Sebi asks five entities to make open offer in 16-year old case

Violations pertain to Saurashtra Cements' preferential allotment to promoter entities in 1998

The Securities and Exchange Board of India (Sebi) has directed five entities to make an open offer to shareholders of Saurashtra Cements for violations in 1998.

The five entities — Fawn Trading, Willow Trading, Pallor Trading, Fern Trading and Tejashree Trading — had invested in Saurashtra Cements’ preferential issue in 1998 without disclosing they were part of the promoter group.

Sebi has asked these entities to make an open offer of 20 per cent to the company’s public shareholders. It will have to be made at Rs 33.94 a share. Those who were shareholders in the company at the time of violation will have to be paid an extra interest of 10 per cent per annum for these 16 years.

According to the Sebi order, there are 4,000-odd shareholders — holding about three per cent stake in the company—who continue to hold shares of the company since the day of violation. Following the order, shares hit the 20 per cent ceiling to end at Rs 50.75 on the BSE on Thursday.

“In view of the delay in making the open offer… the above noticees shall, along with the consideration amount, pay interest at the rate of 10 per cent annum, from the date of incurring the liability to making the public announcement till the date of payment of consideration, to the shareholders in the target company on the date of violation and whose shares have been accepted in the open offer, after adjusting dividend, if any, that was paid,” said Prashant Saran, whole-time member, Sebi.

In a lengthy litigation process, Sebi had first passed an order against the five entities in 1999, where it had observed that they belonged to the promoter group. These entities had failed to disclose this information to shareholders. Sebi also had directed these entities to make a combined open offer.

Some of them had challenged Sebi’s 1999 order before an appellate authority, which rejected the appeals. The entities later filed a writ petition in Bombay High Court, which, while disposing off the matter in 2011, sent it back to Sebi for reconsideration. Subsequently, the entities made representations and appeared before Sebi, and sought relief.

Refusing relief, Sebi passed an order in April 2013, once again, asking the entities to make an open offer. The order was then appealed before the Securities Appellate Tribunal (SAT). The tribunal in May 2014 set aside the Sebi order of April 2013, directing the regulator to pass a fresh order.