DCM Shriram moves high court against Sebi order

COURT CORNER

City-based non-banking finance company HB Stockholdings’ hostile takeover bid for DCM Shriram Industries (DSIL) has taken a fresh turn with the latter business entity moving the Delhi High Court against a Securities and Exchange Board of India (Sebi) order.

The promoters of DSIL, the Delhi-based sugar-to-industrial fibres company, have challenged a Sebi order that dismissed DSIL’s complaint against HB Stockholdings. In the plea before the stock market regulator, DSIL had complained that HB Stockholdings violated Sebi’s takeover code while conducting an open offer for the company.

TURNING BITTER

DCM Shriram Industries is a sugar-to-industrial fibres company

HB Stockholdings is attempting a hostile takeover bid for DCM Shriram Industries

DSIL had complained that HB Stockholdings violated Sebi's takeover code while conducting an open offer for the Indian plants

HB Stockholdings had made a public announcement to purchase 22.88 per cent stake in DSIL on November 19 last year through an open offer. HB Stockholdings’ promoter Harish Bhasin has raised his stake in DSIL from 12.87 to 27.45 per cent through market purchase and open offer.

In a series of complaints since December last year, DSIL had alleged a violation of Sebi takeover code by HB and taken up the issue with the market regulator. However, Sebi in an order on June 20 struck down DSIL’s claims.

“No notice has so far been issued to either Sebi or HB Stockholdings by the high court, which will now hear the DSIL petition on August 29,” said sources close to the development.

Sebi and HB Stockholdings, however, are contesting the maintainability of the DSIL petition on the grounds of territorial jurisdiction.

Experts say that DSIL should have challenged the Sebi order at the Securities Appellate Tribunal (SAT), the body that hears appeals against the regulator’s orders.

DSIL Board in a meeting on October 16, 2007 approved the issue of 7,00,000 warrants to the promoters/promoter groups on a preferential basis. However, Bhasin-led HB Stockholdings, which then owned 12.87 per cent stake in DSIL, opposed the issue at the Company Law Board (CLB).

The warrant issue would affect the interest of minority shareholders, it had claimed. However, CLB refused to stay the warrants issue. DSIL promoters, led by Tilak Dhar, raised their stake in the company from 32.54 to 40.7 per cent through the warrants.

Meanwhile, the CLB on Monday adjourned the hearing on the petition filed by HB against the warrant issue by DSIL. The next date of hearing is November 19.

DSIL, whose nearly 50 per cent of turnover comes from sugar, was established in 1990, following the three-way split of DCM. DSIL’s sugar plant, located at Daurala in Uttar Pradesh’s Meerut, has a 11,000 tonnes crushed daily (tcd) capacity. It also makes pharmaceutical-grade sugar and Indian-made foreign liquor.

Bhasin was the broker for Swraj Paul when he mounted a hostile takeover bid for Escorts and Delhi Cloth Mills (it subsequently changed its name to DCM) in the mid-1980s.

The bid came to naught and Bhasin ended up with a sizeable stake in DCM. In 1990, the Shriram family-owned DCM split and Bhasin got a stake in all the splinter companies, including DSIL.