Company finds novel reason to duck open-offer: driven by "intense passion for Indian classical music"

Rutmarg claimed that the funds were provided against a pledge of POMPL's shares but Sebi found that there was transfer of ownership of the shares.

Giving a novel reasoning, an agrochemical exporter said that it didn't make an open offer because it had loaned money to the promoters of the target company because of "intense passion to promote Indian classical music" and that it had no intention of taking over the target company. But the market regulator found otherwise and ordered the exporter Rutmarg Commercial Pvt Ltd to make a public announcement for an open offer.

According to the market regulator's findings, Rutmarg crossed the threshold for an open offer for the target company Perfect-Octave Media Projects (POMPL) under the Substantial Acquisition of Shares and Takeovers (SAST) Regulations on September 12, 2016. It held 27.77 percent of the total shareholding in POMPL on that date.

The Securities and Exchange Board of India (Sebi), in its order dated March 13, asked Rutmarg to make a public announcement to acquire POMPL's shares at the highest price calculated for the dates when the open offer was triggered.

POMPL's stock is currently traded at around Rs 2, which is just around a tenth of the Volume Weighted Average Price of the scrip--of Rs 19.05--for 60 days following the first-open offer trigger in 2016, according to the Sebi order.

Rutmarg has also been asked to pay an interest of 10 percent per annum from the date when it incurred the liability till the date of payment of consideration to the eligible shareholders of POMPL.

Sebi started this investigation after receiving a complaint from POMPL's former promoter Ratish Tagde.

The target company POMPL ran a television channel INSYNC, which was dedicated to Indian classical music.

According to Rutmarg's founder, Tagde had approached Rutmarg asking for funds, and Rutmarg helped out of its interest in classical music to revive the company's operations and not take control of it.

Rutmarg claimed that the funds were provided against a pledge of POMPL's shares and not against the transfer of ownership of shares which would trigger an open offer. However, the Sebi investigations showed that there was a transfer of ownership and that it was known to both parties.

As the order noted, Rutmarg and its senior management "tried to explain the transactions which trigged the open offer obligations by contending that the shares were transferred to their demat account as collateral against funds provided by them to clear the liabilities of the Company."

It added, "They (the noticees) have contended that they had no intention to acquire the shares transferred to their demat account."

But emails exchanged between the director of Rutmarg, K Ganeshkumar, and the Tagde indicated otherwise.

For example, an email dated June 1, 2018, from Ganeshkumar to Tagde stated, "The new tranche of about 85 lakh shares, which were transferred, we consider it as a sale to us against the liability assumed by us – pending paper work as per your signed MOU."