Full Judgment
1.2 The shares of the Target company are listed at The Stock Exchange, Mumbai & Madhya Pradesh Stock Exchange( MPSE).
1.3 On October 04, 2002 , SEBI , inter alia, advised the Acquirer to submit documentary evidence regarding compliance with Regulation 3(1)(c)(i) of the Regulations.
1.4 The Acquirer replied vide its letter dated October 23, 2002 and submitted inter alia a copy of letter dated June 14, 2002 of the Target Company addressed to the Stock Exchange, Mumbai in terms of Regulation 3(1)(c)(i). Further, the Acquirer also submitted a letter dated July 31, 2002 sent by the Target company to the Stock Exchange, Mumbai in terms of Regulation 3(3).
1.5 On November 20, 2002, SEBI advised the Stock Exchange, Mumbai to inter alia confirm whether the copy of the letter enclosing Board Resolution (in respect of the proposed preferential allotment) passed in the Board Meeting held on June 13, 2002 was sent to the Exchange by the Target company in terms of Regulation 3(1)(c)(i).
1.6 The Stock Exchange, Mumbai in its reply dated November 27, 2002 inter alia stated that the Target company has not submitted the copy of the Board Resolution in terms of Regulation 3(1)(c)(i) in respect of the proposed preferential allotment passed in the Board Meeting of the Target company held on June 13, 2002.
1.7 On November 18, 2002 the Acquirer filed another report under Regulation 3(4) inter alia stating that the same is in furtherance of its report dated September 12, 2002 and same is being submitted for seeking exemption under Regulation 3(1)(c) with regard to preferential allotment of shares of the Target company. In the said report, it was inter alia stated that consequent to the further preferential allotment on October 29, 2002 the shareholding of the Acquirer increased to 34.02% from 22.31%.
2.1 As the aforesaid acquisitions were, prima facie, in violation of Regulations 10 & 11(1) , a show cause notice dated February 14, 2003 was issued to the Acquirer inter alia stating that : 2.1.1 the Acquirer does not appear to have complied with the Regulation 3(1)(c)(i) of the Regulations. As a result of non-compliance with Regulation 3(1)(c)(i) of the Regulations, the exemption u/r 3(1)(c) from the non-applicability of Regulation 10 of the Regulations may not be available to the Acquirer for the acquisition of 22.31% on 25.08.02.
Further, the exemption under regulation 3(1)(c) from the non-applicability of Regulation 11(1) of the Regulations may not be available to the Acquirer for the acquisition of 11.71% on 29.10.02.
2.1.2. a public announcement to acquire a minimum of 20% shares from the shareholders of the Target company should have been made by the Acquirer in terms of the Regulations, within 4 working days from the date of 25.08.02 & 29.10.02 in compliance with Regulation 10, 11(1) read with 14(1) of the Regulations.
2.1.3 why one or more or all action(s) under Regulation 44 and Regulation 45(6) of the Regulations and Sections 11 and 11B of the SEBI Act 1992, should not be initiated against it for violations specified 3.1 The Acquirer submitted its reply to the above said show cause notice vide its letter dated February 26, 2003 and inter alia stated that the Target company had sent a copy of the Resolution passed in the Board Meeting held on June 13, 2003 under Section 81 (IA) of the Companies Act, 1956 to the Stock Exchange, Mumbai in compliance of Regulation 3(1)(c)(i), by post Under Certificate of Posting. Further, the Acquirer stated that it appears that the Stock Exchange, Mumbai has not received the same and they are taking up the matter with the Target company for getting specific confirmation regarding receipt of copy of the aforesaid Board Resolution from MPSE.3.2 The Acquirer vide letter dated June 3, 2003, submitted a copy of letter dated June 14, 2002 sent by the Acquirer, in compliance with Regulation 3(1)(c)(i), to MPSE regarding intimation of allotment of 16,15,900 shares by the Target company.
3.3 Subsequently vide letter dated June 16, 2003, the Acquirer forwarded a copy of letter dated June 14, 2003 from MPSE confirming that it had received the intimation letter from the Target company about allotment of 16,15,900 shares.
4.1 A personal hearing was granted to the Acquirer on June 19, 2003 wherein it reiterated the submissions made by it in reply to the Show Cause Notice and it sought time for submitting documents regarding sending of Resolution to the Stock Exchanges.
4.2 Further, during the hearing, the Acquirer inter alia submitted that the allotment of 7,15,900 equity shares constituting 11.71% shares of the equity capital of the Target company on 29.10.2002 was pursuant to the shareholders approval given in Annual General Meeting held on July 31, 2002. The said approval by the shareholders for the allotment of 7,15,900 equity shares of the target company was given prior to the coming into force of amendments to the Regulations i.e. September 9, 2002. Therefore, the said allotment of 7,15,900 equity shares of the Target company by the Board of Directors on October 29, 2002 should be eligible for exemption.
4.3 Pursuant to the hearing, the Acquirer vide its letter dated June 20, 2003 forwarded copies of : a) letter dated June 07, 2002 from the Target company to the Stock Exchange, Mumbai inter alia informing the Stock Exchange that the Target company is desirous of reissuing its forfeited shares and seeking their permission under clause 23(a) of Listing Agreement.
b) letter dated June 13, 2002 sent to the Mumbai Stock Exchange by the Target company inter alia informing about the Annual General Meeting of the Target company on July 31, 2002 and reissue of forfeited shares.
c) letter dated July 06, 2002 sent to the Mumbai Stock Exchange by the Target company inter alia seeking permission under clause 23(a) of the listing agreement .
5.1 I have carefully considered the facts of the case, the submissions written as well as oral made by the Acquirer during the hearing and also the documents submitted by it in support of its submissions.
i) Whether the Acquirer has complied with Regulation 3(1)(c)(i) in the case of acquisition of 22.31% shares of the Target company on August 25, 2002 by way of preferential allotment ii) Whether the Acquirer is eligible for exemption under Regulation 3(1)(c) for acquisition of 11.71% shares of the Target company on October 29, 2002 by way of preferential allotment thereby increasing the shareholding of the Acquirer from 22.31% shares to 34.02% shares iii) If not, when did the obligation on the part of the Acquirer arise, to make public announcement 6.1 The following provisions viz. Regulations 3(1)(c), 10, 11 and 14(1) relevant for consideration of the issues are reproduced for ready reference.
Nothing contained in regulations 10, 11 and 12 of these regulations shall apply to : (c) preferential allotment, made in pursuance of a resolution passed under section 81(1A) of the Companies Act, 1956 (1 of 1956) : (i) board resolution in respect of the proposed preferential allotment is sent to all the stock exchanges on which the shares of the company are listed for being notified on the notice board; With effect from September 09, 2002, Regulation 3(1)(c) has been omitted by the SEBI (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations 2002.
No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15 per cent or more but less than 75 per cent 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 10 per cent of the voting rights, in any period of 12 months unless such acquirer makes a public announcement to acquire shares in accordance with the regulations.
No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15 per cent or more but less than 75 per cent of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5 per cent of the voting rights in any financial year ending on 31st March unless such acquirer makes a public announcement to acquire shares in accordance with the regulations.
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".
6.2.1 Whether the Acquirer has complied with Regulation 3(1)(c)(i) with respect to acquisition of 22.31% shares of the Target company on August 25, 2002 by way of preferential allotment a) The Board meeting of the Target company was held on June 13, 2002 wherein it was inter alia proposed to issue 16,15,900 equity shares of the Target company on preferential basis to the Acquirer.
b) The Target company informed the Stock Exchange Mumbai & Indore stock exchange on June 14, 2002 about the proposed preferential allotment in favour of the Acquirer.
c) A notice was issued to the shareholders of the Target company on July 2, 2002 for convening the Annual General Meeting on July 31`, 2002 . In the said notice it was inter alia stated that resolution regarding preferential allotment of 16,15,900 shares in favour of the Acquirer will be placed for shareholders approval. Further, it was also disclosed in the notice that the Acquirer (proposed allottee) would be allotted 16,15,900 shares of Rs. 10/- each @ Rs.7/- each for cash as fully paid up shares representing 34.02% of the post issue capital of the Target company. It was also disclosed that the reason for the proposed allotment of shares in favour of the Acquirer was to meet the working capital requirement of the Target company and there would be no consequent change in the controlling power of the Board of Directors of the target company and the same would not result in any change in control over the Target company.
d) The shareholders of the Target company on July 31`, 2002 passed a resolution approving the allotment of 16,15,900 shares in favour of the Acquirer.
e) In pursuance of the shareholders resolution, the Board of Directors of the Target company , on August 25, 2002, allotted 9,00,000 shares constituting 22.31% of the equity capital of the Target company in favour of the Acquirer. As a result of the aforesaid acquisition, the shareholding of the Acquirer increased from Nil (Pre-acquisition) to 22.31% (Post acquisition) in the Target company and the provisions of Regulation 10 were triggered .
f) Pursuant to the aforesaid acquisition, the Acquirer filed a report on October 23, 2002, under Regulation 3(4) claiming exemption for the said acquisition under Regulation 3(1)(c).
g) In pursuance of the shareholders resolution, the Board of Directors of the Target company , on October 29, 2002, further allotted 7,15,900 shares constituting 11.71% of the equity capital of the Target company in favour of the Acquirer. As a result of the aforesaid acquisition, the shareholding of the Acquirer , on October 29, 2002, increased from 22.31% (Pre-acquisition) to 34.02% (Post acquisition) in the Target company .
h) Pursuant to the aforesaid acquisition, the Acquirer filed a report on November 18, 2002, under Regulation 3(4) claiming exemption for the said acquisition under Regulation 3(1)(c).
6.2.3 I find that the Acquirer acquired 9,00,000 shares constituting 22.31% of the equity capital of the Target company on August 25, 2002.
As a result of the aforesaid acquisition, the shareholding of the Acquirer increased from Nil (Pre-acquisition) to 22.31% (Post acquisition) in the Target company.
6.2.4 Pursuant to the aforesaid acquisition, the Acquirer filed a report under Regulation 3(4) claiming exemption for the said acquisition under Regulation 3(1)(c).
6.2.5 I find that the shares of the Target company are listed on The Stock Exchange, Mumbai & MPSE. The Acquirer has contended that in compliance with Regulation 3(1)(c)(i), it had sent letter dated June 14, 2002 to the Stock Exchange, Mumbai and MPSE. I find that the Acquirer has produced an acknowledged copy of the letter sent by the Acquirer to the MPSE. I also find that MPSE has confirmed the receipt of the same. However, I find that the Stock Exchange, Mumbai has vide letter dated November 27, 2002 denied of having received any such letter as contended by the Acquirer.
6.2.6 In view of the aforesaid, I find that there was non-compliance of Regulation 3(1)(c)(i) so far as the requirement of sending the board resolution in respect of the proposed preferential allotment to the Stock Exchange , Mumbai, is concerned. The Stock Exchange, Mumbai has specifically denied having received any Board resolution from the Target company. However, I find from the material available on record that Regulation 3(1)(c)(ii) has been complied with by making the disclosures in the notice of the General Meeting called for the purpose of consideration of the preferential allotment.
6.3.1 Whether the Acquirer is eligible for exemption under Regulation 3(1)(c) for acquisition of 11.71% shares of the Target company on October 29, 2002 by way of preferential allotment thereby increasing the shareholding of the Acquirer from 22.31% shares to 34.02% shares. 6.3.2 From the facts of the case it is observed that the Acquirer acquired 7,15,900 equity shares constituting 11.71% shares of the equity capital of the Target company on October 29, 2002. The said acquisition resulted in increase in shareholding of the Acquirer from 22.31% (Pre-acquisition) to 34.02% (Post-acquisition) in the Target company.
6.3.3 The Acquirer submitted a report before SEBI on November 18,2002 under Regulation 3(4) inter alia claiming exemption from the provisions of the Regulations under Regulation 3(1)(c) for acquisition of 11.71% shares of the Target company by way of preferential allotment.
6.3.4 I have noted the contention of the Acquirer, made during the hearing ,that the Board of Directors of the Target Company at their meeting held on June 13, 2002 had decided to convene general meeting for approving the aforesaid preferential allotment and convened AGM of shareholders on July 31, 2002, when resolution was passed under section 81(1A) of the Companies Act, 1956 for approving the issue of shares under the proposed preferential allotment. Pursuant to the shareholders approval, the Board of directors at their meeting held on October 29, 2002 allotted 7, 15,900 shares to the Acquirer. The Acquirer also contended that though the allotment was made on October 29, 2002, i.e.
subsequent to the date of notification of the amendment to Regulations on 9.9.02, the shareholders had approved the aforesaid issue of shares on July 31, 2002 i.e. much before the amendment and therefore it presumed that the aforesaid issue of shares under preferential allotment would fall under exemption category and would not attract the provisions of the Regulations. Therefore, the said allotment of 7,15,900 equity shares of the Target company by the Board of Directors on October 29, 2002 in favour of the Acquirer should be eligible for exemption.
6.3.5 In this context it may be noted that there is no denying of the fact that in terms of the amendment to the Regulations on September 09, 2002 the provision of Regulation 3(1)(c), regarding exemption for the acquisition by the Acquirer by way of preferential allotment, has been omitted. Therefore, in view of the aforesaid I do not find any merit in the submission of the Acquirer that though the allotment was made on October 29, 2002 i.e. subsequent to the date of notification of the amendment in Regulations, the preferential allotment would fall under exemption category under Regulation 3(1) (c) as it existed prior to the Amendment dated. 09.09.02 , as the board of directors of the Target company had decided on June 13, 2002 to convene the general meeting to consider the preferential allotment of shares to the Acquirer.
6.3.6 I am of the view that though the meeting of the Board of Directors of the Target company resolving to convene general meeting seeking approval of shareholders for proposed preferential allotment was held on June 13, 2002 i.e. prior to the amendment in the Regulations on 09.09.02, the date of the Resolution passed by Board of Directors of the Target Company allotting the shares on preferential basis i.e. October 29, 2002 would be the date of triggering of the Regulations and therefore I reject the submission of the Acquirer that it was entitled for exemption under un-amended Regulations.
6.3.7 In this regard it is pertinent to refer to the observations made in the order dated 25.01.01 by the Hon'ble Securities Appellate Tribunal (SAT), Mumbai in Appeal no. 24/2000- M/s. Cabot International Capital Corporation vs SEBI & Others in Appeal. In this case also it was contended by the Acquirer/appellants that though the allotment alleged to have taken place after the notification of the 1997 Regulations i.e. on 20.02.97, the meeting of the Board of Directors of the company approving preferential allotment was held on 24.12.1996 i.e. prior to the notification of 1997 Regulations and hence, the preferential allotment made to them did not come under the purview of the 1997 Regulations. On this issue, Hon'ble SAT had held inter alia that: "........ As the reference is to "the allotment made in pursuance of a resolution passed", there is hardly any scope to view that the allotment of shares is complete by passing the resolution itself.
Allotment is a distinct event post the resolution referred in section 81 (1A). It is ultimately that date on which the board of directors validly allotted the shares, which in the present case is after the notification of the 1997 Regulations. Compliance of the provisions of regulation 3 (4) is a post acquisition requirement.
Therefore, I have no hesitation to hold that the preferential allotment made to the Appellant comes under the purview of the 1997 Regulations and thereby regulation 3 (4) is attracted." 6.3.8 In the instant case I find that the shareholding of the Acquirer was 22.31% shares in the Target company before September 09, 2002 which increased to 34.02% on October 29, 2002. By virtue of allotment of 7,15,900 shares in favour of the Acquirer by the Board of Directors of the Target company, the Acquirer triggered the provisions of Regulation 11(1) as in terms of Regulation 11(1) the Acquirer could not acquire more than 5% shares / voting rights without making a public announcement to acquire shares in accordance with the Regulations. I find that in the instant case the Acquirer had acquired 11.71% shares of the Target company which is more than the creeping limit of 5% available under Regulation 11(1). Therefore, the Acquirer triggered the provisions of Regulation 11(1).
6.3.9 In view of the aforesaid, the said acquisition of 11.71% shares by the Acquirer on October 29, 2002 is not eligible for exemption under regulation 3(1)(c) as contended by the Acquirer as the said regulation was omitted by amendment to the Regulations with effect from September 9, 2002. Therefore there is no question of exemption under regulation 3(1)(c) for the preferential allotment in favour of the Acquirer on October 29, 2002.
6.4.1 If not, when did the obligation on the part of the Acquirer arise, to make public announcement 6.4.2 In view of the findings as stated herein before, the Acquirer has triggered the provisions of Regulation 11(1) on October 29, 2002. I find that as required under the aforesaid regulations, no public announcement has been made by the Acquirer and therefore it has violated regulation 14(1) of the said Regulations.
6.4.3 The Acquirer triggered the said Regulations and obligation on its part to make the public announcement arose on October 29, 2002, which was to be made within 4 working days from the date of acquisition of shares on October 29, 2002. The Acquirer has failed to make the public announcement and has therefore, contravened the provisions of regulation 14(1) .
a) there was non compliance with the provisions of Regulation 3(1)(c)(i) by the Acquirer with regard to the acquisition of 9,00,000 lakh shares constituting 22.31% shares of the equity capital of the Target company by the Acquirer on August 25, 2002 and there has been violation of Regulation 10 for which adjudication proceedings in terms of section 15H(ii) of SEBI Act 1992 be taken up.
b) the acquisition of 7,15,900 shares constituting 11.71% shares of the equity capital of the Target company by the Acquirer on October 29, 2002 is not eligible for exemption under Regulation 3(1)(c) as contended by the Acquirer as the provision of Regulation 3(1)(c) was omitted from the Regulations vide amendment to the Regulations dated September 9, 2002 and as such there was no provision for exemption on the date of acquisition i.e. October 29, 2002 .
c) the Acquirer has violated regulation 11(1) read with regulation 14 (1), as the Acquirer acquired 11.71% shares / voting rights in the Target company on October 29, 2002, without making public announcement to acquire shares / voting rights of the Target company in accordance with the said Regulations 8.1 In view of the findings made above and in exercise of the powers conferred upon me under Section 4(3) of SEBI Act 1992 read with regulations 44 and 45 of the said Regulations, I hereby direct the Acquirer to make public announcement as required under Chapter III of the said Regulations in terms of regulation 11(1) taking November 04, 2002 as the reference date for making Public Announcement and June 13,2002 as the reference date for calculation of offer price. The public announcement shall be made within 45 days of passing of this order.
8.2 Further, in terms of sub regulation (12) of Regulation 22, the payment of consideration to the shareholders of the Target Company was to be made 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 November 04, 2002 as the reference date and thus the entire offer process would have been completed latest by March 04, 2003. Since no public announcement for acquisition of shares of the Target Company has been made, which has adversely affected the interest of shareholders of Target Company, it would be just and equitable to direct the Acquirer to pay interest @ 10% per annum on the offer price.
The Acquirer is hereby accordingly directed to pay interest @ 10% per annum to the shareholders for the loss of interest caused to the shareholders from March 05, 2003 till the date of actual payment of consideration for the shares to the shareholders whose shares shall be tendered and accepted in the public offer to be made by the Acquirer.