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Exemption order under regulation 11 of SEBI (SAST)...
Structured Summary of the SEBI Order in the matter of Titagarh Wagons Limited — Chowdhary Foundation
Factual and Procedural Background
Titagarh Wagons Limited (Target Company / TWL) is a company incorporated on July 3, 1997, whose shares are listed on BSE and NSE since April 21, 2008. An application dated March 2, 2020 (with subsequent emails) was filed by Jagdish Prasad Chowdhary on behalf of Chowdhary Foundation (the Proposed Acquirer / Acquirer Trust) seeking exemption from the applicability of Regulations 3(2) and 5(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the Takeover Regulations) in relation to proposed acquisitions of shares and voting rights in Titagarh Wagons Limited.
The Application proposed: (a) a direct acquisition of 1,25,51,874 shares (10.86% of the Target Company) from promoters (primarily transfers from Savitri Devi Chowdhary and Jagdish Prasad Chowdhary), and (b) an indirect acquisition consisting of 50% of the shares of Titagarh Capital Management Services Private Limited (an entity holding promoter shares), by acquiring 2,50,000 shares (50%) of that company from promoters. The effect described in the Application was that the Proposed Acquirer would directly acquire 10.86% and indirectly acquire 18.74%, and, together with the promoter group, hold 45.70% of the paid up equity capital post-transaction.
The Application asserted that the transfers are family-consolidation transactions (gift/private family arrangement) to a family trust for succession planning, would be non-commercial, would not change control or the exercise of voting power, and that the Target Company would continue to satisfy minimum public shareholding requirements. The Proposed Acquirer confirmed compliance with the Guidelines in the Schedule to the SEBI Circular dated December 22, 2017.
The Whole Time Member of SEBI considered the Application and the materials on record and issued an order on July 30, 2020, exercising powers under Section 19 read with Sections 11(1) and 11(2)(h) of the SEBI Act, 1992 and Regulation 11(5) of the Takeover Regulations.
Legal Issues Presented
- Whether the Proposed Acquirer (Chowdhary Foundation) should be granted exemption from the obligation to make an open offer under Regulations 3(2) and 5(1) of the Takeover Regulations for the specified proposed direct and indirect acquisitions in Titagarh Wagons Limited.
- Whether the facts and assurances provided — including that the trust structure mirrors promoter holdings, that trustees and beneficiaries are family members, and that there will be no change in control or public shareholding — satisfy the requirements (including the SEBI Circular dated December 22, 2017) necessary for SEBI to exercise its power under Section 11 and Regulation 11(5) to grant such an exemption.
Arguments of the Parties
Proposed Acquirer (Chowdhary Foundation) — Submissions / Grounds for Seeking Exemption
- Trustees and beneficiaries of the Acquirer Trust and the transferors form part of the promoter / promoter group of the Target Company.
- Only individual promoters or their immediate relatives or lineal descendants are the Trustees and beneficiaries of the trust.
- The transferors and their immediate relatives are in direct control of the Acquirer Trust, so there will be no effective change in the exercise of voting power, control, or management of the Target Company after the acquisition.
- The proposed acquisition is by way of gift pursuant to a private family arrangement, intended for consolidation of existing promoter shareholding into a family trust for succession planning and family welfare.
- The proposed acquisition is a non-commercial transaction and will not prejudice the interests of public shareholders.
- There will be no change in pre-acquisition and post-acquisition shareholding of the promoter/promoter group and public shareholders; the Target Company will remain compliant with minimum public shareholding requirements.
- The Proposed Acquirer confirmed compliance with the Guidelines in the Schedule to the SEBI Circular dated December 22, 2017, including commitments (inter alia) that the trust mirrors promoter holdings, beneficial interests will not be transferred or encumbered, trustees will not delegate powers to outsiders, annual auditor certification and disclosure obligations will be complied with.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The decision-maker (the Whole Time Member of SEBI) recorded the material facts and the representations made in the Application and then set out concise findings based on those materials. The court's analytical steps, as reflected in the order, are:
- Identification of the regulatory provisions engaged: the Proposed Acquirer's described acquisitions would attract Regulations 3(2) and 5(1) of the Takeover Regulations (i.e., they ordinarily would trigger an open offer obligation).
- Quantification of the post-transaction holdings: the Proposed Acquirer would directly acquire 10.86% and indirectly 18.74% of the Target Company, resulting in an aggregate promoter holding of 45.70%.
- Assessment against the SEBI Circular dated December 22, 2017 (the Schedule Guidelines): the order notes the Proposed Acquirer's confirmation that it complies with the Schedule Guidelines and lists the specific points confirmed (e.g., trust mirrors promoter holdings, trustees and beneficiaries are family, no encumbrance of beneficial interest, annual disclosure/certification obligations, and others).
- Evaluation of the effect on control and public interest: the order explicitly notes that there will be no change in control of the Target Company pursuant to the proposed acquisition (as per the SEBI Circular), no change in pre- and post-acquisition promoter shareholding and no change in public shareholding; the Target Company will continue to comply with minimum public shareholding rules and listing obligations.
- Conclusion drawn from the above factual matrix and assurances: considering that the transfers are family consolidation transfers into a trust that mirrors promoter holdings, and given compliance with the Schedule Guidelines and maintenance of public shareholding requirements, the authority concluded that an exemption may be granted, subject to specified conditions.
The order's reasoning is based on the factual representations and confirmations filed by the Proposed Acquirer and the checklist-like assessment against the Schedule to the SEBI Circular. The order does not elaborate on independent fact-finding beyond the materials on record.
Holding and Implications
Holding: Exemption granted to the Proposed Acquirer (Chowdhary Foundation) from complying with the requirements of Regulations 3(2) and 5(1) of the Takeover Regulations for the proposed acquisitions described in the Application.
Conditions and Direct Consequences (as ordered):
- The exemption is granted under the authority of Section 19 read with Sections 11(1) and 11(2)(h) of the SEBI Act and Regulation 11(5) of the Takeover Regulations.
- The proposed acquisition must comply with the provisions of the Companies Act, 2013 and other applicable laws.
- On completion of the proposed acquisition, the Proposed Acquirer must file a report with SEBI within 21 days from the date of such acquisition, as provided by the Takeover Regulations.
- The statements, averments, facts and figures in the Application must be true and correct; the beneficial interest of the beneficiaries of the Trust shall not be transferred, assigned or encumbered in any manner, including by way of pledge/mortgage.
- The Trust shall be irrevocable and that specific reference shall be incorporated in the Trust Deed.
- The Proposed Acquirer must ensure compliance with the statements, disclosures and undertakings made in the Application and the provisions of the SEBI Circular dated December 22, 2017; if any covenants in the Trust Deed are contrary to the ordered conditions and undertakings, the Trust Deed shall be suitably modified and expeditiously reported to SEBI.
- The exemption is limited to the requirements of making an open offer under the Takeover Regulations 2011 and shall not be construed as exemption from disclosure requirements under Chapter V of the Takeover Regulations, compliance with SEBI (Prohibition of Insider Trading) Regulations, 2015, Listing Agreement/SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, or any other applicable Acts, Rules and Regulations.
Final procedural outcome: The Application dated March 2, 2020 filed by Jagdish Prasad Chowdhary on behalf of the Proposed Acquirer is disposed of by the order dated July 30, 2020, signed by G. Mahalingam, Whole Time Member, SEBI.
________________________________________________________________________________________ Order in the matter of Titagarh Wagons Limited Chowdhary Foundation WTM/GM/CFD/20/202021 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTION 11(1) AND SECTION 11(2)(h) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 11(5) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 2011. IN THE MATTER OF PROPOSED ACQUISITION OF SHARES AND VOTING RIGHTS IN TARGET COMPANY ACQUIRER TITAGARH WAGONS LIMITED CHOWDHARY FOUNDATION BACKGROUND
1. Titagarh Wagons Limited (Target Company/ TWL) was incorporated under the Companies Act, 1956 on July 3, 1997. The Registered Office of the Target Company is at 756, Anandapur, E.M. Bypass, Kolkata - 700107. The shares of the Target Company are listed on the BSE Limited (BSE) and National Stock Exchange of India Limited (NSE) since April 21, 2008.
2. An Application dated March 2, 2020 read with emails dated April 30, 2020, May 22, 2020, May 27, 2020, June 2, 2020, June 4, 2020, June 15, 2020, July 7, 2020 and July 13, 2020 (collectively referred to as Application) seeking exemption from the applicability of Regulations 3(2) and 5(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations) in the matter of proposed acquisitions of shares and voting rights in the Target Company by Chowdhary Foundation (Acquirer Trust / Proposed Acquirer) was received by SEBI from Jagdish Prasad Chowdhary on behalf of the Acquirer Trust.
3. Regulations 3(2) and 5(1) of the Takeover Regulations 2011 states as under Substantial acquisition of shares or voting rights.
3. (1) (2) No acquirer, who together with persons acting in concert with him, has acquired and holds in accordance with these regulations shares or voting rights in a target company entitling them to exercise twenty-five per cent or more of the voting rights in the target company but less than the ________________________________________________________________________________________ Order in the matter of Titagarh Wagons Limited Chowdhary Foundation maximum permissible non-public shareholding, shall acquire within any financial year additional shares or voting rights in such target company entitling them to exercise more than five per cent of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations: Provided that such acquirer shall not be entitled to acquire or enter into any agreement to acquire shares or voting rights exceeding such number of shares as would take the aggregate shareholding pursuant to the acquisition above the maximum permissible non-public shareholding. Provided further that, acquisition pursuant to a resolution plan approved under section 31 of the Insolvency and Bankruptcy Code, 2016 [No. 31 of 2016] shall be exempt from the obligation under the proviso to the sub-regulation (2) of regulation 3. Explanation. For purposes of determining the quantum of acquisition of additional voting rights under this sub-regulation,
(i) gross acquisitions alone shall be taken into account regardless of any intermittent fall in shareholding or voting rights whether owing to disposal of shares held or dilution of voting rights owing to fresh issue of shares by the target company.
(ii) in the case of acquisition of shares by way of issue of new shares by the target company or where the target company has made an issue of new shares in any given financial year, the difference between the pre-allotment and the post-allotment percentage voting rights shall be regarded as the quantum of additional acquisition. Indirect acquisition of shares or control.
5. (1) For the purposes of regulation 3 and regulation 4, acquisition of shares or voting rights in, or control over, any company or other entity, that would enable any person and persons acting in concert with him to exercise or direct the exercise of such percentage of voting rights in, or control over, a target company, the acquisition of which would otherwise attract the obligation to make a public announcement of an open offer for acquiring shares under these regulations, shall be considered as an indirect acquisition of shares or voting rights in, or control over the target company. ________________________________________________________________________________________ Order in the matter of Titagarh Wagons Limited Chowdhary Foundation
4. In the aforementioned Application and subsequent submissions, the following inter alia was stated: A. The shareholding in the Target Company prior to the proposed acquisition is as under: Table I - Shareholding in the Target Company (Source: Application) Name No. of shares % Shareholding A. Promoter/ Promoter Group
1. Titagarh Capital Management Services Private Limited 2,16,70,165 18.74
2. Savitri Devi Chowdhary 1,24,66,034 10.78
3. Rashmi Chowdhary 1,28,16,105 11.09
4. Jagdish Prasad Chowdhary 1,56,540 0.14
5. Umesh Chowdhary 77,530 0.07
6. Vinita Bajoria 80 0.00
7. Sumita Kandoi 85 0.00
8. Jagdish Prasad Chowdhary (Trustee of Chowdhary Foundation) 56,50,001 4.89 Total Promoter Holding 5,28,36,540 45.70 B Public Shareholding 6,27,69,630 54.30 Total 11,56,06,170 100.00 B. The Acquirer Trust proposes to acquire 10.86% shares of Target Company from the promoters as under: Table II - Details of Proposed Direct Acquisition Name of acquirer Name of the Transferor No. of shares proposed to be acquired % of share capital Remarks Chowdhary Foundation Savitri Devi Chowdhary 1,24,66,034 10.78 Transferor is a settlor, trustee and beneficiary of the Acquirer Trust Jagdish Prasad Chowdhary 85,840 0.07 Transferor is a settlor, trustee and beneficiary of the Acquirer Trust Total 1,25,51,874 10.86 ________________________________________________________________________________________ Order in the matter of Titagarh Wagons Limited Chowdhary Foundation C. The Acquirer Trust also proposes to acquire 50% shares of Titagarh Capital Management Services Private Limited from the promoters as under: Table III - Details of Proposed Indirect Acquisition Name of acquirer Name of the Transferor No. of shares proposed to be acquired % of share capital Remarks Chowdhary Foundation Savitri Devi Chowdhary 1,25,000 25 Transferor is a settlor, trustee and beneficiary of the Acquirer Trust Jagdish Prasad Chowdhary 1,25,000 25 Transferor is a settlor, trustee and beneficiary of the Acquirer Trust Total 2,50,000 50 D. The Settlor, Trustees and beneficiaries of the aforementioned Acquirer Trust are as under: Table IV - Details of the Acquirer Trust Settlors Trustees Beneficiaries Relationship
1. Jagdish Prasad Chowdhary
2. Savitri Devi Chowdhary
1. Jagdish Prasad Chowdhary
2. Savitri Devi Chowdhary
3. Umesh Chowdhary
1. Jagdish Prasad Chowdhary
2. Savitri Devi Chowdhary
3. Umesh Chowdhary
4. Prithish Chowdhary
5. Spouses and male lineal descendants of Umesh Chowdhary and Prithish Chowdhary
6. In the absence of male lineal descendants, female lineal descendants of Prithish Chowdhary Umesh Chowdhary is the son of Jagdish Prasad Chowdhary and Savitri Devi Chowdhary and Prithish Chowdhary is the son of Umesh Chowdhary. ________________________________________________________________________________________ Order in the matter of Titagarh Wagons Limited Chowdhary Foundation E. The shareholding in the Target Company subsequent to the proposed Acquisition by Acquirers will be as under: Table V - Shareholding in the Target Company (Source: Application) Name No. of shares % Shareholding A. Promoter/ Promoter Group
1. Titagarh Capital Management Services Private Limited 2,16,70,165 18.74
2. Savitri Devi Chowdhary 0 0
3. Rashmi Chowdhary 1,28,16,105 11.09
4. Jagdish Prasad Chowdhary 70,700 0.06
5. Umesh Chowdhary 77,530 0.07
6. Vinita Bajoria 80 0.00
7. Sumita Kandoi 85 0.00
8. Jagdish Prasad Chowdhary (Trustee of Chowdhary Foundation) 1,82,01,875 15.74 Total Promoter Holding 5,28,36,540 45.70 B. Public Shareholding 6,27,69,630 54.30 Total 11,56,06,170 100.00
5. Grounds for seeking exemption
i. Trustees and Beneficiaries of the Acquirer Trust and the Transferors form part of the Promoter / Promoter Group of the Target Company.
ii. Only individual promoters or their immediate relatives or lineal descendants are the Trustees and Beneficiaries.
iii. The Transferors and their immediate relatives are directly in control of the Acquirer Trust and hence, there will be no effective change in the exercise of the voting power or control or management of the Target Company after the proposed acquisition.
iv. The proposed acquisition by way of a gift, for which exemption is sought will take place pursuant to a private family arrangement intended at consolidation of shareholding of existing individual promoters in the Target Company in a Family Trust to facilitate succession planning and welfare of the Chowdhary Family.
v. The Proposed Acquisition is a non-commercial transaction, which will not prejudice the interests of the public shareholders of the Target Company in any manner.
vi. Pursuant to the proposed transactions, with respect to the shares being transferred, the individual promoters will no longer exercise voting right in the Target Company and instead, the Acquiring Trust will exercise the voting rights. ________________________________________________________________________________________ Order in the matter of Titagarh Wagons Limited Chowdhary Foundation
vii. There will not be any change in the pre-acquisition and post-acquisition shareholding of the promoter / promoter group and public shareholders pursuant to the proposed transactions.
viii. The Target Company shall continue to be in compliance with the Minimum Public Shareholding requirement.
6. The Acquirer Trust, vide emails dated April 30, 2020, July 7, 2020 and July 13, 2020 confirmed its compliance with the following Guidelines outlined in the Schedule to the SEBI Circular dated December 22, 2017
i. The Trust is, in substance, only a mirror image of the Promoters holdings and consequently, there is no change of ownership or control of the shares or voting rights in the Target Company.
ii. Only individual promoters or their immediate relatives or lineal descendants are Trustees and beneficiaries.
iii. The beneficial interest of the beneficiaries of the Trust has not been and will not, in the future, be transferred, assigned or encumbered in any manner including by way of pledge / mortgage.
iv. In case of dissolution of the Trust, the assets will be distributed only to the beneficiaries of the trust or to their legal heirs.
v. The Trustees will not be entitled to transfer or delegate any of their powers to any person other than one or more of themselves.
vi. Any change in the trustees / beneficiaries and any change in ownership or control of shares or voting rights held by Trust shall be disclosed within two days to the concerned stock exchanges with a copy endorsed to SEBI for its record.
vii. As far as the provisions of the SEBI Act and the regulations framed thereunder are concerned, the ownership or control of shares or voting rights will be treated as vesting not only with the Trustees but also indirectly with the beneficiaries.
viii. The liabilities and obligations of individual transferors under the SEBI Act and the regulations framed thereunder will not change or get diluted due to transfers to the Trust.
ix. The Trust shall confirm, on an annual basis, that it is in compliance with the exemption order passed by SEBI. The said confirmation shall be furnished to the company which it shall disclose prominently as a note to the shareholding pattern filed for the quarter ending March 31 each year, under Regulation 31 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. ________________________________________________________________________________________ Order in the matter of Titagarh Wagons Limited Chowdhary Foundation
x. The Trust shall get its compliance status certified from an independent auditor annually and furnish the certificate to the Stock Exchanges for public disclosure with a copy endorsed to SEBI for its records.
xi. The proposed acquisition is in accordance with the provisions of the Companies Act, 2013 and other applicable laws.
xii. The transferors are disclosed as promoters in the shareholding pattern filed with the Stock Exchanges for a period of at least three years prior to the transfer (except for holding on account of inheritance).
xiii. There is no layering in terms of trustees / beneficiaries in case of Trusts.
xiv. The Trust Deed does not contain any limitation of liability of the trustees / beneficiaries in relation to the provisions of the SEBI Act and all regulations framed thereunder. Consideration
7. I have considered the Application submitted by the Proposed Acquirer and other materials available on record. Without reiterating the facts as stated above, the following is noted:
i. The Application submitted is in respect of the proposed acquisitions of shares and voting rights in the Target Company i.e. Titagarh Wagons Limited. The proposed Acquisitions as detailed at paragraphs 4B and 4C, which are to be made by the Proposed Acquirer, will attract the provisions of Regulations 3(2) and 5(1) of the Takeover Regulations.
ii. Pursuant to the proposed acquisitions, Proposed Acquirer shall directly acquire 10.86% shares and indirectly acquire 18.74% shares and along with promoter group, will hold an aggregate of 45.70% of the paid up equity capital in the Target Company.
iii. There will be no change in control of the Target Company pursuant to the proposed acquisition, as stipulated under the SEBI Circular dated December 22, 2017.
iv. The preacquisition and postacquisition shareholding of the Promoters in the Target Company will remain the same.
v. There will also be no change in the public shareholding of the Target Company. ________________________________________________________________________________________ Order in the matter of Titagarh Wagons Limited Chowdhary Foundation
vi. The Target Company shall continue to be in compliance with the minimum public shareholding requirements under the Securities Contracts (Regulation) Rules, 1957 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
vii. The Proposed Acquirer has also confirmed that it is in compliance with the Guidelines outlined in the Schedule to the SEBI Circular dated December 22, 2017.
8. Considering the aforementioned, I am of the view that exemption as sought for in the Application may be granted to the Proposed Acquirer, subject to certain conditions as ordered herein below. Order
9. I, in exercise of the powers conferred upon me under Section 19 read with Section 11(1) and Section 11(2)(h) of the Securities and Exchange Board of India Act, 1992 (SEBI Act) and Regulation 11(5) of the Takeover Regulations, hereby grant exemption to the Proposed Acquirer from complying with the requirements of Regulations 3(2) and 5(1) of the Takeover Regulations with respect to the proposed acquisitions in the Target Company, viz. Titagarh Wagons Limited, by way of proposed transactions as mentioned in the Application.
10. The exemption so granted is subject to the following conditions:
i. The proposed acquisition shall be in accordance with the relevant provisions of the Companies Act, 2013 and other applicable laws.
ii. On completion of the proposed acquisition, the Proposed Acquirer shall file a report with SEBI within a period of 21 days from the date of such acquisition, as provided in the Takeover Regulations 2011.
iii. The statements / averments made or facts and figures mentioned in the Application and other submissions by the Proposed Acquirer are true and correct.
iv. The beneficial interest of the beneficiaries of the Trust will not in the future, be transferred, assigned or encumbered in any manner including by way of pledge/mortgage. ________________________________________________________________________________________ Order in the matter of Titagarh Wagons Limited Chowdhary Foundation
v. The Trust shall be an irrevocable Trust and a specific reference thereon shall be incorporated in the Trust Deed.
vi. The Proposed Acquirer shall ensure compliance with the statements, disclosures and undertakings made in the Application. The Proposed Acquirer shall also ensure compliance with the provisions of the SEBI Circular dated December 22, 2017.
vii. The Proposed Acquirer shall also ensure that the covenants in the Trust Deed are not contrary to the above conditions and the undertaking provided by it. In such case, the Trust Deed shall be suitably modified and expeditiously reported to SEBI.
11. The exemption granted above is limited to the requirements of making open offer under the Takeover Regulations 2011 and shall not be construed as exemption from the disclosure requirements under Chapter V of the aforesaid Regulations; compliance with the SEBI (Prohibition of Insider Trading) Regulations, 2015, Listing Agreement/SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 or any other applicable Acts, Rules and Regulations.
12. The Application dated March 2, 2020 filed by Jagdish Prasad Chowdhary on behalf of the Proposed Acquirer, is accordingly disposed of. Place: Mumbai G. MAHALINGAM Date: July 30, 2020 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA
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