The Hindu Business Line : Reliance Power: SEBI rules in favour of promoter contribution

Decision
Any shares acquired by promoters pursuant to a High Court-sanctioned scheme of amalgamation are very much eligible for computation of the promoters’ contribution.

D. Sampathkumar

Mumbai, Dec. 27 SEBI has ruled that shares issued by Reliance Power Ltd (RPL) to the promoters following the merger of an associate company with itself, can be counted for reckoning the minimum percentage of promoters’ contribution necessary in the context of its forthcoming public issue.

A Rajkot based consumer protection group had argued before SEBI that shares acquired by the RPL promoters consequent to the merger ought not to be considered for this purpose.

The SEBI guidelines stipulating minimum level of promoters’ stake and locking it in from further transfers are intended to ensure promoters’ commitment to the company raising money from the public.

These guidelines say that any shares issued to promoters in the last one year prior to the date of filing of the draft offer document should not be considered for computing the percentage of shares that would have to be locked in if they were issued for a price lower than the price at which shares are proposed to be issued to the public. A similar restriction also applies in the case of shares acquired for non-cash considerations.

The consumer protection group had argued that the merging company is a shell company and that RPL’s claim that the target company possessed the necessary technical and manpower skills ancillary to the business (power generation) of RPL is false and incorrect.

exception clause

In the event, it went on to argue that that the purpose of the merger was meant solely to take advantage of an exception clause in the SEBI guidelines on investor protection that dealt with minimum contribution by a promoter.

SEBI rejected these contentions saying that any shares acquired by promoters pursuant to a High Court-sanctioned scheme of amalgamation are very much eligible for computation of the promoters’ contribution.

The SEBI order also states that though in the instant case the transaction is in compliance with its guidelines it reiterated its resolve in enforcing the spirit of its guidelines and not just the letter.

“It is for the Board to ensure that spirit of the provision is not defeated. It is the bounden duty of the Board to provide the investors in the Issuer Company a level playing field and in no case should one group of shareholders get undue enrichment at the cost of other shareholders.”

The order also directed the company and the Lead Merchant Banker to ensure all disclosures as per the Companies Act, observations/changes suggested by it to be incorporated in the draft offer document.

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