Judgment:
1.0 Shri Kishore H Patel, Shri Naresh H. Patel, & Others (hereinafter referred to as "original promoters") collectively held 39.02% shares in the equity capital of Gujarat Foils Limited (hereinafter referred to as "the Target company"). Of this 11.94% was held by the three investment companies, viz., Rutvi Investments Pvt. Ltd., Bindi Investments Pvt.
Ltd. and Kanig Investments Pvt. Ltd. floated by original promoters.
2.0 The shares of the Target company are listed at The Stock Exchange, Mumbai and Ahmedabad Stock Exchange.
3.0 The original promoters entered into a Memorandum of Understanding (hereinafter referred to as "MOU") dated 03.10.97 with Shri Navneet Mohan Mittal and Shri Pramod Jain (hereinafter collectively referred to as "the Acquirers") for transfer of 39.02% shares and control in the Target company in favour of the Acquirers.
4.0 A letter dated 12.02.99 was received by SEBI from the office of the Deputy Director of Income Tax (Investigations, Ahmedabad) stating, inter-alia, that search and seizure action, under section 132 of Income Tax Act, 1961 was undertaken by the Income Tax Department, on the business and residential premises of Shri Kishore Patel and Others.
Statements of Shri Kishore H Patel and Shri Navneet Mohan Mittal were recorded during the said search and they stated that the management of the Target company has been handed over to S/Shri Navneet Mittal and Pramod Jain with effect from 1.10.97 and they are sole in charge of affairs of the Target company. S/ShriKishore Patel and Naresh Patel have withdrawn from the company. It was also stated that the entire process has been done in violation of the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as "the said Regulations") A copy of the aforesaid MOU dated 3.10.97 and another agreement (undated) signed by acquirers and Kishore H Patel was also forwarded to SEBI along with the said letter.
5.0 In pursuance of the letter dated 12.02.99 of the Income Tax Department, details were sought from the original promoters, Acquirers, Target company and Ahmedabad Stock Exchange.
The information received from stock exchange, Acquirers, original promoters and Target company was examined. Since the reply of the Acquirers was not found to be satisfactory, a show cause notice dated 07.10.99 was issued to the Acquirers calling upon them to show cause as to why one or more or all action(s) under regulation 44 and regulation 45(6) of the said Regulations and section 11 of the SEBI Act, 1992 should not be initiated against them for the violations Regulation 10 and 12 and also for furnishing false information to SEBI. The show cause notice stated, inter-alia, that- (i) the MOU entered into on 03.10.97 to acquire 39.02% shares of the Target company at a consideration of Rs 32 lacs and to acquire the management and affairs of the Target company, was signed by the original promoters and the Acquirers. The acquirers failed to make a public announcement within 4 working days of entering into the said Agreement.
The acquirers acquired control over the three investment companies, Rutvi Investments Pvt. Ltd., Bindi Investments Pvt. Ltd. and Kanig Investments Pvt. Ltd. by appointing their representatives as directors on the Boards of these companies without making a public announcement to the shareholders of the Target company in terms of the said Regulations. These three companies were having 11.94% stake in the Target company.
7.0 Pursuant to the show cause notice dated 07.10.99, Shri Pramod Jain replied vide letter dated 21.11.99 requesting for an opportunity of personal hearing. Shri Navaneet Mohan Mittal replied vide letter dated 30.11.99. The submissions made by the Acquirers have been reproduced in the subsequent paragraphs.
8.0 In June 2001, while the replies were being examined, Pramod Jain filed a report under Regulation 3(4) of the Regulations pursuant to acquisition of shares of Target company through inter-se transfer from original promoters and other persons belonging to the promoter group.
These shares formed part of the 39.02% which were proposed to be acquired by virtue of MOU and for which Show Cause Notice had already been issued to him.
9.0 A hearing before Chairman was given to the Acquirers on 10.08.2002 which was attended by Shri Pramod Jain only. Shri Navaneet Mohan Mittal vide his letter dated 05.08.2002 submitted that he has already resigned from the office of the director of the Target company with effect from 01.06.2001 and he has transferred his entire shareholding in favour of Shri Pramod Jain and therefore, requested for grant of leave from personal hearing on 10.08.2002. Shri Pramod Jain reiterated the submissions made by him in reply to the show cause notice and made further submissions vide letter dated 26.08.2002. The aforesaid submissions have been reproduced in the subsequent paragraphs.
The submissions made by Shri Navaneet Mohan Mittal vide his letter dated 30.11.99 and by Shri Pramod Jain vide his letter dated 26.08.02 are as follows - 10.1 "Shri Kishor H Patel and his group are the original promoters of the company and were having sole management of the Target Company till the date of appointment of Shri Pramod Jain and Shri Navneet Mohan Mittal as additional directors w.e.f. 20.10.1997 and 01.10.1997 respectively. Subsequently, Shri Navneet Mohan Mittal was appointed as Jt. Managing Director w.e.f. 21.02.1998. Hence, in this way the Acquirers were inducted in the Joint Management of the Company. The details of Promoters Shares held at the time of initial public issue, particulars of transfer of shares in the name of the Acquirers was informed to the Stock Exchanges Ahmedabad and Mumbai.
10.2. As regards the alleged MOU dated 03.10.97, it is stated as under - (i) The alleged MOU is only on plain paper. It is signed by Shri Kishore H. Patel, Shri Naresh H. Patel, Shri Pramod Jain and Shri Navaneet Mohan Mittal. In business discussions and meetings, if some tentative discussions take place, it is customary to record the same in some form. These records are basically minutes of the discussions and the tentative decisions, which can be formalized if agreed upon by all concerned parties. Such minutes are customarily signed by all those who are present in the meeting.
(ii) These minutes do not constitute a binding agreement or MOU and represent the mere recording of the discussions at that point of time. To be a binding legal agreement, the first and foremost requirement in the present case would be that either or both Shri Kishore H. Patel and Shri Naresh H. Patel should have had express authority to dispose off the entire promoters share holding of 39% approximately, which was distributed over a number of persons. In the alternative all the parties holding shares under promoters group should have agreed to the proposals. In the present case none of the conditions have been fulfilled. The alleged MOU is not signed by all of the sellers or buyers and therefore, we submit that it was only a tentative understanding which if, the promoter group agreed upon would have been given a formal and binding shape.
(iii) A valid and binding agreement, as per the applicable stamp laws, would also need to be on stamp paper. However, in the present case it is not on a stamp paper.
(iv) These minutes could not take the shape of an agreement or an MOU. Instead it was decided to induct the Acquirers in the joint management of the Target company as well as to allot them some stake in the Target company within the limits permissible under the SEBI regulations.
(v) The sellers also had not given express authority to dispose off their shareholding in favor of Acquirers. Thus this should not be treated as triggering point for offer.
(vi) Accordingly shares were transferred to the Acquirers and they have not acquired any shares beyond the specified limits as per SEBI Regulations as applicable from time to time.
(vii) They were also appointed as additional Directors of the company as mentioned above. Later on, Mr. Navaneet Mohan Mittal was appointed as a Jt. Managing Director of the company w.e.f. 21 February, 1998 and the same was approved by the Extra Ordinary General Meeting of the company held on 21st March 1998. In the same meeting Shri Pramod Kumar Jain was appointed as a regular director of the Target company 10.3 The Target company continued under the joint management for more than 15 months and the joint management has been beneficial to the Company. In terms of regulation 12, explanation (ii), this joint management did not amount to any change in control over the company.
Therefore, provisions of regulation 10, 11, 14 and 22 of the take over code were not attracted at any stage.
10.4 In the Extra Ordinary General Meeting dated 8th February 1999 it was decided to hand over the control to the Acquirers, pursuant to a special resolution passed by the shareholders, in accordance with the provision of regulation 12, explanation (i). The special resolution also provided for block transfer of equity shares of the company from Kishor H. Patel and his group members pursuant to proviso to explanation (1) of regulation 12 of the Regulations.
10.5 The following facts need to be considered with regard to the special resolution passed as aforesaid :- (i) There was a joint management of two groups namely Kishor H. Patel and others and the Acquirers as on passing a special resolution in the EGM held on 08.02.1999.
(ii) Change from Joint control to sole control does not constitute a change in the control of management as approved by special resolution passed in the EGM held on 08.02.1999.
(iii) The value of shares proposed to be transferred had been decided as per the provisions contained in regulation 20 of the said Regulations.
(iv) Since the procedures laid down under proviso to explanation 1 of regulation 12 has been followed we were given to under stand that there was no need for going through the mode of public offer as specified under regulation 14.
(v) Since some of the shares were under lock-in period which required permission from SEBI an application had been made to SEBI by Shri Kishore Patel and others who were holding the shares under lock-in period for permission to transfer the shares under lock-in period along all the necessary details.
(vi) Since the required permission from SEBI for the block transfer of shares under lock-in period was never received it could not be acted upon.
(vii) The decision of Company Law Board, Principle Bench, Calcutta, in the case Krishna Paul Vs. Calcutta Chemical Company Limited where it was held that if control is transferred pursuant to special resolution passed in the general meeting, the acquirer of shares is not bound to make public offer, in view, of the gate way provided in proviso to rule 12(1).
(viii) Neither the Acquirers singly or jointly acquired any shares beyond the specified limits applicable from time to time and therefore neither regulation 22(16) was applicable nor even regulation 14(1) was applicable.
(ix) Shri Kishor Patel, Shri Nilkamal Kajiwala and Shri Naresh Patel, the original promoters of the Target company are till date continuing as Directors of the Target company. Hence there has not been a change of control from joint control to sole control, as envisaged in the aforesaid resolution.
10.6 As regards relationship with Rutvi Investments Pvt. Ltd., Bindi Investments Pvt. Ltd. and Kanig Investment Pvt. Ltd it is submitted that neither of Shri Pramod Jain or Shri Navneet Mohan Mittal were in any way related to the said companies. None of them was appointed as Director or held any controlling interest in any of the said three Companies at any stage.
10.7 The Target company and all concerned parties have complied with all legal formalities and have also made adequate disclosures to all authorities, including the SEBI, the Registrar of Companies and the stock exchanges where the shares of the Target company are listed, from time to time.
10.8 There was no intention of any breach of law at any stage. In fact, paragraph No. 13 of the minutes or the alleged Memorandum of Understanding clearly stipulates the making of public offer and specifies the shares of costs to all parties in the event of an offer.
10.9 The subsequent events and the conduct of all parties as mentioned herein above clearly establishes that there was no intention of parties to violate the provisions of the Regulations neither, to the best of our knowledge and belief, has any of them committed any breach of the provisions of the Regulations.
10.10 Some of the shares which were alleged to be transferred are in fact are still not transferred.
10.11 A mention was made in the personal hearing held in Mumbai on 10.8.02 about some alleged admissions regarding the transfer of shares/management of the Target company by Shri Navaneet Mohan Mittal, Shri Kishor Patel or Shri Nilkamal Kajiwala in the statements made before the Income Tax Authorities. The alleged admissions were held out to be evidence against the Target Company but SEBI has provided a copy of the said statements stating that no reference is made in the show cause notice dated 7.10.99 to the aforesaid statements, therefore it is presumed that the alleged admissions are not proposed to be held out to be evidence against the Target company. The right to obtain a copy of the same is reserved and reply will be filed in case the same is intended to be used as evidence. It is reiterated that there are no statements made by either of Shri Navaneet Mohan Mittal, Shri Kishor Patel or Shri Nilkamal Kajiwal to the Income Tax Authorities admitting the transfer of shares/management of the Target company.
11.1 I have taken into consideration the facts of the case, the submissions written as well as made by the Acquirers during the hearing and also the documents submitted by them in support of their submissions.
11.2 From the above the following issues arise which need consideration: i) Whether the Acquirers have triggered the said Regulations on 3/10/97 by entering into MOU with the original promoters of the Target company.
ii) Whether the acquirers can claim exemption under Explanation to regulation 12? iii) When did the obligation on the part of the Acquirers arise, to make public announcement i) Whether the Acquirers have triggered the said Regulations on 3/10/97 by entering into MOU with the promoters of the Target company.
Before dealing with the issue it will be pertinent to refer to clause (b) of sub regulation (1) of regulation 2 which reads as under : "Acquirer means any person who directly or indirectly , acquires or agrees to acquire shares or voting rights in the Target company or acquires or agrees to acquire control over the Target company, either by himself or with any person acting in concert with the Acquirer." As per the definition of the Acquirer contained in regulation 2 (1) (b), not only a person directly or indirectly acquiring the shares or voting rights in the Target company or acquiring control over the Target company is an Acquirer, but the one agreeing to acquire shares/ voting rights or control is also an Acquirer. It is not necessary that one should actually acquire shares /voting rights or control to be covered under regulation 2(1)(b). It would suffice if a person agrees to acquire shares or voting rights or control over the Target company.
On perusal of the MOU dated 03.10.1997, the copy of which was forwarded to SEBI by Income Tax Department, it is observed that MOU has been signed by the Acquirers and Shri Kishore H Patel, one of the original promoters of the Target company in the presence of two witnesses. The MOU provides for a mutual understanding to transfer the entire stake i.e., 39.02% shareholding of the promoters of the Target company, at a consideration of Rs. 92 lakhs to the Acquirers and transfer of the management and affairs of the Target company as per the terms and conditions contained therein in favour of the Acquirers . The MOU also lays down the schedule of payments.
I have noted the contention of the Acquirers that MOU dated 03.10.1997 is nothing but basically minutes of the discussions and the tentative decisions taken by the parties and the aforesaid minutes do not constitute a binding agreement or MOU.It may be mentioned that an MOU is a formal and written agreement or an arrangement entered into between the parties to the agreement to give effect to pre-existing rights. Although if not legally enforceable and different from a legally binding contract, it is evidence of an intention to create a legally binding agreement, unless the language used or the surrounding circumstances point to a different conclusion.
It may also be mentioned that the minutes are the record of the resolution and matters ancillary thereof that are arrived at between the parties and hence are indicative of the true intention.
A perusal of the contents of the MOU is indicative of the intention of the original promoters to transfer their entire share holding in the Target company to the Acquirers at the consideration and as per the schedule mentioned in the agreement. The conditions for the mutual agreement between both the parties i.e. Shri Kishor Patel and Shri Naresh Patel Group (1st Party) and the Acquirers (2nd Party) included - (a) "One director will be deputed by the Acquirers on the Board and he will be director in charge of the company.
(b) Second director of the Acquirers will be introduced on payment of Rs 50.0 lacs by the Acquirers." From the chronology of events it is noticed that, Navneet Mittal was appointed as additional director on 1.10.97 and Pramod Jain on 20.10.97. On 16.10.97, the Acquirers acquired 9.98% shares of the Target company. Thereafter Shri Navneet Mohan Mittal was appointed as joint managing director on 21.2.98 when Shri Pramod Jain was also appointed as director.
The surrounding facts, as stated hereinbefore, indicate that the Acquirers had every intention to acquire the controlling stake in the Target company. Thus the submission that MOU was minutes of meeting and was not implemented is not acceptable. In view of the aforesaid, the entering into an MOU by the Acquirers was indicative of an intention to create a legally enforceable agreement and as per the Regulations it necessitates the making of an open offer. Thus on the date of entering into an MOU i.e. 3/10/97 the provisions of the Regulations were triggerred.
Further, it is observed that in the MOU various terms regarding the conditions of the transfer of management and controlling shareholding of the Target company have also been stated. Thus, it is clear that the Acquirers agreed to acquire 39.02% shareholding and control over the Target company on 03.10.1997 pursuant to the execution of MOU and came within the definition of the term Acquirer.
On perusal of the documents available on record , I find the following inconsistencies in the submissions made by Acquirers which indicate that the stand taken by the Acquirers now is to defend the alleged violation and is an after thought - (a) Shri Navneet Mohan Mittal in letter dated 3.6.99 has stated that "We had entered into the Memorandum of Understanding on 03/10/97 whereby, we have only provided about the mode of acquisition of equity shares and to block transfer the equity shares of the company in question. ...........". Kishore H Patel in his letter dated June 10, 1999 admitted that "We have entered into a MOU and pursuant to that we have sold only 9.98% of equity shares of the company......." (b) However later on in letter dated 28.7.99 Navneet Mohan Mittal submitted that the 'informal MOU' is no longer in their possession, since Income Tax authorities have seized the MOU during a raid on 9-9-98. He also submitted that the alleged MOU was minutes of the discussion at initial stage and it was not formalized or even signed by him. Further, in the reply dated November 30, 1999 to the show cause notice issued by SEBI, Shri Navneet Mohan Mittal referred to the MOU as the minutes of the discussions held on October 3, 1997 that is recorded on a plain and unstamped paper which has been repeated in the written submissions of Shri Pramod Jain dated 26.8.02.
In this regard it will be pertinent to refer to the following comments of Income Tax Department made vide letter dated 12.2.99 which also indicate that the submissions made now are an after thought on the part of the Acquirers and sellers to circumvent the Regulations- "In this agreement, they have mentioned the term public offer. But looking into the expenses involved in the public offer, both groups decided not to go for public offer, but to take the management of these three benami concerns by appointing their own persons (of the Acquirers) as directors of Rutvi/ Bindi/ Kanig Investment Pvt. Ltd." From the aforesaid it is clear that pursuant to signing the MOU on 03.10.97, the Acquirers triggered the provisions of the Regulations and were under an obligation to comply with the requirements laid down under the Regulations of making public announcement and open offer.
From the facts of the case it is observed that the Acquirers have failed to do so and have violated the provisions of Regulation 10 and 12 of Regulations.
In this regard, it will be pertinent to refer to the order August 8, 2001 of the Hon'ble Mumbai High Court in the case of B.P. Plc vs.
Securities and Exchange Board of India being first appeal No. 582 of 2001 in SEBI Appeal No. 11/2001 vide, [2001] 34 SCL 469 (BOM) wherein the Hon'ble High Court has held that - "the word Acquirer could not be interpreted to mean only a person who has already acquired the shares.
On the contrary the definition of Acquirer in regulation 2(1)(b) clearly mentions acquires or agrees to acquire shares or voting rights in the Target company, or acquires or agrees to acquire control over the Target company. From the above it is very clear that even someone who agrees to acquire shares or voting rights or agrees to acquire control over the Target company would come within the definition of Acquirer.... if the word Acquirer were to mean only those who have already acquired shares then the provisions regarding public announcement in SEBI Regulations would be rendered nugatory. The salutary protections contemplated through public announcement would be lost." In view of the above, the Acquirers have triggered the provisions of the said Regulations on 03.10.97, i.e., the day they entered into MOU with the original promoters of the Target company.
(ii)Whether the acquirers can claim exemption under Explanation to regulation 12? Before dealing with the issue, it will be relevant to advert to regulation 12.
"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.
Provided that nothing contained herein shall apply to any change in control which takes place in pursuance to a resolution passed by the shareholders in a general meeting".
Explanation - (i) For the purposes of this regulation where there are two or more persons in control over the Target company, the cessor of any one such person from such control shall not be deemed to be a change in control of management nor shall any change in the nature and quantum of control amongst them constitute change in control of management : Provided however that if the transfer of joint control to sole control is through sale at less than the market value of the shares, a shareholders' meeting of the Target company shall be convened to determine the mode of disposal of the shares of the outgoing shareholder, by a letter of offer or by block-transfer to the existing shareholders in control in accordance with the decision passed by a special resolution. Market value in such cases shall be determined in accordance with regulation 20.
(ii)Where any person or persons are given joint control, such control shall not be deemed to be a change in control so long as the control given is equal to or less than the control exercised by person(s) presently having control over the company.
The Acquirers have claimed that they were inducted in the joint management of the Target Company as per the SEBI regulations. As per the explanation (ii) to the regulation 12, where any person or persons are given joint control, such control shall not be deemed to be a change in control so long as the control given is equal to or less than the control exercised by the person(s) presently having control over the company. In the instant case it is observed that at the time of their appointment on the board, the Board of the Target company consisted of 5 directors (excluding GIIC nominee). The promoters, Kishore Patel and group held 39.02%. The Board was expanded and the Acquirers were appointed on the Board. Also, 9.98% shares were transferred to them. However, there is no document on record to prove that the said appointment/ transfer was to give joint control to the Acquirers and neither any disclosures in this regard were made to the shareholders of the Target company while seeking their approval for appointment of new directors.
On perusal of the EGM Notice dated 21.2.98 sent by the Target company to the shareholders, it is observed that following disclosures as contained in the EGM notice are given - 1. To consider and if thought fit to pass with or without modification the following as an Ordinary resolution.
"RESOLVED THAT pursuant to provisions of section 198, 269, 309, 310, 311 read with Schedule XIII of the Companeis Act, 1956 and other applicable provisions, if any, of the Companies Act, 1956 (the said Act) and subject to the approval of the Central Government, in the event of it being required, the Company hereby approves of and confirms the appointment of Shri Navneet Mohan Mittal as Joint Managing Director of the Company for a period of five years with effect from 21st February, 1998 to 29th February, 2003, upon the terms and conditions set out in the agreement to be entered into and draft of which is being submitted to the meeting and approves the payment and providing of remuneration as prescribed in the draft agreement." RESOLVED FURTHER THAT pursuant to above mentioned provisions of the Companies Act, 1956, and in particular to section 198 thereof and subject to approval of the Central Government, if required, the remuneration aforesaid be paid and the perquisites be provided to Shri Navneet Mohan Mittal, as minimum remuneration in the event of loss or inadequacy of profits in any year, subject to limits as may be prescribed in Section II of the said schedule XIII to the said Act, from time to time.
FURTHER RESOLVED THAT the Board of Directors of the Company be and is hereby authorized to take all such steps as may be necessary or desirable to give effect to this resolution." 1. To consider and if thought fit to pass with or without modification the following as an Ordinary resolution.
"RESOLVED THAT Shri Pramod Jain, be and is hereby appointed as Director of the Company, liable to retire by rotation." From the reading of the aforesaid notice and minutes of the Board meeting held on 21.2.98 it is observed that:- (a) For the EGM held on 21.3.98 while giving background of Shri Pramod Jain and Shri Navneet Mohan Mittal and their future contribution to the company, their coming in joint control with the original promoters has not been disclosed.
(b) Mere appointment of two unrelated parties as Jt. Managing Director and director (nothing has been said in the minutes or explanatory statement regarding there being related or acting in concert with each other) does not indicate joint control by itself.
Therefore in view of the inadequate disclosures in the notice of EGM dated 21.02.98 given to the shareholders of the Target company and in view of the fact that the regulations were already triggered on 03.10.1997, the contention of the Acquirers that there has been transfer from sole control to joint control in 1997 is not tenable.
In this context it will be relevant to refer to the judgement of the Hon'ble Bombay High Court in the matter of Shirish Finance (P) Ltd. Vs.
M.S. Reddy (2002 SCL 47) case which while discussing the interpretation of Regulation 10 of the 1994 Takeover Regulations has observed that- "........ Such a meaning would defeat the very objective of the Regulations. The policy of the Regulations is very clear viz. to enable the shareholders of a company to reach a proper informed decision as to whether they would part with their shares and to assure them a proper price. The provision is enabling, making it mandatory for a public announcement to be made prior to acquisition, followed by an offer, making it open to anyone to make a competitive bid. Therefore, it must be construed so as to achieve the objective rather than defeat by stratagem".
Thus, in the circumstances of the case, an interpretation that there was a change in control from sole to joint in terms of explanation (ii) to regulation 12 and hence exempt under the provisions of the Regulations would not help in achieving the objective of the Regulations which includes that the takeover process should be conducted in a transparent manner with full information being given to the shareholders.
As stated herein before the MOU signed on 3.10.97 was for transfer of control from promoters to the Acquirers, the appointment of the Acquirers as directors / additional directors and Joint Managing Director were only means of and steps towards transfer of the said control.
As the MOU was signed on 3-10-97, the Regulations were triggered on that day itself as mentioned above. The appointment of the Acquirers on the Board of the Target company was a stratagem to defeat the objective of the Regulations.
Further it will be pertinent to refer to the Report of the Committee on Substantial Acquisition of Shares and Takeovers under the Chairmanship of Justice P N Bhagwati, based on the recommendations on which the 1997 Regulations have been framed, in its report dated 18.1.97 while recommending the definition of control in para 6.3 has stated that " ... management control ultimately manifests itself through control over the board of directors of the company, whatever be the manner in which such change of control may be achieved." It has also been observed by the committee in para 2.21 that control can be acquired by entering into covert voting arrangements.
In the instant case, though the acquisition of 39.02% shares and control over the Target company was decided to be acquired on 3-10-97, the Acquirers along with the existing promoters adopted a strategy to camouflage the acquisition of control as a joint control and acquired control in a clandestine and surreptitious manner in violation of the Regulations. It is worth noting that if no Income Tax raid had been conducted in 1998 and MOU not unearthed the said acquisition of control in October 1997 would have gone unnoticed.
In view of the aforesaid since the provision of the regulations had already been triggered by the Acquirers on 03.10.97, i.e., the date of entering into MOU, the subsequent transfer from sole control to joint control in 1997 and transfer from joint control to sole control in 1999 is of no consequence and does not exempt agreement to acquire control on a prior date from the provisions of the Regulations.
(iii) If the provisions of the Regulations have been triggered, when did the obligation on the part of the Acquirer arise, to make public announcement In this regard it will be pertinent to refer to regulations 10, 12 and 14 which are reproduced hereunder: Regulation 10 (Acquisition of fifteen per cent or more of the shares or voting rights of any company) "No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by the persons acting in concert with him), entitle such acquirer to exercise [fifteen] percent 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".
Explanation: For the purposes of regulation 10 and regulation 11, acquisition shall mean and include - (a) direct acquisition in a listed company to which the regulations apply; (b) indirect acquisition by virtue of acquisition of holding companies, whether listed or unlisted, whether in India or abroad" Regulation 14(1) : "The public announcement referred to in Regulation 10 or Regulation 11 shall be made by the merchant banker not later than four working days of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein".
Regulation 14(3) : "The public announcement referred to in Regulation 12 shall be made by the merchant banker not later than four working days after any such change or changes are decided to be made as would result in the acquisition of control over the Target company by the acquirer".
From the facts of the case it is clear that the MOU was admittedly entered into between the Acquirer and the promoters of the Target company on 3/10/97 wherein a clear intention of acquiring substantial shares/voting rights i.e. 39.02% shares and control over the Target company existed. In view of the said agreement the provisions of the said Regulations got triggered on 3/10/97 since in terms of regulations14(1) and 14(3) the public announcement has to be made by the Acquirer within 4 working days of entering into an agreement or taking any decision which would result in change in control of the Target company. Accordingly, once the said Regulations have been triggered the Acquirer is under an obligation, to make a public announcement in terms of the Regulations.
From perusal of the provisions of regulations 10 & 12,it is clear that there is a prohibition on the Acquirer, not to acquire shares or voting rights or control of the Target company unless the Acquirer makes a public announcement to acquire shares in accordance with the regulations and acquires such shares in accordance with the regulations. Thus the regulations not only mandate issuance of public announcement by the Acquirer but also require the Acquirer to acquire such shares in accordance with the regulations. It is clear that issuance of public announcement is not a post acquisition requirement but definitely a pre acquisition requirement.
In this regard, the Hon'ble Mumbai High Court in B.P. Plc case has held that " Even Regulation 12, mentions in categorical terms as "no Acquirer shall acquire control over the Target company unless such person makes a public announcement to acquire shares and acquires such shares".
Therefore what is contemplated is that a public announcement must precede any acquisition of shares and then only a person can acquire shares. Any other interpretation would render public announcement superfluous and the objectives sought to be achieved would be lost.
This is all the more abundantly clear from Regulation 14(3) mentions about the necessity of public announcement when "any such change or changes are decided to be made as would result in the acquisition of control over the Target company by the Acquirer". That is to say, when any such change is decided to be made, the same would result in acquisition or control, then public announcement will have to be made.
Therefore, once a decision is taken, which would result in acquisition or control, then public announcement must precede such acquisition or control. That is the decision to later on result in acquisition or taking control." I find that as required under the aforesaid regulations, no public announcement has been made by the Acquirers and therefore they have violated regulations 14(1) & 14(3) of the said Regulations.
In view of the aforesaid, I find that the Acquirer has violated regulations 10 and 12 read with sub-regulations (1) and (3) of regulation 14, as the Acquirers have acquired 39.02 % shares/voting rights and control in the Target company, without making public announcement to acquire shares/voting rights or control of the Target company in accordance with the said Regulations.
13.1 In view of the findings made above, in exercise of the powers conferred upon me under sub-section (3) of Section 4 read with Section 11B SEBI Act 1992 read with regulations 44 and 45 of the said Regulations, I hereby direct the Acquirers to make public announcement as required under Chapter III of the said Regulations in terms of regulations 10 & 12 taking 3/10/97 as the reference date for calculation of offer price. The public announcement shall be made within 45 days of passing of this order.
13.2 Further, in terms of sub regulation (12) of regulation 22, the payment of consideration to the shareholders of the Target company has to be paid within 30 days of the closure of the offer. The maximum time period provided in the said Regulations for completing the offer formalities in respect of an open offer, is 120 days from the date of public announcement. The public announcement in the instant case ought to have been made taking 3/10/97 as a reference date and thus the entire offer process would have been completed latest by 31/1/98. Since no public announcement for acquisition of shares of the Target company has been made, which has adversely affected interest of shareholders of Target company, it would be just and equitable to direct the Acquirers to pay interest @ 15% per annum on the offer price. The Acquirers are hereby accordingly directed to pay interest @ 15% per annum to the shareholders for the loss of interest caused to the shareholders from 1/2/98 till the date of actual payment of consideration for the shares to be tendered in the offer directed to be made by the Acquirers.