Full Text
IN THE SUPREME COURT OF INDIA
CIVIL APPEAL NO. 6041 OF 2013
Securities and Exchange Board of India …
Appellant
..Respondent
JUDGMENT
1. This appeal under Section 15Z of the Securities and Exchange Board of India Act, 1992 (the ‘SEBI Act’) is directed against the judgment and final order of the Securities Appellate Tribunal, Mumbai (SAT) dated 19th June, 2013 rendered in Appeal No.3 of 2013, by which the appeal filed by M/s. Akshya Infrastructure Private Limited – the respondent herein against the directions issued by SEBI on 30th November, 2012 has been allowed.
2. The fundamental issue which arises in this appeal is whether an open offer voluntarily made through a Public Announcement for purchase of shares of the target company Page 2 can be permitted to be withdrawn at a time when the voluntary open offer has become uneconomical to be performed.
3. In this case, the respondent herein, M/s Akshya Infrastructure Pvt. Ltd., is a part of the Promoter Group of MARG Limited (‘the Target Company’). For the years 2006- 07, 2007-08 and 2010-11, the gross acquisition by the Promoter Group of shares in the Target Company was as under: “Financial Year Percentage Date triggered on 2006-07 14.34% 30.03.2007 2007-08 5.64% 12.10.2007 2010-11 7.11% 19.02.2011” As a consequence of the foregoing acquisitions, the acquirers breached the 5% creeping acquisition limit and were required to comply with the provisions of Regulation 11 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the “Takeover Regulations”).
4. On 20th October, 2011, the respondent made a voluntary open offer through a Public Announcement in major National Newspapers, under Regulation 11 of the Takeover Regulations wherein the public shareholders of the Target Company were given an opportunity to exit at an Page 3 offer price of Rs.91/- per equity share. This price represents a premium of 10.3% over the average market closing price for the two weeks preceding the Public Announcement. The tendering period was scheduled to commence on 1st December, 2011 and conclude on 20th December, 2011. The consideration for the tendered shares was to be paid on or before 4th January, 2012. As on the date of the open offer, the list of Promoters/Promoter Group Entities was as under:-
┌─────────────────────────────────────────────────────────────────────┐ │ Sl. No. Name │ ├─────────────────────────────────────────────────────────────────────┤ │ 1. Mr. G.RK. Reddy │ │ 2. Mr. G. Raghava Reddy │ │ 3. Ms. V.P. Rajini Reddy │ │ 4. Mr. G. Madhusudan Reddy │ │ 5. GRK Reddy & Cons (HUF) │ │ 6. M/s. Global Infoserve Ltd. │ │ 7. M/s. Marg Capital Markets Limited │ │ 8. M/s. Exemplarr Worldwide Limited │ │ 9. M/s. Marg Projects and Infrastructure Limited │ │ (formerly Marg Holdings and Financial │ │ Services Limited) │ │ 10. M/s. Akshya Infrastructure Private Limited │ │ 5. However, due to certain events, which have been │ └─────────────────────────────────────────────────────────────────────┘
20. It was pointed out by Mr. Nariman that the respondent specifically and expressly sought opportunity of a personal hearing on the aforesaid request for withdrawal, the appellant did not revert on the request. The respondent once again furnished the same information on the alleged triggers in different formats as required by the appellant through communications dated April 12, 2012; April 20, 2012; May 10, 2012; May 21, 2012; June 6, 2012 and July 5, 2012. After a period of more than 13 months, from the date of filing of the draft letter of offer and after more than 8 months from the date of request for withdrawal, the appellant issued the impugned letter dated November 30, 2012. Mr. Nariman points out that the directions issued in the impugned letter are wholly unjustified. He points out to the following two directions:- (a) Go ahead with the voluntary open offer on account of some alleged triggers (for creeping acquisitions under Regulation 11 of the Takeover Code, 1997) in the past i.e. 2006-07; 2007-08 and 2010-11. (b) make an open offer with upward revision in price per share. The share prices offered by the respondent in 2009 were RS.91.00 per equity share and as on date the prices is RS.315.90 per equity share. Page 17
21. Mr. Nariman submitted that SAT without going into the merits and demerits of the alleged earlier acquisitions, has left it open for SEBI to take appropriate action in accordance with law with regard to the aforesaid three acquisitions. Therefore, clearly the aforesaid three acquisitions have no connection whatsoever with the voluntary offer under consideration in these proceedings.
22. The next submission of Mr. Nariman is the foundation of all his other submissions. According to Mr. Nariman, there is a fundamental difference between a mandatory public offer and a voluntary open offer. It cannot be placed on the same pedestal. According to learned senior counsel, in a mandatory public offer there exists an underlying transaction which triggers the Takeover Code under which the shareholders obtain a right to exit from the company. However, in a voluntary open offer, no such right accrues to the shareholders to exit the company, since the offer is not the result of a triggered acquisition. In the present case, the action of SEBI, according to Mr. Nariman, is contrary to Regulation 18. The letter of offer was not dispatched to the shareholders as per Regulation 18(1). Regulation 15(4) deems that the offer is made on the date on which the Public Announcement has appeared in any newspaper. But according to Mr. Nariman, this deeming fiction is for the purpose of price fixation for the offer. It has nothing to do Page 18 with Regulation 18 which is to dispatch the actual offer to the shareholders. Therefore, according to Mr. Nariman, reliance placed by Mr. C.U. Singh on the expression “offer once made” in Regulation 27 is misconceived. This expression has to be understood in terms of Regulation 18. Since Regulation 18 had not been complied with and there was no dispatch of the letter of offer to the shareholders, there was no question of any prejudice being caused to the interest of the shareholders. Mr. Nariman then submits that because of the inaction on the part of SEBI, the respondent would be squarely covered under Regulation 27(1)(b). The approval of the letter of offer by the appellant is statutory in nature. Since it had not been granted within the stipulated period of time, the respondent was entitled to assume that it had been refused. According to Mr. Nariman, it has been erroneously submitted by Mr. C.U. Singh that the claim of the respondent is not covered under Regulation 27(1)(b). Mr. Nariman then submits that the judgment in Nirma Industries is not applicable in the facts and circumstances of this case. Finally, he has submitted that the judgment in Nirma Industries (supra) requires reconsideration. In support of this submission, he submits that Regulation 27 has to be interpreted by keeping in mind the earlier Regulation 27(1)(a). In Nirma Industries, this Court has held that Regulation 27 (b), (c) and (d) are all in the nature of impossibility. Mr. Nariman made a Page 19 mention about Regulation 27(1)(a) which was omitted by the SEBI (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations, 2002 with effect from September 9, 2002. Prior to deletion, it read as under: “-(a) the withdrawal is consequent upon any competitive bid,” Based on this, he submits that economic viability of public offer was the genus of Regulation 27. The facts of this case would clearly place the request of the respondent for withdrawal of the public offer in the realm of impossibility. Mr. Nariman has submitted that for the interpretation of Regulation 27, the ejusdem generis principle would not apply as there is no common genus between Clauses 27(1)(b)(c) and (d).
23. Mr. C.U. Singh in rejoinder has submitted that in view of the law laid down in Nirma Industries, the public offer made by the respondent cannot be permitted to be withdrawn. Earlier incidence of the alleged triggers can be relied upon. According to him, the price has to be fixed on the basis of the public announcement/offer. He submits that Regulation 18(1) talks of 14 days of the Public Announcement. Furthermore, public offer cannot be said to be made only on dispatch of the letter of offer to the individual shareholders. The impact on the securities market would follow the public announcement. He reiterates that Page 20 even the withdrawal letter seeks permission to withdraw the Public Offer under Regulation 27. Finally, he submits that the interpretation of Regulation 27 rendered in Nirma Industries Ltd. (supra) is correct. It fully applies to the facts of the present case. It is neither distinguishable nor does it require reconsideration.
24. We have considered the submission made by the learned counsel for the parties.
25. Factually, it cannot be denied that in the years 2006- 07, 2007-08 and 2010-11, the respondent had acquired shares in excess of 5% which breached the 5% creeping acquisition limit. In our opinion, the respondent was required to comply with Regulation 11 and make a Public Announcement to acquire shares in accordance with law. The respondent admittedly not having complied with Regulation 11, in our opinion, the appellant was perfectly justified in taking the non-compliance into consideration whilst considering the feasibility of the public offer made on 20th October, 2011.
26. With regard to delay, we do not find much substance in the submission of Mr. C.U. Singh. Mr. Singh has sought to explain the delay on the ground that information sought by the appellant was not given by the respondent. In our opinion, this was no ground for the appellant to delay the Page 21 issuance of comments on the letter of offer, especially not for a period of 13 months. In the event the information was not forthcoming, the appellant had the power to refuse the approval of the public offer. It is true that under Regulation 18(2), SEBI was required to dispatch the necessary letters to the shareholders within a reasonable period. It is a matter of record that the comments were not offered for 13 months. Such kind of delay is wholly inexcusable and needs to be avoided. It can lead to avoidable controversy with regard to whether such belated action is bona fide exercise of statutory power by SEBI. By adopting such a lackadaisical, if not callous attitude, the very object for which the regulations have been framed is diluted, if not frustrated. It must be remembered that SEBI is the watchdog of the Securities Market. It is the guardian of the interest of the shareholders. It is the protective shield against unscrupulous practices in the Securities Market. Therefore, SEBI like any other body, which is established as a watchdog, ought not to act in a lackadaisical manner in the performance of its duties. The time frame stipulated by the Act and the Takeover Regulations for performing certain functions is required to be maintained to establish the transparency in the functioning of SEBI.
27. Having said this, we are afraid such delay is of no assistance to the respondent. It will not result in nullifying Page 22 the action taken by SEBI, even though belated. Ultimately, SEBI is charged with the duty of ensuring that every public offer made is bona fide for the benefit of the shareholders as well as acquirers. In the present case, SEBI has found that permitting the respondent to withdraw the public offer would be detrimental to the overall interest of the shareholders. The only reason put forward by the respondent for withdrawal of the offer is that it is no longer economically viable to continue with the offer. Mr. Nariman has referred to a tabular statement and data to show that there is no substantial variation in the share prices that ensued making of the public offer. Having seen the table, we find substance in the submission of Mr. Nariman that there is hardly any variation in the shares of the Target Company from 20th October, 2011 till 30th November, 2011. The variation seems to have been between Rs. 78.10 (on 24.11.2011) and Rs. 87.60 (on 20.10.2011). Such a variation cannot be said to be the result of the public offer. But this will not detract from the well known phenomena that Public Announcement of the public offering affects the securities market and the shares of the Target Company. The impact is immediate.
28. We are unable to agree with the submission of Mr. Nariman that Regulation 27 would not be applicable to a voluntary public offer. A perusal of Regulation 27(1) makes it Page 23 patently clear that Regulation 27(1) reads “no public offer, once made, shall not be withdrawn except under the following circumstances.” Accepting Mr. Nariman’s submission would be to reconstruct the aforesaid provision. This Court, or any other court, whilst construing the statutory provision cannot reconstruct the same. The plain reading of the aforesaid regulation makes it clear that no public offer whether it is voluntary or triggered by Regulation 11 can be withdrawn, unless it satisfies the circumstances set out in Regulation 27(1)(b), (c) and (d). There can be no distinction between a triggered public offer and a voluntary public offer. Both have to be considered on an equal footing. We find substance in the submission made by Mr. C.U. Singh that Regulation 18(2) has no relevance to the case projected by the respondents having singularly failed to give the necessary information to SEBI with regard to the earlier three acquisitions.
29. We also do not agree with Mr. Nariman that Regulation 27 has to be read in the context of the Regulation as it existed when it was first enacted. As noticed earlier, Regulation 27(1)(a) before its deletion on September 9, 2002 permitted the public offer to be withdrawn, consequent upon any competitive bid. We see no reason to differ from the view taken in Nirma Industries Ltd. (supra) wherein we have observed as follows: Page 24 “62. A bare perusal of the aforesaid Regulations shows that Regulation 27(1) states the general rule in negative terms. It provides that no public offer, once made, shall be withdrawn. Since clause (a) has been omitted, we are required to interpret only the scope and ambit of clauses (b), (c) and (d). The three sub-clauses are exceptions to the general rule and, therefore, have to be construed very strictly. The exceptions cannot be construed in such a manner that would destroy the general rule that no public offer shall be permitted to be withdrawn after the public announcement has been made. Clause (b) would permit a public offer to be withdrawn in case of legal impossibility when the statutory approval required has been refused. Clause (c) again provides for impossibility when the sole acquirer, being a natural person, has died. Clause (b) deals with a legal impossibility whereas clause (c) deals with a natural disaster. Clearly clauses (b) and (c) are within the same genus of impossibility. Clause (d) also being an exception to the general rule would have to be naturally construed in terms of clauses (b) and (c). Mr Divan has placed a great deal of emphasis on the expression “such circumstances” and “in the opinion” to indicate that the Board would have a wide discretion to permit withdrawal of an offer even though it is not impossible to perform. We are unable to accept such an interpretation.”
30. The submission with regard to the non-applicability of Page 25 ejusdem generis for interpretation of the Takeover Regulations has been considered and rejected in Nirma Industries Ltd. (supra) (Paragraphs 63 to 71).
31. We are also not impressed by the submission of Mr. Nariman that it has now become economically impossible to give effect to the public offer. This very submission has been rejected in Nirma Industries Ltd. (supra). We reiterate our opinion in Nirma Industries Ltd. (supra) that under Clause 27(1)(b)(c) and (d), a Public Offer, once made, can only be permitted to be withdrawn in circumstances which make it virtually impossible to perform the Public Offer. In fact, the very purpose for deleting Regulation 27(1)(a) was to remove any misapprehension that an offer once made can be withdrawn if it becomes economically not viable. We are of the considered opinion that the distinction sought to be made by Mr. Nariman between a voluntary public offer and a triggered public offer is wholly misconceived. Accepting such a submission would defeat the very purpose for which the Takeover Code has been enacted.
32. We also do not find any merit in the submission of Mr. Nariman that the delay of 13 months by SEBI in issuing the impugned directions would permit the respondent to withdraw the Public Offer under Regulation 27(1)(b). The consideration by SEBI is as to whether a Public Offer is in Page 26 conformity with the provisions of the SEBI Act and the Takeover Regulations. Delay in performance of its duties by SEBI can not be equated to refusal of the statutory approval requires from other independent bodies, such as under the RBI, Taxation Laws and other regulatory statutes including Foreign Exchange Regulations. Delay by SEBI in taking a final decision in making its comments on the letter of offer would not fall under Regulation 27(1)(b).
33. This now brings us to the submission of Mr. Nariman that there was a breach of Rules of Natural Justice. It is matter of record that the respondent had asked for an opportunity of hearing but none was granted. But the question that arises is as to whether this is sufficient to nullify the decision of SEBI. In our opinion, the respondent has failed to place on the record either before SAT or before this Court the prejudice that has been caused by not observing Rules of Natural Justice. It is by now settled proposition of law that mere breach of Rules of Natural Justice is not sufficient. Such breach of Rules of Natural Justice must also entail avoidable prejudice to the respondent. This reasoning of ours is supported by a number of cases. We may, however, refer to the law laid down in Natwar Singh Vs. Director of Enforcement & Anr.,[3] wherein it was held that “there must also have been caused some real prejudice to the complainant; there is no such
34. All the information sought by SEBI related to the three earlier acquisitions when the creeping limit for acquisition has been breached for triggering the mandatory Takeover Regulations. In appeal, SAT has left the question with regard to the earlier three acquisitions open and to be decided in accordance with law. Therefore, clearly no prejudice has been caused to the respondent.
35. Finally, we are unable to accept the submission of Mr. Nariman that the ratio of law as declared in Nirma Industries Ltd. (supra) would not be applicable to the facts and circumstances of this case. As pointed out earlier, we do not accept the distinction sought to be made by Mr. Nariman with regard to voluntary open offer and mandatory open offer which is the result of a triggered acquisition. The consequences of both kinds of offers to acquire shares in the Target Company, at a particular price, are the same. As soon as the offer price is made public, the securities market would take the same into account in all transactions. Therefore, the withdrawal of the open offer will have to be considered by the Board in terms of Regulation 27(1)(b)(c) and (d). Further, the deletion of Regulation 27(1)(a) does not, in any manner, advance the case of the respondent. It rather reinforces the conclusion that an open offer once made can only be Page 28 withdrawn in circumstances stipulated under Regulation 27(1)(b)(c) and (d). We also do not agree with Mr. Nariman that voluntary open offer made by the respondent ought to be permitted to be withdrawn under Regulation 27(1)(b) for the reasons already stated. We have already come to the conclusion that the delay in offering comments by the Board on the letter containing voluntary open offer, though undesirable, is not fatal to the decision ultimately taken by the Board. We, therefore, reiterate our conclusion in Nirma Industries (supra).
36. We also do not find substance in the submission of Mr. Nariman that the judgment in Nirma Industries (supra) needs reconsideration. In our opinion, the ejusdem generis principle is fully applicable for the interpretation of Regulation 27(1)(b)(c) and (d) as there is a common genus of impossibility. This impossibility envisioned under the aforesaid regulation would not include a contingency where voluntary open offer once made can be permitted to be withdrawn on the ground that it has now become economically unviable. Accepting such a submission, would give a field day to unscrupulous elements in the securities market to make Public Announcement for acquiring shares in the Target Company, knowing perfectly well that they can pull out when the prices of the shares have been inflated, Page 29 due to the public offer. Such speculative practices are sought to be prevented by Regulation 27(1)(b)(c) and (d), that is precisely the reason why Regulation 27(1)(a) was deleted. Merely because there has not been any substantial change in the price of shares in this particular case, would not, in any manner, invalidate the conclusion reached in Nirma Industries (supra).
37. Last but not least, we are not able to approve the approach adopted by SAT in adopting the Issue of Capital and Disclosure Requirements Regulations, 2009 (ICDR) Regulation for interpreting the provisions contained in Regulation 27 of the Takeover Regulations. The regulations in Takeover Code have to be interpreted by correlating these regulations to the provisions of the SEBI Act.
38. In view of the above, the appeal is allowed. The impugned order passed by the SAT dated 19th June, 2013 in Appeal No.3 of 2013 is set aside and the directions issued by the appellant in the letter dated 30th November, 2012 are restored. ……………………………….J. [Surinder Singh Nijjar] Page 30 ………………………………..J. [A.K.Sikri] New Delhi; April 25, 2014.