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SUPREME COURT OF INDIA
RANJAN GOGOI, N.V. RAMANA, JJ.
SECURITIES & EXCHANGE BOARD OF INDIA – APPELLANT
VERSUS
BURREN ENERGY INDIA LTD. & ORS. – RESPONDENTS
CIVIL APPEAL NO. 361 OF 2007
Decided On : 02-12-2016
(b) Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 – Regulation 2(1)(f) – Offer period – Starting point – Memorandum of Understanding leading to a concluded agreement – Held, in absence of MOU, the concluded agreement would be the starting point. (Para 12)
Facts of the case:
The first respondent – Burren Energy India Ltd. was incorporated in December, 2004 under the laws of England and Wales with its registered office in London. Burren was formed to acquire the entire equity share capital of one Unocal Bharat Limited (“UBL”), incorporated in Mauritius in July, 1996. The shares of the aforesaid UBL were acquired in September, 1996 by one Unocal International Corporation (“UIC”) incorporated in California in USA.
UBL did not carry out any business activity but, at the relevant time, held 26.01% of the issued share capital of Hindustan Oil Exploration Co. Ltd. (“the target company”).
Burren entered into a share purchase agreement with UIC on 14th February, 2005 to acquire the entire equity share capital of UBL. This agreement was entered into in England and by virtue thereof all the shares of UBL were registered in the name of Burren on the same day itself i.e. 14th February, 2005. On account of this transformation Burren came to hold 26.01% of the share capital in the target company.
As the acquisition was beyond the stipulated 15% of the equity share capital of the target company Burren became obliged to make a public announcement in accordance with the Regulations. Such public announcement in the form of a public offer for sale/purchase of 20% of the shares of the target company at a determined price of Rs.92.41 per fully paid up equity share was made on 15th February, 2005 by Burren and UBL acting as a person acting in concert.
On 14th February, 2005 i.e. date of execution of the share purchase agreement Burren appointed two of its Directors (Mr. Finian O'Sullivan and Mr. Atul Gupta) on the board of UBL and on the same date UBL, which is a person acting in concert with Burren, appointed the same persons on the board of directors of the target company.
This, according to SEBI, amounted violation of Regulation 22(7) of the Regulations inasmuch as the said appointment was made during the offer period which had commenced on and from 14th February, 2005 i.e. date of execution of the share purchase agreement.
The Tribunal took the view that it is the date of public announcement that would trigger off the commencement of the 'offer period'. As the appointment of the Directors in the target company was made on 14th February, 2005 and the public announcement was made on 15th February, 2005 the learned Tribunal was of the view that the respondents (appellants before it) cannot be held liable for violating Regulation 22(7) of the Regulations, as found by the Adjudicating Officer.
Finding of the Court:
Tribunal was incorrect in reaching its impugned conclusions and in reversing the order of the Adjudicating Officer.
Result: Appeal allowed.
JUDGMENT
RANJAN GOGOI, J.
1. The challenge in this appeal is to an order of the learned Securities Appellate Tribunal, Mumbai (hereinafter referred to as “the Tribunal”) reversing the order of the Adjudicating Officer dated 25th August, 2006 holding the respondents guilty of contravening the provisions of Regulation 22(7) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as “the Regulations”). A penalty of Rs.25 lakhs has been imposed on each on the respondents herein for the aforesaid violation. Aggrieved by the aforesaid reversal, Securities & Exchange Board of India (hereinafter referred to as “SEBI”) is in appeal before us.
2. The relevant facts are not in dispute. The first respondent herein – Burren Energy India Ltd. (hereinafter referred to as “Burren”) was incorporated in December, 2004 under the laws of England and Wales with its registered office in London. Burren was formed to acquire the entire of the equity share capital of one Unocal Bharat Limited (hereinafter referred to as “UBL”), incorporated in Mauritius in July, 1996. The shares of the aforesaid UBL were acquired in September, 1996 by one Unocal International Corporation (for short “UIC”) incorporated in California in USA.
3. Admittedly, UBL did not carry out any business activity but, at the relevant time, held 26.01% of the issued share capital of Hindustan Oil Exploration Co. Ltd. (hereinafter referred to as “the target company”).
4. Burren entered into a share purchase agreement with UIC on 14th February, 2005 to acquire the entire equity share capital of UBL. This agreement was entered into in England and by virtue thereof all the shares of UBL were registered in the name of Burren on the same day itself i.e. 14th February, 2005. On account of this transformation Burren came to hold 26.01% of the share capital in the target company. As the acquisition was beyond the stipulated 15% of the equity share capital of the target company the Regulations got attracted making it obligatory on the part of Burren to make a public announcement in accordance with the Regulations. Such public announcement in the form of a public offer for sale/purchase of 20% of the shares of the target company at a determined price of Rs.92.41 per fully paid up equity share was made on 15th February, 2005 by Burren and UBL acting as a person acting in concert.
5. On 14th February, 2005 i.e. date of execution of the share purchase agreement Burren appointed two of its Directors (Mr. Finian O'Sullivan and Mr. Atul Gupta) on the board of UBL and on the same date UBL, which is a person acting in concert with Burren, appointed the same persons on the board of directors of the target company. This, according to SEBI, amounted violation of Regulation 22(7) of the Regulations inasmuch as the said appointment was made during the offer period which had commenced on and from 14th February, 2005 i.e. date of execution of the share purchase agreement.
6. To appreciate the issue the provisions of Regulation 2(1)(f) of the Regulations which defines 'offer period' and Regulation 22(7) of the Regulations alleged to have been violated by the respondents may be extracted below:
“2(1)(f) “Offer period” means the period between the date of entering into Memorandum of Understanding or the public announcement, as the case may be and the date of completion of offer formalities relating to the offer made under these regulations”
22.General obligations of the acquirer.-
(1)...................
(2) ............................................................
(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:
Provided that in case of acquisition of shares or voting rights or control of a Public Sector Undertaking pursuant to a public announcement made under the proviso to sub-regulation (1) of Regulation 14, the provision
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