Banks 5 3,133,484 5.43 3,133,484 3.89 FIIs/NRIs/OCBs 38 2,275,243 3.94 2,275,243 2.83 Public 7709 15,266,973 26.46 15,266,973 18.97 Total 7709 57,697,800 100.00 804,97,800 100.00

4. Thereafter, the acquirer, vide letter dated February 3, 2010 submitted further information. Subsequently, the aforesaid application was forwarded by SEBI to the Takeover Panel in terms of Regulation 4 (4) of the Takeover Regulations. The Takeover Panel, vide report dated February 8, 2010, inter alia, observed:

“………………..the networth of the Target Company became positive due to one time settlement with the creditors and sale/transfer of development rights of land and building in the financial year 2005-06. The BIFR had delisted the Target Company from the purview of SICA vide its order dated 5/12/2006. It was further observed from the Target Company ‘s balance sheet as on 31/3/2009 (Note 6 to Schedule 21) that the Foreign Currency liability had been crystallized into Indian Rupee at the exchange rate of 31/3/2008 and as such no exchange fluctuation was provided in respect of External Commercial Borrowings and advances received against exports. Further, no interest on the outstanding money of External Commercial Borrowings has been booked in view of the waiver of right to claim interest by the lenders vide their letter dated 20/7/2001. Considering the fact that the Company is no more a Sick Industrial Company, (as BIFR had deregistered it from the purview of SICA vide its order dated 5/12/2006, the panel did not find any merit in recommending exemption to the Applicant. Accordingly, the application for exemption was rejected by the panel”.

5. The report of the Takeover Panel was forwarded to the acquirer by SEBI on February 23, 2010. Further, an opportunity of hearing was also granted to the acquirer on April 29, 2010. Mr. R.K. Sharma (authorised representative) along with Mr. Nesar Ahmad and Mr. S.N. Ananthasubramaniam (practising company secretary) appeared before me on the said date and made submissions on behalf of the acquirer. It was inter alia submitted before me that the target company had become a sick unit and remained so till 2006 until they made one time settlement with the creditors. According to the acquirer, despite the fact that the target company was deregistered from the purview of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), it was not in a position to repay the ECB loan. As per the acquirer, it was for this reason that the target company had proposed the conversion of ECB liability into equity shares. During the course of hearing, in order to substantiate its case, the acquirer requested time to submit a revival plan of the target company. Accordingly, two weeks time was granted to the acquirer.

Subsequently, vide letter dated May 10, 2010, the acquirer requested SEBI to grant another opportunity of hearing to the target company while filing the revival plan. Accordingly, an opportunity was provided to the target company on June 15, 2010. However, the acquirer, vide letter dated June 7, 2010 informed SEBI about the inability of the target company to appear on the said date and requested to adjourn the hearing. The said request was acceded to by SEBI and another opportunity was afforded to the acquirer on July 7, 2010, when Mr. Ajay Srivastava, director of the target company appeared before me and made submissions. Mr. R. K. Sharma and Mr. Ananthasubramaniam were also present during the hearing. Mr. Ajay Srivastava inter alia submitted that the core of the revival plan is the growth of the GIVO brand. Further, SEBI was requested to grant exemption from the applicability of the provisions of Regulation 11(2) of the Takeover Regulations. The acquirer made further submissions, vide its representation and sought exemption inter alia on the following grounds:

a. The target company was incorporated in 1993 with Thakral Group contributing Rs.11.00 crores towards equity shares during 1994 to 1996, which went up to Rs. 29.00 crores pre capital reduction. The promoters still retain the entire shareholding, and have neither sold any shares till date nor have received any dividend so far. b. The target company had borrowed an amount of Rs.25.89 crores from Financial Institutions in 1994-96 i.e. Rs.15.80 crores from Industrial Finance

Corporation of India Limited (IFCI) and Rs.10.909 crores from Industrial Development Bank of India (IDBI). In view of the cash losses the target company could not service the loans and thus, requested the promoter (Thakral Group) for support. c. The target company has been making losses since its inception. The target company made total net loss of Rs.22.88 crores up to 1997, out of which interest cost due was Rs.10 crores. d. The promoter extended support to the target company in the form of ECB of USD 3 million in October, 1997 from their group company, namely, Thakral Brothers (Pte) Limited, Singapore. The loan carried interest of London Interbank Offer Rate (LIBOR)+1.25% and was to be repaid within three years i.e. by October, 2000. The funds amounting to Rs.10.82 crores received from the above ECB of USD 3.00 million at conversion rate of Rs. 36.0775 to US Dollar were utilized for meeting cash losses and liquidating loan of Rs.3.00 Crores of Deutche Bank and Rs.3.00 Crores of Indus Ind Bank (working capital loans.). e. Even after the infusion of abovementioned amount, the target company continued to make losses and in 2001 became a sick company and was brought under the purview of Board for Industrial and Financial Reconstruction (BIFR). f. In April, 2000, IFCI had gone to Debt Recovery Tribunal (DRT) and pressurized the target company to settle the dues.

IFCI which was the operating agency could not agree to a rehabilitation package with IDBI and the other lenders. IDBI and IFCI directed the target company to settle its dues as per their letters dated December 21, 2005 and March 28, 2006 respectively. g. Under the settlement, the target company has to pay Rs.34.08 crores and issue 55,00,000 equity shares to the Financial Instituitions (FIs). However, a short notice was given to make the payments. In case of IFCI, the payment of Rs.20.32 crores plus a fixed deposit of Rs.3.0 crores till shares were issued was to be done within 30 days, i.e., by 31st March, 2006. ‘SASF’ was also to be paid Rs.10.95 crores and Rs.2.5 crores to be kept in a fixed deposit till shares were issued which was also to be done by 31st March, 2006. h. Once again the promoters bailed out the target company by bringing in Rs.42.40 crores against the sale of development rights from property of the target company. The amount of Rs.42.40 crores raised from such sale was used to make following payments: i. Payment to Financial Institutions: Rs.34.08 crores ii. Liquidation of Operating Creditors: Rs.2.72 crores. iii.

Start of Retail operation/Working Capital: Rs.5.60 crores. i. The said transaction resulted in increases in net worth which became positive in year 2006. Thus, as per SICA, the target company had to de-register from BIFR without a rehabilitation package. In case, the package was approved by IFCI, the target company would have sought conversion of ECB into equity shares to bolster its networth. Further, operationally, the target company still could not pay the interest on the ECB.

j. Post settlement of loans of FIs, the target company operations have improved but it is barely able to break even. The global turmoil for the last 2 years affected it badly with the exports dropping from 75% of the turnover to less than 10%. However, since the ECB is in default and as per RBI directives, no loan can be given to any company which is in loan default, target company is unable to access any bank funding. k. Given the inability of the target company to service even the interest repayment, the promoters have agreed to convert the entire ECB loan into shares. The target Company has already got the benefit of crystallization of ECB into rupee loan and thus limiting the outstanding to Rs.11.97 crores. Further, RBI vide its circular No.2/2009 dated July 1, 2009, granted general permission for conversion of ECB into shares subject to certain conditions. l. On the basis of the rate of Rs.47 per US Dollar, the total principle outstanding comes to Rs.14.10 crores. Accumulated interest would amount to Rs.12.50 crores (up to 30th June, 2010). Against the total outstanding of Rs.26.60 crores, as per waiver received from the promoters, the target company is converting only Rs.11.97 crores into equity shares at a premium. Thus, the promoters are willing to take a loss of Rs.14.63 crores so that the target company can be made financially viable. m. The Preferential Issue has been approved by the shareholders in the Extra Ordinary General Meeting held on January11, 2010. The target company also had the option of doing a rights issue to pay for the ECB. However, the shareholders have not got any returns from the target company. Since its public issue in 1996, there have been no dividends and market price is also very less. Thus, the promoters felt that it may not be feasible to make shareholders contribute to pay the loan taken by the target company. n. Further, promoters have agreed to lock in all such shares issued by the way of said preferential allotment for a period of 3 years or such period as specified by SEBI.

6. I have considered the application filed by the acquirer, the recommendation of the Takeover Panel, oral as well as written submissions made on behalf of the acquirers/target company, its subsequent representation and other material available on record. I note that the target company had become a sick unit and came out of the purview of BIFR with the financial assistance extended by the promoters. Besides, the target company has not declared any dividend, till date. It was submitted that the target company was having huge debt which it could not service due to continued losses and requested promoters for their support. The promoters have pumped in USD 3 millions by way of ECB to bail out the target company. Even after the said infusion, the target company continued to make losses and IFCI, one of the lenders had approached DRT for settling its dues. It was the submission of the acquirer that the promoters have arranged Rs. 42.40 crores for the target company against the sale of development rights from property of the target company. Thus, according to the acquirer, due to the prompt financial assistance of the promoters, the target company was able to settle its dues to the creditors and its networth became positive.

In view of the same, BIFR had delisted the target company from the purview of SICA, vide order dated December 5, 2006. According to the acquirer, the target company continued to make losses and still could not pay the interest on ECB loans, despite such delisting. It was submitted before me that, since the ECB is in default and as per RBI directives, the target company is unable to access any bank for further funding. The target company requires funds to finance its working capital and for its expansion, and understanding the situation, the promoters have agreed to convert the ECB loans into equity shares to the tune of Rs 11.97 crores. They had also agreed to waive the accumulated interest to the tune of Rs 12.50 crores. It was claimed that the promoters have not sold any shares since inception. They have also agreed to lock in all the shares issued by way of preferential allotment for a period of three years or such period as prescribed by SEBI. The Takeover Panel had rejected the application considering that the target company was having positive net worth and already came out of BIFR.

It was the submission that the promoters have rendered financial assistance whenever the target company required and have also bailed out the target company. The said assistance benefited the target company as well its shareholders. According to the acquirer, the promoters had bailed out the target company by bringing in Rs.42.40 crores against the sale of development rights of a property from the target company, as stated above in this order. As per the submissions of the acquirer, the said transaction had resulted in the positive net worth of the target company in the year 2006. Thus, as per SICA, the target company had to de-register from BIFR without a rehabilitation package. It was the submission of the acquirer that, if, the rehabilitation package was accepted by IFCI, one of the lenders, the target company would have been under the purview of BIFR and would have sought for the conversion of the outstanding ECBs into equity shares. It was further added that, in such a situation, automatic exemption was available to it. In view of the above reasons, according to me, exempting the acquirer from complying with the provisions of Takeover Regulations would be in the interest of shareholders of the target company and as well as the target company.

Therefore, I find this as a fit case for grant of exemption to the acquirer, from complying with the provisions of the Takeover Regulations, in respect of its proposed acquisition of 2,28,00,000 equity shares of Rs. 3/-each at the price of Rs. 5.25 (including premium of 2.25) per share of the target company (on conversion of ECB of Rs. 11.97 Crores), subject to the condition as ordered hereinbelow.

7. In view of the above findings, 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 from the applicability of Regulation 11(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 to the acquirer, namely, Thakral Brothers (Pte) Limited, in respect of its proposed acquisition (on conversion of External Commercial Borrowings of Rs. 11.97 Crores into equity shares) of 2,28,00,000 equity shares each at the price of Rs. 5.25 (including premium of 2.25) per share of the target company, namely, Givo Limited.

8. The aforesaid exemption is granted subject to the condition that the shares so allotted to the acquirer shall be subject to a lock-in for a period of three years from the date of allotment.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA PLACE: MUMBAI DATE: AUGUST 30, 2010