The Supreme Court will decide whether a listed entity can be exempted from the takeover code or not when the company allots shares on preferential basis to promoters under special circumstance for expansion. Admitting a petition by market regulator SEBI against appellate tribunal SAT’s order granting exemption to Arvind Remedies and its promoters from complying with the provisions of takeover norms, a three-judge bench headed by Chief Justice S H Kapadia today issued notices to parties concerned.
Setting aside the market watchdog’s order, the Securities and Appellate Tribunal (SAT) had said that in special circumstances exemption can be given to a listed company from complying with the provisions takeover code.
SAT in November last year had granted exemption to Chennai-based pharma company Arvind Remedies and its promoters Arvind K Shah and Narit Tradecom from complying with the provisions of Regulations 10 and 11(1) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
Attorney General Goolam E Vahanvati appearing for the Securities and Exchange Board of India (SEBI) submitted before the apex court that matter was important and it is directly related to its authority to protect genuine shareholders of a company.
SEBI’s takeover code mandates that if a promoter of a firm acquires more than 15 per cent shares in the company, then he/she should disclose it within 21 days. It also says that the listed firm in turn also inform stock exchanges about it.
A consortium of three banks – United Bank of India, Karur Vysya Bank and Punjab National Bank — had approved loan of Rs 184 crores to Arvind Remedies with a rider to raise Rs 50 crore by issuing equity shares.
The firm in turn discussed the issue with its promoter Arvind Shah and Narit Tradecom, an associate company of former.
In the backdrop of the need to start construction within a fixed period of land allocation to the company, the board of Arvind Remedies in September 2009 decided to issue 22,22,50,000 shares on preferential basis to its promoters and one financer Aryaman Commerce.
The company secured shareholders’ approval through a postal ballot. The shareholders of the company were assured that despite the allotment to the promoters, there would be no change in the management or control of the Company.
The promoters approached Sebi for exemption from takeover code as their share holding was increasing from 25.32 per cent to 45.91 per cent.
Sebi’s takeover panel interestingly recommended granting exemption as it was going to enhance shareholders¿ value and was in the interest of all shareholders of Arvind Remedies.
However, when the recommendation of the takeover panel was placed before the Sebi Board on April 26, 2010, it did not agree and declined exemption. It asked the company to raise money by issuing rights and give all shareholders equal opportunity.
This was challenged by the promoters before the SAT, which set aside the orders of Sebi and said that Arvind Remedies “did nothing wrong in resorting to this course of action as preferential allotment is permissible under section 81(1A) of the Companies Act”.
Slamming Sebi, SAT said “it is not for the (Sebi) Board to advise or insist on any company as to how and in what manner it should raise its further equity capital when the law gives the aforesaid three options to a company”.
It further observed that Sebi itself has granted permission to one firm in special circumstances in September 2007.