In the event of non-compliance of the provisions of SEBI (Substantial Acquisition of Shares & Takeover) Regulations, 1997, commonly known as Takeover Code, the acquirer is liable for the penal provisions contained in the code itself. Regulation 45 of SEBI (Substantial Acquisition of Shares & Takeover) Regulations, 1997 is dealing with the penal provisions for the non-compliance of the obligations contained in the Regulations.
As per regulation 45 of the Regulations, for failure to carry out obligations under the regulations, following consequences may follow:
The acquirer faces the consequences of the escrow amount being forfeited besides penalties.
The Board of Target Company shall be liable for action in terms of regulation and Act.
The intermediary would face suspension or cancellation of registration.
The penalties stated above may include:
Criminal prosecution under section 24 of the SEBI Act.
In addition to any award of penalty by the Adjudicating Officer under the Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations thereof, he shall be punishable with imprisonment for a term which may extend to ten years, or with fine, which may extend to twenty-five crore rupees or with both. Further, non compliance of the directions of the Adjudicating Officer shall be punishable with imprisonment for a term which shall not be less than one month, but which may extend to ten years, or with fine, which may extend to twenty-five crore rupees or with both.
Monetary penalties under section 15H of the SEBI Act.
If a person fails to disclose the aggregate of his shareholding in the body corporate before he acquires any shares of that body corporate, or make a public announcement to acquire shares at a minimum price, he shall be liable to a penalty of twenty-five crore rupees or three times the amount of profits made out of such failure, whichever is higher
Directions under section 11B of the SEBI Act.
The Board may, in the interest of securities market, give directions, without prejudice to its right to prosecute under section 24 of the SEBI Act including:
a.) Directing the person concerned not to further deal in securities.
b.) Prohibiting disposal of securities acquired in violation of these regulations.
c.) Direct sale of securities acquired in violation of these regulations.
Directions under section 11(4) of the Act;
The authority may give the directions to the person in default & the directions may include the following:
Suspend the trading of any security in a recognised stock exchange;
Restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities;
Suspend any office-bearer of any stock exchange or self-regulatory organisation from holding such position;
Impound and retain the proceeds or securities in respect of any transaction which is under investigation
Attach bank accounts of persons involved in violation for a period not exceeding one month.
Direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation
Cease and desist order in proceedings under section 11D of the Act;
A Cease and desist order can also be passed under section 11D of the SEBI Act from committing or causing any violation of the SEBI (Substantial Acquisition of Shares & Takeover) Regulations, 1997.
Adjudication proceedings under section 15HB of the Act.
A residual clause has been provided in the Act, wherein it is mentioned that if any violation act is not specifically covered under the provisions, then the person may be held liable for a penalty which may extend to one crores rupees.
Further, the acquirer or directors of the acquirer company, directors of the target company, the merchant banker(s) would be liable for action for any misstatement or concealment of material information required to be disclosed to the shareholders.
Showing posts with label Corporate Restructuring and Insolvency. Show all posts
Showing posts with label Corporate Restructuring and Insolvency. Show all posts
KINDS OF TAKEOVER
II. BUSINESS CONTEXT
1. Horizontal Takeover:
Takeover of one company by another company in the same industry. The main purpose behind this kind of takeover is achieving the economies of scale or increasing the market share. E.g. takeover of Hutch by Vodafone.
2. Vertical takeover: Takeover by one company of its suppliers or customers. The former is known as Backward integration and latter is known as Forward integration. E.g. takeover of Sona Steerings Ltd. By Maruti Udyog Ltd. is backward takeover. The main purpose behind this kind of takeover is reduction in costs.
3. Conglomerate takeover: Takeover of one company by another company operating in totally different industries. The main purpose of this kind of takeover is diversification.
1. Horizontal Takeover:
Takeover of one company by another company in the same industry. The main purpose behind this kind of takeover is achieving the economies of scale or increasing the market share. E.g. takeover of Hutch by Vodafone.
2. Vertical takeover: Takeover by one company of its suppliers or customers. The former is known as Backward integration and latter is known as Forward integration. E.g. takeover of Sona Steerings Ltd. By Maruti Udyog Ltd. is backward takeover. The main purpose behind this kind of takeover is reduction in costs.
3. Conglomerate takeover: Takeover of one company by another company operating in totally different industries. The main purpose of this kind of takeover is diversification.
KINDS OF TAKEOVER
I. LEGAL CONTEXT
1. Friendly or Negotiated Takeover:
Friendly takeover means takeover of one company by change in its management & control through negotiations between the existing promoters and prospective invester in a friendly manner. Thus it is also called Negotiated Takeover. This kind of takeover is resorted to further some common objectives of both the parties. Generally, friendly takeover takes place as per the provisions of Section 395 of the Companies Act, 1956.
2. Bail Out Takeover
Takeover of a financially sick company by a financially rich company as per the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 to bail out the former from losses.
3.Hostile takeover:
Hostile takeover is a takeover where one company unilaterally pursues the acquisition of shares of another company without being into the knowledge of that other company. The most dominant purpose which has forced most of the companies to resort to this kind of takeover is increase in market share. The hostile takeover takes place as per the provisions of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.
1. Friendly or Negotiated Takeover:
Friendly takeover means takeover of one company by change in its management & control through negotiations between the existing promoters and prospective invester in a friendly manner. Thus it is also called Negotiated Takeover. This kind of takeover is resorted to further some common objectives of both the parties. Generally, friendly takeover takes place as per the provisions of Section 395 of the Companies Act, 1956.
2. Bail Out Takeover
Takeover of a financially sick company by a financially rich company as per the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 to bail out the former from losses.
3.Hostile takeover:
Hostile takeover is a takeover where one company unilaterally pursues the acquisition of shares of another company without being into the knowledge of that other company. The most dominant purpose which has forced most of the companies to resort to this kind of takeover is increase in market share. The hostile takeover takes place as per the provisions of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.
SARFAESI - CASE LAW
V. Noble Kumar vs Standard Chartered Bank and Ors.
Right of banks or financial institutions - Right arising only when borrower committing default in payment of secured debt and his account in respect of such debt was classified as a non-performing asset
The right of the banks or financial institution to resort to the provisions of SARFAESI Act 2002 would arise only in the event where any borrower, who was under liability to a secured creditor under a security agreement, made any default in payment of a secured debt or any instalment thereof and his account in respect of such debt was classified by the secured creditor as a non-performing asset.
Right of banks or financial institutions - Right arising only when borrower committing default in payment of secured debt and his account in respect of such debt was classified as a non-performing asset
The right of the banks or financial institution to resort to the provisions of SARFAESI Act 2002 would arise only in the event where any borrower, who was under liability to a secured creditor under a security agreement, made any default in payment of a secured debt or any instalment thereof and his account in respect of such debt was classified by the secured creditor as a non-performing asset.
SARFAESI Act, 2002
BASIC CONCEPT OF THE ACT
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) empowers Banks / Financial Institutions to recover their non-performing assets without the intervention of the Court. The Act provides three alternative methods for recovery of non-performing assets, namely:
Securitisation. Asset Reconstruction. Enforcement of Security without the intervention of the Court.
The provisions of this Act are applicable only for NPA loans with outstanding above Rs. 1.00 lac. NPA loan accounts where the amount is less than 20% of the principal and interest are not eligible to be dealt with under this Act.
Non-performing assets should be backed by securities charged to the Bank by way of hypothecation or mortgage or assignment. Security Interest by way of Lien, pledge, hire purchase and lease not liable for attachment under sec.60 of CPC, are not covered under this Act
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) empowers Banks / Financial Institutions to recover their non-performing assets without the intervention of the Court. The Act provides three alternative methods for recovery of non-performing assets, namely:
Securitisation. Asset Reconstruction. Enforcement of Security without the intervention of the Court.
The provisions of this Act are applicable only for NPA loans with outstanding above Rs. 1.00 lac. NPA loan accounts where the amount is less than 20% of the principal and interest are not eligible to be dealt with under this Act.
Non-performing assets should be backed by securities charged to the Bank by way of hypothecation or mortgage or assignment. Security Interest by way of Lien, pledge, hire purchase and lease not liable for attachment under sec.60 of CPC, are not covered under this Act
Company Law
Sterling Addlife India Ltd.,
Scheme of arrangement in the nature of demerger and transfer - No net reduction of the equity share capital of the resulting company
The petitioner-companies had applied for sanction to a composite scheme of arrangement in nature of demerger and transfer of treasury segment of the demerged company to the resulting company and reduction of capital of demerged company. The Regional Director objected with regard to reduction of share capital of the resulting company. The high court, noting that the number of shares of the resulting company being cancelled, as the same were transferred as a part of the demerged undertaking to the resulting company, and the number of the new shares being issued by the resulting company to the equity shareholders of the demerged company towards the consideration of the undertaking were the same, held that there was no net reduction of the equity share capital of the resulting company. Hence, there was no need of separate compliance with s.100 of the Companies Act. The objection of the Regional Director was overruled. Considering the dispensation of the separate procedure granted and considering the accepted principle of single window clearance the proposal was sanctioned as a consequential and integral part of the scheme. The scheme of arrangement was in the interest of the companies and their members and creditors.
Scheme of arrangement in the nature of demerger and transfer - No net reduction of the equity share capital of the resulting company
The petitioner-companies had applied for sanction to a composite scheme of arrangement in nature of demerger and transfer of treasury segment of the demerged company to the resulting company and reduction of capital of demerged company. The Regional Director objected with regard to reduction of share capital of the resulting company. The high court, noting that the number of shares of the resulting company being cancelled, as the same were transferred as a part of the demerged undertaking to the resulting company, and the number of the new shares being issued by the resulting company to the equity shareholders of the demerged company towards the consideration of the undertaking were the same, held that there was no net reduction of the equity share capital of the resulting company. Hence, there was no need of separate compliance with s.100 of the Companies Act. The objection of the Regional Director was overruled. Considering the dispensation of the separate procedure granted and considering the accepted principle of single window clearance the proposal was sanctioned as a consequential and integral part of the scheme. The scheme of arrangement was in the interest of the companies and their members and creditors.
Basic Concepts of Takeover
What is meant by Takeovers & Substantial acquisition of shares?
When an “acquirer” takes over the control of the “target company”, it
is termed as takeover. When an acquirer acquires “substantial quantity
of shares or voting rights” of the Target Company, it results into
substantial acquisition of shares. The term “Substantial” which is used
in this context has been clarified subsequently.
What is a Target Company?
A Target Company is a company whose shares are listed on any stock
exchange and whose shares or voting rights are acquired/being
acquired or whose control is taken over/being taken over by an
acquirer.
Who is an Acquirer?
An acquirer means any individual/company/any other legal entity
which intends to acquire or acquires substantial quantity of shares or
voting rights of target company or acquires or agrees to acquire
control over the target company. It includes persons acting in concert
(PAC) with the acquirer.
What is meant by the term “Persons Acting in Concert (PACs)”?
PACs are individual(s)/company(ies)/ any other legal entity(ies) who
are acting together for a common objective or for a purpose of
substantial acquisition of shares or voting rights or gaining control over
the target company pursuant to an agreement or understanding
whether formal or informal. Acting in concert would imply co-operation,
co-ordination for acquisition of voting rights or control, either direct or
indirect.
The concept of PAC assumes significance in the context of substantial
acquisition of shares since it is possible for an acquirer to acquire shares
or voting rights in a company “in concert” with any other person in such
a manner that the acquisition made by them may remain individually
below the threshold limit but collectively may exceed the threshold limit.
Unless the contrary is established certain entities are deemed to be
persons acting in concert like companies with its holding company or
subsidiary company, mutual funds with its sponsor / trustee / asset
management company, etc.
When an “acquirer” takes over the control of the “target company”, it
is termed as takeover. When an acquirer acquires “substantial quantity
of shares or voting rights” of the Target Company, it results into
substantial acquisition of shares. The term “Substantial” which is used
in this context has been clarified subsequently.
What is a Target Company?
A Target Company is a company whose shares are listed on any stock
exchange and whose shares or voting rights are acquired/being
acquired or whose control is taken over/being taken over by an
acquirer.
Who is an Acquirer?
An acquirer means any individual/company/any other legal entity
which intends to acquire or acquires substantial quantity of shares or
voting rights of target company or acquires or agrees to acquire
control over the target company. It includes persons acting in concert
(PAC) with the acquirer.
What is meant by the term “Persons Acting in Concert (PACs)”?
PACs are individual(s)/company(ies)/ any other legal entity(ies) who
are acting together for a common objective or for a purpose of
substantial acquisition of shares or voting rights or gaining control over
the target company pursuant to an agreement or understanding
whether formal or informal. Acting in concert would imply co-operation,
co-ordination for acquisition of voting rights or control, either direct or
indirect.
The concept of PAC assumes significance in the context of substantial
acquisition of shares since it is possible for an acquirer to acquire shares
or voting rights in a company “in concert” with any other person in such
a manner that the acquisition made by them may remain individually
below the threshold limit but collectively may exceed the threshold limit.
Unless the contrary is established certain entities are deemed to be
persons acting in concert like companies with its holding company or
subsidiary company, mutual funds with its sponsor / trustee / asset
management company, etc.
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