| SooperKanoon Citation | sooperkanoon.com/58329 |
| Court | SEBI Securities and Exchange Board of India or Securities Appellate Tribunal SAT |
| Decided On | Mar-08-2006 |
| Judge | N Sodhi, R Bhardwaj |
| Reported in | (2006)68SCL287SAT |
| Appellant | Hardy Oil Pvt. Ltd. |
| Respondent | Securities and Exchange Board of |
This agreement was entered into in England for cash at a negotiated acquisition price of US$ 26,10,000. The acquisition was unconditional and absolute transfer of shares of a foreign shareholder to a foreign company outside India at the holding company level and the shares of UBL were also registered in the name of Burren on the same day. The net result of this transaction is that UBL which was earlier owned by UIC is now owned by Burren and it continues to hold 26.01% of the share capital in the target company. Since Burren indirectly acquired 26.01% equity share capital of the target company, it (Burren) nominated two directors on the board of directors of the target company in pursuance to the agreement. The appellant is also a limited company registered in England and it holds 8.5% shares in the target company. The dispute herein is between the appellant and Burren regarding 26.01% share capital of the target company held by UBL. The fight is between them to take over UBL with a view to control the target company.
2. The Securities and Exchange Board of India (Substantial Acquisition of Shares & Takeovers) Regulations, 1997 (hereinafter referred to as "the Regulations") have been framed by the Securities and Exchange Board of India (for short "the Board") in exercise of its powers under Section 30 of the Securities and Exchange Board of India Act, 1992 (for short "the Act"). Regulations 10 to 12 require that whenever any person acquires directly or indirectly 15% or more shares or voting rights in a company, he/it shall make a public announcement to acquire shares of the said company in accordance with the Regulations. Since Burren had taken over UBL, it indirectly acquired 26.01% shares in the target company and, therefore, in pursuance to the Regulations it made a public announcement on February 15, 2005 to acquire shares of the target company. The offer was to acquire 1,17,48,990 equity shares constituting 20% of the paid up equity share capital of the target company at a price of Rs.92.41 per share. It was made clear in the public announcement that it was being made pursuant to and in compliance with the Regulations. Learned counsel for the parties informed us during the course of arguments that the public offer made by Burren had virtually failed because only 1800 shares were offered to it in response to the public announcement presumably because the share price of the target company had by then risen and was much higher than the offer price.
3. Soon after the public announcement, the appellant filed an application dated 6/4/2005 before the Board complaining that Burren and UBL were trying to seek legitimacy and legal sanction for a fraudulent acquisition of control of the target company which is a listed company and that the entire fraud was being put through the Regulations in derogation of the contractual rights of the appellant. The primary grievance made in the complaint was that the target company had entered into a shareholders agreement on 14/10/1998 to which UBL, the appellant through its predecessor and other financial institutions which were shareholders were a party and that the agreement contained a provision for preemption if any of the parties to the agreement desired to sell off their shares. The appellant complained that in pursuance to that agreement it had a right of preemption before Burren could acquire / purchase the shares of UBL. The appellant also complained that the public announcement suffered from inadequate disclosures and suppression of material particulars. The prayer made in the application was that the Board being the protector of the interests of investors and shareholders should not allow the open offer process to be initiated and that it should direct Burren to withdraw the public offer made on its behalf and on behalf of UBL. This complaint was followed by another complaint dated 21/7/2005 containing similar allegations. It is common case of the parties that disputes regarding the right claimed by the appellant are pending in a civil court at Vadodara in the State of Gujrat and that some arbitration proceedings are also pending before an Arbitrator in England with which we are not concerned.
4. In the meantime Burren submitted a draft letter of offer dated March 1, 2005 to the Board for its approval. While the letter of offer was being examined by the Board, it received the aforesaid complaints from the appellant and after examining the same Burren was informed by letter dated July 25, 2005 that it should ensure that all disputes pending between the parties in various fora should be disclosed in the letter of offer making it clear that the public offer was subject to the result of those proceedings. The Board further directed Burren to disclose in the letter of offer that the question whether appointment of directors on February 15, 2005 on the Board of Directors of the target company was in violation of the Regulations, was under consideration of the Board. Burren was also required to disclose the details regarding the incorporation of UBL in Mauritius. The draft letter of offer was approved by the Board subject to various riders including the aforesaid directions. It appears that the Board did not inform the appellant about the action taken on its complaints and, therefore, the appellant felt that the complaints were not being attended to. It approached the High Court of Bombay under Article 226 of the Constitution for a mandamus directing the Board to take action on the complaints filed by it. In response to the notice issued in the writ petition the Board informed the appellant and the court that suitable directions had been issued to Burren to modify the draft letter of offer. A copy of the letter dated July 25, 2005 issued to the merchant banker of Burren was produced and handed over to the appellant in court. Since action had been taken on the complaints, the writ petition was dismissed on 11/08/2005 as withdrawn. Treating the letter dated July 25, 2005 as the order passed by the Board on the complaints filed by the appellant, the latter filed Appeal no.115 of 2005 before this Tribunal with a grievance that the complaints made by it had not been properly considered by the Board. The appeal was disposed of with a direction to the Board to consider afresh the points raised by the appellant in its complaints and to convey its decision within a particular time frame. In pursuance to that direction the Board addressed a detailed communication dated August 29, 2005 to the appellant informing the latter that there was no merit in the complaints filed by it and that there was no need to carry out investigations under Regulation 38 of the Regulations. The Board further informed the appellant that the agreement between Burren and UIC for purchase of shares of UBL was an agreement between two foreign companies whereby shares of another foreign company were acquired outside India and, therefore, the validity of such an agreement could be challenged only according to the laws of domicile of those companies. Reference was made to the judgement of the Supreme Court in Technip SA v. SMS Holding Pvt. Ltd. . The appellant was also informed that in the present case no provision of the Regulations had been violated. It is against this communication that the present appeal has been filed under Section 15T of the Act.
6. It was strenuously urged on behalf of the appellant that the indirect acquisition of 26.01% shares of the target company by Burren on 14/02/2005 was in violation of the Regulations. Our attention was drawn to Regulations 10, 11, 12 and also to Regulation 22 to contend that the acquisition was illegal because Burren did not make the public announcement prior to acquiring the shares of UBL on 14/02/2005. The argument is that Regulation 10 prohibits the acquisition of shares (if they exceed the stipulated 15% or more) without the acquirer first making a public announcement to acquire the shares in accordance with the Regulations. Great stress was laid on the word unless used in this Regulation which, according to the learned senior counsel requires the acquirer to make the public announcement prior to the acquisition of shares. Reference was also made to the Explanation to Regulation 11 to contend that acquisition includes indirect acquisition of companies whether listed on unlisted , whether in India or abroad. Clause 16 of Regulation 22 was also pressed into service to support the plea that the agreement by which Burren indirectly acquired the shares of the target company was contrary to the Regulations. Learned senior counsel submitted that the shares of UBL had been acquired through an agreement which did not contain a clause "to the effect that in case of non compliance of any provisions of this regulation, the agreement for such sale shall not be acted upon by the seller or the acquirer..." and therefore, by virtue of Regulation 22(16) the agreement could not be acted upon.. According to the learned senior counsel when an acquirer enters into an agreement to acquire 15% or more shares the agreement has to be conditional upon the acquirer to comply with the Regulations.
7. Having given our thoughtful consideration to the contentions raised on behalf of the appellant we have not been able to persuade ourselves to accept the same.
8. Before we deal with the contentions it is necessary to refer to the relevant provisions of the Regulations with which we are concerned and they read as under: Acquisition of fifteen per cent or more of the shares or voting rights of any company.
10. No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise fifteen per cent 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: 11. (1) 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 fifty five per cent (55%) of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5 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.
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.
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 : (4) In case of indirect acquisition or change in control, a public announcement shall be made by the acquirer within three months of consummation of such acquisition or change in control or restructuring of the parent or the company holding shares of or control over the target company in India." 20.(1) The offer to acquire shares under Regulation 10, 11 or 12 shall be made at a price not lower than the price determined as per sub-regulations (4) and (5).
21.(1) The public offer made by the acquirer to the shareholders of the target company shall be for a minimum twenty per cent of the voting capital of the company:" 22.(1) The public announcement of an offer to acquire the shares of the target company shall be made only when the acquirer is able to implement the offer.
(3) The acquirer shall ensure that the letter of offer is sent to all the shareholders (including non-resident Indians) of the target company, whose names appear on the register of members of the company as on the specified date mentioned in the public announcement, so as to reach them within 45 days from the date of public announcement: Provided that where the public announcement is made pursuant to an agreement to acquire shares or control over the target company, the letter of offer shall be sent to shareholders other than the parties to the agreement.
(7) During the offer period, the acquirer or persons acting in concert with him shall not be entitled to be appointed on the board of directors of the target company: (16) If the acquirer, in pursuance of an agreement, acquires shares which along with his existing holding, if any, increases his shareholding beyond 15 per cent, then such agreement for sale of shares shall contain a clause to the effect that in case of non-compliance of any provisions of this regulation, the agreement for such sale shall not be acted upon by the seller or the acquirer:" 25.(1) Any person, other than the acquirer who has made the first public announcement, who is desirous of making any offer, shall, within 21 days of the public announcement of the first offer, make a public announcement of his offer for acquisition of the shares of the same target company.
Explanation.-An offer made under sub-regulation (1) shall be deemed to be a competitive bid.
(2) No public announcement for an offer or competitive bid shall be made after 21 days from the date of public announcement of the first offer.
9. A reading of Regulation 10 makes it abundantly clear that no acquirer shall acquire 15% or more shares or voting rights in a company unless he makes a public announcement to acquire shares of such company in accordance with the Regulations. The word unless on which great stress was laid by the learned senior counsel for the appellant, in our opinion, only mandates that as and when the Regulations get triggered or become applicable, the acquirer has to make a public announcement to acquire shares of the target company in accordance with the Regulations. It does not mean that a public offer has to be made before the acquisition. The Regulations only impose an obligation on the acquirer to make a public announcement if he/it acquires the requisite percentage of shares. The word unless may have different connotations and in each case the context in which it is used will have to be looked into to find out the correct meaning. In some circumstances, the word unless may mean a condition precedent but it need not necessarily be so in every case. Having regard to the context in which it is used in Regulation 10, we are clearly of the view that it makes the acquisition conditional upon a public announcement being made and it does not mean that the public announcement has to be made before the acquisition.
Such public announcement could be made before or after the acquisition.
One of the meanings assigned to the word 'unless' in Black's Law Dictionary (6th edition) is "a conditional promise" meaning thereby that the condition has to be met irrespective of the time frame in which the promise is to be fulfilled. We are unable to accept the contention of the learned senior counsel for the appellant that the word unless denotes that public announcement has to be made prior to the acquisition of shares. If making of a public announcement was a condition precedent as contended on behalf of the appellant, then the Regulation would have read "unless such acquirer has made a public announcement" instead of "unless such acquirer makes a public announcement". Use of the word 'makes' merely signifies the mandatory nature of the public announcement which could be made before or after the acquisition. Regulation 10 does not prescribe the time frame within which such an announcement is to be made. The time schedule for making such an announcement is prescribed by Regulation 14. Clause (1) of Regulation 14 provides that the public announcement referred to in Regulation 10 shall be made not later than 4 working days of entering into an agreement for acquisition of shares or voting rights.
Regulation 14(1) does not refer to the date of acquisition. It only refers to the date of entering into the agreement for acquiring shares.
Shares could be acquired within four days of entering into the agreement or thereafter and the period of four days for making the public announcement shall start running from the date of the agreement.
It is possible that an agreement to acquire shares may be entered into today and the shares are acquired the following day. The acquirer would still have three more working days to make the public announcement because the period of four days is to start from the date of the agreement and not from the date of acquisition. It is, therefore, wrong to contend that the public announcement must always precede the acquisition of shares.
10. The explanation to Regulation 11 makes it clear that the acquisition referred to in Regulation 10 and 11 would include both direct and indirect acquisitions. If we read Regulation 14(1) in isolation it would cover both direct as well as indirect acquisition but when this clause is read along with clause (4) thereof it leaves no room for doubt that Regulation 14(1) deals only with direct acquisitions and Regulation 14(4) deals with all indirect acquisitions.
The language of clause (4) of Regulation 14 is clear and it provides that in the case of indirect acquisition, a public announcement shall be made by the acquirer within 3 months of consummation of such acquisition. Shri Harish Salve, learned senior counsel appearing for the appellant referred to the report of a committee headed by Hon'ble Justice P.N. Bhagwati to contend that clause (4) of Regulation 14 applies only to such indirect acquisitions where more than one public announcements are to be made and that the said clause should be read in the context of clause (12) of Regulation 20. He laid emphasis on the word 'consummation' as used in Regulation 14(4) in support of his contention that clause (4) provides for making the public announcement in respect of a company which gets triggered by the acquisition of shares of the company which holds shares of the first company.
11. We do not think that it is necessary to refer to the Bhagwati Committee report for interpreting Regulation 14 because its language is more than clear. It is a well settled principle of interpretation that when the words of a statute are clear, plain or unambiguous and are susceptible to only one meaning the courts are bound to give effect to that meaning irrespective of the consequences. In Kanailal Sur v.Paramnidhi Sadhukhan AIR 1957 SC 907 Justice Gajendragadkar (as he then was) observed "if the words used are capable of one construction only then it would not be open to the courts to adopt any other hypothetical construction on the ground that such hypothetical construction is more consistent with the alleged object and policy of the Act." The word 'consummation' as used in clause (4) means completion. Completion of acquisition becomes important in the case of indirect acquisition. When a company gets acquired as a consequence of the takeover of another company, it is only upon the successful completion of the acquisition of the first company that the need to make public announcement of the second company would arise. It is in this context that Regulation 14(4) emphasises on the completion of the first acquisition. The language of this clause does not limit its applicability only to cases where there is a chain of acquisitions though it would apply to such cases as well.
As already observed, when clauses (1) and (4) of Regulation 14 are read together, it becomes clear that all direct acquisitions are governed by clause (1) and indirect acquisitions are covered by clause (4). We are also unable to agree with the learned senior counsel for the appellant that Regulation 14(4) is to be read in the context of Regulation 20(12). This submission is also based on some recommendations made by the Bhagwati Committee report. May be the committee had made some recommendations but the authority framing the Regulations has used clear and unambiguous language and it is, therefore, not necessary to refer to the report of the committee and read clause (4) of Regulation 14 with Clause (12) of Regulation 20. Clause (12) of Regulation 20 only deals with the pricing of shares in the case of indirect acquisitions.
12. In this view of the matter, we have no hesitation to hold that the indirect acquisition of 26.01% shares of the target company by Burren which triggered the Regulations is governed by clause (4) of Regulation 14 and since Burren made the public announcement on 15/02/2005, the same is in accordance with the Regulations and that no fault could be found with the same.
13. The matter could be examined from another angle as well. The scheme of the Regulations is that as and when any person acquires shares in any company which may trigger the Regulations, then he/it is required to make a public announcement to acquire shares of such company in accordance with the Regulations. The acquisition may be direct or indirect. Regulation 14 then prescribes the time when the public announcement is to be made and the manner in which it is to be made is referred to in Regulation 15. What the public announcement should contain is referred to in Regulation 16. A draft letter of offer which is required to be made to the other existing shareholders of the company needs to be approved by the Board and after obtaining such approval an offer is to be made to the shareholders at an offer price which is determined in terms of Regulation 20. Regulation 21 requires that the acquirer must further acquire at least 20% of the voting capital of the target company and Regulation 22 provides that the acquirer shall ensure that the letter of offer is sent to all the shareholders of the target company whose names appear on the register of members of the company on the specified date. The proviso to Regulation 22(3) of the Regulations provides that the letter of offer shall be sent to the shareholders other than the parties to the agreement. The Regulations then refer to the obligations of the Board of Directors of the target company. Regulation 25 gives an option to any person other than the acquirer to make a public announcement of his offer within 21 days of the public announcement of the first offer for acquisition of the shares of the same target company. In other words when a public announcement is made, triggered by any acquisition, any person other than the acquirer has been given a right under the Regulations to make a competitive bid to acquire the same target company. This, in nutshell, is the scheme of the Regulations. It is clear from the scheme that the purpose of the Regulations is not to nullify the agreement proposing to acquire shares or any shares already acquired. The object is to compel the acquirer to make a public announcement of an offer to further acquire the shares of the target company at the offer price determined in accordance with the Regulations so that the existing shareholders of the target company other than the parties to the agreement, could have a right to exit by selling their shares to the acquirer at the offer price if they so like. The logic underlying the Regulations is that when a person acquires a big chunk of shares in the target company, the remaining shareholders other than those who have already sold their shares or have agreed to sell their shares to him, should have a right to decide for themselves whether they would like to continue in the company under the new management or not. The shares already acquired or agreed to be acquired are not and cannot be the subject matter of the public announcement. The public announcement will relate to further acquisition of shares of the garget company which will be a minimum of 20%. In this view of the matter the agreement dated 14/02/2005 by which Burren acquired the shares of UBL which triggered the Regulations, could not be challenged as being violative of the Regulations and if Burren had not made the public announcement or if the same had not been in accordance with the Regulations, it could be compelled to make one or issue a fresh one as the case may be. Since the object of the Regulations is not to nullify the acquisition or proposed acquisition which has triggered the public announcement, it is obvious that the appellant which is also a shareholder of the target company could not challenge under the Regulations the indirect acquisition of shares of the target company by Burren.
14. There is yet another reason why indirect acquisition of shares of the target company by Burren could not be challenged by the appellant.
The agreement between Burren and UIC was entered into in England for the purchase of shares of UBL which is a Mauritius company which holds 26.01% shares in the target company. This was an agreement between two foreign companies whereby shares of another foreign company were acquired outside India and, therefore, validity of such an agreement could be challenged only according to the laws of domicile of those companies. In somewhat similar circumstances their Lordships of the Supreme Court in Technip's case (supra) have observed that the law applicable in such cases would be the law of domicile of the companies and not the Indian law.
15. We may now deal with another objection raised by the appellant which was highlighted in its complaints made to the Board. The grievance of the appellant is that the share purchase agreement arrived at between Burren and UIC did not contain a clause to the effect that in case of non-compliance of any provisions of Regulation 22 the agreement would not be acted upon either by the seller or by the acquirer. The argument of the learned senior counsel for the appellant is that in terms of clause (16) of Regulation 22 the agreement ought to have contained such a clause and since it is not there the agreement itself was invalid. We cannot agree with this submission. Clause (16) of Regulation 22 in the very nature of things could apply only to the acquisition of shares of Indian companies and not when two foreign companies agree to acquire the shares of another foreign company outside India. The word 'company' has not been defined in the Regulations but they stipulate that all other expressions not defined would have the meaning assigned to them under the Act or the Securities Contracts (Regulation) Act, 1956 or the Companies Act, 1956. It follows that the word 'company' wherever it appears in the Regulations would mean 'a company' registered under the Companies Act, 1956 in India.
Since UBL whose shares were acquired by Burren from UIC is not an Indian company therefore the agreement would not be governed by clause (16) of Regulation 22. More over, the purpose of having such a clause in an agreement is to ensure that the Regulations are complied with and even if an agreement does not contain such a clause we do not think that the agreement itself would become invalid. In case such a clause is not found in an agreement pertaining to an Indian company the same will have to be read into it and we do not think that the agreement becomes invalid on that score.
16. When we carefully examine the two complaints filed by the appellant before the Board it becomes clear that the primary grievance of the appellant was its alleged right of preemption under the share purchase agreement dated 14/10/1998 and it did not complain that the Regulations had been violated. It claims that on the basis of the agreement to which UBL and the appellant through its predecessor and other financial institutions were parties, it had inherited a right of preemption and that Burren could not have purchased the shares of UBL without first offering them to the appellant. Admittedly, disputes in this regard are pending in a civil court at Vadodara and some arbitration proceedings are also pending in England. The learned senior counsel appearing for the Board was right in contending that the Board has no concern with such disputes and that it could not intervene at any stage. He further submitted that on receipt of complaints from the appellant the same were thoroughly examined by the Board and when it received the draft of the public announcement it made Burren modify the same so as to disclose to the shareholders the disputes pending in different fora.
Not only this, Board also made Burren issue a revised public announcement and the draft of the letter of offer was also modified accordingly. We are satisfied that the Board examined the complaints carefully and took whatever necessary action that was required.
17. Shri Harish Salve, learned senior counsel strenuously urged that Burren and the target company both acted illegally in appointing two nominees of Burren on the Board of Directors of the target company. He referred to the provisions of clause (7) of Regulation 22 to contend that during the offer period, Burren could not appoint its nominees on the board of directors of the target company and that the Regulations in this regard had been flagrantly violated. The learned senior counsel appearing for respondents nos. 2 and 3, however, controverted the submissions made on behalf of the appellant. Shri Rafique Dada, learned senior counsel appearing for the Board very fairly stated before us during the course of arguments that this complaint of the appellant was being investigated by the Board and in case any violation of the Regulations was found, appropriate action would be taken. Since the matter is being looked into by the Board we need not go into the merits of this contention at this stage. We, however, expect that the Board will examine this issue at the earliest and pass appropriate orders in accordance with law.
18. At this stage we may also take note of an objection raised on behalf of the respondents. It was contended that there is no order passed by the Board under the Regulations by which the appellant could feel aggrieved and therefore the appeal filed by it under Section 15T of the Act is not maintainable. This objection of the respondents has now lost its force because of the subsequent events. When the Board did not communicate its decision on the complaints filed by the appellant, the later filed a writ petition in the High Court seeking a direction to the Board to decide those complaints. During the pendency of the proceedings before the High Court the Board produced a letter dated July 25, 2005 issued to the merchant banker of Burren indicating the action taken by it on those complaints and the writ petition was thereafter withdrawn. Treating this letter as an order of the Board disposing of its complaints, the appellant filed Appeal no. 115 of 2005 before this Tribunal which was disposed of with a direction to the Board to decide afresh all the points raised by the appellant in its complaints and convey the decision to it. It is common ground between the parties that in pursuance to that direction the Board communicated its decision as per letter dated August 29, 2005 which is now under challenge in this appeal. In this communication the Board had conveyed its reasons for not interfering in the matter. It cannot therefore be said that there was no order passed by the Board. There is thus no merit in the objection and the same stands overruled.
19. Before concluding, we may mention that the learned senior counsel for the parties had cited some case law including some judgements of the Supreme Court in support of their contentions. We have carefully gone through the judgements and do not think it necessary to deal with them separately as the law laid down therein is not in dispute. We have kept in view the law laid down in those judgements while dealing with the contentions of the parties.
20. For the reasons recorded above we find no merit in the appeal and the same stands dismissed leaving the parties to bear their own costs.