SEBI order in the matter of Money Matter Financial Services Limited
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| Market regulator SEBI vide its order dated March 22, 2012 allowed extension of warrant conversion period from 18 months to 60 months where the approval of warrant holders holding 82.10% of the public shareholding has been obtained. |
| BACKGROUND OF THE CASE: |
- Money Matters Financial Services Limited (hereinafter referred to as ‘Money Matters/Company’) had come out with Rights Issue in February, 2009 wherein each equity shareholder was eligible for allotment of two equity shares for every one equity share held and one detachable warrant for every one equity share allotted to them. The holders of detachable warrants was given an option to convert the same into one equity share after the expiry of 6 months, 9 months, 12 months, 15 months and 18 months from the date of its allotment.
- Thereafter, SEBI received a letter dated December 06, 2010 from the Company, wherein it was intimated that the promoters of the Company has relinquished 1,35,15,208 warrants on October 11, 2010. From the same letter, it was observed by SEBI that a resolution dated December 16, 2009, was passed by the warrant holders, whereby the warrant exercise period was altered and extended by a period of 42 months i.e., to 60 months from the date of allotment. SEBI prima facie found that the period of the warrants was changed by the warrant holders and the company without obtaining the approval from the shareholders of the Company.
- Thus, in this regard a notice was issued to the Company. On the schedule date of hearing as well as in its written reply the Company made the following submissions:
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| Contentions of the Company |
- The shareholders of the Company in the EGM had specifically and categorically authorized the Board to modify the terms and conditions of the issue as the board may decide in its absolute discretion in the best interest of the company, without being required to seek any further approval of the shareholders.
- The extension of tenure for conversion of warrants was approved by the Board of Directors in their meeting held on October 27, 2009 and was subsequently approved by the warrant holders in their meeting held on December 16, 2009.
- The procedure for modification of detachable warrants as specified in the letter of offer inter alia required compliance of two conditions viz., obtaining of the consent of the warrant holders by a Special Resolution passed at a meeting of the warrant holders and also that the modification should be acceptable to the company. These conditions have been complied with before modifying the terms of the warrants.
- The warrant holders who approved in favour of the modification of the exercise period were holding 94.90% shares in the company and moreover no complaint has been received from any of the shareholders regarding modification of exercise period of warrants.
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| ISSUE UNDER CONSIDERATION: |
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Whether the period of conversion of the warrants could be altered by the warrant holders and the company without approval of the general body of shareholders of the Company?
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SEBI DECISION: |
| SEBI observed that the issuance of detachable warrants is not recognized under the provisions of the Companies Act, 1956 and there was no explicit provision in the SEBI (Disclosure and Investor Protection) Guidelines, 2000, governing issuance of detachable warrants. However, under Clause 13.2.1 of the Guidelines for Preferential Issues, it was observed that detachable warrants were permitted to be issued by way of a preferential issue, provided that the tenure of convertible securities shall not exceed 18 months from the date of their allotment. Thus, SEBI decided to treat warrants as an instrument, irrespective of the mode of their allotment. |
| Further, it was observed that the public category shareholders were holding 28.96% of the total paid-up equity share capital of Money Matters. Out of this, 23.78% i.e. 82.10% (public category shareholders) attended the meeting of warrant holders and voted in favour of the resolution for extending the period of conversion of warrants. |
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Thus, considering the above facts and circumstances of the case, the notice issued to the Company was dispose off. |
CP COMMENTS: |
| In the given case, for the extension of warrants conversion tenure, SEBI has not only taken into consideration the percentage of the warrant holders who have voted in favour of the resolution but also the total percentage of the public shareholders of the Company who voted in favour. Thus from the analysis of the case the intent of the Board is very crisp clear that for the purpose of extending the period of conversion of warrants, the approval of the shareholders of the Company is required. |
| However, with the insertion of regulation 4(3) in the SEBI (ICDR) Regulations, thereby mandating the period of conversion of Warrants, allotted by way of a Public/ a Rights Issue to only 12 months, it seems difficult for allowance of any such extension of warrants tenure beyond 12 months. |
