Sebi provides Force Motors promoter clarity on takeover norms

Market regulator informed Jaya Hind Investment that it will not have to make an open offer as its proposed stake buy in the auto firm is less than the 5% cap

Sebi has informed Jaya Hind Investment, a promoter of Force Motors, that it will not have to make an open offer as its proposed stake buy in the auto firm is less than the 5% cap in a given financial year.

Securities and Exchange Board of India (Sebi) also said that the proposed acquisition which is based on 'spot delivery contract' would not attract application of rules relating to dealing in equity shares on floor of the stock exchange.

The interpretive letter, which was made public on Monday, has come in response to query by Jaya Hind, an NBFC, on whether its proposed acquisition of 4.79% stake in Force Motors would attract certain provisions under takeover norms as well as rules of the stock exchanges.

"On the matter of proposed acquisition of shares of Force Motors, as the quantum of shares intended to be acquired during the financial year 2013-14 by Jaya Hind Investment is less than 5% of the total fully paid-up shares of FML, the provisions of Sebi (Substantial Acquisition of Shares and Takeovers) Regulations SAST Regulations) would not be attracted," Sebi said.

As per takeover rules, an entity with 25% stake in a company but less than the maximum permissible non-public shareholding, can acquire more than 5% shares of the firm within any fiscal year subject to making an open offer.

In October, last year, Jaya Hind had informed Sebi that it intends to acquire 6.31 lakh shares (4.79% stake) of Force Motors from 12 members of the auto maker on 'spot delivery basis'.

The NBFC along with the persons acting in concert held 68.18 lakh equity shares of Force Motors as on October 2013. Following the share-purchase its stake would stand at 56.54% in the company.

Further, citing the Securities Contract (Regulation) Act (SCRA), the Sebi said that "when a spot transaction takes place between two persons...That is actual delivery/ transfer of shares and the payment of price takes place either on the same day as the date of the contract or on the next day, then the provision of...SCRA 1956 shall not be applicable".

"Therefore, if such transactions are done whereby stock brokers of a stock exchange are not involved, the rules of stock exchanges shall not apply".

As per the SCRA norms, transactions in securities has to be entered into only between the members of a recognised stock exchange or recognised stock exchanges or through a member of the stock exchange or with a member of the stock exchange.

However, such norms as an exception do not apply to spot delivery contracts, the market regulator added.

A spot delivery contract provides for actual delivery of securities and the payment of a price either on the same day as the date of the contract or on the next day.

While, Sebi had responded to Jaya Hind's query in February but had made the interpretative letter public only yesterday after expiry of the 90 days as required under the confidentiality clause.