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REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 361 OF 2007

SECURITIES & EXCHANGE BOARD  OF INDIA  ...APPELLANT

VERSUS BURREN ENERGY INDIA LTD.  & ORS.       ...RESPONDENTS

JUDGMENT

RANJAN GOGOI, J.  

1. The challenge in this appeal is to an  order  of  the  learned  Securities Appellate  Tribunal,  Mumbai  (hereinafter referred to as “the Tribunal”) reversing the  order  of  the  Adjudicating  Officer dated  25th August,  2006  holding  the respondents  guilty  of  contravening  the provisions  of  Regulation  22(7)  of  the Securities  and  Exchange  Board  of  India (Substantial  Acquisition  of  Shares  and

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Takeovers) Regulations, 1997 (hereinafter referred  to  as  “the  Regulations”).  A penalty of Rs.25 lakhs has been imposed on each  on  the  respondents  herein  for  the aforesaid  violation.   Aggrieved  by  the aforesaid reversal, Securities & Exchange Board of India  (hereinafter referred to as “SEBI”) is in appeal before us.

2. The  relevant  facts  are  not  in dispute.   The  first  respondent  herein  – Burren  Energy  India  Ltd.  (hereinafter referred to as “Burren”) was incorporated in  December,  2004  under  the  laws  of England  and  Wales  with  its  registered office  in  London.  Burren  was  formed  to acquire  the  entire  of  the  equity  share capital  of  one  Unocal  Bharat  Limited (hereinafter  referred  to  as  “UBL”), incorporated in Mauritius in July, 1996. The  shares  of  the  aforesaid  UBL  were acquired in September, 1996 by one Unocal International  Corporation  (for  short

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“UIC”) incorporated in California in USA.

3. Admittedly, UBL did not carry out any business activity but, at the relevant time,  held  26.01%  of  the  issued  share capital of Hindustan Oil Exploration Co. Ltd.  (hereinafter  referred   to  as  “the target company”).

4. Burren  entered  into  a  share purchase  agreement  with  UIC  on  14th

February,  2005  to  acquire  the  entire equity  share  capital  of  UBL.  This agreement was entered into in England and by virtue thereof all the shares of UBL were registered in the name of Burren on the  same  day  itself  i.e.  14th February, 2005.  On account of this transformation Burren came to hold 26.01% of the share capital  in  the  target  company.   As  the acquisition was beyond the stipulated 15% of the equity share capital of the target company  the  Regulations  got  attracted

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making  it  obligatory  on  the  part  of Burren  to  make  a  public  announcement  in accordance  with  the  Regulations.   Such public  announcement  in  the  form  of  a public offer for sale/purchase of 20% of the  shares  of  the  target  company  at  a determined  price  of  Rs.92.41  per  fully paid  up  equity  share  was  made  on  15th

February, 2005 by Burren and UBL acting as a person acting in concert.   

5. On 14th February, 2005 i.e. date of execution of the share purchase agreement Burren appointed two of its Directors (Mr. Finian O'Sullivan and Mr. Atul Gupta) on the board of UBL and on the same date UBL, which is a person acting in concert with Burren, appointed the same persons on the board of directors of the target company. This,  according  to  SEBI,  amounted violation  of  Regulation  22(7)  of  the Regulations  inasmuch  as  the  said appointment  was  made  during  the  offer

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period which had commenced on and from 14th

February, 2005 i.e. date of execution of the share purchase agreement.  

6. To  appreciate  the  issue  the provisions  of  Regulation  2(1)(f)  of  the Regulations  which  defines  'offer  period' and  Regulation  22(7)  of  the  Regulations alleged  to  have  been  violated  by  the respondents may be extracted below:

“2(1)(f) “Offer period” means the period between the date of entering  into  Memorandum  of Understanding  or  the  public announcement, as the case may be and  the  date  of  completion  of offer  formalities  relating  to the  offer  made  under  these regulations”

22. General  obligations  of  the acquirer.-(1)................... (2) ............................ ................................ (7) During the offer period, the acquirer  or  persons  acting  in concert  with  him  shall  not  be entitled to be appointed on the Board of Directors of the target company:

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Provided  that  in  case  of acquisition of shares or voting rights or control of a  Public Sector Undertaking pursuant to a public  announcement  made  under the  proviso  to  sub-regulation (1)  of  Regulation  14,  the provisions of sub-regulation (8) of  Regulation  23  shall  be applicable:

Provided  further  that  where the  acquirer,  other  than  the acquirer who has made an offer under  regulation  21A,  after assuming  full  acceptances,  has deposited in the escrow account hundred  per  cent  of  the consideration  payable  in  cash where  the  consideration  payable is in cash and in the form of securities  where  the consideration payable is by way of  issue,  exchange  or  transfer of  securities  or  combination thereof, he may be entitled to be  appointed  on  the  Board  of Directors of the target company after  a  period  of  twenty-one days  from  the  date  of  public announcement.

7. The Tribunal hearing the matter in appeal took the view that under Regulation 2(1)(f) of the Regulations 'offer period' is clearly defined as the period of time between  the  date  of  entering  into

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Memorandum of Understanding or the public announcement, as the case may be, and the date of completion of offer formalities. The learned Tribunal was of the view that when there was no ambiguity or uncertainty in the provisions of the Regulations the definition  of  'offer  period'  has  to  be literally  interpreted.   The  learned Tribunal went into the dictionary meaning of  the  expression  'Memorandum  of Understanding'  and  went  on  to  hold  that the  same  falls  short  of  a  concluded contract.  As there was no Memorandum of Understanding  between  the  parties  it  is the date of public announcement that would trigger of the commencement of the 'offer period'.  As  the  appointment  of  the Directors in the target company was made on  14th February,  2005  and  the  public announcement  was  made  on  15th February, 2005 the learned Tribunal was of the view that  the  respondents  (appellants  before it)  cannot  be  held  liable  for  violating

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Regulation  22(7)  of  the  Regulations,  as found by the Adjudicating Officer. 8. The main thrust of the contentions advanced on behalf of the appellant before us  appears  to  be  that  the  words 'Memorandum  of  Understanding'  are  not words of Art conveying a single meaning. In an appropriate situation a 'Memorandum of  Understanding'  may  also  include  a concluded  agreement  between  the  parties. Even in a given case where a Memorandum of Understanding  is  to  fall  short  of  a concluded  agreement  and,  in  fact,  the concluded  agreement  is  executed subsequently,  the  'offer  period'  would still  commence  from  the  date  of  the Memorandum of understanding. If the offer period  commences  from  the  date  of  such Memorandum of Understanding, according to the  learned  counsel,  there  is  no  reason why the same should not commence from the date of the share purchase agreement when the parties had not executed a Memorandum

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of  Understanding.   It  is  also  submitted that  the  commencement  of  the  ‘offer period’  from  the  date  of  public announcement  would  primarily  have relevance to a case where acquisition of shares is from the market and there is no Memorandum of Understanding or a concluded agreement pursuant thereto.  9. In  reply,  Shri  Shyam  Divan, learned Senior Counsel appearing for the respondents  has  urged  that  Regulation 22(7)  of  the  Regulations  can  have  no application to the present case inasmuch as  the  disqualification  from  appointment on the board of directors of the target company  will  operate  only  when  the acquirer or persons acting in concert are individuals  and  not  a  corporate  entity. This is because under Section 253 of the Companies  Act,  1956  (corresponding  to Section  149  of  the  Companies  Act,  2013) there is an embargo on a body corporate from being appointed as a director. Shri

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Divan has also drawn the attention of the Court  to  the  provisions  of  Regulation 22(7) of the Regulations as it originally existed;  its  amendment  in  the  year  2002 (which  provision  is  relevant  for  the purposes  of  the  present  case)  and  the subsequent amendment effected in the year 2011.  Shri  Divan  has  submitted  that meaning  sought  to  be  attributed  to  the Regulations relevant to the present case i.e.  2002  Regulations  has  been specifically  incorporated  in  the Regulations  amended  in  the  year  2011. That  the  concluded  share  purchase agreement would be the starting point of the 'offer period' is mandated under the 2011  Regulations  and  not  under  the  2002 Regulations.   

10. We have considered the submissions of the parties.

11. In the present case, while Burren

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was  the  acquirer,  UBL  was  the  person acting  in  concert.  This  is  evident  from the letter of offer (public announcement) dated  15th February,  2005.   The  embargo under  Section  22(7)  is  both  on  the acquirer and a person acting in concert. The expression 'person acting in concert' includes  a  corporate  entity  [Regulation 2(1)(e)(2)(i) of the Regulations] and also its  directors  and  associates  [Regulation 2(1)(e)(2)(iii)  of  the  Regulations].  If this  is  what  is  contemplated  under  the Regulations we do not see how the first argument advanced by Shri Divan on behalf of  the  respondents  can  have  our acceptance.

12. Insofar  as  the  second  argument advanced by Shri Divan is concerned it is correct that in the definition of 'offer period' contained in Regulation 2(1)(f) of the Regulations, relevant for the present case,  a  concluded  agreement  is  not

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contemplated to be the starting point of the offer period. But such a consequence must  naturally  follow  once  the  offer period commences from the date of entering into a Memorandum of Understanding which, in most cases would reflect an agreement in  principle  falling  short  of  a  binding contract.  If  the  offer  period  can  be triggered of by an understanding that is yet to fructify into an agreement, we do not see how the same can be said not to have commenced/started from the date of a concluded  agreement  i.e.  share  purchase agreement as in the present case.   

13. On the view that we have taken we will  have  to  hold  that  the  learned Tribunal  was  incorrect  in  reaching  its impugned conclusions and in reversing the order  of  the  Adjudicating  Officer. Consequently  the  order  of  the  learned Tribunal  is  set  aside  and  that  of  the Adjudicating  Officer  is  restored.   The

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penalty  awarded  by  the  Adjudicating Officer by order dated 25th August, 2006 shall be deposited in the manner directed within two months from today.  

14. The appeal consequently is allowed in the above terms.  

....................,J.            (RANJAN GOGOI)

....................,J.     (N.V. RAMANA)

NEW DELHI DECEMBER 2, 2016