BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No.134 of 2011 Date of Decision: 21.11.2011
- Mr. Raghu Hari Dalmia
- Mrs. Padma Dalmia
- Mr. Mridu Hari Dalmia
- Mrs. Abha Dalmia
- Sharmila Dalmia Parivar Trust
- Mr. Gaurav Dalmia
- Kanupriya Trust
- Devanshi Trust
- Aryamanhari Trust
- Aanyapriya Trust
- Raghu Hari Dalmia Parivar Trust
- Ms. Vrinda Dalmia
- Gautam Dalmia HUF
- Vasumana Trust
- Mrs. Kanupriya Somany
- Raghu Hari Dalmia HUF
- Mridu Hari Dalmia HUF
- Mridu Hari Dalmia Parivar Trust
4, Scindia House,
New Delhi – 110001. - Mrs. Usha Devi Jhunjhunwala
59, Mumbai Samachar Marg,
Mumbai – 400 001. - Ms. Rasalika Dalmia
- Ms. Saudamini Dalmia
P.S. Site No.3, Institutional Area
Sector D, Pocket -3, Vasant Kunj
New Delhi – 110 070.….. Appellants
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A,
G-Block, Bandra Kurla Complex,
Mumbai – 400 051.
…...Respondent Mr. Janak Dwarkadas, Senior Advocate with Mr. Ankit L ohia, Mr. Sharad Vaid,
Mr. Chakrapani Misra, Ms. Suruchi Rungl a and Ms. Meghna Rajadhyaksha, Advocates
for Appellants.
Mr. Vikram Nankani, Advocate with Mr. Ab hishek Punglia and Ms. Aparna Kalluri,
Advocates for the Respondent.
CORAM : Justice N. K. Sodhi, Presiding Officer
P.K. Malhotra, Member
S.S.N. Moorthy, Member
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Per : Justice N. K. Sodhi, Presiding Officer
The appellants herein are the promot ers/members of promoter group of OCL
India Ltd., a company incorporated under th e Companies Act, 1956 having its registered
office in the State of Orissa. It shall be referred to hereinafter as the company. Its equity
shares are listed on the National Stock Exch ange of India Limited and on the Bombay
Stock Exchange Limited, Mumbai. On February 24, 2003 the company announced a
scheme to buy back its equity shares up to a maximum of 11,83,708 fully paid up shares
of the face value of 10 each representing 16.59 per cent of its issued and paid up capital at a price of 80 per share. As per the buy back scheme, the shareholders were
given an option of tendering their shares to the company. The letter of offer issued in this
regard specifically states that the promoters would not participate in the buy back. The
buy back offer opened on March 14, 2003 and closed on April 7, 2003. When the buy
back scheme was announced, the appellants (promoters of the company) held 44,64,770
equity shares representing 62.56 per cent of the paid up equity capital of the company and
they were in control of the company. The buy back was successful and the company
bought back 11,83,708 equity shares as a result whereof the percentage shareholding of
the appellants in the company increased from 62.56 per cent to 75 pe r cent of the total
paid up capital. This increase in the voting rights was not a consequence of any
acquisition of shares or voting rights by th e appellants but was only a passive increase
incidental to the buy back of shares by the co mpany. As a result of this increase, there
was no change in the control of the company which was already with the appellants. The
Securities and Exchange Board of India (f or short the Board) did not receive any
complaint against the buy back or against the consequent increase in the percentage of
shareholding of the appellants nor did it raise on its own any objections while processing
the buy back offer document of the company. One Jindal Securities Private Limited filed
on October 9, 2006 a writ petition in the Delh i High Court against the company stating
that due to the increase in the percentage shareholding of the promoters/appellants from
62.56 per cent to 75 per cent pursuant to the buy back offer, the promoters/appellants had
triggered regulations 11(1) a nd 11(2) of the Securities a nd Exchange Board of India
(Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred
to as the takeover code) and that they were required to make a public announcement to
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acquire shares in accordance with the takeover code. The writ peti tion was disposed of
by the High Court on February 7, 2007 with a direction to the Board to treat the same as a
representation on behalf of the petitioner therein and deal with it in accordance with law.
It was thereafter that the Board issued to the appell ants a show cause notice dated
July 17, 2007 alleging that they had to make a public announcement to acquire shares
from the shareholders of the company and not having made a public offer, they violated
regulation 11(1) of the takeover code. The appellants were called upon to show cause
why they should not be directed to make an offer to the shareholders for acquiring shares
in accordance with the takeover code. The appellants filed their detailed reply dated
August 24, 2007 denying that they had violated regulation 11(1) of the takeover code and
took the plea that they had not acquired a ny additional share or voting right in the
company and, therefore, regula tion 11(1) of the takeover code was not attracted. After
affording an opportunity of hearing to the appellants, the whole time member by his order
of January 28, 2010 held that the provisions of regulation 11(1) as they then stood had
been violated and having regard to the fact that the market price of the scrip of the
company was much more than the offer price, the shareholders of the company would not
benefit from the public announcement. Instead of directing the appellants to make a
public announcement as was contemplated in the show cause notice, he initiated
adjudication proceedings against them for vi olating the aforesaid provisions of the
takeover code. This is what he said in para 9 of his order:
“Having held so, I note that the acquire rs are the promoters of the target
company having control over it and the increase in their shareholding was
consequential to the buy back of shar es by the target company. The said
buy back took place in the year 2003. I also note that the share price of
the target company was in the range of Rs.40/- (low price in
September 2002) to Rs.77/- (high pri ce during March 2003) as compared
to the present market price which is around Rs.134.90 as on
January 25, 2010. The share prices of the target company mentioned
above are as per the information provided in the website of the Bombay
Stock Exchange Limited. The pricing formula as specified in the
Takeover Regulations when applied to the present case, would not benefit
the shareholders. Considering the case in its totality, I do not consider the
present case, a fit one to direct the ac quirers to make a public offer to the
shareholders of the target company, as inter alia contemplated in the show
cause notice. However, as the acqu irers had violated the provisions of
Regulation 11(1) [as it stood as on the date of acquisition] of the Takeover
Regulations in respect of the aforesaid acquisition of voting rights, I am of
the view that the ends of justice wo uld be met if adjudication proceedings
are initiated against the acquirers, in respect of the said violations, as
ordered hereinbelow.”
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Feeling aggrieved by the afor esaid order, the appellants filed Appeal no.55 of 2010
before this Tribunal which came up for our consideration on October 26, 2010. On a
suggestion made by us, the appellants in that a ppeal agreed to make an application to the
Board seeking exemption from the provisions of the takeover code under
regulation 3(1)(l). The Board through its couns el also agreed to consider the same in
accordance with law. We did not examin e the issue whether regulation 11(1) was
attracted or not. The appeal was accordingly disposed with a direc tion to the Board to
consider the application seeking exemption. That application has now been rejected by
the whole time member by his order dated July 19, 2011 on the ground that he has no
power to grant exemption from the provisions of the takeover code post acquisition. It is
against this order that the present appeal has been filed.
- We have heard Shri Janak Dwarkadas, l earned senior counsel for the appellants
and Shri Vikram Nankani learned counsel for the Board. The facts as stated hereinabove
are not disputed. It is the case of the appellants that regulation 11(1) of the takeover code
did not get triggered in the instant case as the appellants had ma de no acquisition of
shares or voting rights and that it was only as a consequence of the buy back that their
voting rights increased. It was also argued on behalf of the appellants that the whole time
member was in error in holding that the Board had no power to grant exemption from the
provisions of the takeover code after the ac quisition. According to the Board, regulation
11(1) was applicable to the facts of the pres ent case and that the a ppellants had violated
the same since they did not come out with a public announcement to acquire shares in
accordance with the takeover code. The learned counsel for the Board also relied upon
the words “proposed acquisition” appearing in regulation 4(2) of the takeover code and
argued that an application seeking exempti on could be filed only before acquiring the
voting rights. - Before we deal with the ri val contentions of the parties it is necessary to refer to
the relevant provisions of the takeover code which concern us. Re gulation 2(b) defines
an acquirer and regulations 3 and 4 deal with situations where regulation 11 of the
takeover code would not apply. Regulation 11(1) deals with creeping acquisition and all
these provisions are reproduced hereunder for facility of reference.
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“2. (1) In these Regulations, unless the context otherwise requires:—
(a) ……………
(b) “acquirer” means any person who, di rectly or indire ctly, acquires or
agrees to acquire shares or voting rights in the target company, or acquires
or agrees to acquire control over the target company, either by himself or
with any person acting in concert with the acquirer;
………………..
Applicability of the regulation.
- (1) Nothing contained in regulations 10, 11 and 12 of these regulations
shall apply to:
(a) to (ka) ……………………………
(l) other cases as may be exempted from the applicability of Chapter III by
the Board under regulation 4.
………………..
Takeover panel. - (1) The Board shall for the purposes of this regulation constitute a panel
of majority of independent persons fr om within the categories mentioned
in sub-section (5) of section 4 of the Act.
(2) For seeking exemption under clau se (1) of sub-regulation (1) of
regulation 3, the acquirer shall file an application supported by a duly
sworn affidavit with the Board, giving details of the proposed acquisition
and the grounds on which the exemption has been sought.
(3) The acquirer shall, along with the applicatio n referred to under
sub-regulation (2), pay a fee of fifty thousand rupees to the Board, either
by a banker‘s cheque or demand draft in favour of the Securities and
Exchange Board of India, payable at Mumbai.
(4) The Board shall within 5 days of the receipt of an application under
sub-regulation (2) forward the application to the panel.
(5) The panel shall within 15 days from the date of receipt of application
make a recommendation on the application to the Board.
(6) The Board shall after afford ing reasonable opportunity to the
concerned parties and after considering all the relevant facts including the
recommendations, if any, pass a reas oned order on the application under
sub-regulation (2) within 30 days thereof.
(7) The order of the Board under sub -regulation (6) shall be published by
the Board.
………………………..
Consolidation of holdings. - (1) No acquirer who, together with persons acting in concert with him,
has acquired, in accordance with the pr ovisions of law, 15 per cent or
more but less than 75% of the shares or voting rights in a company, shall
acquire, either by himsel f or through or with pe rsons acting in concert
with him, additional shares or voting rights entitling him to exercise more
than 5 per cent of the voting rights, in any fi nancial year ending on
31st March unless such acquirer make s a public announcement to acquire
shares in accordance with these regulations.” - On a consideration of the aforesaid pr ovisions we are in agreement with the
learned senior counsel for the appellants th at regulation 11(1) of the takeover code was
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not attracted to the facts of the present case a nd that they were not required to come out
with a public announcement. Regulation 11(1) is applicable to an acquirer who acquires
additional shares or voting rights in a comp any by himself or through or with persons
acting in concert with him. The word “acquire” as used in regulation 11(1) is a verb and
according to Black’s Law Dictionary (Sixth Edition) it means “To gain by any means,
usually by one’s own exertion; to get as one’s own; to obtain by search, endeavor
investment, practice or purchase”. In this context the word ‘acquire’ implies acquisition
of voting rights through a positive act of the acquirer with a view to gain control over the
voting rights. In the case before us, it is the admitted position of the parties that the
appellants (promoters of the company) did no t participate in the buy back and that there
was no change in their shareholding. The per centage increase in their voting rights was
not by reason of any act of theirs but was in cidental to the buy back of shares of other
shareholders by the company. Such a passi ve increase in the pr oportion of the voting
rights of the promoters of the company will not attract regulation 11(1) of the takeover
code. The argument of the learned counsel fo r the Board that merely because there is
increase in the voting rights of the appellants, regulation 11 (1) gets triggered cannot be
accepted. He also referred to the definition of ‘acquirer’ in regulation 2(b) of the
takeover code and strenuously contended that a passive acquisiti on of the kind we are
dealing with is indirect acqui sition and, therefore, the provi sions of regulation 11(1) are
attracted. We have no hesitation in rejecting this argument outright. The words ‘directly’
and ‘indirectly’ in the definition of ‘acqui rer’ go with the pers on who has to acquire
voting rights by his positive act and if such acquisition comes within the limits prescribed
by regulation 11(1) it would only then get attracted. Passive acquisition as in the present
case cannot be regarded as indirect acquisiti on as was sought to be contended on behalf
of the Board. If the argument of the learne d counsel for the Board were to be accepted
that mere increase in the voting rights w ould attract regulation 11(1), it would not only
lead to absurd results but would make the pr ovisions of the takeove r code unworkable.
We may illustrate. The provisions of the takeover code apply to both promoters and
non-promoters of a company. Regulation 14 (1) of the takeover code requires the
merchant banker of the acqui rer to make a public announcem ent within four working
days of “an agreement for ac quisition of shares or voting rights or deciding to acquire
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shares or voting rights.” An increase in percentage shareholding of a non-promoter
pursuant to a buy back scheme or forfeiture of shares of other shareholders would lead to
a situation where a non-prom oter may not know as to when the takeover code gets
triggered as non-promoters have no access to the records of a company regarding the
number of shares tendered from time to time . This would make it impossible for such a
person to make a public announcement within f our working days of the takeover code
getting triggered. Again, a non-promoter shar eholder may increase his percentage of
shareholding without participating in the buy back over which he has no control. In such
an event he would be burdened with an onerous liability to make a public announcement.
It is well settled principle of law that a pr ovision ought not to be interpreted in a manner
which may impose upon a person an obligation which may be highly onerous or require
him to do something which is impossible for no ac tion of his. In this view of the matter,
we are of the firm opinion that passive acq uisition does not attract the provisions of
regulations 11(1) of the takeover code.
In view of our finding that regulation 11(1) was not attr acted to the facts of the
present case, it is not necessa ry for us to go into the ques tion whether the Board has the
power to grant exemption to an acquirer fr om the provisions of the takeover code post
acquisition.
In the result, the appeal is allowed, order dated January 28, 2010 set aside and
prayers (i), (iii) and (iv) in para 6 of the memorandum of ap peal granted. Consequently,
the order dated July 19, 2011 has become infructuous. Parties shall bear their own costs.
Sd/-
Justice N.K.Sodhi
Presiding Officer
Sd/-
P.K. Malhotra
Member
Sd/- S.S.N. Moorthy
Member
21.11.2011
Prepared and compared by
RHN
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