1.1 The Timken company (hereinafter referred to as "the Acquirer") is stated to be a corporation organised under the laws of the State of Ohio, U.S.A.1.2 Ingersoll-Rand Company Limited, is stated to be a company organized under the laws of Bermuda (hereinafter referred to as "IR") 1.3 Nadella S.A. (hereinafter referred to as Nadella) is stated to be a company organised and existing under the laws of France and a direct wholly owned subsidiary of IR. Nadella holds 26% shares/ voting rights in the equity share capital of NRB Bearings Ltd. (hereinafter referred to as "Target company").
1.4 The shares of the Target company are listed at the Stock Exchange Mumbai, the National Stock Exchange of India Ltd., the Delhi Stock Exchange Association Ltd., and the Chennai Stock Exchange Ltd. 1.5 The Target company is holding 63.98% shares/voting rights in SNL Bearings Limited (hereinafter referred to as SNL). The shares of SNL are listed at The Stock Exchange Mumbai.
1.6 The Acquirer and IR are parties to Stock and Asset Purchase Agreement dated October 16, 2002 pursuant to which the Acquirer has , as a part of and subject to the terms and conditions, agreed to acquire from IR the engineered solutions business segment of IR and also the voting securities of Nadella held by IR.2.1 The Acquirer made an application dated December 20, 2002 to the Securities and Exchange Board of India (hereinafter referred to as SEBI) under sub-regulation (2) of regulation 4 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as "the Regulations") seeking exemption from the provisions of Chapter III of the Regulations in respect of indirect acquisition of the Target company and SNL.
In the aforesaid application dated December 20, 2002 the Acquirer inter-alia, submitted as under: 3.1 The Acquirer and IR, are parties to a Stock and Asset Purchase Agreement, dated October 16, 2002, pursuant to which the Acquirer has, subject to the terms and conditions therein, agreed to acquire from IR the engineered solutions business segment of IR .
3.2 As a part of and subject to the terms and conditions of the Worldwide Acquisition, the Acquirer has agreed to purchase from IR, and IR has agreed to sell to the Acquirer, the voting securities of Nadella ( hereinafter referred to as "proposed acquisition"). The consummation of the Worldwide Acquisition, including the proposed acquisition is subject to, among others, antitrust clearance, regulatory approvals and successful completion of debt and equity financing for the Worldwide Acquisition. The Acquirer expects the proposed acquisition to be consummated during the first quarter of 2003.
3.3 Nadella owns 26% minority interest in the equity share capital of the Target company. Nadella and the Sahney family (the majority shareholder of Target company) are parties to the Shareholders Agreement dated 23.03.95 regarding the Target company.
3.4 Pursuant to the Shareholders Agreement, the parties are under an obligation to amend the Articles of Association of the Target company to provide, among other things, that (a) so long as Nadella together with its subsidiaries holds at least 25% of the issued capital of the Target company , Nadella shall be entitled to appoint one ex-officio director on the board, (b) the board shall appoint a person chosen by Nadella as the Vice-Chairman of the Target company , and (c) the presence of a director appointed by Nadella shall be necessary to constitute a valid quorum for a meeting of the board. The Shareholders Agreement also provides that at all times the board of directors of the Target company shall comprise of 2 directors chosen by Nadella and 4 directors chosen by certain numbers of the Sahney family and its associates.
3.5 Under the Shareholders Agreement, the parties have agreed to ensure that board resolutions regarding certain specified matters, including, amendments to the organizational documents, declaration of dividends, alteration in the share capital of the Target company , and entry into any joint venture, technology transfer or technical collaboration shall be passed with the consent of and as agreed between the parties. The Shareholders Agreement further provides that if any such matter arises at a shareholders meeting, the parties must vote against the resolution, unless all the parties agree to such resolution.
3.6 The Sahney family "controls the Target company and conducts the day to day management and operations of the Target company . The Acquirer believes that Nadella does not control the Target company , within the meaning of such expression as defined in the Regulations. The Acquirer believes that the proposed Acquisition will not result in the Acquirer acquiring control over the Target company .
3.7 The expression "shares" is defined in Regulation 2(1)(k) of the Regulations to mean shares in the share capital of a company. The expression "company" is not defined in the Regulations. Pursuant to Regulation 2(2) of the Takeover Regulations, the expressions not defined in the Regulations have the same meaning as have been assigned to such expressions under the Securities and Exchange Board of India Act, 1992, or the Securities Contracts (Regulation) Act, 1956, or the Companies Act, as the case may be. The expression "company" is defined in the Companies act to mean a company formed and registered under the Companies Act or an existing company as defined in clause (ii) of Section 3 of the Companies Act. It is important to note that the Companies Act uses the expression "body corporate" for a corporation or a company incorporated outside India.
3.8 The Acquirer believes that Regulation 10 only applies to the acquisition of shares or voting rights in a company and not to the acquisition of voting securities of a body corporate. The Acquirer also believes that pursuant to the Explanation, Regulation 10 only applies to a direct acquisition of shares, or an indirect acquisition by virtue of the acquisition of a "company".
3.9 As Nadella is not a "company" because it is not incorporated under the Companies Act, the voting securities of Nadella cannot be considered as "shares". Therefore, the proposed acquisition is neither a direct nor an indirect acquisition of "shares".
3.10 The Acquirer believes that the phrase "means and includes" used in the Explanation indicates an exhaustive definition of the expression "acquisition" for the purposes of Regulation 10, with the result that Regulation 10 only applies to the acquisitions described in clause (a) or clause (b) of the Explanation. In this regard, The Acquirer submits that in the case of P Kasilingam vs. P.S.G. College of Technology (AIR 1995 SC 1395), the Supreme Court has also held that "words 'means and includes', on the other hand, indicate an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions".
3.11 The Acquirer believes that the proposed acquisition will not result in the Acquirer acquiring "control" over the Target company .
3.12 Nadella neither has a right to appoint the majority of the directors on the board of the Target company , nor a right to control the management or the policy decisions of the Target company . Under the Shareholders Agreement, Nadella has restricted voting rights in respect of limited matters, and these restricted rights can only be exercised with the consent of the Sahney family. Moreover, the rights granted to Nadella pursuant to the Shareholders Agreement are in any event available under the Companies Act to a financial investor holding 26% shares in a listed company. As such, the voting rights conferred in favour of Nadella pursuant to the Shareholders Agreement do not constitute control over the management or policy decisions of the Target company .
3.13 The Sahney family holds the controlling majority stake (around 59%) in the equity share capital of the Target company . The Sahney family appoints the majority of the board of directors on the Target company and also controls the management and the policy decisions of the Target company.
3.14 The Acquirer believes that neither Regulation 10 nor Regulation 12 applies to the proposed acquisition. However, in the event that SEBI believes that any of Regulation 10 or Regulation 12 applies to the proposed acquisition, The Acquirer requests SEBI to exempt the proposed acquisition from the applicability of such Regulation and other provisions of Chapter III of the Regulations.
3.15 Pursuant to the Shareholders Agreement, Nadella has only limited voting rights in the Target company . These rights do not enable Nadella to influence or control the manner in which the Target company votes its shareholding in SNL. Nadella has absolutely no right or ability to influence or control any business or policy decision or the management of SNL. Nadella exercises absolutely no control over SNL and the Proposed Acquisition is not an acquisition of control over SNL.
3.16 The Acquirer believes that for the reasons set forth above, the proposed acquisition will not result in an acquisition of shares or voting rights in, or control over, the Target company or SNL.
3.17 The proposed acquisition is a part of the Worldwide Acquisition.
The Acquirer's real intent and desire in entering into the agreement for the proposed acquisition was to acquire the engineered solutions business segment of IR. The Acquirer had no specific intention of acquiring the shares or voting rights in, or control over, the Target company or SNL. Any indirect acquisition of an interest or a right in the Target company is incidental to, and an unintended consequence of, the Worldwide Acquisition.
3.18 Nadella's shareholding in the Target company represents around 3.1% of the total assets of Nadella. Nadella's shareholding in the Target company is an inconsequential part of its total assets. Nadella is merely a financial investor in the Target company and does not, in any manner, control the business, operations or policy decisions of the Target company .
3.19 The Proposed Acquisition will have no impact whatsoever on the management or the conduct of the business and operations of the Target company. The Proposed Acquisition will not result in, or lead to, any change in the management of the Target company .
3.20 The Proposed Acquisition will also not have any impact whatsoever on the management or the conduct of the business and operations of SNL.
According to the Annual Report of SNL for the financial year ended March 31, 2002, SNL has been declared to be a sick industrial company within the meaning of clause (o) of the sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985, as amended, ("SICA") and a reference has been made to the Board for Industrial and Financial Reconstruction for the financial reconstruction of SNL. The Acquirer submits that it has no intention whatsoever of acquiring the shares or voting rights in, or control over, a sick industrial company.
The said application dated December 20, 2002 was forwarded to the Takeover Panel in terms of sub-regulation(4) of regulation 4 of the Regulations. The Takeover Panel vide its report dated January 23, 2003 has recommended, inter alia, as under : "Considering the pith and substance of Regulations 10 and 11 of the Takeover Code as also the spirit under lying the Takeover Code, even though Nadella is not incorporated under the Companies Act, 1956, in our view, on facts stated, Regulation 10 of the Takeover Code applies to the proposed acquisition.
Nadella has voting rights in NRB Bearings Ltd. With a view to protect the interest of the investing public, the grant of exemption as sought is recommended subject to the shareholders of NRB Bearings Ltd : i. Passing a Special Resolution ratifying the change at its meeting whereat voting through postal ballot is to be permitted; ii. Serving notice of such meeting to the shareholders of NRB Bearings Ltd accompanying an envelope for postal ballot with prepaid postage stamps affixed.
Grant of exemption is recommended also subject to Nadella, being interested party to the resolution, abstaining from voting in respect thereof.
It is further recommended that the Acquirer Company be directed to make fresh application for grant of exemption in relation to SNL Bearings depending upon outcome of the Special Resolution ." As the Panel did not recommend grant of exemption as sought by the Acquirer, the Acquirer was given a hearing in terms of sub regulation (6) of regulation 4 of the Regulations, on March 11, 2002. During the course of hearing, the Acquirer reiterated the submissions made in the exemption application.
During the hearing the acquirer expressed apprehensions on the possible attempt by Indian promoters holding about 59% in NRB resorting to "arm twisting" the proposed proposal in the process of passing the special resolution and submitted that the requirement of special resolution as recommended by the Panel for approving the proposed acquisition be dispensed with.
In view of the aforesaid request of the Acquirer , the exemption application was remitted to the Takeover Panel for its reconsideration on 22.04.03.
The Takeover Panel reconsidered the exemption application and vide its Report dated 30.04.03 , inter alia, recommended as under: "In the light of letter received from the Executive director, the Takeover Panel reconsidered its recommendations made vide the Report dated 23rd January, 2003 and on reconsideration, the Takeover Panel is of the view that the recommendations made need no modification." Since the Acquirer had vide its letter dated April 10, 2003 stated inter alia that in case the submissions of the Acquirer regarding unconditional exemption were not accepted, the recommendations made by the Takeover Panel vide Report dated 23.1.2003 should be accepted, the Acquirers were not given further hearing under Regulation 4(6).
I have taken into account the submissions made by the Acquirer, the material available on record and the recommendations of the Panel. The issues which arise for consideration are- i. Whether the Acquirer would trigger Regulations 10 and 12 in respect of the Target company on account of the then proposed acquisition of voting securities of Nadella from IR in terms of the Stock and Assets Purchase Agreement dated 16.10.2002 which would result in indirect acquisition of 26% shares/ voting rights of the Target company.
ii. Whether the Acquirer would trigger Regulations 10 and 12 in respect of SNL consequent upon (i) above.
6.1 Before proceeding to deal with the issue it would be relevant to advert to the relevant provisions of the Regulations.
Regulation 2(1)(b) "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." Regulation 2(1)(k) Shares means shares in the share capital of a company carrying voting rights and includes any security which would entitle the holder to receive shares with voting rights but shall not include preference shares.
Regulation 2(1)(o) Target company means a listed company whose shares or voting rights or control is directly or indirectly acquired or is being acquired.
Regulation 2(2) all other expressions unless defined herein shall have the same meaning as have been assigned to them under the Act or Securities Contracts (Regulations) Act 1956, or the Companies Act, 1956 or any statutory modification or re enactment thereto as the case may be.
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 companies, whether listed or unlisted, whether in India or abroad" "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 special resolution passed by the shareholders in a general meeting".
6.2 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.
6.3 On the combined reading of the definition of the acquirer along with Regulation 10 it is clear that it is not necessary for an acquirer to be a company. The acquisition in violation of the regulations is conduct related. Whosoever acquires shares beyond the threshold limit provided in the Regulations irrespective of its status i.e. whether it is an individual or a company or a body corporate is under an obligation to make an open offer in terms of Regulations.
6.4 As per explanation to regulation 10 and regulation 11, acquisition shall also include indirect acquisition of any target company listed in India. Such indirect acquisition of target company could be, by an Acquirer, by virtue of acquisition of company holding shares in the target company. Further such company holding shares in the target company could be a listed or unlisted company whether in India or abroad.
6.5 I have noted the contention of the Acquirer that the expression "shares" is defined in Regulation 2(1)(k) of the Regulations to mean shares in the share capital of a company and such company could only mean a company formed and registered under the Companies Act or an existing company as defined in clause (ii) of Section 3 of the Companies Act. Further, the Companies Act uses the expression "body corporate" for a corporation or a company incorporated outside India.
6.6 I have noted the contention of the Acquirer that Regulation 10 only applies to the acquisition of shares or voting rights in a company and not to the acquisition of voting securities of a body corporate and to a direct acquisition of shares, or an indirect acquisition by virtue of the acquisition of a "company".
6.7 I have noted the contention of the Acquirer that as Nadella is not a "company" because it is not incorporated under the Companies Act, the voting securities of Nadella cannot be considered as "shares" and therefore, the proposed acquisition is neither a direct nor an indirect acquisition of "shares".
6.8 I have noted the contention of the Acquirer that the phrase "means and includes" used in the Explanation indicates an exhaustive definition of the expression "acquisition" for the purposes of Regulation 10, with the result that Regulation 10 only applies to the acquisitions described in clause (a) or clause (b) of the Explanation. Further in the case of P Kasilingam vs. P.S.G. College of Technology (AIR 1995 SC 1395), the Supreme Court has also held that "words 'means and includes', on the other hand, indicate an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions".
6.9 The aforesaid contentions of the Acquirer are not tenable .In this regard it is stated that as per the definition of the Acquirer anybody who acquires or agrees to acquire ,directly or indirectly the shares of the Target company comes within the ambit of definition of the term Acquirer. In the instant case when the Acquirer agreed to, inter alia , purchase the voting securities of IR in Nadella and indirectly the 26% shares/ voting rights, exceeding the threshold limit of 15% provided in the Regulation 10, held by Nadella in the Target company vide Stock and Asset Purchase Agreement dated 16.10.2002 from IR, it came within the definition of the term Acquirer.
6.10 It may be stated here that the issue is not whether the shares/ voting rights of Nadella held by IR are "shares" within the terms of the Regulations. The issue is whether by acquisition of such shares/voting rights of Nadella held by IR the Acquirer will indirectly acquire "shares/voting rights'', as defined in the regulations , of the Target company /or become entitled to exercise "shares/voting rights'', as defined in the regulations , in the Target company.
6.11 It is an admitted position that in terms of the shareholders agreement dated 23.03.95 between Nadella and Sahneys, Nadella will exercise the voting rights to the extent of 26% in the Target company. Further, under the Shareholders Agreement, the parties have agreed to ensure that board resolutions regarding certain specified matters, including, amendments to the organizational documents, declaration of dividends, alteration in the share capital of the Target company , and entry into any joint venture, technology transfer or technical collaboration shall be passed with the consent of and as agreed between the parties. The Shareholders Agreement further provides that if any such matter arises at a shareholders meeting, the parties must vote against the resolution, unless all the parties agree to such resolution.
6.12 Therefore, now the Acquirer cannot turn around and say that the shares/ voting rights of Nadella held by IR are not shares and Nadella is not a company in terms of the Regulations and the direct acquisition of Nadella and indirect acquisition of 26% shares of Target company for the purposes of claiming exemption from the provisions of regulation 10 of the regulations.
6.13 The contention of the Acquirer that Regulation 10 only applies to the acquisition of shares or voting rights in a company and not to the acquisition of voting securities of a body corporate and the Explanation to Regulation 11 applies only to a direct acquisition of shares, or an indirect acquisition by virtue of the acquisition of a "company" is not tenable.
6.14 If the aforesaid interpretation of the Acquirer is accepted then it will make the provisions of the Regulations redundant and would defeat the spirit of the Regulations.
6.15 In this regard it will be pertinent to advert to order of the Hon'ble Tribunal in the matter of Rhodia SA vs SEBI being SAT Appeal No 36 of 2001 ,(2001)45 CLA 422 (SAT) wherein it was interalia held that "The argument that since the acquisition of the Indian company was unintended but incidental to the acquisition of the UK company and as such the Regulations are not applicable is untenable as the Regulations take care of both direct and indirect acquisitions and the intention behind the acquisition is not the deciding factor.
From the scheme of the Regulations it is clear that if the Target Company is in India, the acquirer is required to comply with the requirement of the Regulations even if the acquirer is not residing/located in India. Regulation is directed to take over and acquisition of Indian companies, be it direct or indirect and SEBI is empowered to issue appropriate directions in terms of regulation 42 and 44 of the Regulations. The Appellant's contention that SEBI has not followed the investigation procedure provided in Chapter V of the Regulations and as such the directions issued under regulation 44 are legally untenable is also not correct. The impugned order is relatable to the application for exemption filed by the Appellant. Such applications are dealt with in the manner provided in regulation 4 and not under Chapter V. The procedure set out in regulation 4 has been complied with.
6.16 Further , in the matter of Eaton Corporation vs SEBI being SAT Appeal No 22 of 2001, (2001) 33 SCL 326 it was inter alia held by the Hon'ble Tribunal that : "It is thus clear that the merger has the approval of the laws of the State of Ohio. There is no doubt that as a result of change in the ownership of VSIL's ultimate holding company, the control over VSIL has also changed. Even if there is no direct acquisition of shares in VSIL by the Appellant, in the light of the change in control of the said VSIL effected by way of acquisition of Aeroquip Vickers Inc by the Appellant as a result of the merger referred to above, it cannot be said that the Appellant had not acquired control over VSIL. The acquisition was indirect. But regulation 12 read with regulation 2 (b) takes care of direct and indirect acquisition as could be seen from the regulation extracted below..............Regulation 12 refers to acquisition by acquirer.
The expression "Acquirer" has been defined in regulation 2 (b) as any person who directly or indirectly acquires or agrees to acquire shares 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. On a combined reading of the regulation 12 with regulation 2 (b) it is clear that the indirect acquisition of control, including acquisitions through the chain of subsidiaries as in the instant case, would attract the provisions of regulation 12. Shri Singhania's argument that since there is no change in the legal entity holding shares in VSIL and that any change in the ownership pattern of VSIL's ultimate holding company should not be taken into consideration is therefore legally untenable".
6.17 It may also be stated that the regulation 10, 11 and 12 have been framed with the objective of providing of exit option to the existing shareholders of the company under acquisition and the exit option cannot be denied by resorting to a narrow and technical interpretation of the Regulation. Regulation 10 provides for exit option to the shareholders of the Target company on substantial acquisition of its shares beyond 15%. I find that in the instant case the Acquirer has agreed to acquire substantial shares/ voting rights i.e. 26% shares/ voting rights of the Target company exceeding the threshold limit of 15% as provided in the Regulations and would thus trigger the provisions of the Regulations.
6.18 Further, it is also to be noted that the 1997 Regulations is a beneficial piece of legislation. A bare mechanical interpretation of the words and application of legislative intent devoid of concept or purpose will reduce the remedial and beneficial measures provided for in the legislation to futility. It has to be borne in mind that while interpreting the provisions of the said Regulations due regard has to be paid to the objective behind the enactment of Regulations apart from the protection of the interest of the shareholders in terms of providing an adequate exit opportunity to the shareholders in the event of change in control or substantial acquisition of shares/ voting rights by an Acquirer.
6.19 In this regard it will be pertinent to advert to the judgment of Hon'ble Supreme Court in Reserve Bank of India vs. Peerless General Finance and Investment Co. (1987) 1 SCC 424 wherein it has , interalia , been observed that "Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted." 6.20 Further, according to Blackstone the most fair and rational method for interpreting a statute is by exploring the intention of the legislature through the most natural and probable signs which are "either the words, the context, the subject matter, the effect and consequence or the spirit and reason of law. (Commentaries on the Laws of England Vol. 1 p.59). Hon'ble Supreme Court in District Mining Officer V Tata Iron and Steel Company 9JT 2001 SC 183) had held that "a statute is an edict of the legislature, and in construing a statute, it is necessary, to seek the intention of its maker. A statute has to be construed according to the intent of them that make it and the duty of the Court is to act upon the true intention of the legislature. If a statutory provision is open to more than one interpretation the Court has to choose that interpretation which represents the true intention of the legislature." 6.21 The legislative intent behind the Regulations is clear. The objective is to protect the interests of investors in securities. It is with the said objective that regulations 10, 11 and 12 have been framed providing an exit option to the existing share holders of a company under acquisition, and that exit option can not be denied by resorting to such interpretation which might defeat the purpose of the regulations.
6.22 In view of the aforesaid, Explanation (b) to Regulations 10 and 11 cannot be interpreted, as contended by the Acquirer, to cover indirect acquisition of Target companies by virtue of acquisition of companies registered in India only whether listed or unlisted. Rather it should be interpreted to include indirect acquisition of shares/voting rights/control of Target companies through acquisition of even foreign companies or any other entities howsoever they may be termed under any law, whether listed or unlisted, in tandem with the spirit of Regulations.
6.23 I have noted the contention of the Acquirer that Nadella neither has a right to appoint the majority of the directors on the board of the Target company , nor a right to control the management or the policy decisions of the Target company . Further, the Sahney family holds the controlling majority stake (around 59%) in the equity share capital of the Target company and it appoints the majority of the board of directors and also controls the management and the policy decisions of the Target company.
6.24 In this connection, I have also noted the contention of the Acquirer that pursuant to the Shareholders Agreement, Nadella has only limited voting rights in the Target company and these rights do not enable Nadella to influence or control the manner in which the Target company votes its shareholding in SNL. Nadella has absolutely no right or ability to influence or control any business or policy decision or the management of SNL. Nadella exercises absolutely no control over SNL and the proposed acquisition is not an acquisition of control over SNL.
6.25 I find merit in the submissions that Nadella as on date is not in control of the Target company in light of facts of the present case viz. Nadella has only two directors on the board of the Target company compared to six directors of the Sahney family which is holding 59% stake in the Target company. Further, it is observed from the Letter of offer dated March 21, 2000 for the open offer of SNL made by Target company that Sahney family promoted NRB in collaboration with Nadella and Nadella is the technical and financial collaborator in NRB. As Nadella is not in control over Target company, the change in control over Nadella from IR to Acquirer, would not result in change in control over the Target company. Therefore, provisions of regulation 12 are not attracted in respect of the Target company by virtue of the then proposed acquisition of voting securities in Nadella by the Acquirer in terms of the Stock and Assets Purchase Agreement dated 16.10.2002.
6.26 I have noted the contention of the Acquirer that the Acquirer had no specific intention of acquiring shares or voting rights or control over the Target company and any indirect acquisition of an interest or a right in the Target company is incidental to and an unintended consequence of the world wide acquisition. The aforesaid contention of the Acquirer is not tenable. From the scheme of the Regulations it is clear that the nature of the acquisition whether direct or indirect is of no relevance from the compliance angle of the requirement of the regulations. If the provisions of the regulations 10, 11 and 12 are triggered then the Acquirer has to make an open offer. Further, the element of intention is not necessary for ascertaining the triggering of the provisions of the Regulations.
6.27 I have also noted the contention of the Acquirer that Nadella's shareholding in the Target company represents around 3.1% of the total assets of Nadella. Further, it is an inconsequential part of its total assets and also that Nadella is merely a financial investor in the Target company and does not in any manner control the business operations or policy decisions of the Target company. The aforesaid contention of the Acquirer is not tenable and the fact that the assets of Target company represent inconsequential assets of the Nadella cannot be a ground for not providing the exit opportunity to the shareholding of the Target company as provided for in the Regulations , consequent to the then proposed substantial acquisition of 26% shares/ voting rights in the Target company by the Acquirer.
6.28 Now I will deal with the issue of triggering of Regulations 10 and 12 in respect of SNL consequent upon the then proposed acquisition of voting securities of Nadella from IR in terms of the Stock and Assets Purchase Agreement dated 16.10.2002. The Target company holds 63.98% in SNL. As detailed above, I find that regulation 10 would be triggered by the Acquirer in respect of Target company by virtue of proposed acquisition. But as far as SNL is concerned , there will be no effect , as a result of the said acquisition by the Acquirer, on the voting rights of 63.98 % held by the Target company . Further, as detailed above I also find that provisions of regulation 12 would not be attracted in the case of Target company by virtue of said acquisition of voting securities in Nadella by the Acquirer therefore no question of triggering of Regulation 12 in respect of SNL arises. In view of the above findings, I conclude that there is no direct or indirect acquisition of shares or voting rights and/ or control by the acquirer in respect of SNL consequent upon the proposed indirect acquisition of 26% shares/ voting rights of the Target company from IR in terms of the Stock and Assets Purchase Agreement dated 16.10.2002. Hence, regulations 10 and 12 are not attracted in respect of SNL.
6.29 I have noted that the Panel has also come to a finding that in the facts of the case Regulation 10 will be triggered as a result of proposed acquisition by the Acquirer and it has inter alia recommended the grant of exemption subject to the shareholders of the Target company : (i) Passing a Special Resolution ratifying the change at its meeting whereat voting through postal ballot is to be permitted; (ii) Serving notice of such meeting to the shareholders of the Target company accompanying an envelope for postal ballot with prepaid postage stamps affixed.
Further the grant of exemption is recommended , subject to Nadella, being interested party to the resolution, abstaining from voting in respect thereof.
6.30 I agree with the recommendation of the Panel. The same is in consonance with the spirit and objective of the Regulations and would provide the shareholders ample opportunity to take an appropriate decision in terms of availing the exit opportunity or not to avail the exit opportunity consequent to the said acquisition by the Acquirer.
(a) The Acquirer would trigger the provisions of Regulation 10 in respect of the Target company on account of the said acquisition of voting securities of Nadella from IR in terms of the Stock and Assets Purchase Agreement dated 16.10.2002.
(b) the Acquirer would not trigger the provisions of Regulations 10 and 12 in respect of SNL on account of the said acquisition of voting securities of Nadella from IR in terms of the Stock and Assets Purchase Agreement dated 16.10.2002.
7.1 Taking into consideration the above, the recommendations of the Takeover Panel and the interest of the public shareholders of the Target company, in exercise of the powers conferred upon me under sub section (3) of Section 4 of the Securities and Exchange Board of India Act 1992 read with sub regulation (6) of regulation 4 of the Regulations for the reasons recorded hereinabove, I hereby grant exemption to the Acquirer from the provisions of Regulation 10 from making the public announcement for open offer to the shareholders of the Target company in respect of then proposed indirect acquisition of 26% equity shares of the Target company by the Acquirer pursuant to the aforesaid Stock and Asset Purchase Agreement dated 16.10.2002 subject to the following conditions : (i) That a General Meeting of the shareholders of the Target company shall be convened, within 3 months from the date of this order, to consider and if thought fit, to pass a special resolution approving the acquisition of 26% voting rights by the acquirer from Nadella.
(ii) That Nadella, an interested party to the resolution, shall abstain from voting in respect of the resolution.
(iii) That an additional facility of the postal ballot shall be provided to the shareholders for casting their votes.
(iv) That the notice to the shareholders of the Target company for the said general meeting of the shareholders shall accompany an envelope for postal ballot with prepaid postal fee stamp affixed.
The procedure for postal ballot and the disclosures to be made in the notice to the shareholders shall include the details stated in annexure A to this Order.
7.2 In case the aforesaid resolution is passed the acquirer shall file a compliance report with SEBI within 15 days of the completion of the process of the approval by postal ballot by the shareholders of the Target company.
7.3 In case the aforesaid resolution is defeated, the acquirer shall in terms of the Regulations, make a public announcement within 4 working days of the declaration of the result of the resolution, and the said open offer to the shareholders of Target company shall be made at a price determined in accordance with the provisions of the Regulations which shall not be less than the price indicated in the notice to the shareholders.
7.4 Irrespective of the outcome of resolution in case of the Target company, the provisions of regulations 10 and 12 would not be attracted in case of SNL and hence, the application for exemption from open offer in case of SNL stands disposed off accordingly.
Procedure for Postal Ballot and disclosures in the notice to the shareholders 1. The Board of Directors of Target company shall appoint a designated person to conduct, supervise and control the exercise of postal ballot.
This person may be a company secretary, a retired Judge or any person of repute who in the opinion of the Board can conduct the voting process in a fair and transparent manner and see that the notice of the meeting containing a draft of the resolution is sent to all members entitled to vote, requesting them to send their assent or dissent within a period of thirty days from the date of posting of the letter.
2. The notice shall be sent under a certificate of posting and include a pre-paid postage envelope for facilitating the communication of the shareholders to the resolution within the said period.
3. The designated person shall ascertain the poll of the shareholders and submit a report to the Chairman of the meeting for taking into consideration while declaring the results of the poll and on the basis of such report the Chairman shall declare the result of the poll.
4. The final report submitted by designated person to Chairman shall contain the following details : III. Total shareholders who exercised their votes ( excluding interested party) "Shareholders in Favour" as a percentage of voters who exercised their votes.
IV. Total votes ( excluding interested party) ( in terms of number of voting rights/ shares) exercised The aforesaid details of the voting pattern (I to V) shall also be recorded in the resolution passed by the Board.
5. The offer price shall be disclosed in the explanatory statement as given below: " In case the aforesaid resolution is not passed, the company shall be required to make a public announcement within 4 working days of the declaration of the result of the resolution, to acquire shares from public shareholders at a price of....... per share in terms of SEBI ( Substantial Acquisition of Shares and Takeovers), Regulations 1997"