Ashapura Intimates Fashion Limited (Company) is a Mumbai based company listed on Bombay Stock Exchange (BSE). The Company is innerwear retailer doing business under the brand name ‘Valentine’.

Entire Equity Share Holding of Promoters and Promoters Group in the Company is 57.35% of the Equity Share Capital of the Company.

On 10th October 2018, IIFL Securities Limited (IIFL Securities) has made disclosure to the BSE & the National Stock Exchange pursuant to Reg 29 (1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) 2011 (Takeover Code) , stating that i.) 10,61,000 Equity Shares of the Company held by its promoters  were encumbered (pledged) in favour of India Infoline Finance Limited (IIFL) aggregating to 4.21% of the equity share capital of the Company against loan of Rs. 10 Crores obtained and ii) IIFL Securities has further acquired 72,40,774 equity shares of the Company held by the promoters, by way of encumbrance constituting 28.72% of the Equity Share Capital of the company. The shares have been pledged in favour of IIFL Securities towards creation of lien against margin funding and outstanding ledger balance of the promoters amounting to Rs. 30.29 Crores of Harshad Hirji Thakkar and Rs. 2.93 Crores of Harshaben Hirji Thakkar. As cleared from the Disclosure dated 10th October 2018, the aggregate encumbrance by acquisition of shares is 32.93% by acquirer i.e. IIFL Securities and persons acting in concert i.e. IIFL. As per the Disclosure, it also becomes clear that no shares were acquired by IIFL Securities but only pledge was created in its favour.

Open Offer Obligation

Now the question remains here whether this large pledge of the Equity Shares in favour of Acquirer i.e. IIFL Securities attracts Open Offer Obligation on IIFL Securities on the basis of acquisition of Control.

The Takeover Code requires Open Offer obligation to the Public in case of any of the following:

  1. acquisition of 25% or more Voting Rights in the Target Company along with person action in concert as per Reg. 3(1) of the Code
  2. acquisition of control either directly or indirectly over the Target Company.

The Term Control as defined in the Code is as under:

“Control” includes the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner: Provided that a director or officer of a target company shall not be considered to be in control over such target company, merely by virtue of holding such position.


The abovementioned Disclosure dated 10 October 2018 states that only pledge (encumbrance) constituting 28.72% of the Equity Share Capital of the company is created in favour of IIFL Securities but till date it is not been informed whether or not the same is invoked by IIFL Securities. Thus, it does not amount to acquisition of more than 25% of shares having voting rights. In any case, there is no question of any change in control in the present case.

In the case of Mohini Mohan Chakravartty v. Mohanlal Thalia, it was held by the Hon’ble Calcutta High Court that the shares when pledged with the pledgee, only create a special property in the shares and the Pawnee of shares in a company cannot be treated as the holder of shares nor is he entitled to receive any dividend on the shares.

Here Regulation 29(4) of the Takeover Code requires only disclosure in case of acquisition of shares by way of encumbrance and does not require Open Offer obligation. Accordingly, IIFL Securities has made this disclosure saying that it has acquired shares by way of pledgee with limited rights to invoke the securities in case of failure by shareholders to prepay the loan, as it has no rights to vote or even receive dividend.

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