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R.Y. Narayanan

Coimbatore , Oct 15

THE Securities and Exchange Board of India (SEBI) exempted the two Tata group companies from making an open offer for Tata Finance Ltd (TFL) shares as it accepted the latter's plea of special circumstances surrounding the acquisition.

In their submission to SEBI, the two companies — Tata Industries and Tata Sons Ltd — have stated that in the wake of the discovery of irregularities committed in the TFL around May 2001, which resulted TFL having a negative net worth, apart from not being able to comply with the capital adequacy ratio prescribed by the Reserve Bank of India for NBFCs, the two companies from time to time gave inter-corporate deposits to TFL which were subsequently converted into non-refundable interest-free advances, which as on date aggregate to Rs 300 crore, so as to ensure that the company had a positive net worth and RBI prudential norms were duly met.

In their application to SEBI in July 2003, they proposed that the Rs 300 crore advanced to TFL be converted into equity capital of the company to comply with the directions given by the RBI under Section 45 N of the RBI Act, 1934 vide its letter dated February 3, 2003.

The two companies further submitted that TFL was essentially a sick company as its entire net worth comprising capital and reserves has been eroded by the accumulated losses. However, since it was not an industrial company as defined under the Sick Industrial Companies (Special Provisions) Act, 1985, it was not eligible for the automatic exemption from open offer available under Regulation 3 of the Regulations for sick companies.

They argued that since the objective was to revive the sick company by additional capitalisation from the group companies it should qualify for exemption from the provisions of SEBI Takeover Regulations as available to sick industrial companies.

The Takeover panel, to which the application was referred to by SEBI, observed that the objective appeared to be to revive the sick company by additional capitalisation from the group companies. In the circumstances, grant of exemption as sought was recommended subject to certain conditions including the TFL passing the requisite resolution as per Section 81 (1A) of the Companies Act, 1956 and complying with all procedural formalities in connection therewith and allotment price was higher between the price fixed in accordance with pricing formula under SEBI (Disclosure & Investor Protection) Guidelines, 2000 and Regulation 20 of the Takeover Code.

Taking into account the fact that in the AGM held on August 26, 2003, the shareholders unanimously approved the special resolution for preferential issue of 113,079,533 shares at a price of Rs 26.53 per share and the recommendations of the Takeover panel and the interest of the public shareholders of TFL. SEBI, in its order on October 10, 2003, granted exemption to the Tata group companies from complying with the provisions Chapter III of the Regulations with regard to the proposed acquisition.

It directed them to complete the proposed acquisition within 30 days of the order and file a status report with SEBI within 15 days thereafter.

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