Transcription of WTM/GM/EFD/DRAIII/20/MAR/2017 SECURITIES …
1 _____ order in the matter of Kamat Hotels (India) Ltd. Page 1 of 11 WTM/GM/EFD/DRAIII/20/MAR/2017 SECURITIES AND EXCHANGE BOARD OF INDIA order Under sections 11B and 11(4) of the SECURITIES and Exchange Board of India Act, 1992 and regulation 44 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 read with regulations 32 and 35 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. In respect of: - 1 Clearwater Capital Partners (Cyprus) Limited PAN: AACCC9756A 2 Clearwater Capital Partners Singapore Fund III Private Limited PAN: AADCC2238C In the matter of Kamat Hotels (India) Limited Background 1. Kamat Hotels (India) Limited (hereinafter referred to as Target Company or KHIL ) is a company registered under the Companies Act, 1956 having its registered office at KHIL House, 70 C Nehru Road, Near Santacruz Airport, Vile Parle (East), Mumbai 400099 and its SECURITIES are listed on the Bombay Stock Exchange and the National Stock Exchange.
2 2. Clearwater Capital Partners (Cyprus) Ltd. along with Clearwater Capital Partners Singapore Fund III Private Limited (hereinafter referred to as the Noticees ) subscribed to the Foreign Currency Convertible Bonds issued by KHIL for an amount of US$ 18 million with an option to convert those bonds into equity shares of the Target Company as per the terms and conditions specified in the document dated March 13, 2007. _____ order in the matter of Kamat Hotels (India) Ltd. Page 2 of 11 3. Subsequently, pursuant to Press Note F No. 9/3/2009 ECB dated February 15, 2010 providing for the revision of conversion price, the shareholders of KHIL at the EGM held on June 10, 2010 passed a special resolution approving and authorising the Board of Directors to revise the original conversion price of per equity share and to amend the terms and conditions of the bonds and the trust deed.
3 The Board of Directors revised the conversion price to per equity share for mandatory conversion of the bonds. Thereafter, on August 13, 2010, an inter-se agreement was executed between KHIL, certain promoters of KHIL, Clearwater Capital Partners (Cyprus) Ltd. and Clearwater Capital Partners Singapore Fund III Private Limited. 4. Noticees exercised their right to convert the bonds into equity shares and as a result of conversion of bonds on January 11, 2012, the shareholding of the Noticees in the Target Company increased from to This conversion of bonds obligated the Noticees to make a public announcement in terms of regulation 3(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations, 2011). Accordingly, Noticees made a public announcement of open offer on January 11, 2012 for acquisition of 26% shares of the target company from the public shareholders.
4 5. The merchant banker appointed for the offer (Systematix Corporate Services Limited), vide letter dated January 25, 2012 forwarded a draft letter of offer to SEBI for making an open offer pursuant to regulation 3(1) of the Takeover Regulations, 2011 by the Noticees. After examination of the documents furnished by the merchant banker, SEBI issued certain observations vide letter dated November 30, 2012, pointing out, interalia, that the Noticees had acquired control in the target company in view of certain clauses in the inter-se agreement dated August 13, 2010 which necessitated making public announcement in terms of regulation 12 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (Takeover Regulations, 1997). Having not complied with this requirement, the Noticees were in breach of regulation 12 of the Takeover Regulations, 1997.
5 Therefore, the Noticees were advised, through the merchant banker, to make suitable amendment in the draft offer document incorporating the following: a. That the open offer is pursuant to regulation 12 of Takeover Regulations, 1997 as well. _____ order in the matter of Kamat Hotels (India) Ltd. Page 3 of 11 b. To disclose that SEBI may initiate appropriate penal action against the noticees for the above mentioned alleged violation in terms of the provisions of Takeover Regulations and the SECURITIES and Exchange Board of India Act, 1992 (SEBI Act). c. To revise the offer price, which shall be higher of: i. The price calculated on account of trigger of regulation 12 pursuant to entering into inter-se agreement on August 13, 2010 plus interest @10% for delay thereon.
6 The period of delay shall be from the date on which the public announcement ought to have been made for the trigger of regulation 12 and the current public announcement date. Or, ii. The price calculated for the present offer. 6. The Noticees did not mention in the final letter of the offer that the open offer is made pursuant to regulation 12 of the Takeover Regulations as well. However, SEBI s observations were mentioned in detail in the final letter of offer and the offer price was also determined after taking into consideration the observations on pricing. It was also stated in the letter of offer that the Noticees are aggrieved by the observations made by SEBI and would challenge it before SECURITIES Appellate Tribunal (SAT). 7. Noticees went ahead with the open offer and filed an appeal before SAT (Appeal No.)
7 21 of 2013). SAT while disposing the said appeal observed in its order dated February 12, 2014 that In the circumstances, without expressing any opinion on the merit of the case, we permit SEBI to issue show cause notice, to Appellant, if they choose to do so, regarding the direction contained in the communication dated November 30, 2012 and consequences for noncompliance of those directions. If SEBI issues show cause, then Appellant would be at liberty to file reply. Thereupon SEBI shall pass final order after giving an opportunity of hearing to the Appellant . 8. In view of the above, SEBI issued Show Cause Notice (SCN) dated July 18, 2014. It was alleged, inter alia, that under the agreement, the Target Company and the specified promoters were restrained from entering into any agreement or arrangement which would conflict with or _____ order in the matter of Kamat Hotels (India) Ltd.
8 Page 4 of 11 restrict the rights of the Noticees. The agreement also mandated KHIL and its promoters to take prior approval of the Noticees for altering in any way the share capital of KHIL, creating any new subsidiaries, entering into any joint ventures, merger or demerger, disposing of or acquiring any material assets, lending or borrowing money beyond certain limits, winding up or dissolving the company, etc., and the Noticees also had right to nominate one director on the board of KHIL. In view of these provisions, it was alleged that the inter-se agreement dated August 13, 2010 contained clauses which indicated that the Noticees had a right to control the policy decisions of the target company and thus had acquired control over the target company as defined under regulation 2(1)(c) of the Takeover Regulations, 1997.
9 As the Noticees had failed to make public announcement of open offer in terms of regulation 12 of the Takeover Regulations, 1997, it was alleged that they have violated the same. It was also alleged that the Noticees have failed to carry out the changes suggested by SEBI in the letter of offer in violation of regulation 16(4) of the Takeover Regulations, 2011. In view of these, the Noticees were called upon to show cause as to why suitable directions under sections 11B and 11(4) of the SEBI Act and regulation 44 of Takeover Regulations, 1997 read with regulation 32 and 35 of the Takeover Regulations, 2011 should not be issued against them. Reply and submissions: 9. Noticees submitted their reply in the matter vide letters dated March 30, 2015 and April 19, 2016. They were granted an opportunity of hearing on December 21, 2016.
10 Mr. Somsekhar Sundaresan, Advocate, made submissions on behalf of the Noticees during the hearing and filed written submissions vide letter dated January 10, 2017. The summary of the replies and written and oral submissions of the Noticees are as follows: a) That no directions may be issued against them as proposed in the SCN as it will not serve any useful purpose. In this regard it has been submitted that, subsequent to alleged acquisition of control, the Noticees have made an open offer in terms of regulation 3(1) of the Takeover Regulations, 2011, pursuant to conversion of bonds held by them, and the public shareholders were provided with an opportunity to exit from the target company. The offer opened on December 20, 2012 and closed on January 3, 2013 and it _____ order in the matter of Kamat Hotels (India) Ltd. Page 5 of 11 was completed in compliance with applicable provisions of Takeover Regulations.
