Sebi to look into FGL subsidiaries’ stake sale to Mistry group

Raghu Mohan

Mumbai, Jan 3: The fight for Forbes Gokak (FGL) has taken a new twist with the Securities and Exchange Board all set to look into whether the management of the company violated section 23 (1) of the takeover code when two of its subsidiaries, Warrior Investments and Forbes Campbell Holdings (FCH), sold 11 lakh shares or 9 per cent of FGL to the Pallonji Mistry group. A meeting is on the cards sometime early next week between the representatives of the Mistry group and Sebi officials.

Section 23 (1) pertains to the general obligations of a target company’s board, post-announcement of an open offer, and says without the approval of shareholders, it cannot sell, transfer, encumber or otherwise dispose of or enter into an agreement for the same or for disposal of assets otherwise, not being sale or disposal of assets in the ordinary course of business, of the company or its arms.
Warrior Investments and FCH sold 5 lakh and 6 lakh shares of FGL to the Mistry group at Rs 90 a share around December 13, amounting to Rs 9.9 crore.

In effect, the Mistry group, which now holds almost 40 per cent in FGL are now in a position to inform LIC (the largest institutional shareholder with about 10 per cent in FGL) that it may as well tender shares in open offer on a pro-rata basis rather than buy them of en bloc. It has been gathered that the LIC’s top brass is rather piqued given that the Sanwarmal group has aggressively raised this issue with both Sebi and the finance ministry. Well placed sources pointed out that the upcoming Sebi meeting comes at the nudge of the North Block.

Warrior Investments and FCH had become 85 per cent subsidiaries of FGL when transaction between them gave them cross-holdings in one another around January 00. FGL had held 49 per cent, Tata Investment Corporation 21 per cent, Goodlass Nerolac and Facet Asia with 15 per cent held identical stake in these two companies. But this was swapped with Warrior Investments picking up the 36 per cent combined holding of TIC and Goodlass Nerolac in FCH, and the last mentioned doing the same with the like stakes in Warrior.

Further, the top brass of Warrior and FCH are all board members of FGL. These two companies have as chairman FC Mehra; vice-chairman C G Shah; and as company secretary M Dighe.

When contacted Mr Shah said the two companies are not subsidiaries, and that section 23 (1) has not been violated. However, it is also pertinent to note that while FGL posted a profit of around Rs 6 crore during 00-01, the sale of its stake by these two subsidiaries amounted to only Rs 9.9 crore. It also gave the Mistry group big clout in the ongoing takeover drama. Of Mr Mistry’s effective stake of nearly 40 per cent in FGL, nearly 9 per cent was cornered when the subsidiaries sold their respective stakes in FGL.