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«Securities and Exchange Board of India. Appellant VERSUS M/s. Akshya Infrastructure Pvt. Ltd..Respondent JUDGMENT SURINDER SINGH NIJJAR, J. 1. This ...»

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Securities and Exchange Board of India …



M/s. Akshya Infrastructure Pvt. Ltd.




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made through a Public Announcement for purchase of shares of the target company 1 Page 1 can be permitted to be withdrawn at a time when the voluntary open offer has become uneconomical to be performed.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”).

20th October,

4. On 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 2 Page 2 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 1 st December, 2011 and conclude on 20 th 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 un

–  –  –

5. However, due to certain events, which have been highlighted by both the parties, the respondent by letter 29th dated March, 2012 through M/s. Motilal Oswal Investment Advisors (P) Ltd., the Managers to the Issue 3 Page 3 (hereinafter referred to as the “Merchant Banker”), addressed to SEBI, sought to contend that the open offer in question had become outdated, thereby outliving its necessity and, therefore, the same ought to be permitted to be withdrawn. It was also contended that the amount of Rs.17.46 crores deposited by the respondent in an escrow account towards the open offer ought to be allowed to be withdrawn. The letter emphasizes that the public announcement was in nature of a voluntary open offer under Regulation 11 of the Takeover Regulations for consolidation of shareholding of the Promoter Group in the Target Company. The offer price of Rs.91/- per equity share of the Target Company was aimed at presenting a commercially reasonable opportunity to the public shareholders to exit and at the same time it was meant to consolidate the shareholding of the promoter in the Target Company. It was further stated that due to the unjustified delay by SEBI in taking a decision as to whether to approve the draft letter of offer has rendered the entire open offer exercise academic and meaningless. It was claimed that the transaction envisaged by the respondent is no longer justifiable on any ground, including the grounds of economic rationale and commercial reasonableness. The respondent sought the withdrawal of open offer made under the public announcement in terms of Regulation 27 of the Takeover Regulations. The exact prayer made by the respondent was

–  –  –

The appellant by letter dated 30 th November, 2012 6.

conveyed its comments in terms of the proviso to Regulation 16(4) of the Takeover Regulations on the draft letter of offer.

Certain information was sought in the aforesaid letter.

No reference was made in this letter with regard to the request made by the respondent for permission to withdraw

the open offer. Rather it was stated as under :

“Please note that failure to carry out the suggested changes in the letter of offer as well as violation of provisions of the Regulations will attract appropriate action.

Please also ensure and confirm that apart from above, no other changes are carried out in the letter of offer submitted to us.” The aforesaid comments of SEBI were challenged by the respondent before SAT in Appeal No.3 of 2013.

7. The respondent claimed that the impugned directions,

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8. In the appeal before SAT, the respondent claimed that the directions contained in the impugned letter of SEBI dated 30th November, 2012, incorrectly allege that prima facie requirement to make an open offer was triggered by the promoters and the promoter group entities of the Target Company (Promoter Group) under Regulation 11(1) of the Takeover Regulations on three past occasions, viz. March 30, 2007, October 12, 2007 and February 19, 2011 (Alleged Triggers). It was further claimed that the directions to revise the offer price, on account of the requirement to make open offers pursuant to the alleged triggers was illegal and without jurisdiction. It was also claimed that the directions contained in the impugned letter has caused severe civil consequences to the respondent. It was also claimed that the submissions on the issues presented by the respondent before the appellant have neither been considered nor appreciated.

–  –  –

10. It was, however, made clear that SAT has not made any observation on the merits of the issue regarding the three alleged triggers and the contentions of the parties in this regard were kept open. Aggrieved by the aforesaid impugned judgment, SEBI has filed the present Civil Appeal.

11. We have heard the learned counsel for the parties at length.

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13. At this stage, Mr. R.F. Nariman, learned senior counsel appearing for the respondent, has raised certain preliminary objections with regard to the maintainability of the appeal.

He submits that the directions issued by the SEBI are based on a misconception of the law applicable to the peculiar facts of this case. He submits that firstly: this is a case where the respondent had made voluntary open offer. It was not a case of an open offer made because of a triggered mechanism under the Takeover Regulations; secondly: since the open offer was a pure and simple voluntary offer, no prejudice has been caused to any shareholder; thirdly: the present case does not fall within the ambit of Regulation 27 of Takeover Regulations. According to Mr. Nariman, Regulation 27 ought to be read in a manner that it would only govern mandatory open offers and not voluntary open offers; fourthly: SEBI has without any justification intermingled acquisition of shares by the respondent on the three earlier occasions in 2006-07, 2008-09 and 2009-10;

(2013) 8 SCC 20 1

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14. Mr. C.U. Singh, learned senior counsel appearing for the appellant, has submitted that the correspondence exchanged between the parties would show that the delay in consideration of the letter of offer was caused by the respondent by not giving the necessary information. He relies on the voluminous correspondence between the parties in support of his submission which, if necessary, shall be considered later. His second submission is that the request for withdrawal of open offer is to be considered strictly under the provision of Regulation 27 of the Takeover Regulations.

15. The respondent had made a Public Announcement on 20th October, 2011 which clearly informed the public 9 Page 9 shareholders of the Target Company that they were being given an opportunity to exit at an offer price of Rs.91/- per equity share, which represented a premium of 10.3% over the average market closing price for the two weeks preceding the Public Announcement. This Public Announcement and the Public Offer was sought to be withdrawn on 29th March, 2012. He points out that in the aforesaid letter; the request for withdrawal is specifically made under Regulation 27 of the Takeover Regulations.

Therefore, Mr. Nariman cannot be permitted to, now, submit that Regulation 27 is not applicable to the open offer in the present case.

16. Mr. C.U. Singh then submits that the respondents have consciously proceeded with an open offer and they have rightly not been permitted to withdraw the same by the appellant. The next submission of Mr. C.U. Singh is that Regulation 27 deals with only withdrawal of ‘Public Offer’ and not withdrawal of ‘Public Announcement’. In any event, according to learned senior counsel, submission with regard to withdrawal of Public Announcement has been made, only, at the time of arguments before this Court. It was neither pleaded nor raised before the SEBI/SAT, nor even in the counter affidavit before this Court. He next submitted that under the provisions of Regulation 27, public offer is a rule and withdrawal is an exception. Relying on the interpretation

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17. According to Mr. C.U. Singh, in normal circumstances, withdrawal can only be made under Regulation 27(1)(b), (c) and (d). He submits that in the letter dated 29 th March, 2012, the respondent claims that the offer has become “outdated 2 (2004) 8 SCC 524 11 Page 11 due to the sheer efflux of time”. The second reason given is the delay in clearance of open offer from SEBI. The letter also indicates that the respondent does not agree with the views of the SEBI on the fact situation. Another reason given is that “even if the SEBI were to approve the draft letter of offer today, the open offer exercise would be entirely academic and meaningless.” Another reason given is that “the transaction then envisaged by us is no longer justifiable on any ground including grounds of economic rationale and commercial reasonableness.” All these factors, according to Mr. C.U. Singh, will not be covered by any of the clauses in Regulation 27(1)(b)(c)(d). He then submitted that even if there is a delay by SEBI, the ordinary investor in shares of the Target Company should not be made to suffer.

According to Mr. C.U. Singh, the controversy raised in the appeal is squarely covered against the respondent by judgment of this Court in Nirma Industries Ltd. (supra).

18. Mr. Nariman has rebutted the aforesaid submissions of Mr. C.U. Singh. He submits that the single most important distinction between Nirma and this case is that it pertains to a voluntary public offer. This Court had no occasion to deal with a voluntary public offer in Nirma Industries Ltd.

(supra). In reply to the other submissions made by Mr. C.U.

Singh, Mr. Nariman has also relied on some correspondence. He has also relied upon a table to

–  –  –

19. He relies on letter dated October 20, 2011, whereby the respondent made a voluntary open offer by Public Announcement under Regulation 11 of the Takeover Regulations. He points out that Clause 11.4 of the Public Announcement clearly states that voluntary open offer can be withdrawn by the respondent at any time. He then points out that on 25th October, 2011, SEBI called upon the respondent to provide information on the changes in shareholding and capital build up of the Target Company, along with compliance of the SEBI Regulations. He submits that although the information sought pertains to the earlier acquisition it was duly provided on November 4, 2011 and November 8, 2011. Mr. Nariman submits that under Regulation 18(1) of the Takeover Regulations, the draft letter of offer is required to be filed with SEBI well within 14 days from the date of the Public Announcement. Once the letter of offer is filed, SEBI was required to dispatch the same to the shareholders immediately after 21 days. During 21 days, 13 Page 13 SEBI is permitted to stipulate the changes required to be made in the letter of offer which the Merchant Banker and the Acquirer shall incorporate in the letter of offer, before it is dispatched to the shareholders. In case, SEBI receives a complaint or it initiates an enquiry or investigation in respect of public offer, it can call for a revised letter of offer. In this case, he submits that the draft letter of offer was given on October 28, 2011 well within 14 days period stipulated under Regulation 18(1). But SEBI did not issue its comments on the draft letter of offer within 21 days, as required. Not only there was a non-compliance of Regulation 18(1) but there was no occasion to invoke proviso to Regulation 18(2). SEBI did not inform or advise the respondent to revise the draft letter of offer on account of any inadequacy in the disclosure made by the respondent in the draft letter of offer in respect of the voluntary offer. All the queries were related to the past alleged triggers. These alleged triggers were wholly unrelated to the voluntary open offer for which the draft letter of offer was filed with the appellant. He then pointed out that by letter dated 17 th November, 2011, the appellant again sought the same clarification on the alleged triggers, as stated in its letter dated November 11, 2011.

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