Aspire Ltd. is the target company in respect of which an acquirer made an open offer for acquisition of shares and the open offer has commenced. Dreams Ltd. is the subsidiary of Aspire Ltd. Dreams Ltd. signed the loan ag
CS Professional · Corporate Restructuring, Valuation and Insolvency · PYQS · June 2015
Aspire Ltd. is the target company in respect of which an acquirer made an open offer for acquisition of shares and the open offer has commenced. Dreams Ltd. is the subsidiary of Aspire Ltd. Dreams Ltd. signed the loan agreements with financial institutions for major capital expenditure for its expansion project and started withdrawing the loan amount during the open offer period. The said borrowings are clearly within the ordinary course of its business. No approval was taken by Aspire Ltd. from its shareholders nor did Dreams Ltd. obtain the approval from its shareholders. The internal auditors have opined that the target company has violated the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 as no approval was obtained by the shareholders of the target company for the borrowings effected. The statutory auditors have agreed with the views of the internal auditors and pointed out that the target company Aspire Ltd. has failed in its obligations that are required to be complied with during the offer period in terms of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 as approval of its members by way of special resolution through the mechanism of postal ballot was not obtained. Moreover, they maintained that Dreams Ltd. borrowed money for its expansion programme when the open offer of target company was on and therefore Dreams Ltd. violated the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. State in clear terms whether there is a violation of the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 by Aspire Ltd. or Dreams Ltd.
Answer & Explanation:
As per Regulation 26(2)(b) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, during the offer period, unless the approval of shareholders of the target company by way of a special resolution by postal ballot is obtained, the board of directors of either the target company or any of its subsidiaries shall not effect any material borrowings outside the ordinary course of business. In the given case, the borrowings by Dreams Ltd., a subsidiary of Aspire Ltd., were clearly stated to be in the ordinary course of its business. Therefore, there is no violation of the provisions of SEBI (SAST) Regulations, 2011 neither by Aspire Ltd. nor by Dreams Ltd., as the borrowings were within the ordinary course of business.
Topics: SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
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