SEBI - Regulations 11,16, 18, & 27 - Takeover Regulations- ejusdem generis principle- Acquired excess shares - breached the creeping limits of acquisition - against the rule 11 - made a voluntary open offer through a Public Announcement in major National Newspapers, under Regulation 11 of the Takeover Regulations - sought permission by letter to SEBI - Sebi delayed in giving it's comments - in the meanwhile - the company withdraw it's open offer as it is unviable - SEBI not accepted - challenged in SAT - SAT allowed - Apex court held that The plain reading of the regulation makes it clear that no public offer whether it is voluntary or triggered by Regulation 11 can be withdrawn, unless it satisfies the circumstances set out in Regulation 27(1)(b), (c) and (d). There can be no distinction between a triggered public offer and a voluntary public offer. Both have to be considered on an equal footing. and held that In our opinion, the ejusdem generis principle is fully applicable for the interpretation of Regulation 27(1)(b)(c) and (d) as there is a common genus of impossibility. This impossibility envisioned under the aforesaid regulation would not include a contingency where voluntary open offer once made can be permitted to be withdrawn on the ground that it has now become economically unviable. and allowed the appeal filed By SEBI set aside the SAT order and restored the directions of SEBI =
whether an
open offer voluntarily made through a Public Announcement for
purchase of shares of the target company can be permitted to be
withdrawn at a time when the voluntary open offer has become
uneconomical to be performed.=
The appellant by letter dated 30th November, 2012 conveyed its
comments in terms of the proviso to Regulation 16(4) of the
Takeover Regulations on the draft letter of offer. Certain
information was sought in the aforesaid letter.
No
reference was made in this letter with regard to the request
made by the respondent for permission to withdraw the open
offer.
Rather it was stated as under :
“Please note that failure to carry out the suggested changes in
the letter of offer as well as violation of provisions of the
Regulations will attract appropriate action. Please also ensure
and confirm that apart from above, no other changes are carried
out in the letter of offer submitted to us.”=
Regulation 27(1)(a) before its deletion on September 9, 2002
permitted the public offer to be withdrawn, consequent upon any
competitive bid. =
We see no reason to differ from the view taken
in Nirma Industries Ltd. (supra) wherein we have observed as
follows:
“62. A bare perusal of the aforesaid Regulations shows that
Regulation 27(1) states the general rule in negative terms.
It
provides that no public offer, once made, shall be withdrawn.
Since clause (a) has been omitted, we are required to interpret
only the scope and ambit of clauses (b), (c) and (d).
The three
sub-clauses are exceptions to the general rule and, therefore,
have to be construed very strictly.
The exceptions cannot be
construed in such a manner that would destroy the general rule
that no public offer shall be permitted to be withdrawn after
the public announcement has been made.
Clause (b) would permit a
public offer to be withdrawn in case of legal impossibility when
the statutory approval required has been refused.
Clause (c)
again provides for impossibility when the sole acquirer, being a
natural person, has died.
Clause (b) deals with a legal impossibility
whereas clause (c) deals with a natural disaster.
Clearly clauses (b) and (c) are within the same genus of impossibility.
Clause (d) also being an exception to the general rule would have to be naturally construed in terms of clauses (b) and (c).
Mr Divan has placed a great deal of emphasis on the
expression “such circumstances” and “in the opinion” to indicate
that the Board would have a wide discretion to permit withdrawal
of an offer even though it is not impossible to perform.
We are
unable to accept such an interpretation.” =
Factually, it cannot be denied that in the years 2006-07, 2007-
08 and 2010-11, the respondent had acquired shares in excess of
5% which breached the 5% creeping acquisition limit.
In our
opinion, the respondent was required to comply with Regulation
11 and make a Public Announcement to acquire shares in
accordance with law.
The respondent admittedly not having
complied with Regulation 11, in our opinion, the appellant was
perfectly justified in taking the non-compliance into
consideration whilst considering the feasibility of the public
offer made on 20th October, 2011.=
It is
true that under Regulation 18(2), SEBI was required to dispatch
the necessary letters to the shareholders within a reasonable
period.
It is a matter of record that the comments were not
offered for 13 months.
Such kind of delay is wholly inexcusable
and needs to be avoided. It can lead to avoidable controversy
with regard to whether such belated action is bona fide exercise
of statutory power by SEBI.
By adopting such a lackadaisical, if
not callous attitude, the very object for which the regulations
have been framed is diluted, if not frustrated. It must be
remembered that SEBI is the watchdog of the Securities Market.
It is the guardian of the interest of the shareholders.
It is
the protective shield against unscrupulous practices in the
Securities Market.
Therefore, SEBI like any other body, which is
established as a watchdog, ought not to act in a lackadaisical
manner in the performance of its duties.
The time frame
stipulated by the Act and the Takeover Regulations for
performing certain functions is required to be maintained to
establish the transparency in the functioning of SEBI.=
Ultimately, SEBI is charged
with the duty of ensuring that every public offer made is bona
fide for the benefit of the shareholders as well as acquirers.
In the present case, SEBI has found that permitting the
respondent to withdraw the public offer would be detrimental to
the overall interest of the shareholders. =
The only reason put
forward by the respondent for withdrawal of the offer is that it
is no longer economically viable to continue with the offer. =
The plain reading of the aforesaid
regulation makes it clear that no public offer whether it is
voluntary or triggered by Regulation 11 can be withdrawn, unless
it satisfies the circumstances set out in Regulation 27(1)(b), (c) and (d).
There can be no distinction between a
triggered public offer and a voluntary public offer. Both have
to be considered on an equal footing.=
In our opinion, the ejusdem generis principle
is fully applicable for the interpretation of Regulation
27(1)(b)(c) and (d) as there is a common genus of impossibility.
This impossibility envisioned under the aforesaid regulation
would not include a contingency where voluntary open offer once
made can be permitted to be withdrawn on the ground that it has
now become economically unviable.
Accepting such a submission,
would give a field day to unscrupulous elements in the
securities market to make Public Announcement for acquiring
shares in the Target Company, knowing perfectly well that they
can pull out when the prices of the shares have been inflated,
due to the public offer. Such speculative practices are sought
to be prevented by Regulation 27(1)(b)(c) and (d), that is
precisely the reason why Regulation 27(1)(a) was deleted.
Merely
because there has not been any substantial change in the price
of shares in this particular case, would not, in any manner,
invalidate the conclusion reached in Nirma Industries (supra).
37. Last but not least, we are not able to approve the approach
adopted by SAT in adopting the Issue of Capital and Disclosure
Requirements Regulations, 2009 (ICDR) Regulation for
interpreting the provisions contained in Regulation 27 of the
Takeover Regulations. The regulations in Takeover Code have to
be interpreted by correlating these regulations to the
provisions of the SEBI Act.
38. In view of the above, the appeal is allowed. The impugned order
passed by the SAT dated 19th June, 2013 in Appeal No.3 of 2013
is set aside and the directions issued by the appellant in the
letter dated 30th November, 2012 are restored.
2014 (April. Part)http://judis.nic.in/supremecourt/filename=41474
SURINDER SINGH NIJJAR, A.K. SIKRI
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6041 OF 2013
Securities and Exchange Board of India …Appellant
VERSUS
M/s. Akshya Infrastructure Pvt. Ltd. ..Respondent
J U D G M E N T
SURINDER SINGH NIJJAR, J.
1. This appeal under Section 15Z of the Securities and Exchange
Board of India Act, 1992 (the ‘SEBI Act’) is directed against
the judgment and final order of the Securities Appellate
Tribunal, Mumbai (SAT) dated 19th June, 2013 rendered in Appeal
No.3 of 2013, by which the appeal filed by M/s. Akshya
Infrastructure Private Limited – the respondent herein against
the directions issued by SEBI
on 30th November, 2012 has been allowed.
2. The fundamental issue which arises in this appeal is whether an
open offer voluntarily made through a Public Announcement for
purchase of shares of the target company can be permitted to be
withdrawn at a time when the voluntary open offer has become
uneconomical to be performed.
3. In this case, the respondent herein, M/s Akshya Infrastructure
Pvt. Ltd., is a part of the Promoter Group of MARG Limited (‘the
Target Company’). For the years 2006-07, 2007-08 and 2010-11,
the gross acquisition by the Promoter Group of shares in the
Target Company was as under :
“Financial Year Percentage Date triggered
on
2006-07 14.34% 30.03.2007
2007-08 5.64% 12.10.2007
2010-11 7.11% 19.02.2011”
As a consequence of the foregoing acquisitions, the
acquirers breached the 5% creeping acquisition limit and were
required to comply with the provisions of Regulation 11 of the
SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 (hereinafter referred to as the “Takeover
Regulations”).
4. On 20th October, 2011, the respondent made a voluntary open
offer through a Public Announcement in major National
Newspapers, under Regulation 11 of the Takeover Regulations
wherein the public shareholders of the Target Company were given
an opportunity to exit at an offer price of Rs.91/- per equity
share. This price represents a premium of 10.3% over the
average market closing price for the two weeks preceding the
Public Announcement. The tendering period was scheduled to
commence on 1st December, 2011 and conclude on 20th December,
2011. The consideration for the tendered shares was to be paid
on or before 4th January, 2012. As on the date of the open
offer, the list of Promoters/Promoter Group Entities was as
under:-
Sl. No. Name
1. Mr. G.RK. Reddy
2. Mr. G. Raghava Reddy
3. Ms. V.P. Rajini Reddy
4. Mr. G. Madhusudan Reddy
5. GRK Reddy & Cons (HUF)
6. M/s. Global Infoserve Ltd.
7. M/s. Marg Capital Markets Limited
8. M/s. Exemplarr Worldwide Limited
9. M/s. Marg Projects and Infrastructure Limited
(formerly Marg Holdings and Financial Services
Limited)
10. M/s. Akshya Infrastructure Private Limited
5. However, due to certain events, which have been highlighted by
both the parties, the respondent by letter dated 29th March,
2012 through M/s. Motilal Oswal Investment Advisors (P) Ltd.,
the Managers to the Issue (hereinafter referred to as the
“Merchant Banker”), addressed to SEBI, sought to contend that
the open offer in question had become outdated, thereby
outliving its necessity and, therefore, the same ought to be
permitted to be withdrawn. It was also contended that the
amount of Rs.17.46 crores deposited by the respondent in an
escrow account towards the open offer ought to be allowed to be
withdrawn. The letter emphasizes that the public announcement
was in nature of a voluntary open offer under Regulation 11 of
the Takeover Regulations for consolidation of shareholding of
the Promoter Group in the Target Company. The offer price of
Rs.91/- per equity share of the Target Company was aimed at
presenting a commercially reasonable opportunity to the public
shareholders to exit and at the same time it was meant to
consolidate the shareholding of the promoter in the Target
Company. It was further stated that due to the unjustified
delay by SEBI in taking a decision as to whether to approve the
draft letter of offer has rendered the entire open offer
exercise academic and meaningless. It was claimed that the
transaction envisaged by the respondent is no longer justifiable
on any ground, including the grounds of economic rationale and
commercial reasonableness. The respondent sought the withdrawal
of open offer made under the public announcement in terms of
Regulation 27 of the Takeover Regulations. The exact prayer made
by the respondent was as follows:-
“Consequently, we hereby seek withdrawal of the open offer made
under the public announcement in terms of Regulation 27 of the
Takeover Regulations (the benefit of which continue to accrue to
us in terms of Regulation 35(2) of the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 2011 “New
Takeover Regulations”). Regulation 23(1)(d) of the New Takeover
Regulations equally empowers withdrawal of an open offer.”
6. The appellant by letter dated 30th November, 2012 conveyed its
comments in terms of the proviso to Regulation 16(4) of the
Takeover Regulations on the draft letter of offer. Certain
information was sought in the aforesaid letter. No
reference was made in this letter with regard to the request
made by the respondent for permission to withdraw the open
offer. Rather it was stated as under :
“Please note that failure to carry out the suggested changes in
the letter of offer as well as violation of provisions of the
Regulations will attract appropriate action. Please also ensure
and confirm that apart from above, no other changes are carried
out in the letter of offer submitted to us.”
The aforesaid comments of SEBI were challenged by the
respondent before SAT in Appeal No.3 of 2013.
7. The respondent claimed that the impugned directions, ostensibly
in the form of comments and observations on the draft letter of
offer, reject the plea of the petitioner that the delay caused
by SEBI in clearance of the draft letter of offer, now renders
the open offer unviable and academic. Further, the impugned
directions purport to bind the appellant and thereby constitute
an order by which the respondent was aggrieved; and necessitated
the appeal before the SAT.
8. In the appeal before SAT, the respondent claimed that the
directions contained in the impugned letter of SEBI dated 30th
November, 2012, incorrectly allege that prima facie requirement
to make an open offer was triggered by the promoters and the
promoter group entities of the Target Company (Promoter Group)
under Regulation 11(1) of the Takeover Regulations on three past
occasions, viz. March 30, 2007, October 12, 2007 and February
19, 2011 (Alleged Triggers). It was further claimed that the
directions to revise the offer price, on account of the
requirement to make open offers pursuant to the alleged triggers
was illegal and without jurisdiction. It was also claimed that
the directions contained in the impugned letter has caused
severe civil consequences to the respondent. It was also claimed
that the submissions on the issues presented by the respondent
before the appellant have neither been considered nor
appreciated.
9. The appeal was contested by the appellant by filing a detailed
affidavit on 12th April, 2013. As noticed above, the aforesaid
appeal has been allowed by SAT in terms of prayer clause (a),
(b) and (c) of Para 7 of the appeal filed by the respondent,
which are as under:-
“(a) That this Hon’ble Tribunal be pleased to set aside the
Impugned Direction;
(b) That this Hon’ble Tribunal be pleased to order and direct
the respondent to allow the appellant to withdraw the open
offer without any adverse orders or directions against the
appellants or the Promoter Group;
(c) That this Hon’ble Tribunal be pleased to order and direct
the respondent to allow the appellant to withdraw the
amount of Rs.17.46 crores deposited in escrow in lieu of
the Open Offer.”
10. It was, however, made clear that SAT has not made any
observation on the merits of the issue regarding the three
alleged triggers and the contentions of the parties in this
regard were kept open. Aggrieved by the aforesaid impugned
judgment, SEBI has filed the present Civil Appeal.
11. We have heard the learned counsel for the parties at length.
12. Mr. C.U. Singh, learned senior counsel appearing for the
appellant, has submitted that the issues raised by the appellant
herein are squarely covered against the respondent by an earlier
judgment of this Court in Nirma Industries Ltd. & Anr. Vs.
Securities and Exchange Board of India[1].
13. At this stage, Mr. R.F. Nariman, learned senior counsel
appearing for the respondent, has raised certain preliminary
objections with regard to the maintainability of the appeal. He
submits that the directions issued by the SEBI are based on a
misconception of the law applicable to the peculiar facts of
this case. He submits that firstly: this is a case where the
respondent had made voluntary open offer. It was not a case of
an open offer made because of a triggered mechanism under the
Takeover Regulations; secondly: since the open offer was a pure
and simple voluntary offer, no prejudice has been caused to any
shareholder; thirdly: the present case does not fall within the
ambit of Regulation 27 of Takeover Regulations. According to
Mr. Nariman, Regulation 27 ought to be read in a manner that it
would only govern mandatory open offers and not voluntary open
offers; fourthly: SEBI has without any justification
intermingled acquisition of shares by the respondent on the
three earlier occasions in 2006-07, 2008-09 and 2009-10;
fifthly: SEBI unjustifiably and arbitrarily took 13 months to
offer comment(s) on the draft letter of offer. Even then the
clarification sought by the appellant pertained to the past
alleged triggers which had no connection with the voluntary open
offer. It is submitted that even if the case of the respondent
falls within the ambit of Regulation 27, the withdrawal is
permissible in such circumstances which in the opinion of SEBI
(the Board) merit withdrawal; sixthly: the judgment in Nirma
Industries (supra) is distinguishable; lastly: the judgment in
Nirma Industries (supra) is incorrect and needs reconsideration.
14. Mr. C.U. Singh, learned senior counsel appearing for the
appellant, has submitted that the correspondence exchanged
between the parties would show that the delay in consideration
of the letter of offer was caused by the respondent by not
giving the necessary information. He relies on the voluminous
correspondence between the parties in support of his submission
which, if necessary, shall be considered later. His second
submission is that the request for withdrawal of open offer is
to be considered strictly under the provision of Regulation 27
of the Takeover Regulations.
15. The respondent had made a Public Announcement
on 20th October, 2011 which clearly informed the public
shareholders of the Target Company that they were being given an
opportunity to exit at an offer price of Rs.91/- per equity
share, which represented a premium of 10.3% over the average
market closing price for the two weeks preceding the Public
Announcement. This Public Announcement and the Public Offer was
sought to be withdrawn on 29th March, 2012. He points out that
in the aforesaid letter; the request for withdrawal is
specifically made under Regulation 27 of the Takeover
Regulations. Therefore, Mr. Nariman cannot be permitted to, now,
submit that Regulation 27 is not applicable to the open offer in
the present case.
16. Mr. C.U. Singh then submits that the respondents have
consciously proceeded with an open offer and they have rightly
not been permitted to withdraw the same by the appellant. The
next submission of Mr. C.U. Singh is that Regulation 27 deals
with only withdrawal of ‘Public Offer’ and not withdrawal of
‘Public Announcement’. In any event, according to learned senior
counsel, submission with regard to withdrawal of Public
Announcement has been made, only, at the time of arguments
before this Court. It was neither pleaded nor raised before the
SEBI/SAT, nor even in the counter affidavit before this Court.
He next submitted that under the provisions of Regulation 27,
public offer is a rule and withdrawal is an exception. Relying
on the interpretation of Regulation 27 in Nirma Industries
Ltd.(supra), he submits that an offer can be permitted to be
withdrawn only if it becomes virtually impermissible to carry
out. Permitting public offers once made to be withdrawn on the
ground that it has become uneconomical would compromise the
integrity of the Securities Market. This would be contrary to
the scheme of the Takeover Code. Mr. C.U.
Singh then submits that there is no distinction under Regulation
27 between the voluntary open offer and mandatory open offer
which is the result of a triggered acquisition. Relying on
Regulations 11 to 14 of the Takeover Regulations,
he submits that all the different types of open offers are set
out therein. Each one of the open offers has the same effect on
shareholders and the market. Therefore, the provisions contained
in Regulation 27 have to be strictly adhered to in considering
the request for withdrawal of the open offer. It is further
submitted that the appellant had fixed the offer price under the
relevant regulations and in accordance with the law laid down by
this Court in Clariant International Ltd. & Anr. Vs. Securities
& Exchange Board of India[2].
17. According to Mr. C.U. Singh, in normal circumstances, withdrawal
can only be made under Regulation 27(1)(b), (c) and (d). He
submits that in the letter dated 29th March, 2012, the
respondent claims that the offer has become “outdated due to the
sheer efflux of time”. The second reason given is the delay in
clearance of open offer from SEBI. The letter also indicates
that the respondent does not agree with the views of the SEBI on
the fact situation. Another reason given is that “even if the
SEBI were to approve the draft letter of offer today, the open
offer exercise would be entirely academic and meaningless.”
Another reason given is that “the transaction then envisaged by
us is no longer justifiable on any ground including grounds of
economic rationale and commercial reasonableness.” All these
factors, according to Mr. C.U. Singh, will not be covered by any
of the clauses in Regulation 27(1)(b)(c)(d). He then submitted
that even if there is a delay by SEBI, the ordinary investor in
shares of the Target Company should not be made to suffer.
According to Mr. C.U. Singh, the controversy raised in the
appeal is squarely covered against the respondent by judgment of
this Court in Nirma Industries Ltd. (supra).
18. Mr. Nariman has rebutted the aforesaid submissions of Mr. C.U.
Singh. He submits that the single most important distinction
between Nirma and this case is that it pertains to a voluntary
public offer. This Court had no occasion to deal with a
voluntary public offer in Nirma Industries Ltd. (supra). In
reply to the other submissions made by Mr. C.U. Singh,
Mr. Nariman has also relied on some correspondence. He has also
relied upon a table to substantiate the submission that the law
laid down in Nirma Industries would not be applicable in the
facts and circumstances of this case. Dealing with the issue of
delay, it is submitted by Mr. Nariman that there was an
unjustifiable and inexplicable delay by SEBI in issuing its
comments on the draft letter of offer. In support of this
submission, he has relied on some correspondence.
19. He relies on letter dated October 20, 2011, whereby the
respondent made a voluntary open offer by Public Announcement
under Regulation 11 of the Takeover Regulations. He points out
that Clause 11.4 of the Public Announcement clearly states that
voluntary open offer can be withdrawn by the respondent at any
time. He then points out that on 25th October, 2011, SEBI called
upon the respondent to provide information on the changes in
shareholding and capital build up of the Target Company, along
with compliance of the SEBI Regulations. He submits that
although the information sought pertains to the earlier
acquisition it was duly provided on November 4, 2011 and
November 8, 2011. Mr. Nariman submits that under Regulation
18(1) of the Takeover Regulations, the draft letter of offer is
required to be filed with SEBI well within 14 days from the date
of the Public Announcement. Once the letter of offer is filed,
SEBI was required to dispatch the same to the shareholders
immediately after 21 days. During 21 days, SEBI is permitted to
stipulate the changes required to be made in the letter of offer
which the Merchant Banker and the Acquirer shall incorporate in
the letter of offer, before it is dispatched to the
shareholders. In case, SEBI receives a complaint or it initiates
an enquiry or investigation in respect of public offer, it can
call for a revised letter of offer. In this case, he submits
that the draft letter of offer was given on October 28, 2011
well within 14 days period stipulated under Regulation 18(1).
But SEBI did not issue its comments on the draft letter of offer
within 21 days, as required. Not only there was a non-compliance
of Regulation 18(1) but there was no occasion to
invoke proviso to Regulation 18(2). SEBI did not inform or
advise the respondent to revise the draft letter of offer on
account of any inadequacy in the disclosure made by the
respondent in the draft letter of offer in respect of the
voluntary offer. All the queries were related to the past
alleged triggers. These alleged triggers were wholly unrelated
to the voluntary open offer for which the draft letter of offer
was filed with the appellant. He then pointed out that by letter
dated 17th November, 2011, the appellant again sought the same
clarification on the alleged triggers, as stated in its letter
dated November 11, 2011. He submitted that the Merchant
Banker and the respondent provided all explanation regarding
these acquisitions on November 28, 2011. The letter dated
November 24, 2011 of the respondent was forwarded to the
appellant by the Merchant Banker on November 28, 2011. This
letter gave date wise explanation on all the issues raised as to
why no open offer was made pertaining to the alleged triggers,
as there was no violation of Regulation 11(1) and 11(2) of the
Takeover Regulations. This explanation was reiterated on
December 14, 2011 by the respondent/Promoters but there was
no response from the appellant to any of the aforesaid letters.
This led the respondent to a reasonable belief that the
explanation had been accepted. Subsequently, there was a
telephonic request by the appellant to provide the same
information on the alleged triggers in various formats. The
respondent duly re-arranged the same information
in the desired format and provided the same to the appellant on
January 13, 2012, January 16, 2012 and February 3, 2012. Inspite
of all this, still there were no comments from the SEBI. Mr.
Nariman emphasized that the unjustifiable, inexplicable and
inordinate, delay on the part of the appellant in issuing
comments on the draft letter of offer created a situation
wherein it was impossible for the respondent to implement the
voluntary open offer. By that time, the underlying decision to
consolidate shareholding had become infructuous by sheer efflux
of time. It was under these circumstances that the respondent
intimated its decision to withdraw its voluntary open offer and
sought withdrawal of the same in terms of the Regulation 27 of
the Takeover Regulations.
20. It was pointed out by Mr. Nariman that the respondent
specifically and expressly sought opportunity of a personal
hearing on the aforesaid request for withdrawal, the appellant
did not revert on the request. The respondent once again
furnished the same information on the alleged triggers in
different formats as required by the appellant through
communications dated April 12, 2012; April 20, 2012;
May 10, 2012; May 21, 2012; June 6, 2012 and July 5, 2012.
After a period of more than 13 months, from the date of filing
of the draft letter of offer and after more than 8 months from
the date of request for withdrawal, the appellant issued the
impugned letter dated November 30, 2012. Mr. Nariman points out
that the directions issued in the impugned letter are wholly
unjustified. He points out to the following two directions :-
(a) Go ahead with the voluntary open offer on account of some
alleged triggers (for creeping acquisitions under Regulation 11
of the Takeover Code, 1997) in the past i.e. 2006-07; 2007-08
and 2010-11.
(b) make an open offer with upward revision in price per share.
The share prices offered by the respondent in 2009 were RS.91.00
per equity share and as on date the prices is RS.315.90 per
equity share.
21. Mr. Nariman submitted that SAT without going into the merits and
demerits of the alleged earlier acquisitions, has left it open
for SEBI to take appropriate action in accordance with law with
regard to the aforesaid three acquisitions. Therefore, clearly
the aforesaid three acquisitions have no connection whatsoever
with the voluntary offer under consideration in these
proceedings.
22. The next submission of Mr. Nariman is the foundation of all his
other submissions. According to Mr. Nariman, there is a
fundamental difference between a mandatory public offer and a
voluntary open offer. It cannot be placed on the same pedestal.
According to learned senior counsel, in a mandatory public offer
there exists an underlying transaction which triggers the
Takeover Code under which the shareholders obtain a right to
exit from the company. However, in a voluntary open offer, no
such right accrues to the shareholders to exit the company,
since the offer is not the result of a triggered acquisition. In
the present case, the action of SEBI, according to Mr. Nariman,
is contrary to Regulation 18. The letter of offer was not
dispatched to the shareholders as per Regulation 18(1).
Regulation 15(4) deems that the offer is made on the date on
which the Public Announcement has appeared in any newspaper. But
according to Mr. Nariman, this deeming fiction is for the
purpose of price fixation for the offer. It has nothing to do
with Regulation 18 which is to dispatch the actual offer to the
shareholders. Therefore, according to Mr. Nariman, reliance
placed by Mr. C.U. Singh on the expression “offer once made” in
Regulation 27 is misconceived. This expression has to be
understood in terms of Regulation 18. Since Regulation 18 had
not been complied with and there was no dispatch of the letter
of offer to the shareholders, there was no question of any
prejudice being caused to the interest of the shareholders. Mr.
Nariman then submits that because of the inaction on the part of
SEBI, the respondent would be squarely covered under Regulation
27(1)(b). The approval of the letter of offer by the appellant
is statutory in nature. Since it had not been granted within the
stipulated period of time, the respondent was entitled to assume
that it had been refused. According to Mr. Nariman, it has been
erroneously submitted by Mr. C.U. Singh that the claim of the
respondent is not covered under Regulation 27(1)(b). Mr. Nariman
then submits that the judgment in Nirma Industries is not
applicable in the facts and circumstances of this case. Finally,
he has submitted that the judgment in Nirma Industries (supra)
requires reconsideration. In support of this submission, he
submits that Regulation 27 has to be interpreted by keeping in
mind the earlier Regulation 27(1)(a). In Nirma Industries, this
Court has held that Regulation 27 (b), (c) and (d) are all
in the nature of impossibility. Mr. Nariman
made a mention about Regulation 27(1)(a) which was omitted by
the SEBI (Substantial Acquisition of Shares and Takeovers)
(Second Amendment) Regulations, 2002 with effect from September
9, 2002. Prior to deletion, it read as under :
“-(a) the withdrawal is consequent upon any competitive bid,”
Based on this, he submits that economic viability of public
offer was the genus of Regulation 27. The facts of this case
would clearly place the request of the respondent for withdrawal
of the public offer in the realm of impossibility. Mr.
Nariman has submitted that for the interpretation of Regulation
27, the ejusdem generis principle would not apply as there is no
common genus between Clauses 27(1)(b)(c) and (d).
23. Mr. C.U. Singh in rejoinder has submitted that in view of the
law laid down in Nirma Industries, the public offer made by the
respondent cannot be permitted to be withdrawn. Earlier
incidence of the alleged triggers can be relied upon. According
to him, the price has to be fixed on the basis of the public
announcement/offer. He submits that Regulation 18(1) talks of 14
days of the Public Announcement. Furthermore, public offer
cannot be said to be made only on dispatch of the letter of
offer to the individual shareholders. The impact on the
securities market would follow the public announcement. He
reiterates that even the withdrawal letter seeks permission to
withdraw the Public Offer under Regulation 27. Finally, he
submits that the interpretation of Regulation 27 rendered in
Nirma Industries Ltd. (supra) is correct. It fully applies to
the facts of the present case. It is neither distinguishable nor
does it require reconsideration.
24. We have considered the submission made by the learned counsel
for the parties.
25. Factually, it cannot be denied that in the years 2006-07, 2007-
08 and 2010-11, the respondent had acquired shares in excess of
5% which breached the 5% creeping acquisition limit. In our
opinion, the respondent was required to comply with Regulation
11 and make a Public Announcement to acquire shares in
accordance with law. The respondent admittedly not having
complied with Regulation 11, in our opinion, the appellant was
perfectly justified in taking the non-compliance into
consideration whilst considering the feasibility of the public
offer made on 20th October, 2011.
26. With regard to delay, we do not find much substance in the
submission of Mr. C.U. Singh. Mr. Singh has sought to explain
the delay on the ground that information sought by the appellant
was not given by the respondent. In our opinion, this was no
ground for the appellant to delay the issuance of comments on
the letter of offer, especially not for a period of 13 months.
In the event the information was not forthcoming, the appellant
had the power to refuse the approval of the public offer. It is
true that under Regulation 18(2), SEBI was required to dispatch
the necessary letters to the shareholders within a reasonable
period. It is a matter of record that the comments were not
offered for 13 months. Such kind of delay is wholly inexcusable
and needs to be avoided. It can lead to avoidable controversy
with regard to whether such belated action is bona fide exercise
of statutory power by SEBI. By adopting such a lackadaisical, if
not callous attitude, the very object for which the regulations
have been framed is diluted, if not frustrated. It must be
remembered that SEBI is the watchdog of the Securities Market.
It is the guardian of the interest of the shareholders. It is
the protective shield against unscrupulous practices in the
Securities Market. Therefore, SEBI like any other body, which is
established as a watchdog, ought not to act in a lackadaisical
manner in the performance of its duties. The time frame
stipulated by the Act and the Takeover Regulations for
performing certain functions is required to be maintained to
establish the transparency in the functioning of SEBI.
27. Having said this, we are afraid such delay is of no assistance
to the respondent. It will not result in nullifying the action
taken by SEBI, even though belated. Ultimately, SEBI is charged
with the duty of ensuring that every public offer made is bona
fide for the benefit of the shareholders as well as acquirers.
In the present case, SEBI has found that permitting the
respondent to withdraw the public offer would be detrimental to
the overall interest of the shareholders. The only reason put
forward by the respondent for withdrawal of the offer is that it
is no longer economically viable to continue with the offer. Mr.
Nariman has referred to a tabular statement and data to show
that there is no substantial variation in the share prices that
ensued making of the public offer. Having seen the table, we
find substance in the submission of Mr. Nariman
that there is hardly any variation in the shares of the Target
Company from 20th October, 2011 till 30th
November, 2011. The variation seems to have been between Rs.
78.10 (on 24.11.2011) and Rs. 87.60 (on
20.10.2011). Such a variation cannot be said to be the result of
the public offer. But this will not detract from the well known
phenomena that Public Announcement of the public offering
affects the securities market and the shares of the Target
Company. The impact is immediate.
28. We are unable to agree with the submission of Mr.
Nariman that Regulation 27 would not be applicable to a
voluntary public offer. A perusal of Regulation 27(1) makes it
patently clear that Regulation 27(1) reads “no public offer,
once made, shall not be withdrawn except under the following
circumstances.” Accepting Mr. Nariman’s submission would be to
reconstruct the aforesaid provision. This Court, or any other
court, whilst construing the statutory provision cannot
reconstruct the same. The plain reading of the aforesaid
regulation makes it clear that no public offer whether it is
voluntary or triggered by Regulation 11 can be withdrawn, unless
it satisfies the circumstances set out in Regulation
27(1)(b), (c) and (d). There can be no distinction between a
triggered public offer and a voluntary public offer. Both have
to be considered on an equal footing. We find substance in the
submission made by Mr. C.U. Singh that Regulation 18(2) has no
relevance to the case projected by the respondents having
singularly failed to give the necessary information to SEBI with
regard to the earlier three acquisitions.
29. We also do not agree with Mr. Nariman that
Regulation 27 has to be read in the context of the Regulation as
it existed when it was first enacted. As noticed earlier,
Regulation 27(1)(a) before its deletion on September 9, 2002
permitted the public offer to be withdrawn, consequent upon any
competitive bid. We see no reason to differ from the view taken
in Nirma Industries Ltd. (supra) wherein we have observed as
follows:
“62. A bare perusal of the aforesaid Regulations shows that
Regulation 27(1) states the general rule in negative terms. It
provides that no public offer, once made, shall be withdrawn.
Since clause (a) has been omitted, we are required to interpret
only the scope and ambit of clauses (b), (c) and (d). The three
sub-clauses are exceptions to the general rule and, therefore,
have to be construed very strictly.
The exceptions cannot be
construed in such a manner that would destroy the general rule
that no public offer shall be permitted to be withdrawn after
the public announcement has been made.
Clause (b) would permit a
public offer to be withdrawn in case of legal impossibility when
the statutory approval required has been refused.
Clause (c)
again provides for impossibility when the sole acquirer, being a
natural person, has died.
Clause (b) deals with a legal
impossibility
whereas clause (c) deals with a natural disaster.
Clearly clauses (b) and (c) are within the same genus of
impossibility.
Clause (d) also being an exception to the general
rule would have to be naturally construed in terms of clauses
(b) and (c).
Mr Divan has placed a great deal of emphasis on the
expression “such circumstances” and “in the opinion” to indicate
that the Board would have a wide discretion to permit withdrawal
of an offer even though it is not impossible to perform.
We are
unable to accept such an interpretation.”
30. The submission with regard to the non-applicability of ejusdem
generis for interpretation of the Takeover Regulations has been
considered and rejected in Nirma Industries Ltd. (supra)
(Paragraphs 63 to 71).
31. We are also not impressed by the submission of
Mr. Nariman that it has now become economically impossible to
give effect to the public offer. This very submission has been
rejected in Nirma Industries Ltd. (supra). We reiterate our
opinion in Nirma Industries Ltd. (supra) that under
Clause 27(1)(b)(c) and (d), a Public Offer, once made, can only
be permitted to be withdrawn in circumstances which make it
virtually impossible to perform the Public Offer. In fact, the
very purpose for deleting Regulation 27(1)(a) was to remove any
misapprehension that an offer once made can be withdrawn if it
becomes economically not viable. We are of the considered
opinion that the distinction sought to be made by Mr. Nariman
between a voluntary public offer and a triggered public offer is
wholly misconceived. Accepting such a submission would defeat
the very purpose for which the Takeover Code has been enacted.
32. We also do not find any merit in the submission of Mr.
Nariman that the delay of 13 months by SEBI in issuing the
impugned directions would permit the respondent to withdraw the
Public Offer under Regulation 27(1)(b). The consideration by
SEBI is as to whether a Public Offer is in conformity with the
provisions of the SEBI Act and the Takeover Regulations. Delay
in performance of its duties by SEBI can not be equated to
refusal of the statutory approval requires from other
independent bodies, such as under the RBI, Taxation Laws and
other regulatory statutes including Foreign Exchange
Regulations. Delay by SEBI in taking a final decision in making
its comments on the letter of offer would not fall under
Regulation 27(1)(b).
33. This now brings us to the submission of Mr. Nariman that there
was a breach of Rules of Natural Justice. It is matter of record
that the respondent had asked for an opportunity of hearing but
none was granted. But the question that arises is as to whether
this is sufficient to nullify the decision of SEBI. In our
opinion, the respondent has failed to place on the record either
before SAT or before this Court the prejudice that has been
caused by not observing Rules of Natural Justice. It is by now
settled proposition of law that mere breach of Rules of Natural
Justice is not sufficient. Such breach of Rules of Natural
Justice must also entail avoidable prejudice to the respondent.
This reasoning of ours is supported by a number of cases. We
may, however, refer to the law laid down in Natwar Singh Vs.
Director of Enforcement & Anr.,[3] wherein it was held that
“there must also have been caused some real prejudice to the
complainant; there is no such thing as a merely technical
infringement of natural justice.”
34. All the information sought by SEBI related to the three earlier
acquisitions when the creeping limit for acquisition has been
breached for triggering the mandatory Takeover Regulations. In
appeal, SAT has left the question with regard to the earlier
three acquisitions open and to be decided in accordance with
law. Therefore, clearly no prejudice has been caused to the
respondent.
35. Finally, we are unable to accept the submission of Mr.
Nariman that the ratio of law as declared in Nirma Industries
Ltd. (supra) would not be applicable to the facts and
circumstances of this case. As pointed out earlier, we do not
accept the distinction sought to be made by Mr. Nariman with
regard to voluntary open offer and mandatory open offer which is
the result of a triggered acquisition. The consequences of both
kinds of offers to acquire shares in the Target Company, at a
particular price, are the same. As soon as the offer price is
made public, the securities market would take the same into
account in all transactions. Therefore, the withdrawal of the
open offer will have to be considered by the Board in terms of
Regulation 27(1)(b)(c) and (d). Further, the deletion of
Regulation 27(1)(a) does not, in any manner, advance the case of
the respondent. It rather reinforces the conclusion that an open
offer once made can only be withdrawn in circumstances
stipulated under Regulation 27(1)(b)(c) and (d). We also do not
agree with Mr. Nariman that voluntary open offer made by the
respondent ought to be permitted to be withdrawn under
Regulation 27(1)(b) for the reasons already stated. We have
already come to the conclusion that the delay in offering
comments by the Board on the letter containing voluntary open
offer, though undesirable, is not fatal to the decision
ultimately taken by the Board. We, therefore, reiterate our
conclusion in Nirma Industries (supra).
36. We also do not find substance in the submission of Mr.
Nariman that the judgment in Nirma Industries (supra) needs
reconsideration. In our opinion, the ejusdem generis principle
is fully applicable for the interpretation of Regulation
27(1)(b)(c) and (d) as there is a common genus of impossibility.
This impossibility envisioned under the aforesaid regulation
would not include a contingency where voluntary open offer once
made can be permitted to be withdrawn on the ground that it has
now become economically unviable. Accepting such a submission,
would give a field day to unscrupulous elements in the
securities market to make Public Announcement for acquiring
shares in the Target Company, knowing perfectly well that they
can pull out when the prices of the shares have been inflated,
due to the public offer. Such speculative practices are sought
to be prevented by Regulation 27(1)(b)(c) and (d), that is
precisely the reason why Regulation 27(1)(a) was deleted. Merely
because there has not been any substantial change in the price
of shares in this particular case, would not, in any manner,
invalidate the conclusion reached in Nirma Industries (supra).
37. Last but not least, we are not able to approve the approach
adopted by SAT in adopting the Issue of Capital and Disclosure
Requirements Regulations, 2009 (ICDR) Regulation for
interpreting the provisions contained in Regulation 27 of the
Takeover Regulations. The regulations in Takeover Code have to
be interpreted by correlating these regulations to the
provisions of the SEBI Act.
38. In view of the above, the appeal is allowed. The impugned order
passed by the SAT dated 19th June, 2013 in Appeal No.3 of 2013
is set aside and the directions issued by the appellant in the
letter dated 30th November, 2012 are restored.
……………………………….J.
[Surinder Singh Nijjar]
………………………………..J.
[A.K.Sikri]
New Delhi;
April 25, 2014.
-----------------------
[1] (2013) 8 SCC 20
[2] (2004) 8 SCC 524
[3] (2010) 13 SCC 255
whether an
open offer voluntarily made through a Public Announcement for
purchase of shares of the target company can be permitted to be
withdrawn at a time when the voluntary open offer has become
uneconomical to be performed.=
The appellant by letter dated 30th November, 2012 conveyed its
comments in terms of the proviso to Regulation 16(4) of the
Takeover Regulations on the draft letter of offer. Certain
information was sought in the aforesaid letter.
No
reference was made in this letter with regard to the request
made by the respondent for permission to withdraw the open
offer.
Rather it was stated as under :
“Please note that failure to carry out the suggested changes in
the letter of offer as well as violation of provisions of the
Regulations will attract appropriate action. Please also ensure
and confirm that apart from above, no other changes are carried
out in the letter of offer submitted to us.”=
Regulation 27(1)(a) before its deletion on September 9, 2002
permitted the public offer to be withdrawn, consequent upon any
competitive bid. =
We see no reason to differ from the view taken
in Nirma Industries Ltd. (supra) wherein we have observed as
follows:
“62. A bare perusal of the aforesaid Regulations shows that
Regulation 27(1) states the general rule in negative terms.
It
provides that no public offer, once made, shall be withdrawn.
Since clause (a) has been omitted, we are required to interpret
only the scope and ambit of clauses (b), (c) and (d).
The three
sub-clauses are exceptions to the general rule and, therefore,
have to be construed very strictly.
The exceptions cannot be
construed in such a manner that would destroy the general rule
that no public offer shall be permitted to be withdrawn after
the public announcement has been made.
Clause (b) would permit a
public offer to be withdrawn in case of legal impossibility when
the statutory approval required has been refused.
Clause (c)
again provides for impossibility when the sole acquirer, being a
natural person, has died.
Clause (b) deals with a legal impossibility
whereas clause (c) deals with a natural disaster.
Clearly clauses (b) and (c) are within the same genus of impossibility.
Clause (d) also being an exception to the general rule would have to be naturally construed in terms of clauses (b) and (c).
Mr Divan has placed a great deal of emphasis on the
expression “such circumstances” and “in the opinion” to indicate
that the Board would have a wide discretion to permit withdrawal
of an offer even though it is not impossible to perform.
We are
unable to accept such an interpretation.” =
08 and 2010-11, the respondent had acquired shares in excess of
5% which breached the 5% creeping acquisition limit.
In our
opinion, the respondent was required to comply with Regulation
11 and make a Public Announcement to acquire shares in
accordance with law.
The respondent admittedly not having
complied with Regulation 11, in our opinion, the appellant was
perfectly justified in taking the non-compliance into
consideration whilst considering the feasibility of the public
offer made on 20th October, 2011.=
It is
true that under Regulation 18(2), SEBI was required to dispatch
the necessary letters to the shareholders within a reasonable
period.
It is a matter of record that the comments were not
offered for 13 months.
Such kind of delay is wholly inexcusable
and needs to be avoided. It can lead to avoidable controversy
with regard to whether such belated action is bona fide exercise
of statutory power by SEBI.
By adopting such a lackadaisical, if
not callous attitude, the very object for which the regulations
have been framed is diluted, if not frustrated. It must be
remembered that SEBI is the watchdog of the Securities Market.
It is the guardian of the interest of the shareholders.
It is
the protective shield against unscrupulous practices in the
Securities Market.
Therefore, SEBI like any other body, which is
established as a watchdog, ought not to act in a lackadaisical
manner in the performance of its duties.
The time frame
stipulated by the Act and the Takeover Regulations for
performing certain functions is required to be maintained to
establish the transparency in the functioning of SEBI.=
Ultimately, SEBI is charged
with the duty of ensuring that every public offer made is bona
fide for the benefit of the shareholders as well as acquirers.
In the present case, SEBI has found that permitting the
respondent to withdraw the public offer would be detrimental to
the overall interest of the shareholders. =
The only reason put
forward by the respondent for withdrawal of the offer is that it
is no longer economically viable to continue with the offer. =
The plain reading of the aforesaid
regulation makes it clear that no public offer whether it is
voluntary or triggered by Regulation 11 can be withdrawn, unless
it satisfies the circumstances set out in Regulation 27(1)(b), (c) and (d).
There can be no distinction between a
triggered public offer and a voluntary public offer. Both have
to be considered on an equal footing.=
In our opinion, the ejusdem generis principle
is fully applicable for the interpretation of Regulation
27(1)(b)(c) and (d) as there is a common genus of impossibility.
This impossibility envisioned under the aforesaid regulation
would not include a contingency where voluntary open offer once
made can be permitted to be withdrawn on the ground that it has
now become economically unviable.
Accepting such a submission,
would give a field day to unscrupulous elements in the
securities market to make Public Announcement for acquiring
shares in the Target Company, knowing perfectly well that they
can pull out when the prices of the shares have been inflated,
due to the public offer. Such speculative practices are sought
to be prevented by Regulation 27(1)(b)(c) and (d), that is
precisely the reason why Regulation 27(1)(a) was deleted.
Merely
because there has not been any substantial change in the price
of shares in this particular case, would not, in any manner,
invalidate the conclusion reached in Nirma Industries (supra).
37. Last but not least, we are not able to approve the approach
adopted by SAT in adopting the Issue of Capital and Disclosure
Requirements Regulations, 2009 (ICDR) Regulation for
interpreting the provisions contained in Regulation 27 of the
Takeover Regulations. The regulations in Takeover Code have to
be interpreted by correlating these regulations to the
provisions of the SEBI Act.
38. In view of the above, the appeal is allowed. The impugned order
passed by the SAT dated 19th June, 2013 in Appeal No.3 of 2013
is set aside and the directions issued by the appellant in the
letter dated 30th November, 2012 are restored.
2014 (April. Part)http://judis.nic.in/supremecourt/filename=41474
SURINDER SINGH NIJJAR, A.K. SIKRI
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6041 OF 2013
Securities and Exchange Board of India …Appellant
VERSUS
M/s. Akshya Infrastructure Pvt. Ltd. ..Respondent
J U D G M E N T
SURINDER SINGH NIJJAR, J.
1. This appeal under Section 15Z of the Securities and Exchange
Board of India Act, 1992 (the ‘SEBI Act’) is directed against
the judgment and final order of the Securities Appellate
Tribunal, Mumbai (SAT) dated 19th June, 2013 rendered in Appeal
No.3 of 2013, by which the appeal filed by M/s. Akshya
Infrastructure Private Limited – the respondent herein against
the directions issued by SEBI
on 30th November, 2012 has been allowed.
2. The fundamental issue which arises in this appeal is whether an
open offer voluntarily made through a Public Announcement for
purchase of shares of the target company can be permitted to be
withdrawn at a time when the voluntary open offer has become
uneconomical to be performed.
3. In this case, the respondent herein, M/s Akshya Infrastructure
Pvt. Ltd., is a part of the Promoter Group of MARG Limited (‘the
Target Company’). For the years 2006-07, 2007-08 and 2010-11,
the gross acquisition by the Promoter Group of shares in the
Target Company was as under :
“Financial Year Percentage Date triggered
on
2006-07 14.34% 30.03.2007
2007-08 5.64% 12.10.2007
2010-11 7.11% 19.02.2011”
As a consequence of the foregoing acquisitions, the
acquirers breached the 5% creeping acquisition limit and were
required to comply with the provisions of Regulation 11 of the
SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 (hereinafter referred to as the “Takeover
Regulations”).
4. On 20th October, 2011, the respondent made a voluntary open
offer through a Public Announcement in major National
Newspapers, under Regulation 11 of the Takeover Regulations
wherein the public shareholders of the Target Company were given
an opportunity to exit at an offer price of Rs.91/- per equity
share. This price represents a premium of 10.3% over the
average market closing price for the two weeks preceding the
Public Announcement. The tendering period was scheduled to
commence on 1st December, 2011 and conclude on 20th December,
2011. The consideration for the tendered shares was to be paid
on or before 4th January, 2012. As on the date of the open
offer, the list of Promoters/Promoter Group Entities was as
under:-
Sl. No. Name
1. Mr. G.RK. Reddy
2. Mr. G. Raghava Reddy
3. Ms. V.P. Rajini Reddy
4. Mr. G. Madhusudan Reddy
5. GRK Reddy & Cons (HUF)
6. M/s. Global Infoserve Ltd.
7. M/s. Marg Capital Markets Limited
8. M/s. Exemplarr Worldwide Limited
9. M/s. Marg Projects and Infrastructure Limited
(formerly Marg Holdings and Financial Services
Limited)
10. M/s. Akshya Infrastructure Private Limited
5. However, due to certain events, which have been highlighted by
both the parties, the respondent by letter dated 29th March,
2012 through M/s. Motilal Oswal Investment Advisors (P) Ltd.,
the Managers to the Issue (hereinafter referred to as the
“Merchant Banker”), addressed to SEBI, sought to contend that
the open offer in question had become outdated, thereby
outliving its necessity and, therefore, the same ought to be
permitted to be withdrawn. It was also contended that the
amount of Rs.17.46 crores deposited by the respondent in an
escrow account towards the open offer ought to be allowed to be
withdrawn. The letter emphasizes that the public announcement
was in nature of a voluntary open offer under Regulation 11 of
the Takeover Regulations for consolidation of shareholding of
the Promoter Group in the Target Company. The offer price of
Rs.91/- per equity share of the Target Company was aimed at
presenting a commercially reasonable opportunity to the public
shareholders to exit and at the same time it was meant to
consolidate the shareholding of the promoter in the Target
Company. It was further stated that due to the unjustified
delay by SEBI in taking a decision as to whether to approve the
draft letter of offer has rendered the entire open offer
exercise academic and meaningless. It was claimed that the
transaction envisaged by the respondent is no longer justifiable
on any ground, including the grounds of economic rationale and
commercial reasonableness. The respondent sought the withdrawal
of open offer made under the public announcement in terms of
Regulation 27 of the Takeover Regulations. The exact prayer made
by the respondent was as follows:-
“Consequently, we hereby seek withdrawal of the open offer made
under the public announcement in terms of Regulation 27 of the
Takeover Regulations (the benefit of which continue to accrue to
us in terms of Regulation 35(2) of the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 2011 “New
Takeover Regulations”). Regulation 23(1)(d) of the New Takeover
Regulations equally empowers withdrawal of an open offer.”
6. The appellant by letter dated 30th November, 2012 conveyed its
comments in terms of the proviso to Regulation 16(4) of the
Takeover Regulations on the draft letter of offer. Certain
information was sought in the aforesaid letter. No
reference was made in this letter with regard to the request
made by the respondent for permission to withdraw the open
offer. Rather it was stated as under :
“Please note that failure to carry out the suggested changes in
the letter of offer as well as violation of provisions of the
Regulations will attract appropriate action. Please also ensure
and confirm that apart from above, no other changes are carried
out in the letter of offer submitted to us.”
The aforesaid comments of SEBI were challenged by the
respondent before SAT in Appeal No.3 of 2013.
7. The respondent claimed that the impugned directions, ostensibly
in the form of comments and observations on the draft letter of
offer, reject the plea of the petitioner that the delay caused
by SEBI in clearance of the draft letter of offer, now renders
the open offer unviable and academic. Further, the impugned
directions purport to bind the appellant and thereby constitute
an order by which the respondent was aggrieved; and necessitated
the appeal before the SAT.
8. In the appeal before SAT, the respondent claimed that the
directions contained in the impugned letter of SEBI dated 30th
November, 2012, incorrectly allege that prima facie requirement
to make an open offer was triggered by the promoters and the
promoter group entities of the Target Company (Promoter Group)
under Regulation 11(1) of the Takeover Regulations on three past
occasions, viz. March 30, 2007, October 12, 2007 and February
19, 2011 (Alleged Triggers). It was further claimed that the
directions to revise the offer price, on account of the
requirement to make open offers pursuant to the alleged triggers
was illegal and without jurisdiction. It was also claimed that
the directions contained in the impugned letter has caused
severe civil consequences to the respondent. It was also claimed
that the submissions on the issues presented by the respondent
before the appellant have neither been considered nor
appreciated.
9. The appeal was contested by the appellant by filing a detailed
affidavit on 12th April, 2013. As noticed above, the aforesaid
appeal has been allowed by SAT in terms of prayer clause (a),
(b) and (c) of Para 7 of the appeal filed by the respondent,
which are as under:-
“(a) That this Hon’ble Tribunal be pleased to set aside the
Impugned Direction;
(b) That this Hon’ble Tribunal be pleased to order and direct
the respondent to allow the appellant to withdraw the open
offer without any adverse orders or directions against the
appellants or the Promoter Group;
(c) That this Hon’ble Tribunal be pleased to order and direct
the respondent to allow the appellant to withdraw the
amount of Rs.17.46 crores deposited in escrow in lieu of
the Open Offer.”
10. It was, however, made clear that SAT has not made any
observation on the merits of the issue regarding the three
alleged triggers and the contentions of the parties in this
regard were kept open. Aggrieved by the aforesaid impugned
judgment, SEBI has filed the present Civil Appeal.
11. We have heard the learned counsel for the parties at length.
12. Mr. C.U. Singh, learned senior counsel appearing for the
appellant, has submitted that the issues raised by the appellant
herein are squarely covered against the respondent by an earlier
judgment of this Court in Nirma Industries Ltd. & Anr. Vs.
Securities and Exchange Board of India[1].
13. At this stage, Mr. R.F. Nariman, learned senior counsel
appearing for the respondent, has raised certain preliminary
objections with regard to the maintainability of the appeal. He
submits that the directions issued by the SEBI are based on a
misconception of the law applicable to the peculiar facts of
this case. He submits that firstly: this is a case where the
respondent had made voluntary open offer. It was not a case of
an open offer made because of a triggered mechanism under the
Takeover Regulations; secondly: since the open offer was a pure
and simple voluntary offer, no prejudice has been caused to any
shareholder; thirdly: the present case does not fall within the
ambit of Regulation 27 of Takeover Regulations. According to
Mr. Nariman, Regulation 27 ought to be read in a manner that it
would only govern mandatory open offers and not voluntary open
offers; fourthly: SEBI has without any justification
intermingled acquisition of shares by the respondent on the
three earlier occasions in 2006-07, 2008-09 and 2009-10;
fifthly: SEBI unjustifiably and arbitrarily took 13 months to
offer comment(s) on the draft letter of offer. Even then the
clarification sought by the appellant pertained to the past
alleged triggers which had no connection with the voluntary open
offer. It is submitted that even if the case of the respondent
falls within the ambit of Regulation 27, the withdrawal is
permissible in such circumstances which in the opinion of SEBI
(the Board) merit withdrawal; sixthly: the judgment in Nirma
Industries (supra) is distinguishable; lastly: the judgment in
Nirma Industries (supra) is incorrect and needs reconsideration.
14. Mr. C.U. Singh, learned senior counsel appearing for the
appellant, has submitted that the correspondence exchanged
between the parties would show that the delay in consideration
of the letter of offer was caused by the respondent by not
giving the necessary information. He relies on the voluminous
correspondence between the parties in support of his submission
which, if necessary, shall be considered later. His second
submission is that the request for withdrawal of open offer is
to be considered strictly under the provision of Regulation 27
of the Takeover Regulations.
15. The respondent had made a Public Announcement
on 20th October, 2011 which clearly informed the public
shareholders of the Target Company that they were being given an
opportunity to exit at an offer price of Rs.91/- per equity
share, which represented a premium of 10.3% over the average
market closing price for the two weeks preceding the Public
Announcement. This Public Announcement and the Public Offer was
sought to be withdrawn on 29th March, 2012. He points out that
in the aforesaid letter; the request for withdrawal is
specifically made under Regulation 27 of the Takeover
Regulations. Therefore, Mr. Nariman cannot be permitted to, now,
submit that Regulation 27 is not applicable to the open offer in
the present case.
16. Mr. C.U. Singh then submits that the respondents have
consciously proceeded with an open offer and they have rightly
not been permitted to withdraw the same by the appellant. The
next submission of Mr. C.U. Singh is that Regulation 27 deals
with only withdrawal of ‘Public Offer’ and not withdrawal of
‘Public Announcement’. In any event, according to learned senior
counsel, submission with regard to withdrawal of Public
Announcement has been made, only, at the time of arguments
before this Court. It was neither pleaded nor raised before the
SEBI/SAT, nor even in the counter affidavit before this Court.
He next submitted that under the provisions of Regulation 27,
public offer is a rule and withdrawal is an exception. Relying
on the interpretation of Regulation 27 in Nirma Industries
Ltd.(supra), he submits that an offer can be permitted to be
withdrawn only if it becomes virtually impermissible to carry
out. Permitting public offers once made to be withdrawn on the
ground that it has become uneconomical would compromise the
integrity of the Securities Market. This would be contrary to
the scheme of the Takeover Code. Mr. C.U.
Singh then submits that there is no distinction under Regulation
27 between the voluntary open offer and mandatory open offer
which is the result of a triggered acquisition. Relying on
Regulations 11 to 14 of the Takeover Regulations,
he submits that all the different types of open offers are set
out therein. Each one of the open offers has the same effect on
shareholders and the market. Therefore, the provisions contained
in Regulation 27 have to be strictly adhered to in considering
the request for withdrawal of the open offer. It is further
submitted that the appellant had fixed the offer price under the
relevant regulations and in accordance with the law laid down by
this Court in Clariant International Ltd. & Anr. Vs. Securities
& Exchange Board of India[2].
17. According to Mr. C.U. Singh, in normal circumstances, withdrawal
can only be made under Regulation 27(1)(b), (c) and (d). He
submits that in the letter dated 29th March, 2012, the
respondent claims that the offer has become “outdated due to the
sheer efflux of time”. The second reason given is the delay in
clearance of open offer from SEBI. The letter also indicates
that the respondent does not agree with the views of the SEBI on
the fact situation. Another reason given is that “even if the
SEBI were to approve the draft letter of offer today, the open
offer exercise would be entirely academic and meaningless.”
Another reason given is that “the transaction then envisaged by
us is no longer justifiable on any ground including grounds of
economic rationale and commercial reasonableness.” All these
factors, according to Mr. C.U. Singh, will not be covered by any
of the clauses in Regulation 27(1)(b)(c)(d). He then submitted
that even if there is a delay by SEBI, the ordinary investor in
shares of the Target Company should not be made to suffer.
According to Mr. C.U. Singh, the controversy raised in the
appeal is squarely covered against the respondent by judgment of
this Court in Nirma Industries Ltd. (supra).
18. Mr. Nariman has rebutted the aforesaid submissions of Mr. C.U.
Singh. He submits that the single most important distinction
between Nirma and this case is that it pertains to a voluntary
public offer. This Court had no occasion to deal with a
voluntary public offer in Nirma Industries Ltd. (supra). In
reply to the other submissions made by Mr. C.U. Singh,
Mr. Nariman has also relied on some correspondence. He has also
relied upon a table to substantiate the submission that the law
laid down in Nirma Industries would not be applicable in the
facts and circumstances of this case. Dealing with the issue of
delay, it is submitted by Mr. Nariman that there was an
unjustifiable and inexplicable delay by SEBI in issuing its
comments on the draft letter of offer. In support of this
submission, he has relied on some correspondence.
19. He relies on letter dated October 20, 2011, whereby the
respondent made a voluntary open offer by Public Announcement
under Regulation 11 of the Takeover Regulations. He points out
that Clause 11.4 of the Public Announcement clearly states that
voluntary open offer can be withdrawn by the respondent at any
time. He then points out that on 25th October, 2011, SEBI called
upon the respondent to provide information on the changes in
shareholding and capital build up of the Target Company, along
with compliance of the SEBI Regulations. He submits that
although the information sought pertains to the earlier
acquisition it was duly provided on November 4, 2011 and
November 8, 2011. Mr. Nariman submits that under Regulation
18(1) of the Takeover Regulations, the draft letter of offer is
required to be filed with SEBI well within 14 days from the date
of the Public Announcement. Once the letter of offer is filed,
SEBI was required to dispatch the same to the shareholders
immediately after 21 days. During 21 days, SEBI is permitted to
stipulate the changes required to be made in the letter of offer
which the Merchant Banker and the Acquirer shall incorporate in
the letter of offer, before it is dispatched to the
shareholders. In case, SEBI receives a complaint or it initiates
an enquiry or investigation in respect of public offer, it can
call for a revised letter of offer. In this case, he submits
that the draft letter of offer was given on October 28, 2011
well within 14 days period stipulated under Regulation 18(1).
But SEBI did not issue its comments on the draft letter of offer
within 21 days, as required. Not only there was a non-compliance
of Regulation 18(1) but there was no occasion to
invoke proviso to Regulation 18(2). SEBI did not inform or
advise the respondent to revise the draft letter of offer on
account of any inadequacy in the disclosure made by the
respondent in the draft letter of offer in respect of the
voluntary offer. All the queries were related to the past
alleged triggers. These alleged triggers were wholly unrelated
to the voluntary open offer for which the draft letter of offer
was filed with the appellant. He then pointed out that by letter
dated 17th November, 2011, the appellant again sought the same
clarification on the alleged triggers, as stated in its letter
dated November 11, 2011. He submitted that the Merchant
Banker and the respondent provided all explanation regarding
these acquisitions on November 28, 2011. The letter dated
November 24, 2011 of the respondent was forwarded to the
appellant by the Merchant Banker on November 28, 2011. This
letter gave date wise explanation on all the issues raised as to
why no open offer was made pertaining to the alleged triggers,
as there was no violation of Regulation 11(1) and 11(2) of the
Takeover Regulations. This explanation was reiterated on
December 14, 2011 by the respondent/Promoters but there was
no response from the appellant to any of the aforesaid letters.
This led the respondent to a reasonable belief that the
explanation had been accepted. Subsequently, there was a
telephonic request by the appellant to provide the same
information on the alleged triggers in various formats. The
respondent duly re-arranged the same information
in the desired format and provided the same to the appellant on
January 13, 2012, January 16, 2012 and February 3, 2012. Inspite
of all this, still there were no comments from the SEBI. Mr.
Nariman emphasized that the unjustifiable, inexplicable and
inordinate, delay on the part of the appellant in issuing
comments on the draft letter of offer created a situation
wherein it was impossible for the respondent to implement the
voluntary open offer. By that time, the underlying decision to
consolidate shareholding had become infructuous by sheer efflux
of time. It was under these circumstances that the respondent
intimated its decision to withdraw its voluntary open offer and
sought withdrawal of the same in terms of the Regulation 27 of
the Takeover Regulations.
20. It was pointed out by Mr. Nariman that the respondent
specifically and expressly sought opportunity of a personal
hearing on the aforesaid request for withdrawal, the appellant
did not revert on the request. The respondent once again
furnished the same information on the alleged triggers in
different formats as required by the appellant through
communications dated April 12, 2012; April 20, 2012;
May 10, 2012; May 21, 2012; June 6, 2012 and July 5, 2012.
After a period of more than 13 months, from the date of filing
of the draft letter of offer and after more than 8 months from
the date of request for withdrawal, the appellant issued the
impugned letter dated November 30, 2012. Mr. Nariman points out
that the directions issued in the impugned letter are wholly
unjustified. He points out to the following two directions :-
(a) Go ahead with the voluntary open offer on account of some
alleged triggers (for creeping acquisitions under Regulation 11
of the Takeover Code, 1997) in the past i.e. 2006-07; 2007-08
and 2010-11.
(b) make an open offer with upward revision in price per share.
The share prices offered by the respondent in 2009 were RS.91.00
per equity share and as on date the prices is RS.315.90 per
equity share.
21. Mr. Nariman submitted that SAT without going into the merits and
demerits of the alleged earlier acquisitions, has left it open
for SEBI to take appropriate action in accordance with law with
regard to the aforesaid three acquisitions. Therefore, clearly
the aforesaid three acquisitions have no connection whatsoever
with the voluntary offer under consideration in these
proceedings.
22. The next submission of Mr. Nariman is the foundation of all his
other submissions. According to Mr. Nariman, there is a
fundamental difference between a mandatory public offer and a
voluntary open offer. It cannot be placed on the same pedestal.
According to learned senior counsel, in a mandatory public offer
there exists an underlying transaction which triggers the
Takeover Code under which the shareholders obtain a right to
exit from the company. However, in a voluntary open offer, no
such right accrues to the shareholders to exit the company,
since the offer is not the result of a triggered acquisition. In
the present case, the action of SEBI, according to Mr. Nariman,
is contrary to Regulation 18. The letter of offer was not
dispatched to the shareholders as per Regulation 18(1).
Regulation 15(4) deems that the offer is made on the date on
which the Public Announcement has appeared in any newspaper. But
according to Mr. Nariman, this deeming fiction is for the
purpose of price fixation for the offer. It has nothing to do
with Regulation 18 which is to dispatch the actual offer to the
shareholders. Therefore, according to Mr. Nariman, reliance
placed by Mr. C.U. Singh on the expression “offer once made” in
Regulation 27 is misconceived. This expression has to be
understood in terms of Regulation 18. Since Regulation 18 had
not been complied with and there was no dispatch of the letter
of offer to the shareholders, there was no question of any
prejudice being caused to the interest of the shareholders. Mr.
Nariman then submits that because of the inaction on the part of
SEBI, the respondent would be squarely covered under Regulation
27(1)(b). The approval of the letter of offer by the appellant
is statutory in nature. Since it had not been granted within the
stipulated period of time, the respondent was entitled to assume
that it had been refused. According to Mr. Nariman, it has been
erroneously submitted by Mr. C.U. Singh that the claim of the
respondent is not covered under Regulation 27(1)(b). Mr. Nariman
then submits that the judgment in Nirma Industries is not
applicable in the facts and circumstances of this case. Finally,
he has submitted that the judgment in Nirma Industries (supra)
requires reconsideration. In support of this submission, he
submits that Regulation 27 has to be interpreted by keeping in
mind the earlier Regulation 27(1)(a). In Nirma Industries, this
Court has held that Regulation 27 (b), (c) and (d) are all
in the nature of impossibility. Mr. Nariman
made a mention about Regulation 27(1)(a) which was omitted by
the SEBI (Substantial Acquisition of Shares and Takeovers)
(Second Amendment) Regulations, 2002 with effect from September
9, 2002. Prior to deletion, it read as under :
“-(a) the withdrawal is consequent upon any competitive bid,”
Based on this, he submits that economic viability of public
offer was the genus of Regulation 27. The facts of this case
would clearly place the request of the respondent for withdrawal
of the public offer in the realm of impossibility. Mr.
Nariman has submitted that for the interpretation of Regulation
27, the ejusdem generis principle would not apply as there is no
common genus between Clauses 27(1)(b)(c) and (d).
23. Mr. C.U. Singh in rejoinder has submitted that in view of the
law laid down in Nirma Industries, the public offer made by the
respondent cannot be permitted to be withdrawn. Earlier
incidence of the alleged triggers can be relied upon. According
to him, the price has to be fixed on the basis of the public
announcement/offer. He submits that Regulation 18(1) talks of 14
days of the Public Announcement. Furthermore, public offer
cannot be said to be made only on dispatch of the letter of
offer to the individual shareholders. The impact on the
securities market would follow the public announcement. He
reiterates that even the withdrawal letter seeks permission to
withdraw the Public Offer under Regulation 27. Finally, he
submits that the interpretation of Regulation 27 rendered in
Nirma Industries Ltd. (supra) is correct. It fully applies to
the facts of the present case. It is neither distinguishable nor
does it require reconsideration.
24. We have considered the submission made by the learned counsel
for the parties.
25. Factually, it cannot be denied that in the years 2006-07, 2007-
08 and 2010-11, the respondent had acquired shares in excess of
5% which breached the 5% creeping acquisition limit. In our
opinion, the respondent was required to comply with Regulation
11 and make a Public Announcement to acquire shares in
accordance with law. The respondent admittedly not having
complied with Regulation 11, in our opinion, the appellant was
perfectly justified in taking the non-compliance into
consideration whilst considering the feasibility of the public
offer made on 20th October, 2011.
26. With regard to delay, we do not find much substance in the
submission of Mr. C.U. Singh. Mr. Singh has sought to explain
the delay on the ground that information sought by the appellant
was not given by the respondent. In our opinion, this was no
ground for the appellant to delay the issuance of comments on
the letter of offer, especially not for a period of 13 months.
In the event the information was not forthcoming, the appellant
had the power to refuse the approval of the public offer. It is
true that under Regulation 18(2), SEBI was required to dispatch
the necessary letters to the shareholders within a reasonable
period. It is a matter of record that the comments were not
offered for 13 months. Such kind of delay is wholly inexcusable
and needs to be avoided. It can lead to avoidable controversy
with regard to whether such belated action is bona fide exercise
of statutory power by SEBI. By adopting such a lackadaisical, if
not callous attitude, the very object for which the regulations
have been framed is diluted, if not frustrated. It must be
remembered that SEBI is the watchdog of the Securities Market.
It is the guardian of the interest of the shareholders. It is
the protective shield against unscrupulous practices in the
Securities Market. Therefore, SEBI like any other body, which is
established as a watchdog, ought not to act in a lackadaisical
manner in the performance of its duties. The time frame
stipulated by the Act and the Takeover Regulations for
performing certain functions is required to be maintained to
establish the transparency in the functioning of SEBI.
27. Having said this, we are afraid such delay is of no assistance
to the respondent. It will not result in nullifying the action
taken by SEBI, even though belated. Ultimately, SEBI is charged
with the duty of ensuring that every public offer made is bona
fide for the benefit of the shareholders as well as acquirers.
In the present case, SEBI has found that permitting the
respondent to withdraw the public offer would be detrimental to
the overall interest of the shareholders. The only reason put
forward by the respondent for withdrawal of the offer is that it
is no longer economically viable to continue with the offer. Mr.
Nariman has referred to a tabular statement and data to show
that there is no substantial variation in the share prices that
ensued making of the public offer. Having seen the table, we
find substance in the submission of Mr. Nariman
that there is hardly any variation in the shares of the Target
Company from 20th October, 2011 till 30th
November, 2011. The variation seems to have been between Rs.
78.10 (on 24.11.2011) and Rs. 87.60 (on
20.10.2011). Such a variation cannot be said to be the result of
the public offer. But this will not detract from the well known
phenomena that Public Announcement of the public offering
affects the securities market and the shares of the Target
Company. The impact is immediate.
28. We are unable to agree with the submission of Mr.
Nariman that Regulation 27 would not be applicable to a
voluntary public offer. A perusal of Regulation 27(1) makes it
patently clear that Regulation 27(1) reads “no public offer,
once made, shall not be withdrawn except under the following
circumstances.” Accepting Mr. Nariman’s submission would be to
reconstruct the aforesaid provision. This Court, or any other
court, whilst construing the statutory provision cannot
reconstruct the same. The plain reading of the aforesaid
regulation makes it clear that no public offer whether it is
voluntary or triggered by Regulation 11 can be withdrawn, unless
it satisfies the circumstances set out in Regulation
27(1)(b), (c) and (d). There can be no distinction between a
triggered public offer and a voluntary public offer. Both have
to be considered on an equal footing. We find substance in the
submission made by Mr. C.U. Singh that Regulation 18(2) has no
relevance to the case projected by the respondents having
singularly failed to give the necessary information to SEBI with
regard to the earlier three acquisitions.
29. We also do not agree with Mr. Nariman that
Regulation 27 has to be read in the context of the Regulation as
it existed when it was first enacted. As noticed earlier,
Regulation 27(1)(a) before its deletion on September 9, 2002
permitted the public offer to be withdrawn, consequent upon any
competitive bid. We see no reason to differ from the view taken
in Nirma Industries Ltd. (supra) wherein we have observed as
follows:
“62. A bare perusal of the aforesaid Regulations shows that
Regulation 27(1) states the general rule in negative terms. It
provides that no public offer, once made, shall be withdrawn.
Since clause (a) has been omitted, we are required to interpret
only the scope and ambit of clauses (b), (c) and (d). The three
sub-clauses are exceptions to the general rule and, therefore,
have to be construed very strictly.
The exceptions cannot be
construed in such a manner that would destroy the general rule
that no public offer shall be permitted to be withdrawn after
the public announcement has been made.
Clause (b) would permit a
public offer to be withdrawn in case of legal impossibility when
the statutory approval required has been refused.
Clause (c)
again provides for impossibility when the sole acquirer, being a
natural person, has died.
Clause (b) deals with a legal
impossibility
whereas clause (c) deals with a natural disaster.
Clearly clauses (b) and (c) are within the same genus of
impossibility.
Clause (d) also being an exception to the general
rule would have to be naturally construed in terms of clauses
(b) and (c).
Mr Divan has placed a great deal of emphasis on the
expression “such circumstances” and “in the opinion” to indicate
that the Board would have a wide discretion to permit withdrawal
of an offer even though it is not impossible to perform.
We are
unable to accept such an interpretation.”
30. The submission with regard to the non-applicability of ejusdem
generis for interpretation of the Takeover Regulations has been
considered and rejected in Nirma Industries Ltd. (supra)
(Paragraphs 63 to 71).
31. We are also not impressed by the submission of
Mr. Nariman that it has now become economically impossible to
give effect to the public offer. This very submission has been
rejected in Nirma Industries Ltd. (supra). We reiterate our
opinion in Nirma Industries Ltd. (supra) that under
Clause 27(1)(b)(c) and (d), a Public Offer, once made, can only
be permitted to be withdrawn in circumstances which make it
virtually impossible to perform the Public Offer. In fact, the
very purpose for deleting Regulation 27(1)(a) was to remove any
misapprehension that an offer once made can be withdrawn if it
becomes economically not viable. We are of the considered
opinion that the distinction sought to be made by Mr. Nariman
between a voluntary public offer and a triggered public offer is
wholly misconceived. Accepting such a submission would defeat
the very purpose for which the Takeover Code has been enacted.
32. We also do not find any merit in the submission of Mr.
Nariman that the delay of 13 months by SEBI in issuing the
impugned directions would permit the respondent to withdraw the
Public Offer under Regulation 27(1)(b). The consideration by
SEBI is as to whether a Public Offer is in conformity with the
provisions of the SEBI Act and the Takeover Regulations. Delay
in performance of its duties by SEBI can not be equated to
refusal of the statutory approval requires from other
independent bodies, such as under the RBI, Taxation Laws and
other regulatory statutes including Foreign Exchange
Regulations. Delay by SEBI in taking a final decision in making
its comments on the letter of offer would not fall under
Regulation 27(1)(b).
33. This now brings us to the submission of Mr. Nariman that there
was a breach of Rules of Natural Justice. It is matter of record
that the respondent had asked for an opportunity of hearing but
none was granted. But the question that arises is as to whether
this is sufficient to nullify the decision of SEBI. In our
opinion, the respondent has failed to place on the record either
before SAT or before this Court the prejudice that has been
caused by not observing Rules of Natural Justice. It is by now
settled proposition of law that mere breach of Rules of Natural
Justice is not sufficient. Such breach of Rules of Natural
Justice must also entail avoidable prejudice to the respondent.
This reasoning of ours is supported by a number of cases. We
may, however, refer to the law laid down in Natwar Singh Vs.
Director of Enforcement & Anr.,[3] wherein it was held that
“there must also have been caused some real prejudice to the
complainant; there is no such thing as a merely technical
infringement of natural justice.”
34. All the information sought by SEBI related to the three earlier
acquisitions when the creeping limit for acquisition has been
breached for triggering the mandatory Takeover Regulations. In
appeal, SAT has left the question with regard to the earlier
three acquisitions open and to be decided in accordance with
law. Therefore, clearly no prejudice has been caused to the
respondent.
35. Finally, we are unable to accept the submission of Mr.
Nariman that the ratio of law as declared in Nirma Industries
Ltd. (supra) would not be applicable to the facts and
circumstances of this case. As pointed out earlier, we do not
accept the distinction sought to be made by Mr. Nariman with
regard to voluntary open offer and mandatory open offer which is
the result of a triggered acquisition. The consequences of both
kinds of offers to acquire shares in the Target Company, at a
particular price, are the same. As soon as the offer price is
made public, the securities market would take the same into
account in all transactions. Therefore, the withdrawal of the
open offer will have to be considered by the Board in terms of
Regulation 27(1)(b)(c) and (d). Further, the deletion of
Regulation 27(1)(a) does not, in any manner, advance the case of
the respondent. It rather reinforces the conclusion that an open
offer once made can only be withdrawn in circumstances
stipulated under Regulation 27(1)(b)(c) and (d). We also do not
agree with Mr. Nariman that voluntary open offer made by the
respondent ought to be permitted to be withdrawn under
Regulation 27(1)(b) for the reasons already stated. We have
already come to the conclusion that the delay in offering
comments by the Board on the letter containing voluntary open
offer, though undesirable, is not fatal to the decision
ultimately taken by the Board. We, therefore, reiterate our
conclusion in Nirma Industries (supra).
36. We also do not find substance in the submission of Mr.
Nariman that the judgment in Nirma Industries (supra) needs
reconsideration. In our opinion, the ejusdem generis principle
is fully applicable for the interpretation of Regulation
27(1)(b)(c) and (d) as there is a common genus of impossibility.
This impossibility envisioned under the aforesaid regulation
would not include a contingency where voluntary open offer once
made can be permitted to be withdrawn on the ground that it has
now become economically unviable. Accepting such a submission,
would give a field day to unscrupulous elements in the
securities market to make Public Announcement for acquiring
shares in the Target Company, knowing perfectly well that they
can pull out when the prices of the shares have been inflated,
due to the public offer. Such speculative practices are sought
to be prevented by Regulation 27(1)(b)(c) and (d), that is
precisely the reason why Regulation 27(1)(a) was deleted. Merely
because there has not been any substantial change in the price
of shares in this particular case, would not, in any manner,
invalidate the conclusion reached in Nirma Industries (supra).
37. Last but not least, we are not able to approve the approach
adopted by SAT in adopting the Issue of Capital and Disclosure
Requirements Regulations, 2009 (ICDR) Regulation for
interpreting the provisions contained in Regulation 27 of the
Takeover Regulations. The regulations in Takeover Code have to
be interpreted by correlating these regulations to the
provisions of the SEBI Act.
38. In view of the above, the appeal is allowed. The impugned order
passed by the SAT dated 19th June, 2013 in Appeal No.3 of 2013
is set aside and the directions issued by the appellant in the
letter dated 30th November, 2012 are restored.
……………………………….J.
[Surinder Singh Nijjar]
………………………………..J.
[A.K.Sikri]
New Delhi;
April 25, 2014.
-----------------------
[1] (2013) 8 SCC 20
[2] (2004) 8 SCC 524
[3] (2010) 13 SCC 255
