3A Capital has approached the Securities Appellate Tribunal (SAT) against a SEBI order. SEBI had not allowed 3A Capital to exclude shareholders who did not want to sell their shares in the target company from the open offer for Shree Sarvaraya Sugars. 3A Capital’s argument was that since 65 per cent shareholders of Shree Sarvaraya Sugars do not want to sell their shares and it (3A Capital) has already bought more than 25 per cent stake in the company, the open offer should be made only for the remaining 5.85 per cent.
SEBI did not accept the argument of 3A Capital
SEBI refused to accept this argument of 3A Capital. SEBI did not give this concession to the company in the case of open offer. The regulator believed that 3A Capital would have to make an open offer as per the rules. The company’s counsel told SAT that the company needs to make an open offer only to the remaining shareholders of Shree Sarvaraya Sugars and not to those shareholders who are with the buying or selling company.
Wanted concession in 3A Capital Open Offer
Shree Sarvaraya Sugars promoter Archana Prasad Kilaru had sold her shares to 3A Capital, while other promoters and shareholders did not show interest in selling their shares. Such promoters and shareholders hold 65 percent shares of Shree Sarvaraya Sugars. These shareholders had informed SEBI about their wishes through merchant bankers. Therefore, 3A Capital argued that it needed to make an open offer only to the remaining 5.85 shareholders.
Shareholders cannot be excluded from the open offer.
The market regulator did not agree with 3A Capital’s argument. He said that the communication between him, the company and the merchant bank was from the time when 3A Capital held less than 25 per cent stake. Once 3A Capital’s stake in the company (Shri Sarvaraya) crosses the 25 per cent limit, it will have to make an open offer as per the prescribed rules. Also, promoters and shareholders holding 65 percent stake cannot be kept out of this open offer. SEBI said in its argument that there is no such information on record to prove that these promoters and shareholders will not accept the open offer.
Open offer is made for a specific purpose
Anil Choudhary, partner, Finsec Law Advisors, said, “Sebi’s decision of not giving any exemption in this matter is right. The meaning of open offer is to give the remaining shareholders an opportunity to sell their shares to the company which has acquired the other company. It does not matter whether such promoters and shareholders are ready to sell their shares or not.”