Hero Honda Motors Ltd.

TEXT OF MY LETTER SHRI UK SINHA SEBI CHAIRMAN

Welcome to SEBI.

I wish to introduce myself as a CA who is trying to serve the society in a minimal way, by the domain knowledge and expertise that I have over corporate laws & share market. I act as the eye & ear of SEBI and bring to its notice irregularities & illegalities especially in the sphere of TAKEOVER without any fear or favour. I am a humble takeover watchman.

I have been interacting with SEBI for more than a decade mainly on the cases involving Takeover, Delisting & Buy back. I have gain a very little recognition in the sense that points raised by me are not always ignored by SEBI and from time to time my views are sought by the media.

I have worked on more than 50 cases with SEBI. The open offer of Falcon Tyres & Dunlop were the result of my alerting SEBI. In many cases I am very much disappointed by the attitude of SEBI. In one case—Tata Tele (Maharastra) Ltd. (TTML) I had to go to even High Court where the case was closed in a very wrongful manner. The wrong judgement passed is a matter of record. This made be realize that the best option I have is with & through SEBI.








I believe I am the first person to raise the issue of “Non-compete fees” and the very poor implementation of Reg.12 of SAST by SEBI. I have always tried to help SEBI by alerting it, supplementing its efforts in proper enforcement, and framing rule & regulations.

I have many pending issues with SEBI which I will take liberty to raise later and if you are kind enough, in a personal meeting with you. As of now I wanted to bring to your notice the very high profile and first such big case after you assumed office—HERO HONDA.

In an editorial today, Financial Express has also raised many questions as to the interest of minority shareholders. I however wish to restrict myself to the area I know best—TAKEOVER.

It is commonly believed that Munjal’s purchase of shares from Hero Honda does not trigger any Open offer because of the purchase being from a Foreign collaborator- Reg. 3 (1) (e) (iii)(a).

But this view is not correct. Please read the Explanation to the above.

14[Explanation.- (1) The exemption under sub-clauses (iii) and (iv) shall not be availableif inter se transfer of shares is at a price exceeding 25% of the priceas determined in terms of sub-regulations (4) and (5) of regulation20.";
The simplified version would be The exemption shall not be available if transfer of shares is at a price exceeding 25% of the price
“at a price exceeding 25%” means difference in price being 25% which could be either side—higher or lower. Otherwise a strict English meaning of the above will give an absurd result. For example lets take a case as follows.
The price as per 20 (4 & 5) 100
25% of the price 25
Transfer price 100
In the above case, if the shares are transferred at 100 even when The price is also 100, it will trigger an open offer because 100 is exceeding 25% of the price. In other words if the price is above 25 then it will trigger an open offer. But this we know is not the intent of the law. The intent of the law is, if the price differential is more than 25% the benefit of the exemption is lost.
In the case of Hero Honda the price differential is 50%. Munjal’s are buying the share @ 740/- as against the market price today( March 10, 2011) of 1537/-.
You are requested to please investigate the matter and issue necessary directives to Munjals for coming out with an open offer for the share holders of Hero Honda Ltd.