Important point
Questions as to the status of a corporation are to be decided according to the laws of its domicile or incorporation subject to certain exceptions including the exception of domestic public policy.

Headnote:Securities and Exchange Board of India Act, 1992—Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997—Regulations 10 and 12 —Taking over of company—Applicable law to decide date of takeover—IFP through its subsidiary ISIS, a company incorporated in France, was a shareholder in Technip and Coflexip, companies incorporated in France—SEAMEC, a company incorporated in India is a subsidiary of Coflexip—Takeover of Coflexip and consequently SEAMEC by Technip—SEBI directed Technip to make public announcement to acquire shares of SEAMEC—Technip implemented order of SEBI by taking 3.7.2001 as the specified date—Technip also made payment of share consideration together with interest thereon to shareholders of SEAMEC who accepted the public offer—Whether Technip acquired control of SEAMEC through Coflexip in April 2000 or in July 2001—Whether Tribunal was justified in holding that applicable law to the question as to when control of SEAMEC had been taken over was Indian Law—(No).
       Held : Section 15Z of the SEBI Act, 1992 allows any person aggrieved by the decision or the order of the Securities Appellate Tribunal to file an appeal to the Supreme Court on any question of law arising out of such order. Now the primary dispute in this appeal is whether the impugned transaction is to be judged according to French Law or Indian Law. That is a question of law. Furthermore, the determination as to what French Law is, is doubtless a question of fact but it is “a question of fact of a peculiar kind”. (Para 11)
       Admittedly both Coflexip and Technip were incorporated according to and under the laws of France. They are therefore ‘domiciled’ in France. Normally, we would resolve any issue relating to their internal affairs by applying the law of their domicil, in this case French Law. (Para 12)
       This general rule regarding determination of status by the lex incorporationis will not apply when the issue relates to the discharge of obligations or assertion of rights by a corporation in another country whether such obligation is imposed by or right arises under statute or contract which is governed by the law of such other country. (Para 18)
       The difference between the French law and their regulations relates to the prescribed limits of share holding for control by one company over another. This cannot conceivably make the French law violative of any public policy underlying the Acts and Regulations so as to persuade us to disregard the French Law. Thus it is the French law which we must apply to decide whether Technip took over the control of Coflexip in April 2000 or July 2001. Incidentally, the opinions of various persons claiming to be experts in French Commercial Law have expressed diametrically opposing views as to whether Technip could be said to have taken control of Coflexip applying the relevant French law, in April 2000. We do not propose to rely upon either of the views expressed as none of them was subjected to cross examination. According to Technip their expert affirmed an affidavit and was offered for cross examination by SEBI and that SEBI declined to do so. But the affidavit unlike the opinion expressed by the same firm earlier to Technip on 15th November 2001 did not express any opinion as to whether Technip did or did not acquire control of Coflexip either in April or July 2001 but only gave evidence of the applicable French law and highlighted the consequences of failure to comply with the statement of intent which was required to be filed with CMF. Therefore, ultimately it is for this Court to resolve the conflict by looking at the admitted text of the French law and the material on record to decide the proper application of the provisions. According to the show cause notice issued by SEBI to Technip, Technip had acquired control of Coflexip by acting in concert with ISIS. Technip has said that in April, 2000 there was no concept of acting in concert under French Law since the extended meaning of ‘controlled company’ was introduced by amendment to Article 355-1 only in May, 2001. The submission ignores Article 356-1. The concept of a takeover by acting in concert was there in 2000. In fact Article 355-1 of the French Companies Act merely sets out factors determining when a company could be said to hold control over another. It does not, as Article 356.1 does, speak of the method for acquiring such control. (Paras 43 and 44)
       We are of the opinion that having regard to the balance of probabilities there was no evidence that Technip obtained de facto control of Coflexip in April 2000. The evidence would rather suggest that it was nothing more than a strategic alliance. The mere fact that in two Annual General Meetings of Coflexip Technip was in the majority cannot by itself establish its control over Coflexip. It may be that in a company with a large and dispersed membership, a comparatively small proportion of the total shares, if held in one hand, may enable actual control to be exercised [Hindustan Motors Ltd. v. Monopolies and Restrictive Trade Practices Commission, AIR 1973 Calcutta 450]. But the obtaining of a majority in a shareholders’ meeting may have been the outcome of absenteeism or some other factor. It is not as if Technip exerted its influence over any policy matters of Coflexip. Besides this was not the case in the Show Cause Notice. The allegation was that ISIS and Technip acted in concert in the matter of purchase of Stena’s shares in Coflexip by Technip. That has not been established. (Para 70)
       We are thus of the opinion that SEBI’s order must prevail and the order of SAT must be set aside. The other issues as to the rate of interest, the adjustment of dividend and the identification of the shareholders of SEAMEC would arise only if SAT’s order had been upheld. As we are allowing the appeals of both Technip and IFP it is unnecessary to determine them. (Para 77)

Judgment

Ruma Pal, J.—There are five main protagonists in these appeals, the appellant, Technip, a company incorporated in France, Coflexip, also incorporated in France, the Institut Francais du Petrol (referred to as IFP) which through its subsidiary ISIS, a company incorporated in France, was a shareholder in Technip and Coflexip, South East Asia Marine Engineering and Construction Ltd. (referred to as SEAMEC), a company incorporated and registered in India and finally the respondents who are the shareholders of SEAMEC. SEAMEC is a subsidiary of Coflexip in the sense that Coflexip through a chain of wholly owned subsidiaries controls the majority shareholding in SEAMEC.

2. The question which arises for consideration in these appeals is whether Technip acquired control of SEAMEC through Coflexip in April, 2000, or in July, 2001? There is no dispute that if Technip controls Coflexip then it also controls SEAMEC and if there has been a change of control of SEAMEC then Technip would be bound to offer to purchase the shares of the minority shareholders in SEAMEC in accordance with the provisions of the Securities And Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (hereinafter referred to as the Regulations). The importance of the date of control/acquisition is because of the price of the shares payable on such public offer. In this case the price of SEAMEC shares in April 2000 was Rs. 238 per share which was much higher than the price of Rs. 43.12 per share in July, 2001. Technip had not made any public announcement at all, either in April 2000 or in July, 2001.

3. On the complaint of certain shareholders of SEAMEC before the Securities and Exchange Board of India (SEBI), proceedings were initiated against Technip under the Securities and Exchange Board of India Act, 1992 (referred as ‘the Act’). SEBI held that French law applied to the takeover of Coflexip and consequently SEAMEC by Technip for the purpose of determining when such takeover was effected. It found that the Technip had obtained control of Coflexip in July 2001 and had violated Regulations 10 and 12 of the Regulations thereby acquiring 58.24 of the shares/voting rights and control in SEAMEC in July 2001 without making any public offer. Technip was accordingly directed by SEBI to make a public announcement as required under the Regulations within 45 days of its order taking 3rd July, 2001 as the specified date for calculation of the offered price. Technip was also directed to pay interest at the rate of 15 per annum to the willing minority shareholders of SEAMEC, for the delayed public announcement.

4. The minority shareholders of SEAMEC preferred an appeal from SEBI’s order before the Securities Appellate Tribunal (SAT) constituted under the Act. Their grievance was that the date of control of Coflexip by Technip was 12.4.2000 and not 3rd July, 2001 as held by SEBI. While the appeal was pending, pursuant to an interim order passed by the Tribunal, Technip implemented the order of SEBI by making a public announcement to acquire the shares of SEAMEC by taking 3rd July, 2001 as the specified date. Technip has also made payment of the share consideration together with the interest thereon to the shareholders of SEAMEC who accepted the public offer.

5. The Tribunal held that the applicable law to the question as to when control of SEAMEC had been taken over by Technip, was Indian Law. The Tribunal affirmed SEBI’s conclusion that the Regulations had been violated by Technip by its failure to make a public announcement but decided that the relevant date on which the control of SEAMEC was taken over by Technip was April, 2000. The Tribunal accordingly directed Technip to treat the relevant date for calculating the offer price as 12th April, 2000 and to pay SEAMEC shareholders the difference between the price of the shares between 3.7.2001 and 12th April, 2000 together with the interest on such difference at the rate of 15 . One of

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2005 Supreme(SC) 830

Important pointQuestions as to the status of a corporation are to be decided according to the laws of its domicile or incorporation subject to certain exceptions including the exception of domestic public policy.

Cases Referred (6)

Important point
Questions as to the status of a corporation are to be decided according to the laws of its domicile or incorporation subject to certain exceptions including the exception of domestic public policy.