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| Tata Industries and Tata Sons Ltd together hold 37.53 per cent shares in the equity share capital of TFL. |
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| The companies proposed to acquire equity shares of TFL by converting the Rs 300 crore already advanced by them to TFL at Rs 26.53 per share. |
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| They sought exemption from making an open offer to the shareholders of TFL. |
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| The conversion of the Rs 300 crore advance into the equity capital of TFL was proposed to comply with the directions issued by the Reserve Bank of India (RBI). This was also to ensure that the target company achieves the capital adequacy norms prescribed by RBI. |
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| While seeking exemption from the open offer, Tata Sons and Tata Industries said that in May 2001 they discovered significant financial irregularities or fraud committed by TFL's former managing director resulting in a decline in the company's net worth. |
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| This also resulted in the company failing to comply with the capital adequacy ratio (CAR) prescribed by RBI for non-banking finance companies. |
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| At that stage, the Tata group gave a commitment to RBI that they would adequately recapitalise the company to ensure that the shareholders, public depositors and other lenders would not suffer on account of the fraud committed on the company. |
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| The acquirers have from time to time given intercorporate deposits to the company which were subsequently converted into non-refundable interest-free advances, which as on date, aggregate to Rs 300 crore so as to ensure that the company has a positive net worth and RBI prudential norms are duly met. |
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| It is now proposed that the Rs 300 crore advanced to the company be converted into equity capital of the company to comply with the directions given by RBI. |
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| The acquirers also submitted that the company is essentially sick as its entire net worth comprising capital and reserves has been eroded by the accumulated losses and hence should qualify for exemption from the provisions of the Sebi Takeover regulations. |
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| Without such conversion, the company would not be in a position to carry out its normal business activities which will cause great hardship to its employees, fixed deposit holders and most importantly its public shareholders. |
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| The takeover panel, which deliberated on this issue, pointed out that the objective of the conversion appears to be to revive the sick company by additional capitalisation from the group companies. |
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| "Under the circumstances, grant of exemption as sought is recommended subject to the target company passing the requisite resolution as per Section 81 (1A) of the Companies Act, 1956, and complying with all procedural formalities in connection therewith and the allotment price is higher between the price fixed in accordance with pricing formula under Sebi (Disclosure & Investor Protection ) Guidelines, 2000, and Regulation 20 of the Takeover Code," the takeover panel said. |
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| The acquirers have been directed to complete the proposed acquisition within 30 days of the order and file a status report with the board within 15 days. |
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