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Allcargo’s open offer to buy stake in Gati under Sebi lens

The Securities and Exchange Board of India (Sebi) has sought clarifications on Allcargo Logistics Ltd’s proposed acquisition of Gati Ltd, amid a court dispute over ownership of the shares within Gati’s promoter family, said two people with direct knowledge of the matter, requesting anonymity.

“Sebi has written to the merchant bankers managing the deal on 9 January and also the two companies seeking details on some of the complaints filed against the open offer,” said the first person.

The second person said the move effectively means that the deal may be put on hold by Sebi until the legal issues are resolved.

This comes despite 87% of Gati’s shareholders voting in favour of the open offer on 8 January.

Allcargo Logistics had on 5 December 2018 proposed buying a 19.43% stake in Gati for 416 crore, and signed a share purchase agreement. Allcargo is in the process of acquiring another 26% stake from Gati’s public shareholders through an open offer. The deal was to close by 30 March 2019.

However, Gati promoter Mahendra K. Agarwal’s estranged family, including his sons Dhruv and Manish, as well as his wife Neera, have disputed the ownership of shares and alleged oppression and mismanagement at Gati.

Allcargo confirmed the Sebi move. “We are in touch with Sebi as part of the approval process for our open offer for Gati; we have submitted, and shall continue to submit, all relevant information to Sebi as and when asked for,” said Alok Roy, head of marketing and communication, Allcargo. “It would not be in order for us to disclose internal communication with Sebi; suffice it to say that Allcargo is committed to completing the acquisition, following due process of law.”

Sebi’s communication to the company adds to the troubles for the logistics firm. Agarwal’s spouse and sons have also approached the National Company Law Tribunal (NCLT) in Hyderabad alleging mismanagement, and seeking reconstitution of the board.

“The deal is being put into abeyance due to NCLT proceedings. If later, the Tribunal passes directions on promoter shares, then Sebi’s regulatory approval would get embroiled into further legal hassles,” said the second person.

As of September 2019, according to BSE, the promoter and promoter group held 17.78% shares in Gati through various trusts and companies, including TCI Finance Ltd, which is also tendering shares in the open offer. The squabbling family members are also a part of promoter group in TCI Finance.

The petition in NCLT has sought that Agarwal should be removed as a director. The estranged family members are also seeking investigations into the affairs of the company and reopening of the book of accounts. The petition alleged that the shares belonging to the two sons and Neera Agarwal were wrongfully, fraudulently and illegally pledged and sold by Agarwal to various lenders.

Mint reviewed copies of the petition filed with Sebi.

The sons alleged that the shares were held in trusts when they were minor, and their father, a trustee, wrongfully pledged the shares to lenders. “My brother Dhruv and I have been deprived of our combined shareholding of approximately 9%, for which we have filed appropriate proceedings,” said Manish Agarwal. “The company is being grossly undervalued at only around 915 crore, whereas its true value is around 2,000 crore—a steal for AllCargo,” he added.

In their complaint to Sebi on 19 December, the sons and their mother said that they have already got an injunction from a court in Hyderabad on 5 December on 1.6 million shares of Mahendra Agarwal that the latter sought to sell to Allcargo through the open offer.

“Since the matter is pending before the NCLT, no change in the promoter shareholding of the company can be allowed,” the sons and their mother said in the compliant to Sebi.

Gati did not immediately respond to emailed queries. However, in a clarification to BSE, Gati said the company is questioning the maintainability of the petition. The sons and their mother held a combined stake of less than 10% in the company as of September 2019, a prerequisite in the Companies Act 2013 for filing an oppression and mismanagement plea.

Source: Livemint