Review of SEBI Delisting Regulations, Comments sent on 19.12.2020

Dear Sir,

We thank you issuing the discussion paper on Delisting Review. We find that some of our suggestions have found their way in the paper but many others have been ignored. While our suggestions on Indicative Price, Lien marking, timeline for applying for Stock Exchange approval have been looked into, other suggestions on discovered price, Counter Offer, Delisting-cum-Open offer, Early Bird Incentive, Definition of DVR have been ignored.   We have given our comments in the desired format and have  reiterated our suggestions at the end of the letter. Hope you will find merit in our suggestions and they will soon be .

Thanking you.

Yours truly

For SMALL INVESTORS’ WELFARE ASSOCIATION

CA Arun Goenka

 

 

1. Public comments are therefore invited on the aforesaid proposals in the following format:

Name of entity/ person/ intermediary: CA Arun Goenka

Name of organization (if applicable): SMALL INVESTORS’ WELFARE ASSOCIATION

Regn No. F-72744 (M)

Contact details: Address, Mobile No. etc. 703, Meadows, Sahar Plaza Complex, AndheriKurla Road,J.B. Nagar, Andheri ( E) , Mumbai 400 059

Email : SirenBajao@gmail.com Tel : +91-22-4215 1349 Mobile No. 93230 91348

 

Sr. No.	Proposals   Page No. Para No.	Proposed/ suggested changes	Rationale
1	1.4.ii	The IPA shall be made by the acquirer / promoter through the manager to the delisting offer.	The words through the manager, have been suggested to be deleted. No need to first appoint a Merchant Banker to issue “Initial Public announcement / IPA”. This can be “Self Declaration” in the prescribed form. The basic objective that such “price sensitive information, and should be disseminated in the public domain in a real time manner” is defeated and crucial time is lost in finding and appointing a Merchant Banker. May be quotations will be invited and discussion take place with more than one Merchant Banker leading to the chances of leakage of information.   In the case of Takeover the IPA may need a specialist an expert Merchant Banker since the matter is more complicated and often involves information required for a third party which may not be easily available. In the case of delisting the whole information and management is in the control of the promoter, IPA can be issued immediately.   The format of IPA can be made simple and self declaration type.   On the lines of DPS in the Takeover code, DPS may be issued within 5 days of IPA by a Merchant Banker.
2	3.4	This can be dropped	This will cast an unnecessary obligation on the company. It serves no useful purpose. Delisting offer should be viewed only as a short-term price advantage opportunity for investors.  If the company has a bright future, the delisting cannot be in the long-term interest of the investors. On the other hand, if the company does not have a bright future ahead, no Promoter shall go for delisting.   Save the Committee of Independent Directors from any kind of false/controversial recommendation. Let the investors decide for themselves.
3	5.2	Promoter(s) / Acquirer(s) may be allowed to specify an indicative price which shall not be less than 25% over the floor price calculated in terms of Regulation 8 of Takeover Regulations.	It is meaningless to incorporate “Indicative Price” if it is going to be the same as floor price. It will be unnecessary repetition and confusing (Vedanta delisting offer Floor Price 87.25 Indicative price 87.50) There has to be an objective for giving Indicative Price. It should be made optional not obligatory. The objective of Indicative Price should be to encourage the investors to participate in the delisting offer. If  an offerer is very keen on the success of delisting offer, he can indicate that by giving a higher offer price which should not be less than 25% of the floor price. The text of my original suggestion to SEBI Chairman sent on 16th September 2020 is reproduced below: 1.      INDICATIVE PRICE Although the term  “indicative price” is nowhere mentioned in the Regulations, but in practice, it is very commonly used. The use of the term “indicative price” should not be allowed. This is very misleading, and untrue as well. This is also against the spirit of the regulation which wants to provide a free and transparent price discovery mechanism, The “indicative price” unfairly influences the mind of the investor who cannot now bid freely without being guided by the indicative price.   Indicative price is supposed to indicate the price the Promoters / acquirers are willing to give, but in reality the final Exit price is always substantially higher, on an average  by  30% to more than 100%. The use of indicate price should be permitted only in the situation where the promoters want to encourage public participation in the offer  giving  incentive by means of offering a higher price. In such a situation the “Indicative price” should not be less than 150% of the “floor price”. In the case of Alfa Laval the indicative price announced was higher by more than 40%. The Floor Price was  Rs. 2,045/-whereas the Indicative Offer Price was Rs. 2,850/- Such indicative price can be permitted, but not Rs.87.50 announced by the promoters of  Vedanta, since the floor price is almost the same.
4	6.5	Promoter(s) / acquirer(s) shall open an escrow a/c with in seven working days of the shareholder’s approval and deposit therein an amount equivalent to 25% of the total consideration, calculated on the basis of the floor price / indicative price. The remaining amount may be deposited as per the existing provisions contained in Regulation 11(1).	The change suggested is to remove the word indicative price and make it obligatory to deposit only 25% of floor price. This is suggested to encourage the Offerer to offer liberal indicative price without much obligation and funds constraint right from the beginning. There is a considerable time gap  between the time of opening the Escrow account and the actual fructification of the delisting offer. This may add a substantial additional initial financial constraint for the promoter in declaring a higher Indicative Price, and will discourage him from announcing higher indicative price.
5	13.6.i	Prior to making the IPA, the Promoter / Acquirer shall appoint a merchant banker registered with the Board, who is not an associate of the acquirer / promoter, as the manager to the delisting offer.	In line with our suggestion that IPA can be in the self-declaratory mode, IPA should be deleted.
	13.6.ii	Due – diligence shall be performed by peer reviewed practicing Company Secretary or Chartered Accountant, in place of MB, not relating to MB / Acquirer / Promoter / their Associates;	The word Chartered Accountant (CA) has been suggested to be added in view of the fact that CAs are more suitable for the job because of the education, training and regular involvement with the financial and corporate legal affairs of  companies

 

 

Apart from the above there are several other suggestions which were given to SEBI from time to time. These suggestions needs to be looked into seriously to achieve the stated objective.

 

 

Extracts from my email dated 16^th September 2020

Further to my earlier letter dated  4^th  July 2020 given in the the trail mail, I am eagerly waiting for some amendments and clarifications on the matter of Delisting as suggested. When the delisting fails, the investors and promoters alike everyone loses. SEBI as a regulator has to ensure fair play and higher success ratio of any such exercise.  Keeping this in mind I had given my suggestions and I am clarifying and adding some small suggestions so that all can be incorporated in one go.

 

1.           DISCOVERED PRICE

 

The discovered price has not been defined in the regulations. please define it as a price at which maximum number of shares have been offered. Not the price at which the threshold of 90% is reached.

 

2.         COUNTER OFFER

 

The Counter offer should be allowed to be given even when shares offered have not reached 90%  threshold.

 

3.        DELISTING-CUM-OPEN OFFER

 

Promoters may be given a Delisting-cum-Open offer opportunity. For example in the case of Vedanta, promoter's holding is 50% they have to acquire minimum 40% from the market, assuming they fail to get 40%  and the offer fails. In such a situation the promoter may be allowed a-la counter offer style, that he is willing to accept such % of shares as will not violate the MPS norms. Say in this case 25% at a price to be announced  by him. This will work in favour of all.

 

4.             EARLY BIRD INCENTIVE

 

An early bird incentive may be allowed to be offered for better management of delisting. Rather than everyone waiting till the last, investors who tender their shares early may be given incentive, say 0.5% for each day. Since the offer is to be kept open for 5 days.{Reg.13 (2)}, let it be, for example 2.5% more to the person tendering on day 1, day2, 2%.......so on .

 

 

5.            SUGGESTED CHANGE IN REGULATION 3(1)-- DVR

 

[Explanation: For the purposes of these regulations, the term “shares” shall include equity shares having superior voting rights.]

The above explanation seems to be a drafting error and needs to be changed. Because of the above, delisting of shares with inferior voting rights are not covered . This seems to be an oversight.

The concept of shares with Differential Voting Rights or (DVRs) was introduced by way of amendment of Section 86 in the Companies Act 1956 which came into effect from 13.12.2000. Such voting rights may be superior or inferior.

In the case of Jagatjit Industries, DVR shares with superior voting rights were issued. These DVR shares carried no rights to dividend, but 20 votes per share.

In 2008, Tata Motors had issued DVR shares with inferior voting rights. Tata Motor s DVR shares carried one vote per 10 DVR shares but a 5 per cent higher dividend. Shares with inferior voting rights have not been included in the definition of ‘Equity Share’ the implication is that shares like TATA Motors DVRs cannot be delisted or delisted without following the delisting regulation

 

INDICATIVE TIMELINE FOR VEDANTA DELISTING - Update

INDICATIVE TIMELINE FOR VEDANTA DELISTING

UP-DATE July 17, 2020 

AA had displayed a remarkable speed and things seemed to be on fast track. He even brushed aside legal nuances like appointment of the merchant banker by the Board of directors. The merchant banker was appointed immediately on 12 May itself, even before the Board meeting. 

The  time chart/ schedule given in my earlier post of June 26,2020  was drawn as something that can  be achieved in the shortest possible time. However, it seems that AA has developed some cold feet or is unable to tie-up the desired finance and has till now not even applied to Stock exchanges for "in-principle" approval. As given in the chart below, this is the only open window available to the Acquirer going for delisting, he is allowed to play here for  as much as almost one year. The moment  "in-principle" is applied for, statutorily defined timeline kicks-in. 

To arrive at the likely date for completion of delisting formalities, please add the number of days to the date on which "in-principle" application is made to the Stock Exchanges.  In the table below such date of application has been assumed as July 20, 2020

Acivtity No.	Stipulated time	Date	Event
A	No legal stipulation of time	20-Jul-20	In-Principle Delisting approval to be applied to Stock exchange. It seems that the application for "in-principal" approval has not been made as yet. If the application is made after 20th July 2020, the number of days further delayed after 20.07.20 must be added to all the dates in the series to arrive at the approximate date for each activity
B	A+5	25-Jul-20	SE in-principle approval to be obtained. SE has to respond within 5 days, Reg 8(3)
C	B+1	26-Jul-20	Public Announcement (PA) & Escrow deposit ,  to be made within one day of receipt of 'In-Principal' approval, Reg.10(1)
D	C+2	28-Jul-20	LOO to be dispatched within 2 days of PA , Reg.12(1)
E	C+7	2-Aug-20	RBB to start within 7 days of PA Reg. 13(1)
F	E+5	7-Aug-20	RBB to be open for 5 days Reg. 13(2)
G	E+6	8-Aug-20	RBB to  close
H	G+5	13-Aug-20	Discovered price to be announced within 5 days of closure of RBB. Reg.18
I	G+10	17-Aug-20	payment to be made within 10 days of the closure. Reg.20(2)
J	H+2	15-Aug-20	Fresh PA for Counter offer  and dispatch of LOO within 2 days of announcement of discovered price. Reg 16(1A)
L	J+7	22-Aug-20	Opening of Counter offer bidding process within 7 days of PA
M	L+5	27-Aug-20	Counter offer bidding closes, open for 5 days
N	M+5	1-Sep-20	Success/ failure of counter offer to be announced  Reg.18 /19 within 5 days of closure
O	M+10	6-Sep-20	Payment/Refund of shares

SEBI ORDER PENDING FOR BEES SAAL, 2 DECADES - TAKEOVER OF POLO HOTELS LTD.

SMALL INVESTORS’ WELFARE ASSOCIATION

Regn No. F-72744 (M)

With a legacy of 25 years of investor protection services

Email : SirenBajao@gmail.com

TEXT OF LETTER WRITTEN TO SEBI

Sub. IMPLEMENTATION OF YOUR ORDER DATED 1^ST AUGUST 2003 POLO HOTELS LTD.

SEBI order of 1^st  August  2003 having been upheld at all the forums right up to the Supreme Court has not yet been implemented. The biggest challenge in front of SEBI is to get this order implemented and mitigate the sufferings of small shareholders who are suffering for no fault of theirs. On top of this, the practice of allowing the defaulters to pay interest only to the original shareholders has cut the liberties of the poor shareholders to use their own savings for their personal emergency. The case of the biggest non-promoter shareholder  is a great example. he is an highly decorated soldier, now aged about 75 and sick. He is an spinster  and leaves alone at Chandigarh with no one to take care of him. He had invested huge amount in the then most happening hotel company in his city –POLO HOTELS LTD.  He has been holding the shares from a date prior to its takeover. Today, he is living on borrowed money as his investment of crores in Polo Hotels Ltd. is stuck. Because of old age and no personal support/ assistance he often falls down and at times gets admitted to the military hospital, not only for treatment but also for convalescence, since he cannot afford any nurse etc. at home, inspite of crores of Rupees invested in shares of Polo Hotels Ltd.

He cannot sell the shares in Polo Hotels Ltd.  because of fear of losing out on substantial amount to be received as interest for the period of delay; simple interest amount @ 15% ( as per SEBI order dated 01.08.03),for 20 years would be whopping 300% !!! .

The I have been requesting SEBI to implement the offer out of funds from IPEF and after recovery from the acquirers the amount can be replenished. SEBI has, no doubt, passed some very strong and path breaking orders  including the one for disgorgement of  Rs. 11,82,32,526  yet the investors’  misery has not reduced. All the actions by SEBI till date have failed to provide any relief to investors who are suffering for more than 2 decades. The offer is still pending for more than 20 years. 

Some of the orders passed against  the promoters of Polo Hotels Ltd. By SEBI, SAT and

Supreme Court

ORDERS PASSED BY SEBI

Date	Regulation Violated	Amount
1-Aug-03	Make a fresh Open Offer  @ 23.75 with interest @ 15% from 16.11.99.
28-Feb-19	Insider trading	200,000
28-Feb-19	Insider trading	800,000
3-Jun-19	Directions to deposit Rs. 11,94,40,359 for the Open Offer	11,94,40,359
17-Jul-19	Recovery/ Attachment proceedings No. 4631/2019 Abhey Ram Dahiya	837,559
29-Nov-19	Violation of Reg.3(2) & 10(6) of SAST 2011 Penalty for allotment of 88,88,889 shares on 09.12.16	11,500,000
27-Feb-20	SEBI imposed a Penalty of 24 lakhs for non-compliance of its order dated 03.06.19	2,400,000
9-Mar-20	Disgorgement order	118,232,526

 

	ORDERS PASSED BY SAT
19-Apr-06	SAT order  uphelding SEBI order ("First SAT order")
29-Aug-17	(SAT Appeal no. 205 of 2017),  (“Second SAT Order”) dismissed with cost Rs.50,000/-
15-Feb-19	(Appeal no. 192 of 2018 and Misc. Applications no. 195 of 2018 and 205 of 2018), (“Third SAT Order”) Cost 50,000
	ORDERS PASSED BY SUPREME COURT
26-Nov-15	SC upheld the  SEBI order. (Civil Appeal No. 2727 of 2006) First SC Order
13-Jul-16	(“Second Supreme Court Order”) (Review Petition (C) No. 2361 of 2016), which dismissed the same vide an Order dated July 13, 2016 .
2-Mar-17	(“Third Supreme Court Order”) (Curative Petition (C) No. 66 of 2017), which dismissed the same vide an Order dated March 2, 2017
5-Apr-19	(Civil Appeal no. 2377 of 2019), dismissed (“Fourth Supreme Court Order”). Subsequent to the aforementioned, the Acquirers vide a letter dated April 16, 2019, informed SEBI that they had filed a Review Application before the Hon’ble Supreme Court.

 

In the interest of small shareholders, SEBI should implement the offer on behalf of the acquirerout of the enormous amount of funds lying  in the IPEF, subsequently the amount can be recovered and the cash balance replenished in the IPEF.

 

We sincerely urge you to please use the huge amount available with IPEF for the purpose it was originally created -- INVESTOR PROTECTION, rather than allowing it to become just an another source of funds collection for the GOI. Your providing such relief will make the creation and existence of SEBI more meaningful and truthful ;every investor will agree that SEBI is really  “ HER INVESTOR KI TAQAT”