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SEBI wants Grasim open offer stalled

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Counsel for Grasim suggested that the company be allowed to make the open offer with an additional clause in the offer document informing investors of the case in question and also offering to make good any price difference should the regulator direct it to change its offer price.

MUMBAI, Nov. 27

THE Securities and Exchange Board of India today told the Securities Appellate Tribunal that Grasim Industries should not be allowed to continue with its open offer for L&T shares because SEBI's investigations could lead to any possible outcome, including Grasim being debarred from accessing the capital market, or being directed to disinvest in L&T.

SEBI was arguing against an appeal from Grasim questioning SEBI's stay on its open offer for shares in L&T, pending investigations.

SAT is expected to issue its order in the case shortly.

There are several possible outcomes, said Mr Rafiq Dada, counsel for SEBI. If the acquisition (Grasim's 10 per cent stake in L&T from Reliance) itself can be found to be void or if it can be found that Grasim's stake in L&T has exceeded 15 per cent in violation of regulations, there is no case for allowing the open offer, he said.

Counsel for Grasim, Mr Goolam Vahanvati, said SEBI was clamping down on the right of a person to acquire shares and that by suggestion of possible extreme outcomes by the regulator tantamounts to a threat.

"The question is not what they can do, but what, given the facts in existence, they ought to do," he said.

Grasim's holding in L&T currently exceeds 15 per cent; SEBI argued that it needed to be probed when exactly the company crossed the threshold - whether after or before the public announcement of its open offer. "The question is whether there was acquisition of control when 10 per cent was bought or at any other stage after that, until Grasim's holding crossed 15 per cent," he said.

SEBI also cited a pre-condition in the agreement between Grasim and Reliance - that the latter will not purchase any shares of L&T for the next five years. It needs to be probed why a company not interested in management control should insist on such a condition, said Mr Dada.

He said there are several interconnected issues such as the parallel probe into insider-trading allegations against the Reliance group (from whom Grasim bought its initial stake in L&T).

Mr Vahanvati suggested that Grasim at least be allowed to make the open offer with an additional clause in the offer document informing investors of the case in question and also offering to make good any price difference, including interest, should the regulator direct it to change its offer price.SEBI in its affidavit filed yesterday with SAT, had listed out "new material" that suggested acquisition of management control by Grasim in L&T. SEBI cited several complaints listed by individual investors as well as investor associations, chiefly the Investor Grievances Forum, led by the BJP MP, Mr Kirit Somaiya.

SEBI's affidavit also cited newspaper reports of December 2001 suggesting that the Birlas stalled L&T's plan to demerge its cement division soon after they joined the board of L&T.

Refuting the allegation, Mr Vahanvati said Mr Kumar Mangalam Birla, Grasim representative on the board of L&T, was himself refused details of the demerger proposal. Mr Vahanvati quoted from a letter written by the Managing Director of L&T, justifying the last-minute inclusion of the demerger proposal as a supplementary item for the board meeting of October 29, 2002, on the ground that the matter was required to be kept confidential. "The attitude of L&T subsequently conclusively establishes that there is no form of control ever exercised by Grasim directly or otherwise through its directors over L&T," Mr Vahanvati said.

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