The Securities and Exchange Board of India (Sebi) on Friday slapped a penalty of Rs25 crore (US$5m) on Holcim (India) for violation of Sebi’s open offer norms with respect to its indirect acquisition of a majority stake in Everest Industries (EIL).
This is the highest penalty imposed by Sebi after the ministries of law and home and the Department of Company Affairs (DCA) empowered it in ’01 to impose a maximum penalty of Rs 25 crore, or three times the profit earned from any transaction in violation of capital market norms.
Holcim, in concert with Holderind Investments, Gujarat Ambuja Cement and Ambuja Cement India, had made an open offer to ACC shareholders in March ’05. Holcim raised its stake in ACC to 34.71% from 13.82% through the open offer. Since ACC held 76.01% of EIL’s equity, it was alleged that the acquisition of the ACC stake led to indirect acquisition of EIL shares. Holcim, however, did not make an open offer to EIL shareholders.
"I am aware of SAT rulings that have downplayed the role of monetary penalty in cases where the acquirer subsequently made an open offer to the shareholder of the ’target company’," adjudicating officer Amit Pradhan said in his order. "However, as Holcim has not made any open offer to the shareholder of EIL, it does not qualify for this benefit also," the order said.
In its reply to an earlier Sebi show-cause notice on the issue, Holcim said that since ’03 it does not own any asset that used fibre cement in production, as use of asbestos fibres is prohibited in Switzerland since 1994 and in EU since ’05. Holcim did not want to manufacture products using asbestos fibre in India, though it is permitted here, as it wanted similarity of standards in all the markets it operated, it said.
As EIL was primarily engaged in manufacture of fibre asbestos, cement roofing products and flat sheet, Holcim’s intention was to cause ACC to divest its holding in EIL which was disclosed in the public announcement dated January 21, ’05, to the shareholders of ACC.