Appeal No. 203 of 2012. Case: 1. Bombay Rayon Fashions Limited, Mumbai, 2. B.R. Machine Tools Private Limited,Karnataka Vs Securities and Exchange Board of India, Mumbai. Securities and Exchange Board of India

Case NumberAppeal No. 203 of 2012
CounselFor Appellants: Mr. R. S. Loona, Advocate with Mr. Ankur Loona, Mr. Abhishek Borgikar, Advocates and For the Respondent: Mr. Kumar Desai, Advocate with Mr. Mihir Mody, Mr. Akhilesh Singh, Advocates
JudgesJog Singh, Member & Presiding Officer (Offg.) A.S. Lamba, Member
IssueCompanies Act, 1956; Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 - Regulation 109(c)
Judgement DateJune 28, 2013
CourtSecurities and Exchange Board of India


Jog Singh

1. The appeal has been preferred by two persons. The Appellant No. 1, namely, Bombay Rayon Fashions Ltd., is a company incorporated under the Companies Act, 1956 with its registered office in Mumbai. Its shares are listed on the Bombay Stock Exchange Limited (BSE) and National Stock Exchange of India Limited (NSE). It is a vertically integrated textile company, mainly engaged in the manufacture of a wide range of fabrics and garments.

2. Appellant No. 2, namely, B.R. Machine Tools Private Ltd., is one of the Promoter Group Companies of Appellant No. 1. Mr. Janardhan Agarwal, Mr. Aman Agarwal and Mr. Prashant Agarwal, along with their relatives and companies owned by them, are the promoters of Appellant No. 1. The Promoter Group held 34.15% of the issued and paid-up equity share capital of Appellant No. 1 before the occurrence of the dispute explained below. Both the Appellants are aggrieved by the impugned letter dated August 10, 2012 issued by the Respondent, SEBI, rejecting the request of the Appellants for relaxation under the Regulation 109(c) of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, hereinafter referred to as "ICDR Regulations of 2009".

3. The brief facts leading up to the present dispute are that, under the ICDR Regulations of 2009, Appellant No. 1 made preferential issues of 10 million optionally convertible warrants at the conversion exercise price of Rs.263/- per warrant including premium to B R Machine Tools Pvt. Ltd. Similar allotment of 10 million warrants was made by Appellant No. 1 in favour of Reynold Shirting Ltd., which is also a Promoter Group Company, on September 13, 2009 at the conversion exercise price of Rs.193/- per warrant including premium. Pursuant to the above said allotment of 20 million warrants, 12.5 million warrants were converted into equity shares within the creeping acquisition limit as prescribed by the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereinafter referred to as "SAST Regulations, 1997". Thus, 7.5 million warrants remained to be converted into equity shares and the prescribed limitation of 18 months for conversion of such warrants into shares was to expire on April 3, 2012.

4. In the meanwhile, certain developments took place which led to the reconstitution of the Promoters'' Group and consequently, the Promoter Group''s holding in Appellant No. 1 stood at 93.15% of the total capital. In fact, AAA United Brevy, hereinafter referred to as "AAA", a body corporate incorporated in the Netherlands is also a major shareholder of Appellant No.1 and stated to be holding 37.89% of the total capital. In April, 2009 AAA first acquired 18 million equity shares constituting 20.67% of the then total paid-up capital in Appellant No. 1 through preferential allotment of equity shares. As per the SAST Regulations, 1997, open offer to public shareholders of Appellant No. 1 was duly made by AAA (Open Offer-1). It was followed by subscription by AAA in two rounds of GDRs (non-voting) issued by Appellant No.1 in November 2009 and October 2010, respectively. This led to an aggregate of 33 million GDRs to be converted into an equivalent number of equity shares of Appellant No. 1. However, till this point of time, AAA remained a public shareholder only.

5. Further, in April 2011, AAA along with Ashwell Holding Company Limited, ("Ashwell") which is also a Promoter Group entity, gave another mandatory open offer as required by Regulations 11(1) and 12 of SAST Regulations, 1997 to the public shareholders of the issuer company (Open Offer-2). This was done by AAA with an intention to convert the aforesaid 33 million outstanding GDRs into equity shares. However, it would have given AAA voting rights in excess of the permissible creeping acquisition limit of 5% laid down under the SAST Regulations, 1997. In addition to this, AAA also appears to have intended to be recognized as a...

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