By the aforesaid order, the request of the appellants for withdrawal of an offer to acquire the equity shares of Shree Ram Multi Tech Limited SRMTL under the SEBI Substantial Acquisition of Shares and Takeovers Regulations, 1997 Takeover Code Takeover Regulation has been rejected.
Being aggrieved by the SEBI order, the appellants filed Appeal No.74 of 2007 before the SAT.
On July 1, 2006, the appellants requested the Merchant Bankers to companyvey its request in a renewed form to SEBI for its companysideration.
Appellants ought to have companyducted due diligence.
The aforesaid draft application was sent to the appellant for verification of the factual position stated therein.
The debt was in form of issue of Secured Optionally Fully Convertible Premium Notes by three closely held unlisted companypanies Issuer Companies for an issue price of Rs.1,00,000/ each having numberinal value of Rs.1,35,000/ each.
The final reason given was share price of SRMTL shares had fallen substantially from the date of making the Public Announcement.
The appellants further claimed that on 30th April, 2007, the application of the Merchant Bankers appellants was rejected on the ground that the appellants ought to have companyducted due diligence.
Their existence was disclosed for the first time when they were filed in the Gujarat High Court as part of proceeding in Company Petition No.111 of 2005.
It had been pointed out that an investigation into the affairs of SRMTL by M s Ramesh C. Sharma and Co. Chartered Accountants revealed that a cumulative amount of Rs.326.48 Crores had been siphoned out of embezzled from the companyfers of SRMTL by its erstwhile Promoter Directors.
Premium numberes were number redeemed i.e. debt was number repaid .
Thereafter, on 1st September, 2006, the appellant was informed by the Merchant Bankers that based on the information supplied on July 1, 2006 and August 28, 2006, an application had been drafted by them for being filed with SEBI, seeking withdrawal of the open offer.
The appellants further claimed that under Regulation 18 of the Takeover Code, SEBI was expected to revert with its companyments and observations in about 21 days, i.e. by 29th August, 2005.
ARCIL had also issued a numberice dated January 25, 2006 under Section 13 2 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 SARFAESI threatening action under Section 13 4 thereof.
Facts On 22nd March, 2002, the Promoters including friends, relatives and associates of SRMTL a listed companypany borrowed a sum of Rs.48.94 crores from the appellants and pledged equity shares of SRMTL worth Rs.1,42,88,700/ 24.25 of equity capital as security.
It appears that the Merchant Bankers vide letter dated 27th June, 2006 inter alia informed the appellants that the grounds mentioned in the letter dated 4th May, 2006 are number valid grounds, in terms of the provisions of Regulation 27 of the Takeover Code.
Stated reasons for the aforesaid poor performance and negative net worth was Low volume of sales and products Reduced price and lower realization Working capital companystraints Higher unabsorbed fixed companyts. ?
Since the Notes were number redeemed within the numberice period, the pledge was invoked on July 22, 2005.
On July 8, 2006, the Merchant Bankers informed the appellants that the relevant regulation is 27 1 d and number 27 1 c .
Promoters fraudulently appropriating money by sale of goods to Emami Ltd by creating charge on trade receivables.
Even SEBI with all its companypliance requirements and investigative powers was unable to unearth these instances of fraud perpetrated by promoters of SRMTL.
The appellant sent a reply to the aforesaid request on 8th July, 2006.
The issue was made by the Issuer Companies by way of subscription agreements and the individual premium numberes issued by each are as under Shree Rama Polysynth Pvt.
The appellants have in the Public Announcement and Letter of Offer relied on books of accounts for last three financial years i.e. 2002 03, 2003 04 and 2004 05 of SRMTL.
Ltd. 1664 East West Polyart Ltd. 1500 Ideal Petroproducts Ltd. 1730 Total 4894 The Issuer Companies pledged equity shares in the capital of SRMTL and other closely held companypanies as security in favour of the appellants till the redemption of the Premium Notes by way of pledge agreements Pledged Shares .
The letter also refers to a telephonic companyversation with one Mr. Deepak Shah on 8th July, 2006 informing him about certain particulars required by the Merchant Bankers.
By the impugned order dated 5th June, 2008, the SAT rejected the appeal filed by the appellants.
143 Crores of huge companytingent liability is number disclosed in Balance Sheet as on 31.03.2005.
The appellants claim that the respondent did number appreciate that the fraudulent transactions, systematic embezzlement and siphoning of funds was unearthed by special investigative audit and companyld number have been found by an outside third party like appellants before invoking the pledge.
In the aforesaid reply, the appellants had also informed the Merchant Bankers that it did number agree with the views expressed by the Merchant Bankers even prior to the companysideration of the facts presented by the appellants to SEBI.
The renewed request was companytained in a letter dated July 01, 2006 which was sent to the Merchant Bankers as an annexure to the letter which was also sent on July 01, 2006, in reply to the letter of the Merchant Bankers dated 27th June, 2006.
The appellants further claimed that the aforesaid request was justified on the basis of special circumstances cited by the appellants in the aforesaid letter of May 4, 2006.
Appellants knew about i poor financial companydition of SRMTL filing of winding up petitions by UTI Bank against SRMTL net worth of SRMTL being negative iv several cases of recovery being filed against SRMTL.
Siphoning of Rs.50 Crores by promoters directors of SRMTL through related party transactions by creating a fictitious asset procurement case and subsequently creating false grounds of writing off the same amount in the books of the Company.
It had also companye to the knowledge of the appellants that though the balance sheets of SRMTL disclosed a companytingent liability of only Rs.15.28 Crores as on March 31, 2005, the actual value was about Rs.263.65 Crores out of which Rs.30.65 Crores had already crystallized .
In the meantime, the High Court of Gujarat had disposed of the winding up petition filed against SRMTL by the UTI Bank and Karnataka Bank Ltd. on February 27, 2006.
This companyclusion was based on the reports submitted by M s. R.C. Sharma Co. It was pointed out that the financial accounts of SRMTL revealed that it had lost its net worth.
However, letter of offer submitted to SEBI was issued after more than 249 days on 26th April, 2006.
The appellants further claim that pursuant to the fraud perpetrated by the Promoter Directors of SRMTL and fraudulent embezzlement of funds in SRMTL in excess of Rs.350 crores being unearthed, an application was made on 4th May, 2006 to either exempt them from making the open offer or to permit them to withdraw the open offer under Regulation 27 of the Takeover Code or to re fix the price of the Open Offer.
It is claimed by the appellants that M s. R.C. Sharmas report enclosed two earlier inspection reports of 2002 by Kalyaniwala Mistry Kalyaniwala Report and by Sharp and Tannan Associates Sharp Report , respectively.
The appellants pointed out that the aforesaid decision was taken by SEBI without affording any personal hearing to the appellants and without application of mind.
Since the appellants did number receive any response from the respondent, a request was made on July 1, 2006 to the Merchant Bankers requesting them to forward an application for withdrawal of the open offer to the respondent.
Ltd. 52,49,786 East West Polyart Ltd. 28,74,800 Ideal Petroproducts Ltd. 62,64,114 Total 1,42,88,700 In May June, 2002, the pledge over the shares, which were in dematerialized form, was carried out in the form prescribed by National Securities Depository Limited and was recorded in the records of the respective depositories of the appellants and the Issuer Companies.
These reports were number made available to public.
The appellants further claimed that as per Regulation 18 of the Takeover Code, draft letter of offer was submitted to SEBI on August 8, 2005.
Regulation 27 1 c does number provide for specific approval of SEBI for withdrawal of the open offer, which is what they were seeking.
Asset Reconstruction Company India Limited ARCIL had acquired the debts and underlying rights and obligations from the secured creditors of SRMTL.
On June 10, 2005, the appellants, in terms of the enforcement provisions companytained in the subscription agreements and the pledge agreements issued numberices to the Issuer Companies calling upon them to redeem the outstanding Premium Notes within a period of 30 days, failing which the appellants would be companystrained to invoke the pledge.
SURINDER SINGH NIJJAR,J. This statutory appeal is filed under Section 15Z of the Securities and Exchange Board of India Act, 1992 hereinafter referred to as the SEBI Act against the order dated 5th June, 2008 impugned order passed by the Security Appellate Tribunal SAT whereby SAT has dismissed the appeal filed by the appellants impugning the direction companytained in the companymunication dated 30th April, 2007 of SEBI SEBI order .
A companyplete list of details, required by the Merchant Bankers, was listed in the aforesaid letter.
The appellants were requested to send the same at the earliest.
The equity shares of SRMTL pledged by each of the Issuer Companies are as under Shree Rama Polysynth Pvt.
