BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No.139 of 2011 Date of Decision: 1.6.2012
Rajesh Toshniwal
Taher Mansion, 2nd Floor,
8, Bentinck Street, Kolkata – 700 001.
…Appellant
Versus - Securities and Exchange Board of India
SEBI Bhavan, Plot No.C4A, G Block,
Bandra Kurla Complex,
Bandra (East), Mumbai – 400 051. - Mr. G.R. Surana
No.2, Vimala Street, Ayyavoo Colony,
Aminjikarai, Chennai – 600 029. - Mr. Shantilal Surana
New Door No.23, Old Door No. 13A,
Mandapam Road, Kilpauk, Chennai – 600 010. - Mr. Vijayraj Surana
Flat No.2D, IInd Floor, ‘Orchid Villa’,
15 Harrington Road, 6th Avenue Corner,
Chetpet, Chennai – 600 031. - Mr. Dineshchand Surana
New No.49, Old No.A-34,
“A” Block, 6th Street, Anna Nagar East,
Chennai – 600 102. - Mrs. Chandanbala Surana
No.2, Vimala Street, Ayyavoo Colony,
Aminjikarai, Chennai – 600 029. - Mrs. Saraladevi Surana
New Door No.23, Old Door No. 13A,
Mandapam Road, Kilpauk, Chennai – 600 010. - Mrs. Alka Surana
Flat No.2D, IInd Floor, ‘Orchid Villa’,
15 Harrington Road, 6th Avenue Corner,
Chetpet, Chennai – 600 031. - Mrs. Vasantha Surana
New No.49, Old No.A-34,
“A” Block, 6th Street, Anna Nagar East,
Chennai – 600 102.…RespondentsMr. Zal Andhyarujina, Advocate with Mr. Deepak Dhane, Advocate for the Appellant.
Mr. Kumar Desai, Advocate with Ms. Harshada Nagare, Advocate for Respondent no.1.
Mr. P.N. Modi, Advocate with Mr. Ajai Achuthan, Advocate for Respondents no.2 to 9.
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CORAM : P. K. Malhotra, Member & Presiding Officer (Offg.)
S.S.N. Moorthy, Member
Per : S.S.N. Moorthy
The appellant was a shareholder in M/s. Surana Industries Ltd. (for short the
company) which is listed on the Bombay Stock Exchange (BSE), National Stock Exchange
of India Limited (NSE) and Madras Stock Exchange Limited (MSE). The appeal is directed
against a decision of the Securities and Exchange Bo ard of India (for short the Board)
conveyed by Assistant General Manager, Corporate Finance Department, Division of
Corporate Restructuring. The decision which is impugned in this appeal relates to a petition
filed by the appellant for payment of enhanced offer price in the case of open offer of the
shares of the company.
- When the appeal was taken up for hearing the learned counsel for the Board raised a
preliminary objection regarding maintainability of the appeal. According to him, the
impugned order does not qualify to be an ‘order’ falling within section 15T of the Securities
and Exchange Board of India, 1992 (for short the Act) and is, therefore, not appealable. It is
submitted that the decision which is challenged is in the form of a communicatio n, by which
a prayer made by the appellant has been disposed of. The Board receives several
complaints/requests on a day to day basis and they are disposed of by the concerned
departments by way of appropriate replies in the form of communication and such replies do
not constitute ‘order’ qualifying to be appealed against as laid down under section 15T of
the Act. It is also argued that similar orders do not adversely affect the rights of the parties
and, therefore, they do not fall within the category of appealable orders. According to the
learned counsel for the Board, the person whose complaint/request is disposed of by way of
suitable replies cannot be regarded as a ‘person aggrieved’. - Learned counsel for the appellant submitted that the impugned communication
cannot be regarded as the disposal of a routine compla int/request in as much as it raises
major questions of law and that rights of the appellant have been adversely affected. - We have considered this issue. It has been held by this Tribunal in several cases that
a communication/decision conveyed to a person is in the nature of an ‘ order’ if it affects the
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rights of the party. The decision conveyed after due consideration of the issue raised by a
person may not be couched in the form of a quasi judicial order. Nevertheless , it has to be
regarded as an ‘order’ falling within the provisions of section 15T of the Act if it affects the
rights of the parties. In the present case, we are of the view that a prima facie case affecting
the rights of the appellant has been made out. The impugned decision is a communication
by which the request of the appellant for enhanced offer price in the open offer of the
company has been denied. At the threshold, this affects the rights of the appellant to obtain
higher price for the shares. In this view of the matter, the impugned decision falls within the
ambit of section 15T of the Act. Therefore , it is taken as an ‘appealable order’ and the
objection raised by the learned counsel for the Board is over ruled.
- The principal issue in this appeal relates to interpretation of a few provisions of
Securities and Exchange Board (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 (for short the ta keover regulations). The brief fact s of the case are the
following. The appellant was a shareholder of the company. Respondents no.2 to 9 are part
of the promoter group of the company. On March 3, 2007 the acquirers were allotted 30 lac
share warrants of150 each which were optionally convertible to an equal number of shares at a premium of140 per share. They paid a sum of33,09,45,000 between August 21, 2008 and September 1, 2008 toward s the balance amount payable by them for conversion of the said share warrants and infor med the company about the intent ion to exercise the option to convert the share warrants into equity shares. As a result , the acquirers were allotted 30 lac equity shares of the company on September 1, 2008. The shareholding of the acquirers went up from 43.15 per cent to 51.62 per cent. The increase of 8.74 per cent triggered regulation 11(1) read with 14(2) of the takeover regulations and the acquirers were obliged to make a public announcement. There was delay in making the statutory public announcement. The public announcement was made on March 25, 2009 on which the Board issued an observation letter. The offer opened on December 31, 2009 and closed on February 1, 2010. The acquirers bought 7,14,370 shares in the open offer and they were transferred to the their account on March 4, 2010. Completion report was filed by the merchant bankers on March 10, 2010. The offer price was150 per share with interest of17.70 per share. The acquirers were also allotted 70 lac share warrants on August 29, 2008 which were optionally convertible into equity shares of10 at a premium of ` 290
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per share. The acquirers exercised the option for conversion o f the above warrants by
paying the consideration between February 17, 2010 and February 26, 2010. The company
allotted equity shares to the acquirers on February 28, 2010. In this process also the
shareholding of the acquirers increased from 51.61 per ce nt to 64.09 per cent and according
to the appellant the requirements of regulation 11(1) read with 14(2) of the takeover
regulations got triggered. There was no public announcement as contemplated in the
aforesaid regulations. The appellant informed the Board by way of several communications
the failure of the acquirers to comply with the provisions of takeover regulations. As a
result of protracted correspondence by the appellant with the Board , a show cause notice
was issued to the acquirers. At this juncture , the company came out with a public
announcement on June 14, 2010. This was , admittedly, delayed. On this occasion, the
appellant addressed a communication to the Board claiming that he should be given the
benefit of the higher off er price of 300 per share since the second acquisition had taken place within 6 months from February 1, 2010 i.e. the date of closure of the first open offer. The appellant also requested the Board to keep the second open offer in abeyance pending decision on enhan ced payment to the appellant and to undertake investigation into the matters. In reply , the Board started adjudication proceedings against the acquirers, but no directions were issued under the takeover regulations as requested by the appellant. The appellant further proceeded with a series of correspondence with the Board mainly asking for enhanced payment of 300 per share with interest to the shareholders who tendered their
shares in the first open offer. On April 20, 2011 the impugned communication was issued
by the Assistant General Manager of the Board turning down the request of the appellant for
enhanced payment for the shares tendered in the first open offer. This decision of the Board
is under challenge in the present appeal.
- Since the issu es raised in this appeal revolve around interpretation of a few
provisions of the takeover regulations it is necessary to examine the impugned order of the
Board in detail. For the convenience of reference, the impugned order is extracted below:
“This has reference to the correspondences resting with your letter dated March
17, 2011 in the captioned matter. In this regard, the various submissions made by
you have been examined and we accordingly advise as under.
- Regarding the applicability of regulation 20(7) and 20A(1) of the Takeover
Regulations, please note that the provisions of regulation 20(7) are
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applicable only up to 7 working days prior to closure of an offer. In the
instant case, since the First Offer h ad closed on February 2, 2010 itself
while the allotment of shares upon conversion of warrants happened only on
February 28, 2010, the provisions of regulation 20(7) are not attracted.
- Also, the provisions of regulation 20A(1) are applicable to acquisiti ons
made under regulation 11(1) whereas the second offer has been made under
regulation 11(2). Hence, the provisions of regulation 20A(1) do not apply
to the same. - As regards the second offer being made under regulation 11(2) and not
under regulation 11( 1), you may kindly note that while computing the
relevant shareholding percentages, the total shareholding of the entire
promoter group (and not that of the acquirer alone) is normally considered,
unless claimed and proved otherwise by such acquirer. The burden of proof
lies on the acquirer in these cases. In the second open offer, the acquirer(s)
(who are part of the promoter group) have themselves considered the
shareholding of the entire promoter group for the purpose of the offer, and
the promoters’ s hareholding (including that of the acquirers) has increased
from 64.85% to 71.28%. Accordingly, the offer has been made under
regulation 11(2). - Regarding the statement in the letter of offer that there are no PACs, it may
be noted that the said offer has been triggered on account of an increase in
the entire promoter shareholding of the target company (and not that of the
acquirers alone). In view of the same, the other persons in the promoter
group would also be jointly and severally responsible for ful fillment of the
open offer obligations in terms of regulation 22(19). It would have been
worthwhile to clarify the same in the letter of offer. However, the offer has
already closed and the aforesaid provisions of regulation 22(19) would
nevertheless continue to apply to the instant case.”
- It is argued by the appellant that the second open offer by which the acquirer s
converted 70 lac equity shares at ` 300 per share falls under regulation 11(1) of the takeover
regulations. On this ground, it is argued that the prohibition under regulation 20A(1) on
acquisition of shares during the period of 6 months from the date of closure of a public offer
at a price higher than the offer price stands attracted and as per regulation 20(7) the
shareholders who tendered their shares on the earlier occasion should be compensated on the
basis of the second open offer. It is emphasised by the appellant’s learned counsel that the
prohibition in regulation 20(7) applies to all acquisitions irrespective of wheth er the offer is
made under regulation 11(1) or 11(2). According to the appellant, the prohibition of
6 months as laid down in regulation 20A(1) applies with reference to the ‘offer period’ and
completion of formalities. With reference to the p ublic announcement it is argued that there
was no other member of the promoter group except the acquirers in the conversion of 70 lac
share warrants and so other members of the promoter group were not ‘ persons acting in
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concert’. The argument of the appellant is that the shareholding of the entire promoter group
of the company should not have been clubbed in arriving at the increase in percentage of
holding and this has resulted in a wrong interpretation being given to the provisions of
regulation 11(2) in the impugned order. It is contended that acquirers have already acquired
70 lac shares of the company on February 28, 2010 itself , prior to completion of all
formalities relating to the first offer and so the enhanced amount of ` 300 should be
legitimately given to the shareholders who tendered their shares in the first open offer. A
reference is made to the decision of the Supreme Court in the case of Daiichi Sankyo
Company Limited vs. Jayaram Chigurupati and others (2010) 7 SCC 449 and the decision of
the Bombay High Court in the case of K.K. Modi vs. Securities and Exchange Board of
India 2001 LawSuit (Bom) 863 in support of the appellant’s argument that the promoters
cannot be invariably treated as a homogenous class of persons acting in concert. The
appellant questions the stand taken by the Board that the second offer has been made under
regulation 11(2) of the takeover regulations and so the provisions of section 20A(1) do not
come into play . It is con tended that the entire promoter group of the company cannot be
taken as a group acting together in the acquisition of shares in the present case. Further,
according to the appellant, the acquirers have breached regulation s 20(7) and 20A of the
takeover regulations.
- The learned counsel appearing for the Board defended the impugned order and
submitted that the second open offer is covered under regulation 11(2) of the takeover
regulations and there is no breach of regula tions 20(7) and 20A as alleged by the appellant.
It is submitted that regulation 20A deals with a situation where an acquirer who has made an
open offer seeks to acquire further shares within the creeping acquisition limit provided
under regulation 11(1) of the regulations. So the provisions of regulation 20A deal with a
totally different scenario in as much as the present case does not relate to one of creeping
acquisition. It is s ubmitted that the provisions of regulation 20(7) also do not apply to the
facts of the case since the second acquisition did not take place within the prohibited period
laid down in regulation 20(7). The acquisition of 70 lac shares during the second open offer
took place on February 28, 2010 i.e. after January 25, 2010 which is the cut off date with
reference to the first open offer. According to the learned counsel for the Board ,
regulation 20(7) applies to purchases made before closure of the open offer while regulation
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20A applies to purchases made after closure of the open offer. Therefore, the two provisions
are represented to be applicable to different situations and they cannot be integrated as
contended by the appellant. The second open offer was made under regulation 11(2) of the
regulations taking into account the entire promoter group and the object of the acquisition
was consolidation of holding s. In view of the factual position and legal matrix as set out
above, the learned counsel contended that the provisions of regulations 20(7) and 20A do
not apply to the facts of the case and the offer has been made under regulation 11(2) of the
regulations.
- The learned counsel appearing for respondents no. 2 to 9 earnestly supported the
stand taken by the Board. He would also contend that regulation s 20(7) and 20A of the
regulations do not have any application to the facts of the present case. With reference to
the closure of the first open offer which took place on January 25, 2010 it is observed that
the conversion of the second tranche of warrants on February 28, 2010 clearly fa lls outside
the period of prohibition. It is submitted that as a result of the acquisition which took place
consequent on the first open offer , the threshold limit had crossed over to regulation 11(2)
and in that scenario the provisions of regulation 11(1) do not come into operation. So the
second open offer was considered as falling under the provisions of regulation 11(2) of the
regulations. - We have considered the rival submissions. It is necessary to examine a few
provisions of the takeover regulations for proper appreciation of the case. The provisions
relevant to the issues under consideration are extracted below for ease of reference: –
“Consolidation of holdings. - (1) No acquirer who, together with persons acting in concert with him, has
acquired, in accordance with the provisions of law, 15 per cent or more but less
than fifty five per cent (55%) of the shares or voting rights in a company, shall
acquire, either by himself or through or with persons acting in concert with him,
additional shares or voting rights entitling him to exercise more than 5 per cent of
the voting rights, with post acquisition shareholding or voting rights not exceeding
fifty five per cent, in any financial year ending on 31st March unless such acquirer
makes a public announcement to acquire shares in accordance with the
regulations.
(2) No acquirer, who together with persons acting in concert with him holds, fifty-
five per cent (55%) or more but less than seventy-five per cent (75%) of the shares
or voting rights in a target company, shall acquire either by himself or through or
with persons acting in concert with him any additional shares entitling him to
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exercise voting rights or voting rights therein, unless he makes a public
announcement to acquire shares in accordance with these Regulations:
Provided that in a case where the target company had obtained listing of its shares
by making an offer of at least ten per cent (10%) of issue size to the public in
terms of clause (b) of sub- rule (2) of rule 19 of the Securities Contracts
(Regulation) Rules, 1957, or in terms of any relaxation granted from strict
enforcement of the said rule, this sub-regulation shall apply as if for the words and
figures ‘seventy-five per cent (75%) ’, the words and figures ‘ ninety per cent
(90%)’ were substituted.
Provided further that such acquirer may, notwithstanding the acquisition made
under regulation 10 or sub- regulation (1) of regulation 11, without making a
public announcement under these Regulations, acquire, either by himself or
through or with persons acting in concert with him, additional shares or voting
rights entitling him up to five per cent (5%) voting rights in the target company
subject to the following:-
(i) the acquisition is made through open market purchase in normal segment
on the stock exchange but not through bulk deal /block deal/ negotiated
deal/ preferential allotment; or the increase in the shareholding or voting
rights of the acquirer is pursuant to a buy -back of shares by the target
company;
(ii) the post acquisition shareholding of the acquirer together with persons
acting in concert with him shall not increase beyond seventy five per cent
(75%).
……………………….
………………………..
20.(7) Notwithstanding anything contained in the provisions of sub- regulations
(2), (4), (5) and (6), where the acquirer has acquired shares in the open market or
through negotiation or otherwise, after the date of public announcement at a price
higher than the offer price stated in the letter of offer, then, the highest price paid
for such acquisition shall be payable for all acceptances received under the offer:
Provided that no such acquisition shall be ma de by the acquirer during the last
seven working days prior to the closure of the offer:
Provided further that nothing contained in sub- regulation (7) shall be construed to
authorise an acquirer who makes a public announcement in terms of sub-
regulation (2A) of regulation 11 to acquire any shares during the offer period in
the open market or through negotiation or in any other manner otherwise than
under the public offer.
………………………………………
Acquisition price under creeping acquisi tion.
20A. (1) An acquirer who has made a public offer and seeks to acquire further
shares under sub- regulation (1) of regulation 11 shall not acquire such shares
during the period of 6 months from the date of closure of the public offer at a
price higher than the offer price.
(2) Sub-regulation (1) shall not apply where the acquisition is made through the
stock exchanges.”
- The facts of the case as discussed in paragraph 5 above remain undisputed.
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- The argument of the appellant with regard to regulation 11(1) read with regulation
20A is that the open offer in this case which opened on March 25, 2009 related to the
acquisition of shares at150 per share with interest and it , having closed on February 1, 2010, the acquirers could not have acquired another tranche of 7 lac shares at300 per share
on February 28, 2010 i.e. within 6 months from the closure date. Regulation 20A deals
with ‘acquisition price under creeping acquisition’ and imposes a prohibition of 6 months
for further acquisition from the date of closure of the first public offer. It is necessary to
examine the provisions of regulation 20A(1) in the background of the facts available in the
present case. Regulation 20A(1) admittedly deals with a scenario where “further shares” are
acquired under regulation 11(1) of the regulations . Acquisition of further shares under
regulation 11(1) relates to creeping acquisition. Creeping acquisition takes place only in
situations governed by regulation 11(1) and not under regulation 11(2) of the regulations. In
other words, creeping acquisition is permissible only under regulation 11(1) of the
regulations. The facts of the case show that the impugned acquisition ha s been held to be
falling under regulation 11(2) since it is not in the nature of creeping acquisition.
Considering the shareholding after the conversion of the first tranche of warrants the entire
promoter group held 64.85 per cent and with the acquisition of the second tranche of
warrants the threshold limit crossed over from regulation 11(1) to 11(2). In short , this is not
a case of creeping acquisition. Regulation 20A deals with acquisition price under creeping
acquisition route provided under regulation 11(1) and it has no application to regulation
11(2) where the acquisition relates to limits more than the parameters laid down for creeping
acquisition. The increase in shareholding in this case is beyond the five per cent limit laid
down for creeping acquisition and so regulation 11(2) come s into operation. Having regard
to the substantial acquisition of shares and voting rights in the present case , it has to be
concluded that the provisions of regulation 20A do not apply to the facts of the case and so
the prohibition period of 6 months has no relevance. The appellant’s learned counsel stated
that ‘marginal heading’ to a section cannot be taken as the sole guiding factor in interpreting
the language of the section. According to him, the ‘marginal heading’ to Regulation 20A
may not mean that it is confined only to creeping acquisition. We agree with the general
proposition of law made by the appellant’s learned counsel. However, the ‘marginal
heading’ to a section invariably throws some light on the content and implication of the
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section. In the present case, as discussed above, the content of the regulation relates to
creeping acquisition and it is integrally connected with regulation 11(1) . A reference was
also made to the recommendations of the Bhagwati Committee report which resulted in the
introduction of regulation 20 A(1) . T he committee proceeded on the assumption that
acquisitions during the offer period irrespective of the price of acquisition is a price sensitive
information and should be disclosed. It also recommended a prohibition period of 6 months.
The recommendations may not be of any special assistance to the appellant. The actual
implications of creeping acquisitions, closure of public offer etc have to be considered from
the language of the regulation and connected provisions and not from the wording contained
in the recommendations of the committee. At any rate, acquisition during the ‘offer period’
highlighted by the appellant’s learned counsel has to be taken in its ge neral sense so as to
avoid any misuse of acquisitions during the offer period. It cannot be imported to interpret
the language of the regulation which is clear and unambiguous.
- The next issue to be considered is whether the entire promoter group has to be
considered as a homogenous unit and, therefore, acting in concert in the acquisition of
shares. It is the basic principle of corporate law that promoter group is a homogenous class.
It is the normal practice to club the entire promoter group into one class unless otherwise
proved by the acquirer. The acquirers have always filed their shareholding as belonging to
the promoter group. In the disclosures made to the stock exchanges and the Board, the
promoters’ shareholding consisted of the group as a whole. Even though there is a mention
in the offer document that the acquirers by themselves are responsible to the offer to the
exclusion of other promoter group the conduct of the promoter s as a whole suggest s that
their behaviour was always united. T he appellant’s learned counsel made a pointed
reference to para 1.2 of the second public announcement (Page 49 of the appeal paper book)
and stated that there is an unequivocal mention therein that there is no person acting in
concert with the acquirers and all purchase in the public offer will be made by the acquirers.
He also referred to a few other conditions laid down in the public announcement to highlight
his contention and support his view . It is interesting to note that a n identical statement is
made in the same terminology in the first public announcement also. Merely because a
statement is made in the public announcement document the statutory position cannot be
altered. The statement contained in the public announcement relates to only the formalities
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connected with the purchase of shares in the instant case. It cannot govern the general
statutory position of the promoters. The promoters, as a rule, belong to a homogenous group
unless otherwise proved by attendant circumstances to be otherwise. In the present case ,
except the statement contained in the public announcement no circumstance is pointed out
which would prove that a set of promoters are a class apart. It is a matter of record that the
shareholding of the entire prom oter group was always disclosed as a group holding to the
regulators. In the public announcement document also the shareholding of the entire
promoters group is specifically grouped together . The objective of the open offer was
consolidation of shareholding and this could be achieved only by grouping the acquirers and
other promoters together. When the shares got pledged with the merchant banker towards
escrow obligation in the open offer a ll the promoters had given their consent. The other
promoters also participated by giving their shares as pledge or security. The decision of the
Supreme Court in Daiichi case relied on by the appellant may not be of any assistance to
him since it deals with a different set of facts relating to common object underlying the
acquisition of shares. In the case of K.K. Mod i, again relied upon by the appellant, the
shareholders were admittedly a divided house. In the present case the various statements
furnished by the promoter group and the conduct of the parties show that they acted
together. Perhaps the appellant has introduced the above argument with a view to diluting
the percentage of shareholding which is reckoned in the acquisition of shares and
consideration for public announcement. We cannot appreciate the stand taken by the
appellant in this regard.
- The appellant’s learned counsel strenuously argued that there is a breach of
regulation 20(7) of the regulations. According to him, the acquirer is bound to pay the
higher price he has paid for the shares acquired in the open market or through negotiations
after the date of public announcement as per regulation 20(7) but there is no mention about
the period up to which it would apply. It is submit ted that according to the first proviso to
regulation 20(7) there is a prohibition on acquisition during the last seven working days
prior to the closure of the offer. There is no prohibition for acquisitions after the closure of
the open offer . I t is ve ry strenuously argued that the second proviso to regulation 11(2A)
covers the offer period and this extends to the period of completion of offer formalities. On
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this ground, it is contended that th e second acquisition took place before the completion of
offer formalities on March 10, 2010.
- We have considered this argument. There is no dispute with respect to the proposal
of the appellant in so far as it relates to regulation 20(7) and the first proviso thereto.
However, the second proviso which deals with regulation 11(2A) is not relevant to the facts
of the present case. We have already held that the provisions of regulation 11(1) do not
apply to the facts of the case. Similarly, the provisions of section 11(2A) also do not apply
to the facts of the case. Consequently , it follows that second proviso to regulation 20(7)
does not have any relevance to the facts of the case. It is in the second proviso that the
acquisition of shares during ‘offer period’ is referr ed to. We agree that ‘offer period’ is a
larger concept and it extends to the period till offer formalities are completed. The appellant
would like to take shelter under this proviso and bring the acquisition as one falling within
the ‘offer period’. We cannot appreciate this plea when examined in the background of the
facts of the present case. - While considering regulation 20(7) and the proviso thereto we have to examine
whether there is any violation of the provisions laid down therein. The following dates are
relevant to the consideration of this issue.
First Public Offer
Public announcement – March 25, 2009
Opened on – December 31, 2009
7 days prior to closure of first
Offer – January 25, 2010
Closed on – February 1, 2010
Completion of offer formalities – March 10, 2010
In the instant case , acquisition of 70 lac shares in the second open offer took place on
account of conversion of share warrants on February 28, 2010. If the acquirers had acquired
any shares between the date of first public announcement ( March 25, 2009) and seven days
prior to closure of the first offer ( January 25, 2010) at a price higher than ` 150 plus interest
that higher price would have to be disclosed and an opportunity given to all shareholders
during the interregnum of seven days prior to closure of the offer to tender at a higher price.
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In the present case, such an eventuality does not arise since acquisition of shares has taken
place only after the period of prohibition which expired on January 25, 2010. The
contention of the appellant could have been tenable if the acquisition had taken place during
the period of prohibition. The proviso deals with the last seven working days prior to
‘closure of the offer’. Regulation 23 (6) of the regulati ons deals with the closure of public
offer and transfer of securities to the name of the acquirers. It is distinct from completion of
offer formalities dealt with in regulation 24 (7) of the regulations. The appellant’s argument
that the acquisition has taken place during the offer period and so fa lls within the period of
prohibition is not correct when we take into account the meaning of ‘closure of offer’ dealt
with in regulation 23(6) of the regulations. The above discussions would show that the
acquirers have complied with the provisions of regulation 20(7) and the first proviso thereto.
No violation of the above provision can be imputed in the facts of the case.
- The appellants were in full knowledge of the first offer and the allotment of 7 lac
warrants which could be subsequently converted into shares. Being party to the first offer
the details regarding the share warrants, possibility of conversion and other re levant factors
were known to the appellant. While tendering his shares in the first public offer the
appellant had reasonable knowledge of the outstanding share warrants and the ir possible
conversion. It cannot now be pleaded that the second offer has taken place to the total shock
and inconvenience of the appellant. - Another argument raised by the appellant is that respondent nos. 2 to 9 formally
received the shares tendered in the first open offer only on March 4, 2010 on transfer from
the escrow account of the merchant banker. This argument is not tenable in view of the
normal procedural requirements which require compliance during open offer. The report of
the merchant banker received by the Board on February 25, 2010 makes it clear that all the
offer formalities were completed, full consideration paid and bank guarantees released. It is
well known that once the payment is made the merchant banker holds the shares in the
escrow account only as an agent on behalf of the shareholders and the title and interest
thereon vest with the shareholders. The merchant banker cannot be the beneficial owner of
the shares. This would show that the appellant’s contention that the acquirers were not
owners of the shares prior to March 4, 2010 is not correct. The appellant’s attempt to stretch
14
the period of prohibition beyond the statutory date and consequent dilution in the
shareholding of the acquirers and of the appellant does not fit in with the provisions of the
regulations.
In view of the discussions above, we hold that the acquisition in the instant case is
one covered under regulation 11(2) and not 11(1) of the takeover regulations . In this view
of the matter, the order passed by the Board is upheld. Appeal stands dismissed with no
order as to costs.
Sd/-
P.K. Malhotra
Member &
Presiding Officer (Offg.)
Sd/-
S.S.N. Moorthy
Member
1.6.2012
Prepared and compared by
RHN