NIRMA INDUSTRIES LTD. Vs SECURITIES & EXCHANGE BOARD OF INDIA
Bench: SURINDER SINGH NIJJAR,ANIL R. DAVE
Case number: C.A. No.-006082-006082 / 2008
Diary number: 22315 / 2008
Advocates: Vs
K J JOHN AND CO
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REPORTABLE
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.6082 OF 2008
Nirma Industries Ltd. & Anr. ...Appellants
VERSUS
Securities & Exchange Board of India ...Respondent
J U D G M E N T
SURINDER SINGH NIJJAR,J.
1. This statutory appeal is filed under Section 15Z of the Securities
and Exchange Board of India Act, 1992 (hereinafter referred to as
the ‘SEBI Act’) against the order dated 5th June, 2008 (impugned
order) passed by the Security Appellate Tribunal (SAT) whereby
SAT has dismissed the appeal filed by the appellants impugning
the direction contained in the communication dated 30th April, 2007
of SEBI (SEBI order). By the aforesaid order, the request of the
appellants for withdrawal of an offer to acquire the equity shares of
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Shree Ram Multi Tech Limited (SRMTL) under the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 (Takeover
Code/Takeover Regulation) has been rejected.
Facts :
2. On 22nd March, 2002, the Promoters (including friends, relatives
and associates) of SRMTL – a listed company – borrowed a sum
of Rs.48.94 crores from the appellants and pledged equity shares
of SRMTL worth Rs.1,42,88,700/- (24.25% of equity capital) as
security. The debt was in form of issue of Secured Optionally Fully
Convertible Premium Notes by three closely held unlisted
companies (Issuer Companies) for an issue price of Rs.1,00,000/-
each having nominal value of Rs.1,35,000/- each. The issue was
made by the Issuer Companies by way of subscription agreements
and the individual premium notes issued by each are as under :
(i) Shree Rama Polysynth Pvt. Ltd. - 1664
(ii) East-West Polyart Ltd. - 1500
(iii) Ideal Petroproducts Ltd. - 1730
--------
Total - 4894
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3. The Issuer Companies pledged equity shares in the capital of
SRMTL and other closely held companies as security in favour of
the appellants till the redemption of the Premium Notes by way of
pledge agreements (Pledged Shares). The equity shares of
SRMTL pledged by each of the Issuer Companies are as under :
(i) Shree Rama Polysynth Pvt. Ltd. - 52,49,786
(ii) East-West Polyart Ltd. - 28,74,800
(iii) Ideal Petroproducts Ltd. - 62,64,114
--------------- Total - 1,42,88,700
4. In May-June, 2002, the pledge over the shares, which were in
dematerialized form, was carried out in the form prescribed by
National Securities Depository Limited and was recorded in the
records of the respective depositories of the appellants and the
Issuer Companies. On June 10, 2005, the appellants, in terms of
the enforcement provisions contained in the subscription
agreements and the pledge agreements issued notices to the
Issuer Companies calling upon them to redeem the outstanding
Premium Notes within a period of 30 days, failing which the
appellants would be constrained to invoke the pledge. Premium
notes were not redeemed (i.e. debt was not repaid). Upon default,
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under the provisions of the Notes, the appellants called upon each
of the Issuer Companies to redeem the outstanding Notes within
30 days. Since the Notes were not redeemed within the notice
period, the pledge was invoked on July 22, 2005.
5. The invocation of the pledge triggered Regulation 10 of the
Takeover Code.
6. On 26th July, 2005, in accordance with the Regulation 10 of the
Takeover Code, the appellants made a Public Announcement (PA)
for proposed open offer to acquire upto 20% of the shares of the
existing shareholders. The Public Announcement was published in
the Financial Express, Mumbai Edition. According to the
appellants, the price offered in the PA, being Rs.18.60/- per share,
was arrived at as per Regulation 20(4) of the Takeover Code
(applicable to frequently traded shares). The PA stated that
SRMTL has suffered business losses and its net worth has been
eroded. The PA also clearly stated that the offer may be withdrawn
as per Regulation 27 of the Takeover Code.
7. The appellants further claimed that as per Regulation 18 of the
Takeover Code, draft letter of offer was submitted to SEBI on
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August 8, 2005. According to the appellants in the aforesaid letter,
it was specifically stated that details were given of the composition
of Board of Directors and audited balance sheets of last three
years, share holding pattern PRE-OFFER and POST-OFFER and
justification of offer price. The letter further stated that “Acquirers
reserve the right to withdraw the offer pursuant to Regulation 27 of
the Regulation”. In the meanwhile, the concurrent auditor
appointed by the Lenders of SRMTL, M/s Ernst & Young and the
internal auditor of SRMTL, M/s. R. C. Sharma & Co. in their
respective audit reports for the quarter July-September, 2005, had
noted certain irregularities in the operations and systems of
SRMTL. The Audit Committee, therefore, recommended a special
investigative audit to look into the irregularities. In view of the
above, a change in management was effected on the insistence of
the Lender Banks. All Promoter Directors tendered their
resignations in their place independent Directors were appointed.
The Board of Directors of SRMTL, after considering the respective
audit report of the aforesaid two accountants, accepted the
recommendations of the Audit Committee and on January 28, 2006
directed a special investigative audit into the financial affairs of the
company. The Board appointed M/s. R. C. Sharma & Co., to
conduct the special investigative audit and submit its report. After
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investigation, M/s. R. C. Sharma & Co. submitted its report in three
parts, comprising of two interim reports and one final report on
January 30, 2006. In March-April, 2006, the aforesaid report of
M/s. R.C. Sharma came in the public domain, resulting in sharp
decline in prices of shares of SRMTL. It is claimed by the
appellants that M/s. R.C. Sharma’s report enclosed two earlier
inspection reports of 2002 by Kalyaniwala & Mistry (Kalyaniwala
Report) and by Sharp and Tannan Associates (Sharp Report),
respectively. These reports were not made available to public.
Their existence was disclosed for the first time when they were
filed in the Gujarat High Court as part of proceeding in Company
Petition No.111 of 2005. The appellants further claimed that under
Regulation 18 of the Takeover Code, SEBI was expected to revert
with its comments and observations in about 21 days, i.e. by 29th
August, 2005. However, letter of offer submitted to SEBI was
issued after more than 249 days on 26th April, 2006.
8. The appellants further claim that pursuant to the fraud perpetrated
by the Promoter Directors of SRMTL and fraudulent embezzlement
of funds in SRMTL in excess of Rs.350 crores being unearthed, an
application was made on 4th May, 2006 to either exempt them from
making the open offer or to permit them to withdraw the open offer
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under Regulation 27 of the Takeover Code or to re-fix the price of
the Open Offer. The appellants further claimed that the aforesaid
request was justified on the basis of special circumstances cited by
the appellants in the aforesaid letter of May 4, 2006. It had been
pointed out that an investigation into the affairs of SRMTL by M/s
Ramesh C. Sharma and Co. Chartered Accountants revealed that
a cumulative amount of Rs.326.48 Crores had been siphoned out
of/embezzled from the coffers of SRMTL by its erstwhile Promoter
Directors. This conclusion was based on the reports submitted by
M/s. R.C. Sharma & Co. It was pointed out that the financial
accounts of SRMTL revealed that it had lost its net worth. Asset
Reconstruction Company (India) Limited (ARCIL) had acquired the
debts and underlying rights and obligations from the secured
creditors of SRMTL. ARCIL had also issued a notice dated January
25, 2006 under Section 13(2) of the Securitization and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (SARFAESI) threatening action under Section
13(4) thereof. In the meantime, the High Court of Gujarat had
disposed of the winding up petition filed against SRMTL by the UTI
Bank and Karnataka Bank Ltd. on February 27, 2006. It had also
come to the knowledge of the appellants that though the balance
sheets of SRMTL disclosed a contingent liability of only Rs.15.28
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Crores as on March 31, 2005, the actual value was about
Rs.263.65 Crores (out of which Rs.30.65 Crores had already
crystallized). The final reason given was share price of SRMTL
shares had fallen substantially from the date of making the Public
Announcement.
9. Since the appellants did not receive any response from the
respondent, a request was made on July 1, 2006 to the Merchant
Bankers requesting them to forward an application for withdrawal
of the open offer to the respondent. It appears that the Merchant
Bankers vide letter dated 27th June, 2006 inter alia informed the
appellants that the grounds mentioned in the letter dated 4th May,
2006 are not valid grounds, in terms of the provisions of Regulation
27 of the Takeover Code. On July 1, 2006, the appellants
requested the Merchant Bankers to convey its request in a
renewed form to SEBI for its consideration. The renewed request
was contained in a letter dated July 01, 2006 which was sent to the
Merchant Bankers as an annexure to the letter which was also sent
on July 01, 2006, in reply to the letter of the Merchant Bankers
dated 27th June, 2006. In the aforesaid reply, the appellants had
also informed the Merchant Bankers that it did not agree with the
views expressed by the Merchant Bankers even prior to the
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consideration of the facts presented by the appellants to SEBI.
Regulation 27(1) (c) does not provide for specific approval of SEBI
for withdrawal of the open offer, which is what they were seeking.
On July 8, 2006, the Merchant Bankers informed the appellants
that the relevant regulation is 27(1)(d) and not 27(1)(c). The letter
also refers to a telephonic conversation with one Mr. Deepak Shah
on 8th July, 2006 informing him about certain particulars required by
the Merchant Bankers. A complete list of details, required by the
Merchant Bankers, was listed in the aforesaid letter. The
appellants were requested to send the same at the earliest. The
appellant sent a reply to the aforesaid request on 8th July, 2006.
Thereafter, on 1st September, 2006, the appellant was informed by
the Merchant Bankers that based on the information supplied on
July 1, 2006 and August 28, 2006, an application had been drafted
by them for being filed with SEBI, seeking withdrawal of the open
offer. The aforesaid draft application was sent to the appellant for
verification of the factual position stated therein. From a perusal of
the letter dated 21st September, 2006, the appellants informed the
Merchant Bankers that the clarifications sought on September 1,
2006 had been sent to them on 7th September, 2006. Therefore, a
request was made to include the clarifications in the original draft
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letter and include the same in the paragraph in contingent liability
under special circumstances for withdrawal of the open offer.
10. In response to the aforesaid request of the appellants, the
Merchant Bank applied to SEBI on September 22, 2006 requesting
that the appellants be permitted to withdraw the offer. The letter
also mentioned the special reasons for the withdrawal as given by
the appellants in the letter dated 4th May, 2006. It is important to
notice here that no request for personal hearing was made in any
of the aforesaid communications.
11. The appellants further claimed that on 30th April, 2007, the
application of the Merchant Bankers/appellants was rejected on the
ground that the appellants ought to have conducted due diligence.
The appellants pointed out that the aforesaid decision was taken
by SEBI without affording any personal hearing to the appellants
and without application of mind. The appellants claim that the
respondent did not appreciate that the fraudulent transactions,
systematic embezzlement and siphoning of funds was unearthed
by special investigative audit and could not have been found by an
outside third party like appellants before invoking the pledge. Even
any due diligence that could be conducted could only have been
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done on published financial information in the public domain, which
has now been found to be fraudulent in character. The appellants
have in the Public Announcement and Letter of Offer relied on
books of accounts for last three financial years i.e. 2002-03, 2003-
04 and 2004-05 of SRMTL. Even SEBI with all its compliance
requirements and investigative powers was unable to unearth
these instances of fraud perpetrated by promoters of SRMTL.
12. Being aggrieved by the SEBI order, the appellants filed Appeal
No.74 of 2007 before the SAT. By the impugned order dated 5th
June, 2008, the SAT rejected the appeal filed by the appellants. It
has been held by SAT that :
“a) Regulation 27(1)(d) of the Takeover Code is to be given a strict interpretation and the words “such circumstances as in the opinion of the Board merit withdrawal” is to be read ejusdem generis to be limited to only circumstances where it is impossible to make a public offer.
b) Appellants ought to have conducted due diligence.
C) Appellants knew about (i) poor financial condition of SRMTL; (ii) filing of winding up petitions by UTI Bank against SRMTL; (iii) net worth of SRMTL being negative; (iv) several cases of recovery being filed against SRMTL.”
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13. The aforesaid order of SAT is challenged before us by Nirma
Industries Ltd. in this statutory appeal under Section 15Z of the
SEBI Act.
14. We have heard very elaborate submissions made by Mr. Shyam
Divan, learned senior counsel on behalf of the appellants and
Mr. Pratap Venugopal for SEBI. Mr. Divan submits that the main
issue involved in this appeal is whether under Regulation 27(1)(d),
SEBI has power to grant exemption to the appellants from the
requirement of making a public offer under Regulation 10. The
alternative issue framed by Mr. Divan is as to whether dehors
Regulation 27(1) (d), SEBI would still have the residual power to
grant exemption. Apart from the aforesaid two legal issues, Mr.
Divan’s primary submission is based on breach of rules of natural
justice. He submits that the order passed by SEBI has been
passed without granting any opportunity of hearing to the
appellants. Even if the regulations do not specifically provide for
the grant of an opportunity of hearing, it ought to be read into the
regulations in view of the drastic civil consequences, which the
appellants would suffer under the impugned order passed by the
SEBI upheld by SAT. Mr. Divan has straightaway pointed out to the
order passed by SEBI on 30th April, 2007 rejecting the request
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made in letter dated 22nd September, 2006 for withdrawal of the
public offer. He has pointed out the observations made in
Paragraph 4 of the aforesaid order, which are as under:-
“We are of the view that the acquirer should have done due diligence before invocation of pledge, and refrained themselves from invoking their pledge if circumstances so warranted. Such circumstances, arising out of omission on the part of the acquirers to have taken due precaution or business misfortunes, in our opinion, are not reasons sufficient enough to merit withdrawal of the open offer.”
15. The aforesaid conclusions, according to Mr. Divan, are not
supported by any reasons let alone sufficient reasons. The order
passed by SEBI, according to him, is non-speaking and, therefore,
ought to have been quashed on that ground alone.
16. The same submission was also made before the SAT. It has
been rejected by the SAT by giving detailed reasons. Taking into
consideration the facts and circumstances of this case, it cannot be
said that Rules of Natural Justice have been violated. The special
circumstances which had been elaborately set out in the two letters
written by the appellants on May 4, 2006 and July 1, 2006 and the
application made by the Merchant Bankers on September 22, 2006
have been summarized by Mr. Shyam Divan in the written
submission which are as follows :
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“a. An investigation into the affairs of SRMTL by Ramesh C. Sharma & Co., Chartered Accountants, revealed that a cumulative amount of Rs. 326.48 Crores had been siphoned out of/embezzled from the coffers of SRMTL by its erstwhile Promoter Directors. Ramesh C. Sharma & Co. submitted two interim reports [in February and March 2006] and a final report (in March 2006) to arrive at its aforesaid conclusions.
b. Further the financial accounts of SRMTL revealed that it had lost its net worth.
c. Asset Reconstruction Company (India) Limited (“ARCIL”) had acquired the debts and underlying rights and obligations from the secured creditors of SRMTL. ARCIL issued a notice dated January 25, 2006 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI”) threatening action under Section 13(4) thereof.
d. The High Court of Gujarat had disposed of the winding up petition filed against SRMTL by the UTI Bank and Karnataka Bank Ltd. vide order dated February 27, 2006.
e. It had come to the Appellant’s knowledge that though the Balance Sheets of SRMTL disclosed a contingent liability of only Rs. 15.28 Crores as on March 31, 2005, the actual value was about Rs. 263.65 Crores (out of which Rs.30.65 Crores had already crystallized).
f. The share price of SRMTL shares had fallen substantially from the date of making the Public Announcement.”
17. In the letter dated May 4, 2006, it was pointed out that
subsequent to the Public Announcement dated 26th July, 2005 and
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filing of the draft letter of offer, the circumstances leading to the
requirement of making of Public Announcement by the appellants
(pledgee acquirers) or requirements of the regulation has
substantially changed to the prejudice of the appellants and,
therefore, it was constrained to seek exemption from requirement
of the Regulations and/or permission to withdraw the draft letter of
offer. The letter sets out the sequence of events leading to the
acquisition, which triggered the provisions of Regulation 10. It sets
out the reasons for fixing the offer price at Rs. 18.60 per share.
The price had been determined at deriving the average of weekly
high and low closing prices of shares of SRMTL (the target
company) at Bombay Stock Exchange (BSE) during 26 weeks
preceding the date of Public Announcement. In Paragraph 4 of the
letter, it is mentioned as under:-
“Subsequent to the Public Announcement and filing of the draft Letter of Offer, the price of the shares of SRMTL has fallen substantially due to circumstances beyond the control of the Acquirers. It has come to the knowledge of the Acquirers that subsequent to the Public Announcement and filing of the draft Letter of Offer, the financial condition of SRMTL has substantially deteriorated on account of gross mismanagement and embezzlement by the promoter directors of SRMTL. It is apparent that SRMTL has lost its substratum and that chances of its revival are negligible.”
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18. In Paragraph 5 of the letter, a prayer is made for permission
either to exempt the Regulation 3(1) (1) read with Regulation 4(2)
of the Takeover Regulations or withdrawal of offer under
Regulation 27, on the basis of the justification given for seeking
withdrawal. The complete justification is given
thereafter in Paragraph 6, which consists of sub-paragraphs 6.1 to
6.8. The ultimate reason for seeking withdrawal is given in
Paragraphs 7 and 8, which are as under:-
"7. Under the aforesaid circumstances, it is apparent that SRMTL has lost its substratum and that chances of its revival are negligible. The Pledgee Acquirers while enforcing the security created by pledging the shares of SRMTL, are being saddled with an additional burden of Rs.21,91,54,314 to the undue advantage of the other shareholders of SRMTL. The purpose sought to be achieved by operation of the Regulations is lost in view of the subsequent developments and the Regulations are operating harshly against the Pledgee Acquirers. In view of the changed scenario, it would be inequitable and unfair to compel the Pledgee Acquirers to offer to purchase the shares of SRMTL from the other shareholders of SRMTL in accordance with the draft Letter of Offer.
8. In light of the change in circumstances as stated hereinabove, considering the present state of affairs, it would be just, fair and equitable (i) to exempt the Pledgee Acquirers from operation of Regulation 10 of the Regulations in exercise of powers conferred by Regulation 3(1)(1) read with Regulation 4(2) of the Regulations or (ii) to permit withdrawal of the Public Announcement and the draft Letter of Offer in terms of Regulation 27 of the Regulations or (iii) permit the Pledgee
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Acquirers to re-fix the offer price on the basis of the current market price of the shares of SRMTL.”
19. It is an admitted fact that the aforesaid letter was sent by the
appellants to its Merchant Bankers. In its letter dated 27th June,
2006, the Merchant Bankers informed the appellants that the
grounds mentioned in the letter dated 4th May, 2006 are not valid
grounds in terms of provisions of Regulation 27 of the Takeover
Code. Therefore, clearly the Merchant Banker was also of the
opinion that the specific circumstances relied upon by the
appellants were of no relevance in seeking withdrawal under
Regulation 27. However, on the insistence of the appellants, the
Merchant Bankers by its letter dated 22nd September, 2006
requested SEBI to exempt the appellants from the open offer or
withdraw the open offer under Regulation 27 or re-fix the price of
the open offer. It appears that the Merchant Bankers had
discussions with the officers of the SEBI before giving the
aforesaid opinion in its letter dated 27th June, 2006. it was only
thereafter the appellants were informed as under:-
“We have perused the various grounds you have mentioned in your above letter to SEBI and are unable to find any of these as valid grounds in terms of the provisions of Regulation 27 of the SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 1997. The fact that the market price of the target company is far below the offer price cannot be a reason for seeking
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withdrawal of the offer. Regulation 27(1) of the Takeover code is the only regulation permitting withdrawal of public offers and the same is reproduced below: …………………………………………………”
20. Still not satisfied, the appellants wrote to its Merchant Bankers on
1st July, 2006 requesting it to forward the letter dated 4th May, 2006
to SEBI for its consideration. In the letter, it was mentioned as
follows:-
“Meanwhile, we do not agree with your views even prior to SEBI’s consideration of the facts presented by us. Please do note that Regulation 27(1)(c) does provide for specific approval of SEBI for withdrawal of the open offer, which is what we are seeking. Unless SEBI considers our letter and informs us of a decision not to approve the application for withdrawal, it would be premature to foreclose the options available to us by a fair application of the law. Consequently, you are requested to forward our enclosed application formally to SEBI so that SEBI can consider the same and take a decision in the matter. Once the decision of SEBI is communicated, we can take further steps in the matter.”
21. As noticed earlier, the Merchant Bankers were still not satisfied
with the information provided by the appellants in support of its
request for withdrawal of the open offer. Therefore, the appellants
had given further clarifications to the Merchant Bankers. It was only
on receipt of the clarifications that the Merchant Bankers forwarded
the request to SEBI for consideration.
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22. From the above, it is apparent that all the necessary information
was available before SEBI for taking a decision as to whether the
claim of the appellants seeking exemption from the Takeover
Code, or withdrawal of the Letter of Offer would fall within the
purview of Regulation 27(1) (d). The purpose of granting an
opportunity of hearing is to ensure fair treatment of the person or
entity against whom an order is likely to be passed. In the present
case, we are unable to accept the submission of Mr. Shyam Divan
that the impugned order passed by SEBI on 30th April, 2007,
rejecting the application of the appellants for exemption/withdrawal
by SEBI caused any “adverse civil consequences”. Having
acquired the shares of the target company to the extent which
triggered the Regulation 10 of the Takeover Code, the appellants
published in the Financial Express, Mumbai Edition the proposed
open offer to acquire upto 20% of the shares of the existing
shareholders. The price offered in the Public Announcement,
being Rs. 18.60 per share was arrived at as per Regulation 20(4)
of the Takeover code, which is applicable to frequently traded
shares. It is undisputable that normally the public offer once made
can only be withdrawn in exceptional circumstances as indicated in
Regulation 27(1) (b), (c) and (d). In their letter dated 4th May, 2006,
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the appellants had given detailed reasons giving justification for
seeking exemption/withdrawal/price fixation. Not being given the
opportunity of oral hearing cannot always be equated to a situation,
where no opportunity is given to a party to submit an explanation at
all, before an order is passed causing civil consequences to it. Mr.
Shyam Divan has been at pains to point out that rules of natural
justice require that an opportunity of hearing should have been
given to the appellants. We see no reason to read into Regulation
27 - the provision that the party seeking to withdraw from the public
offer is required to be given an oral hearing before an order is
passed on the request for withdrawal. We also see no merit in the
submission that an oral hearing was particularly necessary in the
light of the fraud, which has been perpetrated by the promoters of
the target company on the innocent shareholders, which will also
include the appellants. Such a submission can not be accepted
either on facts or in law. The appellants had made a business
decision in deliberately purchasing the shares of the target
company to such an extent that it had to, under the law; make the
Public Announcement for purchase of other shares at the price of
Rs.18.60 per share.
23. In support of his submissions on breach of Rules of Natural
Justice, in his written submission, Mr. Shyam Divan has relied on
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Canara Bank & Ors. Vs. Debasis Das & Ors. 1 In this case, this
Court reiterated the well known Rules of Natural Justice. Otherwise
the particular case relied upon has no relevance to the present
proceedings. In the Canara Bank’s case (supra), this Court was
considering the case of an employee subjected to the disciplinary
proceedings. Again this Court reiterated the well known principle
that natural justice is the administration of justice in a
commonsense liberal way. Further that the rules have been
enforced by the Courts to ensure that substantial justice is done to
the party proceeded against. In the present case, it is a matter of
record that all material had been placed by the appellants before
the SEBI in its letter dated 4th May, 2006 and the same material
was also placed before the Merchant Bankers. Necessary
clarifications, as required by the Merchant Bankers, had also been
given in the subsequent correspondences, as noticed by us in the
earlier part of the judgment. Therefore, it cannot be said that
substantial justice has not been done in the case of the appellants.
This Court in Canara Bank’s case (supra) reiterated the principle
laid down in Managing Director, ECIL, Hyderabad & Ors. Vs. B.
Karunakar & Ors. 2 Here again, this Court has reiterated that
1 (2003) 4 SCC 557 2 (1993) 4 SCC 727
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even an administrative order, which involved civil consequences,
must be consistent with the rules of natural justice. The expression
“civil consequences” encompasses infraction of not merely
property or personal rights but of civil liberties, material
deprivations and non-pecuniary damages. In other words,
anything which affects the rights of the citizen in ordinary civil life.
24. In our opinion, the appellants cannot justifiably claim that any
order had been passed by SEBI that would cause adverse civil
consequences, as envisaged by this Court in B. Karunakar & Ors.
(Supra). The appellants after making a market assessment
decided to invoke the pledge on July 22, 2005. Since the shares
which came to the appellants were more than 15%, statutorily
Regulation 10 was triggered. The rejection of the request made by
the appellants for withdrawal from the public offer or exemption
under Regulation 27(1)(d) cannot be said to be an order causing
adverse civil consequences. The appellants had made and
informed business decision which unfortunately for them, instead
of generating profits was likely to cause loses. In such
circumstances, they wanted to pull out and throw the burden on to
the other shareholders. We, therefore, fail to see what prejudice
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has been caused to the appellants by the order passed by the
SEBI rejecting the request of the appellants.
25. In B. Karunakar & Ors. (supra), having defined the meaning of
“civil consequences”, this Court reiterated the principle that the
Court/Tribunal should not mechanically set aside the order of
punishment on the ground that the report was not furnished to the
employee. It is only if the Court or Tribunal finds that the furnishing
of the report would have made a difference to the result in the case
that it should set aside the order of punishment. In other words,
the Court reiterated that the person challenging the order on the
basis that it is causing civil consequences would have to prove the
prejudice that has been caused by the non-grant of opportunity of
hearing. In the present case, we must hasten to add that, in the
letter dated 4th May, 2006, the appellants have not made a request
for being granted an opportunity of personal hearing. Therefore,
the ground with regard to the breach of rules of natural justice
clearly seems to be an after thought.
26. Mr. Shyam Divan had also relied on Automotive Tyre
Manufacturers Association Vs. Designated Authority & Ors. 3
3 (2011) 2 SCC 258
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The aforesaid judgment is again of no relevance in the present
case. The scope and ambit of the Anti-Dumping Regulations, the
Customs Tariff (Identification, Assessment & Collection of Anti-
Dumping Duty on Dumped Articles & for Determination of Injury)
Rules, 1995 was under consideration of this Court. Upon
consideration of the entire matter, the Court reiterated the principle
of law, which is stated as follows:-
“80. It is thus, well settled that unless a statutory provision, either specifically or by necessary implication excludes the application of principles of natural justice, because in that event the court would not ignore the legislative mandate, the requirement of giving reasonable opportunity of being heard before an order is made, is generally read into the provisions of a statute, particularly when the order has adverse civil consequences which obviously cover infraction of property, personal rights and material deprivations for the party affected. The principle holds good irrespective of whether the power conferred on a statutory body or Tribunal is administrative or quasi-judicial. It is equally trite that the concept of natural justice can neither be put in a straitjacket nor is it a general rule of universal application.”
27. Considering the 1995 Rules, it was held as follows:-
“83. The procedure prescribed in the 1995 Rules imposes a duty on the DA to afford to all the parties, who have filed objections and adduced evidence, a personal hearing before taking a final decision in the matter. Even written arguments are no substitute for an oral hearing. A personal hearing enables the authority concerned to watch the demeanour of the witnesses,
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etc. and also clear up his doubts during the course of the arguments. Moreover, it was also observed in Gullapalli, if one person hears and other decides, then personal hearing becomes an empty formality.”
28. It was noticed by the Court that in the matter under consideration,
the entire material had been collected by the predecessor of the
DA. He had allowed the interested parties and/or their
representatives to present the relevant information before him in
terms of Rule 6(6) but the final findings in the form of an order were
recorded by the successor DA, who had no occasion to hear the
appellants. Therefore, it was held that the final order passed by the
new DA offends the basic principle of natural justice. In the present
case, the appellants did not make a formal request before SEBI for
being given an opportunity of personal hearing. Thus, the reliance
on the aforesaid case is misplaced.
29. Mr. Shyam Divan then relied on Darshan Lal Nagpal (Dead) by
LRs. Vs. Government of NCT of Delhi & Ors. 4 The Court in this
case was considering whether the Government of NCT of Delhi
could invoke Section 17(1) and (4) of the Land Acquisition Act and
dispense with the rule of hearing embodied in Section 5A (2) for
4 (2012) 2 SCC 327
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the purpose of acquiring certain land. In this context, the Court
observed that the reasons given by NCT for invoking the
emergency provision were not justified. It was observed that the
documents produced by the parties including the notings recorded
in the concerned file and the approval accorded by the Lieutenant
Governor do not contain anything from which it can be inferred that
a conscious decision was taken to dispense with the application of
Section 5A which represents two facets of the rule of hearing that
is the right of the land owner to file objection against the proposed
acquisition of land and of being heard in the inquiry required to be
conducted by the Collector. There is no such duty caused on SEBI
under the Regulations, which would make it incumbent upon it to
grant an opportunity of hearing before rejecting the application
made by the appellants or its Merchant Bankers. This apart, we
again reiterate that the appellants in its letter of 4th May, 2006 did
not make any request for a personal hearing. In such
circumstances, in our opinion, SAT has correctly concluded that:
“Having acquired the shares of the target company which breached the threshold limit prescribed by the takeover code, the appellants were required to make a public officer to acquire further shares of that company for which a public announcement was made. The normal rule being that the public offer once made could not be withdrawn, it was only in the exceptional circumstances referred to in the earlier part of our order that such an offer could be withdrawn. The appellants
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were invoking those exceptional circumstances and the Board having considered the matter took a decision. It is not that they had no opportunity to place their point of view before the Board. In these circumstances, it was not necessary for them to be given a personal hearing.”
30. Mr. Venugopal has further pointed out that apart from the
appellants, even the Merchant Bankers did not make a request for
a personal hearing. He submitted that grant of an opportunity for a
personal hearing can not be insisted upon in all circumstances. In
support of this submission, he relied on judgment of this Court in
the case of Union of India & Anr. Vs. Jesus Sales Corporation 5 .
The submission can not be brushed aside in view of the
observations made by this Court in the aforesaid judgment, which
are as under:-
“5. The High Court has primarily considered the question as to whether denying an opportunity to the appellant to be heard before his prayer to dispense with the deposit of the penalty is rejected, violates and contravenes the principles of natural justice. In that connection, several judgments of this Court have been referred to. It need not be pointed out that under different situations and conditions the requirement of compliance of the principle of natural justice vary. The courts cannot insist that under all circumstances and under different statutory provisions personal hearings have to be afforded to the persons concerned. If this principle of affording personal hearing is extended whenever statutory authorities are vested with the power to exercise discretion in connection with statutory appeals, it shall lead to chaotic conditions. Many
5 (1996) 4 SCC 69
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statutory appeals and applications are disposed of by the competent authorities who have been vested with powers to dispose of the same. Such authorities which shall be deemed to be quasi-judicial authorities are expected to apply their judicial mind over the grievances made by the appellants or applicants concerned, but it cannot be held that before dismissing such appeals or applications in all events the quasi-judicial authorities must hear the appellants or the applicants, as the case may be. When principles of natural justice require an opportunity to be heard before an adverse order is passed on any appeal or application, it does not in all circumstances mean a personal hearing. The requirement is complied with by affording an opportunity to the person concerned to present his case before such quasi-judicial authority who is expected to apply his judicial mind to the issues involved. Of course, if in his own discretion if he requires the appellant or the applicant to be heard because of special facts and circumstances of the case, then certainly it is always open to such authority to decide the appeal or the application only after affording a personal hearing. But any order passed after taking into consideration the points raised in the appeal or the application shall not be held to be invalid merely on the ground that no personal hearing had been afforded. ………………………………………….……..”
31. Taking into consideration the facts and circumstances of this
case, we are unable to accept the submission of Mr. Shyam Divan
with regard to the breach of rules of natural justice, in this case,
merely because the appellants were not given a personal hearing.
32. Mr. Shyam Divan had also submitted that grant of opportunity of
hearing ought to be read into Regulation 27(1) (d), which enables
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SEBI to grant exemption or permit withdrawal in “such
circumstances as in the opinion of the Board merit withdrawal”. He
submits that an informed opinion could only be taken by the Board
under the aforesaid Regulation by permitting the concerned
applicant an opportunity of personal hearing. The learned senior
counsel also sought support for the aforesaid submission that
Regulation 32(1) which permits the Board to issue directions as it
deem fit in the interests of investors in the securities and securities
market under Section 11 or 11(b) or 11(d). Regulation 32(2)
specifically provides that in any proceedings initiated by the Board,
it shall comply with the principle of natural justice, before issuing
directions to any person. In our opinion, the aforesaid provisions
are of no assistance to the appellants. Firstly, neither the
appellants nor their Merchant Bankers requested for an opportunity
for a personal hearing. Secondly, in the present case, SEBI has
not issued any instructions or directions under Section 11, which
requires that the rules of natural justice be complied with. Thirdly,
it cannot be said that the appellants had been condemned unheard
as the entire material on which the appellants were relying was
placed before SEBI. It is upon consideration of the entire matter
that the offer of the appellants was rejected. This is evident from
the detailed order passed by SEBI on 30th April, 2007. The letter
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indicates precisely the exceptional circumstances mentioned by
the appellants seeking to withdraw the public announcement.
Each and every circumstance mentioned was considered by SEBI.
Therefore, it can not be said that the appellants have been in any
manner prejudiced by the non-grant of the opportunity of personal
hearing. Therefore, the submission made by Mr. Shyam Divan
with regard to the breach of rules of natural justice is rejected.
33. Mr. Shyam Divan then submitted that the interpretation placed on
Regulation 27(1) (d) by SEBI as well as the SAT results in
restriction on the wide powers given to SEBI to regulate the
securities market to further the object of the SEBI Act. He submits
that the appellants are equally “an investor” in the market;
therefore, the regulator also has to keep the interest of the
appellants in mind. He makes a reference to Regulation 3(1) (f)
which provides that nothing contained in Regulations 10, 11 and 12
shall apply to acquisition of shares in the ordinary course of
business by banks and financial institutions as pledgees. This,
according to Mr. Shyam Divan, is an indicator that, for a certain
class of institutional investor there is a carve out. He submits that
similar carve out is also provided for the small investors. In the
present case, the appellants have lost out only because there was
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an inordinate delay in taking action by SEBI. Specifying the
changes that would be required in the letter of offer, the necessary
decision was to be taken by SEBI within 21 days under Regulation
18. But it was not taken by SEBI for a period of 8 months or 239
days, to be precise. Thus, there was a delay of 221 days. During
this period, the entire scenario had changed. In such
circumstances, the appellants would be entitled to exit option like
any other ordinary investor. He submits that by giving a very
narrow and restrictive interpretation to Regulation 27, SAT has
actually curtailed the wide powers vested in SEBI to regulate the
securities market to further the object of the Regulations.
34. He submits that Regulation 27(1) (d) should be construed to
confer wide powers on SEBI to allow withdrawal of an open offer in
cases where although it is not impossible to complete open offer,
but such an offer, in its opinion, merits withdrawal. It is submitted
that the words “such circumstances as in the opinion of the Board
merit withdrawal”, appearing in Regulation 27(1)(d) of the Takeover
Regulations must mean –
“a. The formation of an opinion by Respondent – which though
subjective in nature – must be based on the existence of
objective facts;
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b. The opinion must be one that is formed by Respondent
based upon, circumstances which merit withdrawal of the
public offer;
c. Circumstances which go into the formation of the opinion,
must be circumstances that are relevant to the question of
withdrawal of the public offer;
d. The circumstances must be such that no reasonable
person, who comes into possession or knowledge thereof,
can be compelled to (ignore such circumstances and)
proceed with the public offer.”
35. Therefore, the discretion conferred on respondent under
Regulation 27(1) (d), entailed the duty of respondent to form its
opinion based on relevant facts and the circumstances prevailing
at the time when the application for withdrawal of open offer was
made. Admittedly, the respondent failed to do so.
36. Learned senior counsel further submitted that the SAT in
interpreting Regulation 27 has wrongly relied upon the principle of
Ejusdem Generis. He submits that the rule of ejusdem generis
applies only if the statutory provision – (i) contains an enumeration
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of specific words; (ii) the subjects of enumeration constitute a class
or category; (iii) that class of category is not exhausted by the
enumeration; (iv) the general terms follow the enumeration; and (v)
there is no indication of a different legislative intent.
37. Learned senior counsel submits that in the present case none of
the said requirements are met. The rule of ejusdem generis is
restricted to cases where the specific words precede the general
words in the language of the statute, and in totality from a singular
genus along with the general words. The sub-clauses of
Regulation 27 do not form a common genus of cases where it is
impossible to do an open offer. Learned senior counsel submitted
that the provisions contained in the Takeover Code are regulatory
in nature and, therefore, have to be construed widely. The
Takeover Code provisions do not apply to pledgees. The text of the
Takeover Code indicates a different legislative intent so far as the
pledgees are concerned. He submits that the court is entitled to
look at the legislative history for interpretation of any provision in
the Act, Rule or Regulation. He submits that the legislative history
of Regulation 27(1) would clearly show that ejusdem generis was
not the appropriate rule of interpretation to be implied while
construing the aforesaid provisions. He pointed out that sub-
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regulation (a) of Regulation 27(1), as originally enacted, dealt with
a case of a competing acquirer which would entitle the first
acquirer to be exempted from making the open offer. However, to
ensure that shareholders of Target Company should have an
option to decide from both offers, sub-regulation (a) was omitted on
September 9, 2002. Sub-Regulation (b) deals with a situation
where requisite statutory approvals are not granted to make the
open offer; and Sub-Regulation (c) deals with a situation where the
sole acquirer dies and although it is possible that the legal heirs
could make the open offer, nonetheless grants an exemption to the
deceased acquirer and his heirs. Regulation 27(1) (d), is not
confined to a particular situation, but grants a general power to
SEBI to permit withdrawal of open offer where the facts and
circumstances in its opinion may merit withdrawal, taking into
account the facts and circumstances of that particular case.
Therefore, according to the learned senior counsel, the SAT erred
in law in construing Regulation 27(1) (d) on the principle of
ejusdem generis. According to Mr. Shyam Divan, Regulation 27(1)
(d) provides an exception for withdrawal of open offer not limited to
the narrow confines of Clauses (b) and (c) of Regulation 27(1).
According to him, the exception under Regulation 27(1) (d) deals
with a separate and distinct class of cases i.e. where respondent
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has been conferred discretion to allow withdrawal of open offers in
“such circumstances,” which “in the opinion of the Board merit
withdrawal”. Therefore, for this reason also Regulation 27(1)(d)
cannot be read ejusdem generis with the preceding clauses to
restrict the scope. According to him, the word “such” used in
Regulation 27(1)(d) is used in the context of circumstances that in
the opinion of the Board merit withdrawal. According to learned
counsel, the same does not take colour from Regulations 27(1) (b)
or 27(1)(c). This apart, he submits that the interpretation given to
Regulation 27 by the SAT is so narrow that it leads to absurd
consequences. The narrow construction of Regulation 27(1) (d)
would permit withdrawal only on the same footing as the
circumstances enumerated under Regulation 27(1)(b) and (c). This
would leave no discretion with SEBI to approve withdrawal, “in
such circumstances”, which in the opinion of the Board “merit
withdrawal.” Finally, it is submitted that it is an accepted principle
that where two interpretations are possible then such an
interpretation ought to be taken which will not render any provision
of a statute otiose. According to him, Regulation 27(1) (d) would be
rendered meaningless if it is read ejusdem generis with Regulation
27(1) (b) and Regulation 27(1) (c). Learned senior counsel also
relied on Regulation 3 of Takeover Regulations which empowers
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Page 36
the respondent to grant a complete exemption to an acquirer from
Regulations 10, 11 and 12 in certain cases. He submits that
residuary power under Regulation 3(1) in addition to the specific
scenario mentioned therein is strongly indicative of the intention of
the legislature. In the facts of the present case, it is submitted by
Mr. Shyam Divan that had the appellants realized that there was a
fraud before making public announcement, it could have gone to
the Takeover Panel after it exercised the pledge on July 22, 2005
and applied for exemption from Regulations 10, 11 and 12. In
those circumstances, the plea of the appellants for exemption
would have been considered before the making of the public
announcement. It is only because the fraud was detected much
after the making of the public announcement that the appellants
had made an application for withdrawal of the open offer. In such
circumstances, the respondent can certainly exercise its power
under Regulation 27(1)(d) after granting a hearing. In short, the
submission of Mr. Shyam Divan is that the regulations permit
exercise of discretion before and after public announcement.
Therefore, SEBI as well as SAT had erred in giving a very narrow
interpretation to regulation 27(1)(d). Learned senior counsel also
referred to Regulation 22(14) of the Takeover Regulations which
provides that an acquirer who has withdrawn an open offer shall
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not be permitted to make an open offer for a period of six months
from the date of withdrawal of the offer. Applying this to Regulation
27, he submits that it is amply clear that impossibility as sought to
be interpreted in Regulation 27 cannot vanish in six months.
Therefore, according to him, it is clear that withdrawal of an open
offer need not be on account of impossibility only. In support of
these submissions, he relied on Municipal Corporation of
Greater Bombay Vs. Bharat Petroleum Corporation Ltd. 6
Maharashtra University of Health Sciences & Ors. Vs.
Satchikitsa Prasarak Mandal & Ors. 7 and Union of India & Ors.
Vs. Alok Kumar 8 .
38. We are unable to accept the submission of Mr. Shyam Divan that
the rule of ejusdem generis has been wrongly applied by SAT in
interpreting the provisions of Regulations 27(1) (b) (c) and (d).
39. In our opinion, the SAT has correctly come to the conclusion that
under the SEBI Act, Board has been entrusted with the
6 (2002) 4 SCC 219, 7 (2010) 3 SCC 786
8 2010) 5 SCC 349.
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fundamental duties of ensuring orderly development of the
securities market as a whole and to protect the integrity of the
securities market. It is precisely for this purpose that the provision
is made in Regulation 7 that any acquirer, who acquires shares or
voting rights which would entitle him to more than 5% or 10% or
14% shares or voting rights in a company, shall disclose at every
stage the aggregate of share holding or voting rights in that
company to the company and to the stock exchanges where
shares of the target company are listed. Under Regulation (8),
such an acquirer shall within 21 days from the financial year ending
March 31, make yearly disclosures to the company, in respect of
his holdings as on 31st March. Regulation 8A provides for
disclosure of information with regard to pledged shares. The Board
has power under Regulation 9, to call for information with regard to
the disclosures made under Regulations 6, 7, and 8 as and when
required by the Board. Regulation 10 mandates that no acquirer
shall acquire shares or voting rights which entitle such acquirer to
exercise 15% or more of the voting rights in a company, unless
such acquirer makes a public announcement to acquire shares of
such company in accordance with the Regulations. The Takeover
Code then prescribed a detailed procedure for making a public
announcement and the manner in which the offer price is
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determined at which the shares are offered to public shareholders.
Regulation 11 provides that no acquirer who, together with persons
acting in concert with him, has acquired, in accordance with the
provisions of law, 15% or more but less than 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% of
the voting rights unless such acquirer makes a public
announcement to acquire shares in accordance with the
Regulations. Again, Regulation 12 provides that irrespective of
whether or not there has been any acquisition of shares or voting
rights in a company, no acquirer shall acquire control over the
target company, unless such person makes a public
announcement to acquire shares and acquires such shares in
accordance with the Regulations. Under Regulation 13, before
making any public announcement of offer referred to in Regulation
10 or Regulation 11 or Regulation 12, the acquirer is duty bound to
appoint a Merchant Banker holding a certificate of registration
granted by the Board. Such Merchant Banker is required to be not
associates of or group of the acquirer or the target company. In
other words, it has to be a totally independent entity. Under
Regulation 14, the Merchant Banker is required to make public
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announcement under Regulation 10 or Regulation 11 within four
working days of entering into an agreement for acquisition of
shares or voting rights exceeding the respective percentage
specified in Regulations 10 and 11. Regulation 15 provided that
public announcement to be made under Regulations 10, 11 or 12
shall be made in all editions of one English national daily with wide
circulation, one Hindi national daily with wide circulation and a
regional language daily with wide circulation at the place where the
registered office of the target company is situated and at the place
of the stock exchange where the shares of the target company are
most frequently traded. Simultaneously, a copy of the public
announcement has to be submitted to the Board through the
Merchant Banker; sent to all the stock exchanges on which the
shares of the company are listed for being notified on the notice
board; and sent to the target company at its registered office for
being placed before the Board of Directors of the company.
Regulation 16 sets out in detail the particulars which are required
to be expressly stated and the public announcement is made under
Regulations 10, 11 or 12. Regulation 17 provides that the public
announcement or any advertisement, circular, brochure, publicity
material or letter of offer issued in relation to the acquisition of
shares must not contain any misleading information. Under
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Regulation 18, within 14 days from the date of public
announcement made under Regulations 10, 11 or 12, as the case
may be, the acquirer, through its Merchant Banker, is mandated to
file with SEBI the draft of the letter of offer, containing disclosures
as specified by the Board. This letter of offer is to be dispatched to
the shareholders not earlier than 21 days from its submission to
the Board. However, the Board has the power to specify changes,
if any, in the letter of offer which the merchant banker and the
acquirer is required to carry out such changes before the letter of
offer is dispatched to the shareholders. Regulation 20 provides that
the offer to acquire share under Regulations 10, 11 or 12 shall be
made at a price not lower than the price determined as per sub-
regulations (4) and (5).Sub-Regulations (4) and (5) provides a
complete procedure for determination of the price. Under
Regulation 21, it is provided that the public offer made by the
acquirer to the shareholders of the target company shall be for a
minimum 20% of the voting capital of the company. Regulation 24
imposes certain general obligations of the merchant banker. Before
the public announcement of the offer is made, the merchant banker
is required to ensure that - (a) the acquirer is able to implement the
offer; (b) the provision relating to Escrow account referred to in
Regulation 28 has been made; (c) firm arrangements for funds and
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money for payment through verifiable means to fulfil the obligations
under the offer are in place; (d) the public announcement of offer is
made in terms of the Regulations. Under Regulation 24(2), it is
provided that the merchant banker shall furnish to the Board a due
diligence certificate which shall accompany the draft letter of offer.
Under Regulation 24(4), the merchant banker is required to ensure
that the contents of the public announcement of offer as well as the
letter of offer are true, fair and adequate and based on reliable
sources, quoting the source wherever necessary. To ensure the
independence of the merchant banker under Regulation 24(5A),
the merchant banker is not permitted to deal in the shares of the
target company during the period commencing from the date of
appointment in terms of regulation 13 till the expiry of 15 days from
the date of closure of the offer. It is only upon fulfillment of all
obligations by the acquirers under the Regulations, that the
merchant banker is permitted to cause the bank with which the
escrow amount has been deposited to release the balance amount
to the acquirers. (Regulation 24(6)). Under Regulation 24(7), the
merchant banker is called to send a final report to the Board within
45 days from the date of closure of the offer.
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40. A conspectus of the aforesaid Regulations would show that the
scheme of the Takeover Code is – (a) to ensure that the target
company is aware of the substantial acquisition ; (b) to ensure that
in the process of the substantial acquisition or takeover, the
security market is not distorted or manipulated and (c) to ensure
that the small investors are given an option to exit, that is, they are
offered a choice to either offload their shares at a price as
determined in accordance with the takeover code or to continue as
shareholders under the new dispensation. In other words, the
takeover code is meant to ensure fair and equal treatment of all
shareholders in relation to substantial acquisition of shares and
takeovers and that the process does not take place in a
clandestine manner without protecting the interest of the
shareholders. It is keeping in view the aforesaid aims and objects
of the takeover code that we shall have to interpret Regulations
27(1).
Regulation 27 reads as under:
“Withdrawal of offer – (1) No public offer, once made, shall be withdrawn except under the following circumstances:-
(a)……………’
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(b) the statutory approval(s) required have been refused;
(c) the sole acquirer, being a natural person, has died;
(d) such circumstances as in the opinion o the Board merits withdrawal.
(2) In the event of withdrawal of the offer under any of the circumstances specified under sub-regulation (1), the acquirer or the merchant banker shall:
(a) make a public announcement in the same newspapers in which the public announcement of offer was published, indicating reasons for withdrawal of the offer;
(b) simultaneously with the issue of such public announcement, inform – (i) the Board; (ii) all the stock exchanges on which the shares of the company are listed; and (iii) the target company at its registered office.”
41. We may notice here that Regulation 27(1) (a) was omitted by
SEBI (Substantial Acquisition of Shares and Takeovers) (Second
Amendment), Regulations, 2002 w.e.f. 9.9.2002. Prior to omission,
it read as under :-
“(a) the withdrawal is consequent upon any competitive bid.”
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42. 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 clause (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
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though it is not impossible to perform. We are unable to accept
such an interpretation.
43. The term “ejusdem generis” has been defined in Black’s Law
Dictionary, 9th Edn. as follows :
“A canon of construction holding that when a general word or phrase follows a list of specifics, the general word or phrase will be interpreted to include only items of the same class as those listed.”
44. The meaning of the expression ejusdem generis was considered
by this Court on a number of occasions and has been reiterated in
Maharashtra University of Health Sciences and Ors. Vs.
Satchikitsa Prasarak Mandal & Ors. 9 The principle is defined
thus :
“The Latin expression “ejusdem generis” which means “of the same kind or nature” is a principle of construction, meaning thereby when general words in a statutory text are flanked by restricted words, the meaning of the general words are taken to be restricted by implication with the meaning of the restricted words. This is a principle which arises “from the linguistic implication by which words having literally a wide meaning (when taken in isolation) are treated as reduced in scope by the verbal context”. It may be regarded as an instance of ellipsis, or reliance on implication. This principle is presumed to apply unless there is some contrary indication [see Glanville
9 (2010) 3 SCC 786.
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Williams, The Origins and Logical Implications of the Ejusdem Generis Rule, 7 Conv (NS) 119].”
45. Earlier also a Constitution Bench of this Court in Kavalappara
Kottarathil Kochuni vs. State of Madras10 construed the principle
of ejusdem generis wherein it was observed as follows :
“ …….. The rule is that when general words follow particular and specific words of the same nature, the general words must be confined to the things of the same kind as those specified. But it is clearly laid down by decided cases that the specific words must form a distinct genus or category. It is not an inviolable rule of law, but is only permissible inference in the absence of an indication to the contrary.”
46. Again this Court in another Constitution Bench decision in the
case of Amar Chandra Chakraborty Vs. Collector of Excise11
observed as follows :
“. … The ejusdem generis rule strives to reconcile the incompatibility between specific and general words. This doctrine applies when (i) the statute contains an enumeration of specific words; (ii) the subjects of the enumeration constitute a class or category; (iii) that class or category is not exhausted by the enumeration; (iv) the general term follows the enumeration; and (v) there is no indication of a different legislative intent.”
47. Applying the aforesaid tests, we have no hesitation in accepting
the conclusions reached by SAT that clause (b) and (c) referred to
10 AIR 1960 SC 1080
11 (1972 (2) SCC 444)
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circumstances which pertain to a class, category or genus, that the
common thread which runs through them is the impossibility in
carrying out the public offer. Therefore, the term “such
circumstances” in clause (d) would also be restricted to situation
which would make it impossible for the acquirer to perform the
public offer. The discretion has been left to the Board by the
legislature realizing that it is impossible to anticipate all the
circumstances that may arise making it impossible to complete a
public offer. Therefore, certain amount of discretion has been left
with the Board to determine as to whether the circumstances fall
within the realm of impossibility as visualized under sub-clause (b)
and (c). In the present case, we are not satisfied that
circumstances are such which would make it impossible for the
acquirer to perform the public offer. The possibility that the acquirer
would end-up making loses instead of generating a huge profit
would not bring the situation within the realm of impossibility.
48. We are unable to accept the submission of Mr. Shyam Divan that
clause (d) would permit SEBI to accept the offer of withdrawal even
in circumstances when it has become uneconomical for the
acquirer to perform the public offer. The rule of ejusdem generis as
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defined by this Court in Commissioner of Income Tax, Udaipur,
Rajasthan Vs. McDowell and Co. Ltd.12 is as follows :
“The principle of statutory interpretation is well known and well settled that when particular words pertaining to a class, category or genus are followed by general words, the general words are construed as limited to things of the same kind as those specified. This rule is known as the rule of ejusdem generis. It applies when:
(1) the statute contains an enumeration of specific words;
(2) the subjects of enumeration constitute a class or category;
(3) that class or category is not exhausted by the enumeration;
(4) the general terms follow the enumeration; and
(5) here is no indication of a different legislative intent.”
49. Mr. Divan has sought to persuade us that clause (d) in fact
carves out an exception out of the exceptions provided in clauses
(b) and (c). We see no justification in moving away from the Latin
maxim “noscitur a sociis”, which contemplates that a statutory term
is recognized by its associated words. The Latin word “sociis”
means society. It was pointed out by Viscount Simonds in Attorney
General vs. Prince Ernest Augustus of Hanover, (1957) AC 436
that when general words are juxtaposed with specific words,
general words cannot be read in isolation. Their colour and their
12 (2009 10 SCC 755)
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contents are to be derived from their context. Applying the
aforesaid principle, we are unable to stretch the meaning of terms
“such circumstances” from the realm of impossibility to the realm of
economic undesirability. In essence, the submission made
by Mr. Divan is that unless they are allowed to walk away from the
public offer they would have to bear losses which would otherwise
have been shared by the erstwhile shareholders of the target
company. Accepting such a proposition would be contrary to the
aims and objectives of the Takeover Code which is to ensure
transparency in acquisition of a large percentage of shares in the
target company. It would also encourage undesirable and
speculative practices in the stock market. Therefore, we are unable
to accept the submission of Mr. Shyam Divan. Regulation 27(1) (d)
would empower the SEBI to permit withdrawal of an offer merely
because it has become uneconomical to perform the public offer.
50. Mr. Venugopal, in our opinion, has rightly submitted that the
Takeover Regulations, which is a special law to regulate
“substantial acquisition of shares and takeovers” in a target
company lays down a self contained code for open offer; and also
that interest of investors in the present case required that they
should be given an exit route when the appellants have acquired
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substantial chunk of shares in the target company. He has
correctly emphasised in his submissions that the orderly
development of the securities market as a whole requires that
public offers once made ought not to be allowed to be withdrawn
on the ground of fall in share price of the target company, which is
essentially a business misfortune or a financial decision of the
acquirer having gone wrong. SEBI as well as the SAT have
correctly concluded that withdrawal of the open offer in the given
set of circumstances is neither in the interest of investors nor
development of the securities market. Mr. Venugopal is correct in
voicing the apprehension that if on ground of fall in prices, public
offer is allowed to be withdrawn, it could lead to frivolous offers,
being made and withdrawn. This would adversely affect the
interests of the shareholders of the target company and the
integrity of the securities market, which is wholly contrary to the
intent and purpose of the takeover regulations. In such
circumstances, we are unable to agree with the submission of Mr.
Shyam Divan that the order passed by SEBI on 30th April, 2007 can
be said to be an order causing civil consequences. The appellants
wanting to withdraw the public offer merely wishes to cut its losses
at the expense of the innocent shareholders, who are entitled
under the Regulations to the exit option. In such circumstances,
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the appellants would have to buy the shares at the quoted prices of
Rs.18.60 per share, placing a financial burden on the appellants.
The aim of the appellants was merely to avoid such an added
burden. This is patent from the plea made by the Merchant
Bankers on 22nd September, 2006 on behalf of the appellants. In
the aforesaid application, it is clearly mentioned as under:
“Under the aforesaid circumstances, it is apparent that SRMTL has lost is substratum, has become a “sick company” and that chances of lis (sic) survival are negligible. The pledgee Acquirers while enforcing the security created earlier (invoking the pledge on the shares of SRMTL) had triggered Regulation 10 of the Regulations requiring the Pledgee Acquirers to make the open offer. However, on account of subsequent knowledge of development at SRMTL, it is apparent that if this offer is not withdrawn, the Pledgee Acquirers will be saddled with an additional burden of over Rs.25 crores. In our view, the purpose sought to be achieved by operation of the Regulations is lost in view of the subsequent developments and hence the Regulations will operate harshly again the Pledgee acquirers. In view of the changed scenario, it would be inequitable and unfair to compel the Pledgee Acquires to proceed with the offer to purchase the shares of SRMTL from the shareholders of SRMTL in accordance with the draft Letter of Offer.
In light of the change in circumstances as stated above and considering the present state of affairs, we now appeal to you to kindly permit the acquirers to withdraw the offer by using the powers vested in you in terms of Regulation 27(4) of the Regulations.”
51. In view of the foregoing reasons, we are not inclined to accept the
submissions of Mr. Divan that the principle of ejusdem generis is
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not applicable for interpreting Regulation 27(1) (d) of the Takeover
Code.
Object of Takeover Code qua the Lenders
52. The next submission of Mr. Shyam Divan is based on
Regulation 3(1)(f) of the Takeover Code, which exempts the banks
and financial institutions from making a public offer where an
acquisition of shares is made in the ordinary course of business, in
pursuance of the pledge of shares made in its favour. It is
submitted that the objective underlying the said provision appears
to be to give an exemption to the creditors who acquire shares to
secure the loan/credit and then invoke the pledge to recover such
credit from the defaulting parties, but not to take over the
management of the target companies. On similar reasoning, the
said objective, as put forward by the learned senior, would be
taken to apply in the case of a private company which gives credit
and acquires shares as pledged in course of the business, since
the object of such private companies is also not to takeover the
management but to secure their loan. It is also submitted that
Regulation 27(1) (d) of the Takeover Code ought to be interpreted
with such latitude to further the said objective of the Takeover
Code.
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53. We are unable to accept the aforesaid submission of Mr. Shyam
Divan. Rather we find merit in the submission of Mr. Venugopal
that Regulation 3(1) (f) (iv) (which exempts the acquisition of
shares by banks and public financial institutions as pledgees, from
the provisions of the Takeover Regulations), does not advance the
case of the appellants any further. Under this regulation, exemption
is provided to certain entities that acquire shares in the ordinary
course of business. The regulation provides exemption from
Regulation 10, 11 and 12 to Scheduled Commercial Banks or
Public Financial Institutions acting as pledgees in the ordinary
course of business, in order to facilitate their business operations.
Such acquisition of shares in normal circumstances is not with the
intention of taking over the target company. The shares are
acquired to protect the economic interest of the banks and public
financial institutions by securing repayment of the loan. Such
acquisitions of shares have nothing in common with acquisition of
shares by an acquirer company such as the appellants seeking to
gain control in the affairs of the target company.
Powers of Respondent under SEBI Act:
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54.Mr. Shyam Divan has further submitted that de hors the Takeover
Regulations/Code, SEBI has wide powers to allow withdrawal of
offer under Sections 11 & 11B of the SEBI Act. To safeguard the
interest of the investors in securities, and also, to regulate the
securities market, SEBI has the power to take whatever steps it
considers appropriate. In this context, the learned senior counsel
relied upon the case of Sahara India Real Estate Corporation
Limited & Ors v. Securities and Exchange Board of India &
Anr. 13
55. We are not inclined to accept the aforesaid submission. In the
aforesaid judgment in Sahara India Real Estate Corporation
Limited (supra) this Court observed as under:
“From a collective perusal of Sections 11, 11A, 11B and
11C of the SEBI Act, the conclusions drawn by the SAT,
that on the subject of regulating the securities market
and protecting interest of investors in securities, the
SEBI Act is a stand alone enactment, and the SEBI’s
powers thereunder are not fettered by any other law
including the Companies Act, is fully justified.
13 (2012) 8 SCALE 101
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56. These observations have been made by this Court to emphasise
that SEBI has all the powers to protect the interests of investors in
securities and also to ensure orderly, regulated, and transparent
functioning of the stock markets. The aforesaid observations would
be of no assistance to the appellants herein who is seeking to walk
away from public offer merely to avoid economic loses. Rather we
agree with the submission of Mr. Venugopal that permitting such a
withdrawal would lead to encouragement of unscrupulous
elements to speculate in the stock market. Encouraging such a
practice of an offer being withdrawn which has become
uneconomical would have a destabilizing effect in the securities
market. This would be destructive of the purpose for which the
Takeover Code was enacted.
Fraud:
57. It is submitted that since fraud vitiates every solemn act, the
withdrawal of the public offer by the appellants ought to have been
allowed. In this regard, reliance is placed upon Ram Chandra v.
Savitri Devi (2003) 8 SCC 319 (Paras 15-30 ).
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58. This submission of Mr. Shyam Divan is wholly misconceived in
the facts and circumstances of this case. In the case of Ram
Chandra (supra), this Court has reiterated the principle laid down
in the case of S.P.Chengalvaraya Naidu (dead) by LRs. vs.
Jagannath (Dead) by LRs. and Ors. 14 The principle was
explained by Kuldip Singh, J. in the following words:
“Fraud avoids all judicial acts, ecclesiastical or temporal” observed Chief Justice Edward Coke of England about three centuries ago. It is the settled proposition of law that a judgment or decree obtained by playing fraud on the court is a nullity and non est in the eyes of law. Such a judgment/decree — by the first court or by the highest court — has to be treated as a nullity by every court, whether superior or inferior. It can be challenged in any court even in collateral proceedings.”
59. It was further held in paragraph 5, as follows:-
“5. The High Court, in our view, fell into patent error. The short question before the High Court was whether in the facts and circumstances of this case, Jagannath obtained the preliminary decree by playing fraud on the court. The High Court, however, went haywire and made observations which are wholly perverse. We do not agree with the High Court that “there is no legal duty cast upon the plaintiff to come to court with a true case and prove it by true evidence”. The principle of “finality of litigation” cannot be pressed to the extent of such an absurdity that it becomes an engine of fraud in the hands of dishonest litigants. The courts of law are meant for imparting justice between the parties. One who comes to the court, must come with clean hands. We are constrained to say that more often than not,
14 (1994) 1 SCC 1
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process of the court is being abused. Property- grabbers, tax-evaders, bank-loan-dodgers and other unscrupulous persons from all walks of life find the court-process a convenient lever to retain the illegal gains indefinitely. We have no hesitation to say that a person, who's case is based on falsehood, has no right to approach the court. He can be summarily thrown out at any stage of the litigation.”
60. In the present case, no fraud has been played on the appellants
as such. The shares were acquired by the appellants on the basis
of an informed business decision. The appellants cannot be
permitted to take advantage of its own laxity to justify seeking
withdrawal of the public offer.
61. Mr. Shyam Divan submitted that SEBI has wrongly concluded
that the fact of the large scale embezzlement in the target
company were existent prior to the exercise of the pledge by the
appellants and, therefore, were “known” or “could have been
known” by the appellants, if the appellants had exercised proper
“due diligence”. He points out that the entire basis and/or the
special circumstances in which the appellants made an application
for permission to withdraw the public offer was on the basis of
certain facts which came to light subsequently i.e. facts which
came in the public domain and/or the knowledge of the appellants,
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only after the appellants exercised its right of pledge and after the
appellants made consequential public announcement. According to
the learned senior counsel, the Sharma Report, which came in
public domain after the public announcement, for the first time
informed the public that through fraudulent transactions, Rs.326
Crores were siphoned off/embezzled by erstwhile promoters of
SRMTL. As soon as the Sharma Report was made public, the
market price of the shares of the target company fell from Rs.18.60
to Rs.8.56. He also emphasised that the Sharma Report also
brought to public notice the Kalyaniwala Report and Sharp Report.
These reports were submitted to the erstwhile Board of Directors of
the target company in 2002. However, these reports were not
made public and in fact were deliberately withheld from the public
in spite of the same being price sensitive. Therefore, according to
Mr. Shyam Divan, the appellants, or for that matter, any person
exercising due diligence and care, could not have and did not know
the existence and nature of the fraud and embezzlements by the
erstwhile promoters of the target company. If the SEBI, the capital
market regulator, with all its infrastructure did not become aware of
the damning indictment of a listed company permitting its
controlling promoters to abuse, misuse and embezzle funds
belonging to investors in the securities market, it cannot rationally
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be accepted that the appellants would have discovered the same
by exercise of due diligence. Mr. Shyam Divan further brought to
our notice the facts which were known at the time of public
announcement and the facts which could not have been known
even after due diligence since the same did not reflect in the
balance sheet and/or financial statement of the target company.
The known facts at the time of public announcement are listed as
under:
“SRMTL had negative net worth; SRMTL Company was recently faced with poor
financial performance; Stated reasons for the aforesaid poor performance
and negative net worth was: (i) Low volume of sales and products; (ii) Reduced price and lower realization; (iii) Working capital constraints; (iv) Higher unabsorbed fixed costs. Certain Litigations as stated in the Letter of Offer were
pending.”
62. The facts which could not have been known even after due
diligence are stated to be as under:
“Finding of special investigative audit by M/s. R.C.Sharma & Co., Chartered Accountants as contained in the three reports;
Unexplained shortfall of cash – cash being siphoned by those in management.
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Issuance of warrants to Pan Emami Cosmed Ltd in concert with Emami’s promoters with a view to fraudulently siphon Rs.2.74 Crores.
Promoters fraudulently appropriating money by sale of goods to Emami Ltd by creating charge on trade receivables.
Siphoning of Rs.50 Crores by promoters/directors of SRMTL through related party transactions “by creating a fictitious asset procurement case and subsequently creating false grounds of writing off the same amount in the books of the Company”.
Rs. 143 Crores of “huge contingent liability is not disclosed in Balance Sheet as on 31.03.2005.
Systematic embezzlement and siphoning of funds by promoters director of more than 326 Crores by fraudulent transactions.”
63. On the basis of the aforesaid, Mr. Shyam Divan submitted that
the conclusion recorded by the SEBI which has been upheld and
approved by SAT is without any factual basis.
64. Mr. Shyam Divan, relying on Regulation 3A which prohibits
dealing in securities of a target company if a person has access to
price sensitive information, submitted that if the appellants were
privy to the contents of the Kalyaniwala and Sharp Reports it would
have been precluded from invoking the pledges, as such action
would constitute “dealing in securities”. It is also submitted by Mr.
Shyam Divan that the expression “due diligence” does not mean
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that the party has to assume the role of amateur detective, nor is
the party obliged to make any enquiries unless it can be
established that there existed any circumstances which should
have aroused any suspicion. It is also submitted that the law laid
down in Marfani and Co. Ltd. vs. Midland Bank Ltd. 15 and Indian
Overseas Bank vs. Industrial Chain Concern 16 which
enumerates the benchmark or standards accepted from a party
while performing the due diligence should be taken into account.
65. We are not much impressed by any of the submissions made by
Mr. Shyam Divan on this issue. Admittedly, the appellants were
aware of the litigation against Shree Ram Multi Tech Limited and
its Directors. The litigation commenced in the year 2003 i.e. before
the public announcement made by the appellants. In fact, the letter
of offer itself refers to the pending litigation by and against the
target company and its directors.
66. In Paragraph 4.17 of the said letter, the appellants mentioned the
cases filed by Banks and Financial Institutions; Cases/Appeals
filed by SRMTL against Banks and financial Institutions; Cases
15 1968 (2) All E.R. 573] 16 1990 1 SCC 484
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filed by the Registrar of Companies in the Court of Additional Chief
Metropolitan Magistrate, Ahmedabad in the matter of non payment
of dividend under Section 205 of the Companies Act, 1956 and the
application filed by the company against Registrar of Companies,
Gujarat in Gujarat High Court in this matter under Section 482 of
the Criminal Procedure Code. The list also mentions a case filed in
the City Civil Court, Ahmedabad by two commercial entities
involving a sum of Rs.14275.47 lacs in the matter of recovery of
dues and alleged claim for damages. The litany of cases also
includes an appeal of SRMTL and its directors before the SAT
against an order of SEBI dated 6 th September, 2004
restraining the company and few of its directors from accessing the
securities market and prohibiting from buying, selling and dealing
in securities, directly or indirectly, for a period of five years on the
charge of having violated sections 11 and 13 of the SEBI
Regulations, 2003. There were six cases pending against the
target company in the Labour Court, Kalol, (Gujarat) by ex-
employees of the Company in the matter of their dues and
compensation. There were cases pending in relation to Central
Excise. In one case, CEGAT had passed an order on 25th
February, 2004 claiming duty of Rs.101.81 lacs, fine of Rs.2 lacs
and penalty of Rs.0.20 lacs. Excise duty authorities have in various
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cases raised a demand on target company for an aggregate sum
of Rs.145.90 lacs towards excise duty and Rs.97.02 lacs towards
penalty for various offences. Similarly, excise duty of Rs.1317.65
lacs was demanded as a result of a raid by the Intelligence Officer,
Central Excise, Ahmedabad for non-accounted raw materials.
Undoubtedly, the appeals were pending in the higher fora in a
number of cases. Nonetheless any reasonable investor/group of
investors/consortium would have come to a conclusion that
investing in this entity would not be a prudent decision.
67. Taking into account the aforesaid state of affairs, SAT has
concluded as follows:-
“The above facts would seem to be enough to provide the appellants a correct prognosis regarding the financial health and prospects of the target company. Clearly, the appellants decided on invoking the pledge on the shares of the target company with open eyes and sufficient knowledge about the affairs of the target company. It is not as if the appellants were innocent and were caught napping in an unexpected turn of events. We are not, therefore, inclined to accept at its face value the argument of the appellants that they had no prior clue about the adverse financial information relating to the target company and were contained in the later reports of the Chartered Accountants. In this view of the matter, the Board was justified in characterizing the situation that the appellants are faced with as the result of lack of due diligence and/or sheer business misfortune. They are only trying to wriggle out of a bad bargain which is not permissible under Regulation 27(1) (d) of the takeover code.”
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68. The aforesaid conclusion reached by SAT, in our opinion, does
not call for any interference. ]
69. We are inclined to agree with the submission made by Mr.
Venugopal that the appellants cannot be permitted to wriggle out of
the obligation of a public offer under the Takeover Regulation.
Permitting them to do so would deprive the ordinary shareholders
of their valuable right to have an exit option under the aforesaid
regulations. The SEBI Regulations are designed to ensure that
public announcement is not made by way of speculation and to
protect the interest of the other shareholders. Very solemn
obligations are cast on the merchant banker under Regulation
24(1) to ensure that –
(a) the acquirer is able to implement the offer;
(b) the provision relating to Escrow account referred to in
Regulation 28 has been made;
(c) firm arrangements for funds and money for payment
through verifiable means to fulfil the obligations under the offer
are in place;
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(d) the public announcement of offer is made in terms of the
Regulations;
(e) his shareholding, if any in the target company is disclosed
in the public announcement and the letter of offer.
70. Regulation 24(2) mandates that the merchant banker shall
furnish to the Board a due diligence certificate which shall
accompany the draft letter of offer. The aforesaid regulation clearly
indicates that any enquiries and any due diligence that has to be
made by the acquirer have to be made prior to the public
announcement. It is, therefore, not possible to accept the
submission of Mr. Shyam Divan that the appellants are to be
permitted to withdraw the public announcement based on the
discovery of certain facts subsequent to the making of the public
announcement. In such circumstances, in our opinion, the
judgments cited by Mr. Shyam Divan are of no relevance.
Delay:
71. Mr. Shyam Divan has also indicated that it was because of the
unexplained delay of 8 months on the part of SEBI to process the
Letter of Offer of the appellants that the prices for the shares of the
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target company went down from Rs. 18.60 to Rs. 8.56, during this
period. This would impose huge financial liability on the appellants.
This submission is also wholly misconceived. The submission was
not made before SAT and it has been raised for the first time, in
the submissions made by Mr. Shyam Divan. In fact, the ground is
not even pleaded in the grounds of appeal. The submission is
mentioned only in the list of dates. Since, we are considering a
statutory appeal under Section 15Z of the SEBI Act, the same
cannot be permitted to be raised in this Court for the first time,
unless the submission goes to the very root of the matter. This
apart, even on merit, we find that the submission is misconceived.
Regulation 18(1) and (2) of the SEBI Takeover Code reads thus:-
18. Submission of letter of offer to the Board -
(1) Within fourteen days from the date of public announcement made under regulation 10, 11 or 12 as the case may be, the acquirer shall, through its merchant banker, file with the Board, the draft of the letter of offer containing disclosures as specified by the Board.
(2) The letter of offer shall be dispatched to the shareholders not earlier than 21 days from its submission to the Board under sub-regulation (1):
Provided that if, within 21 days from the date of submission of the letter of offer, the Board specifies changes, if any, in the letter of offer (without being under any obligation to do so), the merchant banker and the acquirer shall carry out such changes before the letter of offer is dispatched to the shareholders :
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[Provided further that if the disclosures in the draft letter of offer are inadequate or the Board has received any complaint or has initiated any enquiry or investigation in respect of the public offer, the Board may call for revised letter of offer with or without rescheduling the date of opening or closing of the offer and may offer its comments to the revised letter of offer within seven working days of filing of such revised letter of offer.]”
72. A perusal of the aforesaid regulation clearly shows that the
acquirer is required to file the draft letter of offer containing
disclosures as specified by the Board within a period of 14 days
from the date of public announcement. Thereafter, letter of offer
has to be dispatched to the shareholders not earlier than 21 days
from its submission to the Board. Within 21 days, the Board is
required to specify changes if any, that ought to be made in the
letter of offer. The merchant banker and the acquirer have then to
carry out such changes before the letter of offer is dispatched to
the shareholders. But there is no obligation to do so. Under the
second proviso, the Board may call for revised letter of offer in
case it finds that the disclosures in the draft letter of offer are
inadequate or the Board has received any complaint or has
initiated any enquiry or investigation in respect of the public offer. It
is important to notice that in the first proviso the Board does not
have any obligation to specify any change in the draft letter of offer
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within a period of 21 days. In the present case, in fact, the Board
had not specified any changes within 21 days. We have already
noticed earlier that the letter of offer was lacking and deficient in
detail. The appellants themselves were taking time to submit
details called for, by their merchant bankers through various letters
between 08.08.2005 to 20.3.2006. We have already noticed the
repeated advice given by the merchant banker to enhance the
issue size of the open offer and to comply with other requirements
of the Takeover Regulations. The appellants, in fact, were
prevaricating and did not agree with the interpretation placed on
Regulation 27(1) (d) by the Merchant Banker. We, therefore, reject
the submission of Mr. Shyam Divan that there was delay on the
part of SEBI in approving the draft letter of offer.
Court may direct fresh valuation:
73. Lastly, Mr. Shyam Divan has submitted that even if the appellants
were not to be permitted to withdraw the public offer, the Court
ought to appoint an independent valuer and direct a fresh valuation
to be made on the basis of principles contained in Regulation 20(5)
of the Takeover Regulations. Such a valuation, according to Mr.
Shyam Divan, would be justified in the light of the foregoing
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submissions. We are not at all impressed by the aforesaid
submission. The formula given in Regulation 20 would have no
applicability in the facts and circumstances of this case. The
determination of the lowest price under Regulation 20 would be at
a stage prior to the making of the public announcement and not
thereafter.
74. In view of the aforesaid, we find no merit in the appeal and it is
accordingly dismissed.
……..….…………………J. [Surinder Singh Nijjar]
………………………….J. [Anil R. Dave]
New Delhi; May 09, 2013.
70