Sebi to hear Herbertsons case on May 7

The Securities and Exchange Board of India (Sebi) has scheduled the next hearing on May 7 for both the warring parties vying for control of liquor firm, Herbertsons. This follows show cause notices issued to both Kishore Chhabria and UB group Chairman, Vijay Mallya, demanding why action should not be taken against both for violating the takeover code in their ongoing takeover battle for Herbertsons. Both the camps have sought independent hearings and have opposed being heard together. A lot would now depend on Sebi’s decision on whether Chhabria’s acquisition of these shares were in violation of the takeover code or not. The Mumbai High Court, yesterday, prima facie held that Chhabria’s 19% shareholding in Herbertsons, acquired from the open market, were in breach of law and froze the voting rights on these held shares. “The plaintiffs have made out a prima facie case with regard to the disputed acquisition in violation of the takeover code,” the court has said. The court had,however, simultaneously stayed its verdict till July 15, to enable Chhabria appeal against the order in the Supreme Court. The counting of votes on the AGM resolution replacing the present board would be made in the presence of a court officer, and representatives of Chhabria and the petitioner shareholder, M S Reddy. The court also ruled that no AGM can be convened without its prior approval. Earlier, Chhabria has served notice to the company seeking to the board members to be replaced with his own nominees. The court has asked Sebi to expeditiously give a verdict on whether the acquisition of Chhabria’s 20% shares were in violation of the takeover code. Sebi, which had earlier given a combined hearing to both the factions some time back, had set a second hearing for Friday. At the first hearing, it was conveyed to Sebi that as the High Court has seized of the matterthe regulator should wait for the verdict on this case. On Wednesday, the two sides sought a further adjournment considering that the order was yet to be announced. The Mallya camp says that Chhabria had purchased 20% shares in Herbertsons in late 1997 in violation of the takeover code. Apart from these 20% shares, Chhabria already owned 27.2%, of which 1.2% accrued to him after the conversion of fully convertible debentures. In contrast, the UB group itself owns 26% and along with its associates controls a total of 35% of the company’s equity. At the AGM, Chhabria had sought to oust members of the board and put in his nominees which would have meant a virtual takeover of the management. However, this was challenged by the current management on the ground that the 20% shareholding which Chhabria was claiming was disputed. Chhabrias had entered Herbertsons’ board room after a bitter legal battle with his brother for Shaw Wallace. As per an agreementbetween Mallya and Chhabria – which Mallya later called a mistake – Chhabria was offered 26% stake in Herbertsons as the latter bought BDA Limited to UB’s fold. Things between the two soared, when Chhabria taking advantage of the loopholes in Sebi’s takeover code bought another 23% stake in the company from the stock markets in an apparent bid to take over the company.