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Supreme Court of India
SURINDER SINGH NIJJAR & ANIL R. DAVE, JJ.
Nirma Industries Ltd. & Another
Versus
Securities & Exchange Board of India
Civil Appeal No. 6082 of 2008
Decided On : 09-05-2013
(1996) 4 SCC 69 - Relied upon
(2003) 4 SCC 557; (1993) 4 SCC 727; (2011) 2 SCC 258; (2012) 2 SCC 327 - Distinguished
(b) Legal Interpretation - Regulation 27(1) (d) - Contention of need to read therein grant of opportunity - Words "such circumstances as in the opinion of the Board merit withdrawal" - Determination of - No prayer for personal hearing - Secondly, SEBI not issuing any instructions u/s 11, Securities and Exchange Board of India Act, 1992 necessitating compliance of natural justice - Thirdly all materials being available with SEBI, appellants were not condemned unheard - Contention rejected. (Para 32)
(c) SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 1997 - Regulation 27(1)(d) - Interpretation - Regulation 27(1) - General rule is in negative terms providing that no public offer, once made, shall be withdrawn - Clauses (b)(c) and (d) are exceptions to general rule - Clauses (d) has to be read in terms of clauses (b) and (c) - Rule of ejusdem generis rightly applied by SAT - (Paras 38, 42 and 47)
(2010) 3 SCC 786; AIR 1960 SC 1080; (1972) 2 SCC 444; (2009) 10 SCC 755 - Relied upon
(2002) 4 SCC 219; (2010) 3 SCC 786; (2010) 5 SCC 349 - Referred
(d) Legal Interpretation - Carving out an exception out of exceptions - No need to move away from the maxim "noscitur a sociis" - Meaning of terms "such circumstances" in Regulation 27(10(d) - Cannot be stretched from the realm of impossibility to the realm of economic undesirability - Under Regulation 27(1) (d) SEBI cannot permit withdrawal of an offer merely because it has become uneconomical to perform the public offer - Withdrawal of the open offer neither in the interest of investors nor development of the securities market. (Paras 49 to 51)
(1957) AC 436 - Relied upon
(e) SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 1997 - Regulation 27(1)(d) r/w Regulation 3(1)(f) - Regulation 3(1)(f) applies to acquisition of shares in ordinary course of business and not for takeover - Exemption under Regulation 3(1)(f) cannot be applied to Regulation 27(1)(d). (Para 53)
(f) Securities and Exchange Board of India Act, 1992 - Sections 11 and 11B - Permitting withdrawal of open offer of acquisition of shares - Just because the offer became uneconomical - Would encourage speculation - Not permissible. (Para 56)
(2012) 8 SCALE 101 - Distinguished
(g) SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 1997 - Regulation 27(1)(d) - Shares acquired on the basis of informed business decision - No fraud played on appellants - One cannot be permitted to take advantage of own laxity - Withdrawal of open offer rightly not permitted. (Para 60)
(2003) 8 SCC 319 - Distinguished
(1994) 1 SCC 1 - Referred
(h) SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 1997 - Regulation 27(1)(d) - Due diligence - Appellant well aware of pending litigation by and against target company much before invoking the pledge - SAT rightly concluding that appellant were trying to wriggle out of a bad bargain - Not permissible under Regulation 27(1)(d) - No interference required. (Para 65, 67 to 70)
1968 (2) All E.R. 573; (1990) 1 SCC 484 - Distinguished impliedly
(i) Securities and Exchange Board of India Act, 1992 - Section 15Z - Statutory appeal against decision of SAT - Contention of delay by SEBI neither in the pleadings nor raised before SAT - Cannot be raised for first time before Supreme Court - More over delay in decision of SEBI attributable to appellant themselves - Contention rejected. (Para 72)
(j) SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 1997 - Regulation 20 - Valuation of shares - Determination to be made prior to making open offer and not thereafter. (Para 73)
Facts of the case:
SRMTL borrowed a sum of Rs.48.94 crores from the appellants and pledged equity shares of SRMTL worth Rs.1,42,88,700/- (24.25% of equity capital) as security from Nirma Industries Ltd.
The Pledge agreement provided that in the event of non-redemption of the pledge the lender Nirma Industries would acquire the pledged shares to the extent of 20% of total shares by open offer.
The pledge was not redeemed and the lender invoked the condition of acquisition of the shares.
However subsequently large irregularities and fraud in the accounts of the SRMTL were detected adversely affecting its share prices.
Nirma approached the SEBI for withdrawal of its open offer which was rejected.
Finding of the Court:
Decision of SAT does not warrant interference.
Result : Appeal dismissed.
Judgment :-
Surinder Singh Nijjar, J.
1. This statutory appeal is filed under Section 15Z of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’) against the order dated 5th June, 2008 (impugned order) passed by the Security Appellate Tribunal (SAT) whereby SAT has dismissed the appeal filed by the appellants impugning the direction contained in the communication dated 30th April, 2007 of SEBI (SEBI order). By the aforesaid order, the request of the appellants for withdrawal of an offer to acquire the equity shares ofShree Ram Multi Tech Limited (SRMTL) under the SEBI (SubstantialAcquisition of Shares and Takeovers) Regulations, 1997 (TakeoverCode/Takeover Regulation) has been rejected.
Facts :
2. On 22nd March, 2002, the Promoters (including friends, relatives and associates) of SRMTL – a listed company – borrowed a sum of Rs.48.94 crores from the appellants and pledged equity shares of SRMTL worth Rs.1,42,88,700/- (24.25% of equity capital) as security. The debt was in form of issue of Secured Optionally Fully Convertible Premium Notes by three closely held unlisted companies (Issuer Companies) for an issue price of Rs.1,00,000/- each having nominal value of Rs.1,35,000/- each. The issue was made by the Issuer Companies by way of subscription agreements and the individual premium notes issued by each are as under :
(i)
Shree Rama Polysynth Pvt. Ltd.
1664
(ii)
East-West Polyart Ltd.
1500
(iii)
Ideal Petroproducts Ltd.
1730
Total
4894
3. The Issuer Companies pledged equity shares in the capital of SRMTL and other closely held companies as security in favour of the appellants till the redemption of the Premium Notes by way of pledge agreements (Pledged Shares). The equity shares of SRMTL pledged by each of the Issuer Companies are as under :
(i)
Shree Rama Polysynth Pvt. Ltd
52,49,786
(ii)
East-West Polyart Ltd.
28,74,800
(iii)
Ideal Petroproducts Ltd.
62,64,114
Total
1,42,88,700
4. In May-June, 2002, the pledge over the shares, which were in dematerialized form, was carried out in the form prescribed by National Securities Depository Limited and was recorded in the records of the respective depositories of the appellants and the Issuer Companies. On June 10, 2005, the appellants, in terms of the enforcement provisions contained in the subscription agreements and the pledge agreements issued notices to the Issuer Companies calling upon them to redeem the outstanding Premium Notes within a period of 30 days, failing which the appellants would be constrained to invoke the pledge. Premium notes were not redeemed (i.e. debt was not repaid). Upon default, under the provisions of the Notes, the appellants called upon each of the Issuer Companies to redeem the outstanding Notes within 30 days. Since the Notes were not redeemed within the notice period, the pledge was invoked on July 22, 2005.
5. The invocation of the pledge triggered Regulation 10 of the Takeover Code.
6. On 26th July, 2005, in accordance with the Regulation 10 of the Takeover Code, the appellants made a Public Announcement (PA) for proposed open offer to acquire upto 20% of the shares of the existing shareholders. The Public Announcement was published in the Financial Express, Mumbai Edition. According to the appellants, the price offered in the PA, being Rs.18.60/- per share, was arrived at as per Regulation 20(4) of the Takeover Code (applicable to frequently traded shares). The PA stated that SRMTL has suffered business losses and its net worth has been eroded. The PA also clearly stated that the offer may be withdrawn as per Regulation 27 of the Takeover Code.
7. The appellants further claimed that as per Regulation 18 of the Takeover Code, draft letter of offer was submitted to SEBI on August 8, 2005. According to the appellants in the aforesaid letter, it was specifically stated that details were given of the composition of Board of Directors and audited balance sheets of last three years, share holding pattern PRE-OFFER and POST-OFFER and justific
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