For delay in payments in Hind Zinc acquisition
The Securities and Exchange Board of India (Sebi) has ordered Sterlite Industries and its two associate companies to pay interest to non-resident Indians (NRIs), overseas corporate bodies (OCBs) and foreign institutional investors (FIIs) for delaying payment to them in the acquisition of Hindustan Zinc Ltd (HZL).
Sterlite Industries, Sterlite Opportunities and Ventures Ltd, and Sterlite Optical Technologies had made a public announcement on April 10, 2002, to the shareholders of HZL for acquisition of a 20 per cent equity capital.
SBI Capital Markets was the merchant banker to the disinvestment. On perusal of a SBI Capital Markets report it was observed that the payment to nine NRIs, OCBs and FII shareholders of HZL was made after a delay of 40 days in respect of eight of the institutional shareholders and a delay of 69 days in respect of one institutional shareholder due to non-receipt of Reserve Bank of India (RBI) approval in time for the transfer of shares from the nine shareholders.
Sebi had on October 04, 2002, and November 14, 2002, directed the merchant banker to pay interest at the rate of 10 per cent for the delay beyond July 25, 2002, to the shareholders.
The Sterlite group did not comply with the directive resulting in violation of Regulation 22(12) of the Takeover Code.
Therefore Sebi issued a show-cause notice to Sterlite on January 20, 2003, for the violation. On perusal of documents available on records and submissions made by Sterlite prior and during the personal hearings, Sebi observed that in view of the specific disclosure in the letter of offer, the acquirers have taken upon themselves the onus of obtaining the RBI approval on behalf of NRI, OCB and FII shareholders.
Because of this, they cannot be allowed to retract back from their obligation of paying interest for the delayed payment of consideration amount on the ground that obtaining of the approval was the responsibility of these shareholders.
Further, by making such a disclosure, the responsibility of obtaining the approval had shifted from these shareholders to Sterlite.
Sebi held that the acquiring company had violated provisions of Regulation 22(12), as the acquirers have paid the consideration amount to NRI/FII/OCB shareholders after the stipulated time limit of 30 days from the date of closure of offer and directed the acquirers to pay interest at 10 per cent for delay in making payment of the consideration amount to the shareholders.
Sebi has also directed that in case of failure of the acquirers to comply with the direction, the escrow account, maintained by the acquirers, would be forfeited in full and the proceeds be transferred to the Investor Protection Fund.
