Case: K.K. Modi S/O Late Gujarmal Modi Vs. Securities Appellate Tribunal & Others

B.P. Singh, C.J.This appeal has been preferred by Mr. K.K. Modi against the order of the Securities Appellate Tribunal, Mumbai, dated 31st July, 2001 under section 15-Z of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as "the Act"). The Securities Appellate Tribunal, Mumbai (for short, "Appellate Tribunal"), in exercise of its jurisdiction under section 15T of the Act, set aside the order of the Chairman of the Securities and Exchange Board of India dated 16th July, 2001, and held that Modipon Limited, respondent No. 2 herein, even though a "Promoter" of Modi Rubber Limited (for short, MRL), respondent No. 3 cannot be held to be an "acquirer" or a person acting or deemed to be "acting in concert" with the acquirers, and therefore, ineligible to participate in the public offer made by the acquirers to the shareholders of MRL, the target company. It held that every "promoter" cannot be said to be an acquirer or a person acting in concert with the acquirer, or deemed to be acting in concert with the acquirer, unless it is shown that he either acquires or agrees to acquire shares, or voting rights, or control over, the target company along with the acquirers. It is not in dispute that Modipon Limited is a shareholder and also a promoter of the target company, MRL, and holds 4.53% of the equity capital of the target company, viz. MRL. The Appellate Tribunal held that there was no hard and fast rule that a promoter can never be an acquirer, or a person acting in concert, but it cannot be characterised as an acquirer merely because it is a "promoter" of the target company, unless it is shown that it has acquired, or has agreed to acquire, the shares or voting rights, or gain control over, the target company. Thus, the question as to whether a "promoter" is also an "acquirer" or a "person acting in concert" would depend on the facts of each case. In the instant case, it was found that Modipon Limited (respondent No. 2 herein) was keen to disinvest its shares in MRL, rather than acquire shares in MRL, and was, therefore, insistent that it should be permitted to participate in the public offer made to the shareholders of the target company, MRL, by respondents No. 4 to 7 herein, the acquirers. 2.The question which, therefore, arises for consideration in this appeal is : Whether a promoter of the target company, by reason of its being a promoter, must be deemed to be an acquirer, or a person acting in concert with the acquirer, in all cases, even when it does not wish to acquire, but insists upon participation in the public offer made by the acquirers to the shareholders of the company so as to disinvest its shares in the target company 3.The question arises in the factual background summarised hereinafter. The Modi Family controls and/or manages large number of companies which form part of the Modi Group of companies. A Memorandum of Understanding (MoU) was recorded between two groups of the Modi Family on 24th January, 1989. Group A consisted of K.N. Modi and his sons, M.K. Modi, Y.K. Modi and D.K. Modi. Group B consisted of K.K. Modi (Appellant herein) and his brothers, V.K. Modi, B.K. Modi, U.K. Modi and S.K. Modi. It was agreed that the companies named in paragraph 1 of the MoU shall be managed, owned and controlled by Group A . These included inter alia Modipon Limited (minus Indofil plus selling agency). Similarly, Group B was to manage, own and/or control the companies mentioned in paragraph 2 of the MoU, which included inter alia Modipon Limited (minus Modipon Fibre) and MRL, the target company. It is not disputed before us that Modipon Limited consisted of two divisions, viz., the Fibre Division, which was allocated to Group A, and the Chemicals Division, which was allocated to Group B.. Like Modipon Limited, there were two other companies, which had to be split up between the two groups, viz., Modi Industries Ltd. and Modi Spinning & Weaving Mills Co. Ltd. All non-productive assets, including shares, properties, guest houses etc. held by Modi Group Companies, were to be valued and divided in the ratio of 40: 60 (Group A" 40, and Group B 60). The shares of the aforesaid companies were to be transferred to the respective groups after their valuation, which was to be done by M/s. S.B. Billimoria & Co., Bombay. It was also agreed that the three companies which were to be split up, were to be split up under a scheme of Arrangement to be prepared by M/s. Bansi S. Mehta & Co., Bombay, after taking into consideration the valuation done by M/s. S.B. Billimoria & Co. Units were to be given to each group along with assets and liabilities. The three companies which were to be spilt up were to have an independent Chairman. The common activities of the company relating to Boards of Directors of the three companies were to be co-ordinated by the independent Chairman assisted by Managing Directors. All matters which were to be dealt with by the companies, not related to individual units on day-to-day basis, were to be dealt by the Chairman assisted by Managing Directors. The valuation of the companies to be done by M/s. S.B. Billimoria & co. was to be included in the total valuation of Modi Group assets and liabilities to be shared by the two groups in the ratio of 60: 40. The differences arrived at on the above basis was to be paid by one group to the other. The MoU was to be implemented in consultation with the financial institutions. All disputes, clarifications, etc. in respect of implementation of the MoU were to be referred to the Chairman, IFCI, or his nominees whose decisions was to be final and binding on both the groups. It is also not disputed that the parties to the MOU acted in accordance therewith, and necessary resolutions etc. were passed by the concerned companies, including Modipon Limited. 4.The valuation report was prepared by M/s. S.B. Billimoria & Co., but while preparing the Scheme of Arrangement, M/s. Bansi S. Mehta & Co. suggested certain changes affecting, inter alia, the investments in the group companies. Under the Scheme of Arrangement, M/s. Bansi S. Mehta & Co. changed the valuation of both Fibres Division and Chemicals Division of Modipon Limited. This gave rise to disputes between the two groups, and in terms of MoU, the disputes were referred to the Chairman of IFCI. The Chairman, IFCI, submitted his report, and after recording his findings, held that Group B, must pay a sum of Rs.2135.55 lacs to Group A on account of shortfall in valuation of assets of companies allocated to Group A. He also held that the shares of Group B companies held in Fibre Division of Modipon Ltd. and its subsidiaries were to be transferred to Group B as per the extant law at market price prevailing at the time of actual transfer. The decision of the Chairman, IFCI, was not acceptable to Group B, and, therefore, Mr. K.K. Modi (Appellant herein) filed a suit, being Suit No.1394 of 1996, in the High Court of Delhi challenging the decision. The said suit, we are informed is still pending. 5.On 30th March, 2001, V.K. Modi and Dr. B.K. Modi (respondents No. 5 and 4, respectively), who belong to Group B, along with Mod Fashions & Securities Pvt. Ltd. and Modikem Limited (respondents No. 6 and 7 herein) made a public announcement to the shareholders of MRL, the target company, in terms of Regulation 11(1) of the Securities & Exchange Board of India (Substantial Acquisition of Shares & Takeovers) Regulations, 1997 offering to acquire 87,64,186 fully paid-up equity shares of Rs. 10 each representing 35% of the outstanding equity share capital and voting rights of MRL, the target company, at a price of Rs. 80 per share, subject to the terms and conditions set out in the public announcement. In the said public announcement, it was also stated that Witta International Inc. and Sidh International Ltd. were the persons acting in concert with the acquirers, but they did not hold any share in the target company. The four acquirers held in total 12.53% of the share capital of the target company, MRL. It is worth noticing that in the public announcement, Modipon Limited is not shown either as a promoter, acquirer, or a person acting in concert, or deemed to be acting in concert, with the acquirers. It was, however, stated that the promoters of the target company, MRL, were V.K. Modi and his associates and Dr. B.K. Modi and his associates. It was also stated that the present management of MRL wished to consolidate its holding in the company, and no change in the management of the company was envisaged. 6.It appears from the record that in accordance with Regulation 18(1) of the Securities & Exchange Board of India (Substantial Acquisition of Shares & Takeovers) Regulations, 1997, the acquirers through their merchant banker, viz. HSBC Securities & Capital Markets (India) Ltd., submitted the draft letter of offer to SEBI for its approval. In exercise of its power under Regulation 18(2), SEBI required certain changes to be made in the Letter of Offer, which are contained in its letter of 25th May, 2001. It was suggested, inter alia as follows :"Share Capital of Modi Rubber Limited. - On page 17 of revised letter of offer, at the end of point (6) add "As per SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, Modipon Limited (MPL) being part of the promoter group of MRL and being person deemed to be acting in concert with acquirers, is not eligible to participate in the instant open offer." Accordingly, the letter of offer incorporated the changes directed by SEBI, and was issued to the shareholders on 30th May, 2001. 7.Modipon Limited took exception to the change suggested by SEBI in the letter of offer, and, therefore, by his letter of 29th May, 2001, M.K. Modi, Managing Director of Modipon Limited, wrote to SEBI protesting against the change in the letter of offer directed by SEBI, and asserted that Modipon Limited was not acting in concert, or deemed to be acting in concert, with the acquirers, and could not be deemed to be a promoter of the company when, in fact, it was not so. It was also pointed out that in the public offer published by the acquirers, Modipon Limited was not shown as a promoter or a person acting in concert or deemed to be acting in concert with the acquirers. It was also stated that since Modipon Fibres Company was facing severe financial crisis, it wanted to participate in the said offer, so that the sale proceeds could be realised for discharging its liabilities towards the banks and financial institutions. Reference was also made to the MoU dated 24th January, 1989, which brought about a division of assets in the Modi Group of Companies. By its reply dated 4th June, 2001, SEBI asserted that Modipon Limited was a person deemed to be acting in concert with the acquirers, and also forming part of the promoters group, and that the offer was made by the promoters of MRL for consolidation in terms of Regulation 11(1). In these circumstances, Modipon Limited could not be included in the public category for the captioned offer, and, therefore, was not eligible to participate in the captioned offer in terms of SEBI, Regulations, 1997. 8.At this stage, we may notice the proceeding in the suit before the Delhi High Court. By order dated 27th June, 2001, the Delhi High Court directed Modipon Limited (defendant No. 5 in the suit) "to consider the participation of purchase of shares of Modi Rubber Limited made by defendants No. 10 and 12 by 2nd July, 2001". It was, however, clarified that the right of purchase of shares of MRL by defendants No. 10 and 12 shall be subject to the outcome of the decision of the Bombay High Court where the order of SEBI denying participation to Modipon Ltd. had been challenged, and also subject to the decision of the Debt Recovery Tribunal, Delhi, and that of SEBI. The proceeds were not to be paid to Modipon Limited till the decision of all the pending applications. Pursuant to the order of the Delhi High Court, the Board of Directors of Modipon Limited in its meeting held on the 1st July, 2001, resolved to participate in the public offer, subject to the conditions that: (1) Prior written consent of the banks and financial institutions shall be obtained; and(2) Such offer shall be subject to the outcome of the decision of the Bombay High Court, and subject to the decision of the Debt Recovery Tribunal and of SEBI, and also subject to the rights and claims of the parties in the Delhi High Court proceedings as stated in the order of the Delhi High Court dated 27th June, 2001. The participation in the public offer was expressly made subject to these conditions and the two Managing Directors of the company were directed to ensure that participation in the offer was made only after compliance of these conditions. Mr. K.K. Modi (Appellant herein), however recorded his dissent.It is not disputed before us that prior written consent of the banks and financial institutions has been obtained, subject to which the company resolved to participate in the public offer. 9.As noticed in the order of the Delhi High Court, Modipon Limited had filed a writ petition in this Court challenging the decision of SEBI, in communicated in its letter dated 29th May, 2001, being Writ Petition (Lodging) No.1536 of 2001. Before this Court, it was stated by Counsel appearing on behalf of SEBI that SEBI will grant personal hearing to the petitioners and respondents No. 3 to 6 and their merchant bankers, and pass a fresh order in accordance with law on or before 10th July, 2001. By a subsequent order of 3rd July, 2001, the time given to SEBI to pass an order was extended till 16th July, 2001.10.On the 16th July, 2001, the Chairman of SEBI, after hearing the parties, passed an order reiterating the stand of SEBI that Modipon Limited was not eligible to participate in the public offer made by letter of offer dated 30th May, 2001. 11.Modipon Limited challenged the order passed by the Chairman, SEBI, dated 16th July, 2001, in the writ petition pending before this Court. However, by order dated 23rd July, 2001, this Court held that since an appeal under section 15-T of the Act read with Regulation 46 of SEBI Regulations, 1997 was provided before the Appellate Authority, the proper course for the petitioners was to prefer an appeal. Accordingly, the petitioners were directed to prefer an appeal, and the Appellate Authority was directed to decide the appeal, and, in any case, the stay application of the petitioners, on or before 1st July, 2001. The date of closure of the public offer was extended until 25th July, 2001.Accordingly, Modipon Limited preferred an appeal before the Securities Appellate Tribunal, being Appeal No.34 of 2001, and the same was allowed by the Appellate Tribunal by its order dated 31st July, 2001. The order passed by the Appellate Tribunal has been challenged in this appeal by Mr. K.K. Modi. 12.Mr. Janak Dwarkadas, Counsel appearing on behalf of the appellant, has urged before us three main contentions:Firstly, it was urged that the appeal filed before the Appellate Tribunal purportedly on behalf of Modipon Limited was filed without the authority of the Board of Directors of Modipon Limited, and, therefore, the appeal was, ab initio, void, as it was filed without any authority either of the Resolution of the Board or of the Chairman, and the person signing it was not authorised to act for the company.Secondly, it was urged that Modipon Limited, being a Promoter of the target company, MRL, could not participate in the open public offer. Relying upon the public announcement dated 30th March, 2001, it was submitted that the acquirers held only 12.56% of the share capital of the target company. They were, admittedly, promoters of the target company, and the offer was made in accordance with Regulation 11(1) of the SEBI Regulations, 1997. The said Regulation was applicable to an acquirer who together with persons acting in concert held 15% or more, but less than 75% of the shares or voting rights in the company. The acquirers, together with persons acting in concert with them, including Modipon Limited, had acquired 23.40% of the equity capital of the target company. It, therefore, followed that the acquirers being part of the promoters group, together with persons deemed to be acting in concert with the promoters group, including Modipon Limited, had acquired 23.40% of the shares of the target company, and they constituted the present management of the target company. If the shares held by Modipon Limited were to be excluded, Regulation 11(1) could not have any application to the acquirers. According to him, Modipon Limited, being a promoter of MRL, the target company, was a person acting in concert with other promoters, viz., the acquirers, respondents No. 4 to 7, who made a public offer to acquire shares of MRL. Control over MRL is exercised jointly by promoters of MRL, including Modipon Limited, acting in concert with each other. Thus, by virtue of being a promoter, Modipon Limited is deemed to be acting in concert with other promoters, inasmuch as the promoters are jointly in control of MRL. Even factually, Modipon Limited has always acted in concert with the other promoters of MRL. A distinction is sought to be drawn between promoters, persons in control, and persons acting in concert with them, on the one hand, and other shareholders, on the other. A public offer is made to the public at large, and promoters are not, and can never be treated, as public vis-a-vis the company of which they are promoters. It may be public in context of an offer by non-promoters who want to acquire control from the promoters or otherwise replace the promoters by acquiring control. But, one promoter can never be public vis-a-vis an offer made by another promoter. Moreover, the acquirers had, in making the public offer, acted on the basis that Modipon Limited was acting in concert with them. The public offer having been made on that basis, it was not permissible in law for any authority to change or alter the position, and to hold that Modipon Limited was not acting in concert, and permit participation by Modipon Limited without altering or removing the public offer.Thirdly, the Appellate Tribunal clearly misdirected itself in law in holding that Modipon Limited belongs to Group A, whereas the acquirers belong to Group B.13.Mr. Iqbal Chagla, appearing for Modipon Limited, submitted that the SEBI Regulations, 1997 regulated acquisition of shares, and not disinvestment of shares. Regulations 10, 11 and 12 did not secure any advantage to an acquirer, and, on the contrary, acted to its detriment, inasmuch as an acquirer could not acquire unlimited number of shares, but had to make an offer before such a decision. He did not challenge the finding of SEBI and the Appellate Tribunal that Modipon Limited is a promoter of MRL by reason of the definition of promoter under Regulation 2(2)(h), but the question still arose as to whether a promoter must, in all cases, be deemed to be a person acting in concert. Regulation 11 did not deal with a promoter, but deal with an acquirer or person acting in concert with him. Similarly, Regulation 8(2) made a distinction between a promoter and a person having control over a company. The declaration was to be made as a promoter. Similarly, Regulation 2(1)(b), which defines an acquirer, laid emphasis on the acquisition of shares. The very fact that Modipon Limited did not wish to acquire, but wanted to divest, militates against the conception that it was an acquirer. Similarly, under Regulation 2(1)(e) & (2), a promoter is not a person deemed to be acting in concert. The intendment of the Regulation is quite clear, and, therefore, by some circuitous method, a promoter cannot be deemed to be acting in concert with the acquirers in all cases. If a promoter does not wish to acquire shares in the target company, and in fact, wishes to participate in the public offer, and to sell shares held by it in the target company, it cannot be said to be an acquirer, or even a person acting in concert with the acquirer, or deemed to be acting in concert with the acquirer. That is why in the letter of offer the acquirers did not mention Modipon Limited as a person acting in concert with them, because Modipon Limited had no common objective with the acquirers. Even in the draft letter of offer, Modipon Limited was not shown as belonging to the promoters group, and was only shown as amongst the persons deemed to be acting in concert. It was excluded from participation in the public offer only pursuant to the changes suggested by SEBI in exercise of powers under Regulation 18(2) of the SEBI Regulations, 1997. 14.Counsel further submitted that the Board of Directors of Modipon Limited noted and ratified by its Resolution of 25th July, 2001 that the shares held by Modipon Limited in MRL, the target company, were proposed to be lodged by the company with the Registrar to the open offer made by Mr. V.K. Modi and Dr. B.K. Modi. He also referred to the letter of the Merchant Banker, HSBC Securities & Capital Markets (India) Ltd., dated 17th September, 2001, informing Modipon Limited that out of 11,33,333 shares tendered by it, 9,19,122 shares had been accepted based on order dated 31st July, 2001 of the Securities Appellate Tribunal, and the Delhi High Courts orders dated 27th June, 2001 and 2nd July, 2001. It further clarified that the shares shall continue to remain in possession with Karvy Consultants Ltd., and could not be transferred in terms of Delhi High Court order dated 2nd July, 2001. Consideration for the said shares shall be paid to Modipon Limited once the issue of title to the shares was resolved in terms of the Delhi High Courts order dated 27th June, 2001. He, therefore, submitted that the shares issued by Modipon Limited had been accepted on pro rata basis, and finality had been achieved. The appellant cannot, therefore, be granted any relief, and nothing survives in the matter on the factual aspect. The appellant cannot be permitted to disturb the acceptance of shares on pro rata basis, as that would affect the rights of the other shareholders of the company, who have participated in the public offer. 15.As regards the authority to file the appeal, he relied upon the order of this Court dated 23rd July, 2001, which authorised Modipon Limited to prefer an appeal before the Appellate Authority, and directed the Appellate Authority to decide the appeal, and in any case, the stay application of Modipon Limited, on or before 31st July, 2001. 16.At this stage, we may notice some of the important provisions of the SEBI Regulations of 1997. Regulation 2(1)(b) defines an acquirer thus:"2(1) In these Regulations, unless the context otherwise requires:........(b) "acquirer" means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer;" Control has been given an inclusive meaning under Regulation 2(1)(c), which reads as under :"(c) "control" shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their share-holding or management rights or shareholders agreements or voting agreements or in any other manner;"Under Regulation 2(1)(e), "person acting in concert" has been defined as follows :"(e) "person acting in concert" comprises, (1) persons who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal or informal), directly or indirectly, co-operate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company. (2) without prejudice to the generality of this definition, the following persons will be deemed to be persons acting in concert with other persons in the same category, unless the contrary is established: (i) a company, its holding company, or subsidiary or such company or company under the same management either individually or together with each other; (ii) a company with any of its directors, or any person entrusted with the management of the funds of the company; (iii) directors of companies referred to in sub-clauses (i) of Clause (2) and their associates; (iv) mutual fund with sponsor or trustee or asset management company; (v) foreign institutional investors with sub-account(s); (vi) merchant bankers with their client(s) as acquirer; (vii) portfolio manager with their client(s) as acquirer; (viii) venture, capital funds with sponsors; (ix) banks with financial advisers, stock brokers of the acquirer, or any company which is a holding company, subsidiary or relative of the acquirer; Provided that sub-clause (ix) shall not apply to a bank whose sole relationship with the acquirer or with any company, which is a holding company or a subsidiary of the acquirer or with a relative of the acquirer, is by way of providing normal commercial banking services or such activities in connection with the offer such as confirming availability of funds, handling acceptance and other registration work; (x) any investment company with any person who has an interest as director, fund manager, trustee, or as a shareholder having not less than 2 per cent of the paid-up capital of that company or with any other investment company in which such person or his associate holds not less than 2 per cent of the paid-up capital of the latter company. Note: For the purposes of this clause "associate" means,(a) any relative of that person within the meaning of section 6 of the Companies Act, 1956(1 of 1956); and (b) family trusts and Hindu undivided families;" Under Regulation 2(1)(h), promoter has been given the following meaning;"(h) "promoter" means -(1)(i) the person or persons who are in control of the company, or (ii) person or persons named in any offer document as promoters; (2) a relative of the promoter within the meaning of section 6 of the Companies Act, 1956 (1 of 1956); and (3) in case of a corporate body, (i) a subsidiary or holding company of that body, or (ii) any company in which the "promoter" holds 10 per cent or more of the equity capital or which holds 10 per cent or more of the equity capital of the promoter, of (iii) any corporate body in which a group of individuals or corporate bodies or combinations thereof who hold 20 per cent or more of the equity capital in that company also hold 90 per cent or more of the equity capital of the "promoter"; and (4) in case of an individual, (i) any company in which 10 per cent or more of the share capital is held by the "promoter" or a relative of the "promoter" or a firm or Hindu undivided family in which the "promoter" or his relative is a partner or co-parcener or a combination thereof, (ii) any company in which a company specified in (i) above, holds 10 per cent or more of the share capital, or (iii) any Hindu undivided family or firm in which the aggregate share of the promoter and his relatives is equal to or more than 10 per cent of the total;" Regulation 2(1)(j) defines "public shareholding" thus; "(j) "public shareholding" means shareholding in the hands of person(s) other than the acquirer and persons acting in concert with him;" Regulation 8 provides for continual disclosures, and reads thus :"8(1) Every person, including a person mentioned in Regulation 6 who holds more than fifteen per cent shares or voting rights in any company, shall, within 21 days from the financial year ending March 31, make yearly disclosures to the company, in respect of his holdings as on 31st March. (2) A promoter or every person having control over a company shall, within 21 days from the financial year ending March 31, as well as the record date of the company for the purposes of declaration of dividend, disclose the number and percentage of shares or voting rights held by him and by persons acting in concert with him, in that company to the company. (3) Every company whose shares are listed on a stock exchange, shall within 30 days from the financial year ending March 31, as well as the record date of the company for the purposes of declaration of dividend, make yearly disclosures to all the stock exchanges on which the shares of the company are listed, the changes, if any. in respect of the holdings of the persons referred to under sub-regulation (1) and also holdings of promoters or person(s) having control over the company as on 31st March. (4) Every company whose shares are listed on a stock exchange shall maintain a register in the specified format to record the information received under sub-regulation (3) of Regulation 6, sub-regulation (1) of Regulation 7 and sub-regulation (2) of Regulation 8." Regulation 11 provides for the making of the public announcement to acquire shares in accordance with the Regulations in the circumstances contemplated by the Regulations. It reads thus :"Consolidation of holdings. 11. (1) No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15 per cent or more but less than 75 per cent of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5 per cent of the voting rights, in any period of 12 months unless such acquirer makes a public announcement to acquirer shares in accordance with the regulations. (2) No acquirer who, together with persons acting in concert with him has acquired, in accordance with the provisions of law, 75% of the shares or voting rights in a company, shall acquire either by himself or through person acting in concert with him, any additional shares or voting rights entitling him to exercise more than 5 per cent of the voting rights, unless such acquirer makes a public announcement to acquire shares in accordance with the regulations. Explanation. - For the purposes of Regulation 10 and Regulation 11, acquisition shall mean and include, (a) direct acquisition in a listed company to which the regulations apply; (b) indirect acquisition by virtue of acquisition of holding companies, whether listed or unlisted, whether in India or abroad." Regulation 18 provides for submission of letter of offer to the board, and also vests in the Board the power to prescribe changes in the letter of offer, which the acquirer is bound to carry out before despatching the letter of offer to the shareholders. 17. At the threshold, we may observe that the SEBI Act and the Regulations of 1997 have been framed with a view to protect the interests of investors in securities, and to promote development of, and to regulate the securities market, and for matters connected therewith or incidental thereto. The Regulations deal inter alia with substantial acquisition of shares in companies by an acquirer. They do not, in any manner, inhibit the right of the owner of shares to sell his shares to a willing purchaser. In fact, the law leans in favour of free transferability of shares. Mr. Chagla, therefore, rightly emphasized that the purpose of the regulations is to regulate acquisition, and not divestment of shares. Regulations 10, 11 and 12, therefore do not secure any advantage to an acquirer, but, in fact, act to his detriment as the acquirer is inhibited from acquiring unlimited number of shares without making a public offer. 18. Regulation 2(1)(h) defines "promoter" to mean the person or persons who are in control of the company, or person or persons named in any offer document as promoters. It is, therefore, apparent that in respect of a company, a promoter may be in control of the company or it may be that other persons are in control of the company. Such other persons are in control of the company are deemed to be promoters under Regulation 2(1)(h). Even a person or persons named in any offer document as promoters is or are deemed to be promoters. However, the question that arises is whether a promoter in every case can be said to be an acquirer or a person acting in concert with the acquirer 19. Regulation 8 merely obliges a promoter to disclose the number and percentage of shares or voting rights held by him and by persons acting in concert with him. The mere fact that a promoter as required to disclose his shareholding in the company does not necessarily make him an acquirer. So far as the acquirer is concerned, there can be no dispute as to who are the acquirers. In the public announcement required to be made, the acquirers have to disclose their identity. But, since acquirer includes within its definition persons acting in concert with him, the question arises as to who are the persons acting in concert with him. This must be considered in the background of the offer made by the acquirers, and, therefore, the question to be answered is; Whether the person concerned is acting in concert with the acquirer for the purpose of acquiring the shares in the target company It, therefore, follows that the mere fact that a person is a promoter does not make him an acquirer, unless it is shown that he either intends to acquire or is acting in concert with the acquirer for the acquisition of shares of the target company. Before he can be said to be acting in concert with the acquirer, it must be shown that he shares with the acquirer a common objective or purpose for substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding and directly or indirectly co-operates with the acquirer or agrees with him to acquire shares or voting rights in the target company or control over the target company. It is significant that the definition of acquirer does not include a promoter, but includes persons acting in concert with an acquirer. The question as to whether a person is acting in concert with the acquirer, is essentially a question of fact. A promoter may not act in concert with the acquirer, whereas a stranger might. As the appellate Tribunal has rightly pointed out, there is no hard and fast rule that a promoter must always be deemed to be an acquirer or a person acting in concert with the acquirer. On the facts, it may be held that a promoter shares the common objective or purpose of substantial acquisition of shares with the acquirer. It may well be that he may not share the said common objective or purpose. If he does, he shall be deemed to be a person acting in concert with the acquirer, but if he does not, he cannot be deemed to be acquirer merely because he happens to be promoter. Regulation 2(1)(e) & (2) also makes this clear. The persons named therein are deemed to be persons acting in concert with other persons in the same category, unless the contrary is established. It, therefore, follows that even though there is a presumption that the persons described therein may be deemed to be persons acting in concert with the acquirer, the presumption is rebuttable, and, therefore, in each case, the facts have to be examined to reach a conclusion as to whether a person is or is not acting in concert with the acquirer for the purpose of substantial acquisition of shares or voting rights or gaining control over the target company. He may do so by an express agreement or understanding, and the agreement or understanding may be proved by evidence on record. Similarly, he may co-operate with the acquirer directly or indirectly. What is important is that it must be shown that he is acting in concert with the acquirer. A company may have several promoters, but only one of them may decided to increase his share-holding in the company by substantial acquisition of shares or voting rights in the company. The mere fact that one of the promoters of the company wishes to do so, is no reason to hold that the other promoters also necessarily share his objective or purpose. The other promoters may, in fact, be opposed to the acquirer acquiring further shares in the target company, and if they fail to prevent the acquirer from doing so, they may be inclined to dispose of the shares held by them. In such a situation, it cannot be said that the other promoters share the common objective or purpose of the acquirer.20. Several promoters may co-operate in promoting a company, and when the company is incorporated, they may be considered as promoters of the company. The SEBI Regulation of 1997 is not concerned with the promotion of a company. The promoters may have acted in concert for the purpose of promoting the company, but for the purpose of SEBI Regulation of 1997, it has to be seen as to whether they are acting in concert for a common objective or purpose of substantial acquisition of shares in the company. In the instant case as well, Modipon Ltd. may be a promoter, inasmuch as it has co-operated in promoting the target company, MRL. However, when members of one group of promoters acting in concert with two others have made a public announcement to acquire 35% share-holding of the company, Modipon Limited does not wish to act in concert with them, but, in fact, wishes to sell off its shares to meet its financial obligations. Obviously, there can be no common objective or purpose between an acquirer who wishes to acquire further shares in the company and a promoter who is interested in the disinvestment of his shares in that company. 21. It is true that the public offer is made under the Regulations to enable the other shareholders of the company to take an informed decision as to whether they will continue as shareholders or whether they will offer their shares to the acquirers who have made the public offer to purchase them at a stipulated price. It may well be urged that by a clever device, by fraud or collusion, the benefit to which the other shareholders of the company are entitled may be sought to be conferred on a co-promoter, who is really acting in concert with the acquirer though pretending to be otherwise. However, in the instant case, there is no allegation that Modipon Limited is acting in collusion with the acquirers. On the contrary, there is a bitter contest between them, inasmuch as Modipon Limited wishes to sell off its shares, while the acquirers contend that Modipon Limited cannot participate in the public offer made by them to the shareholders of the company. 22. We are, therefore, of the considered view that the mere fact that Modipon Limited is a promoter of MRL the target company, it cannot be precluded from taking part in the public offer made by the acquirers, who are co-promoters of MRL, unless it is shown that they share the common objective or purpose of the acquirers in the matter of substantial acquisition of shares of voting rights or gaining control over the target company, MRL. The facts of this case clearly establish that though Modipon Limited is a co-promoter of MRL, it does not share the common objective or purpose of the acquirers, inasmuch as it is not interested in acquiring further shares, but, on the contrary, is interested in selling off its share-holding in MRL with a view to meet its financial obligations. On facts, therefore, it must be held that Modipon Limited is not acting in concert with the acquirers. In law, the mere fact that Modipon Limited is a promoter, does not confer on it the status of an acquirer, or a person acting in concert with the acquirer. 23. The submission of Mr. Dwarkadas proceeds on the assumption that in every case where one of the promoters makes a public announcement, co-promoter must also be deemed to be an acquirer. The submission overlooks the fact that unless a promoter acts in concert with the acquirer for further acquisition of shares in the target company, it cannot be said to be acting in concert with the acquirer, notwithstanding the fact that in the promotion of the target company, it may have cooperated with the acquirers in the past to promote the company. 24. It was submitted by Mr. Dwarkadas that Regulation 11(1) was applicable to the acquirers only because they already held together with persons acting in concert with them 15% or more of the shares of the target company. If the shares held by Modipon Limited are excluded, the share-holding of the acquirers will be reduced to less than 15%, and Regulation 11(1) would not apply. In our view, the submission has no force. Whether Regulation 11(1) applies to the acquirers or not, is a question which has to be determined on facts. The mere fact that the acquirers have treated a promoter as a person acting in concert with them, even though such promoter does not share their common objective and purpose, will not make such a promoter a person acting in concert with the acquirers. The acquirers have no right to arbitrarily treat any person as a person acting in concert with them. That is a question which must be decided on the fact of each case. Moreover, the submission even factually has no force. He does not dispute that the acquirers, together with persons acting in concert, claim to have acquired 23.40% of the equity capital of the target company. It is also not disputed that Modipon Limited hold only 4.53% of the share-holding of MRL. Four acquirers.named in the offer document claim to hold 12.53% shares in the target company, and together with Modipon Limited and those acting in concert with them, they claim to hold 23.40% of the equity capital of the target company. If, from this, the 4.53% share-holding of Modipon Limited is excluded, the balance is still 18.87% which clearly attracts Regulation 11 of the SEBI Regulations, 1997. The fallacy in the calculation made by Mr. Dwarkadas is that it excludes the share-holding of other persons, apart from Modipon Limited, who, they claim, are acting in concert with them. 25. The submission urged by Mr. Dwarkadas that in the past as well, Modipon Limited has always acted in concert with the co-promoters of MRL, is really of no assistance to him. What is relevant is not whether the promoters have acted in concert with each other in managing the target company, but whether they are acting in concert with the purpose of substantial acquisition of shares or voting rights or gaining control over the target company. The fact, therefore, that the target company, MRL, has been managed in the past by the promoters acting in co-operation and concert with each other is hardly relevant for determining the question whether the promoters are acting in concert in the matter of substantial acquisition of shares or voting rights in the target company. The mere fact, therefore, that the acquirers, while making the public offer, assumed and acted on the basis that Modipon Limited was acting in concert with them, will not make Modipon Limited a person acting in concert with them. 26. We are, therefore, of the considered opinion that a co-promoter of the target company, merely by reason of his being a co-promoter, cannot be said to be a person acting in concert with the acquirer who also happens to be one of the promoters of the target company, unless the evidence on record clearly establishes that the promoter shares the common objective or purpose of substantial acquisition of shares or voting rights for gaining control over the target company, with the acquirer. The question whether a promoter is acting in concert with the acquirer is a question of fact, and the answer, therefore, must depend on the facts of each case. 27. In view of our finding that Modipon Limited, in the facts and circumstances of the case, cannot be said to be a person acting in concert with the acquirers, the question as to whether Modipon Limited belongs to Group A or Group B is not of any significance. We have already noticed in this judgment that the Board of Directors of Modipon Limited have consciously taken a decision to participate in the public offer made by the acquirers to the shareholders of the company. If Modipon Limited is neither an acquirer nor a person acting or deemed to be acting in concert with the acquirer, it must fall in the category of other shareholders of the target company, and its shareholding must be treated as "public shareholding" within the meaning of Regulation 2(1)(j) of the Regulations of 1997. 28. Mr. Dwarkadas then contended that the appeal preferred before the Appellate Tribunal was not authorised by Resolution of the Board of Directors of Modipon Limited or by its Chairman. The Appellate Tribunal has relied upon the Resolution of the Board of Directors of Modipon Limited dated 24th March, 1998. Mr. Dawarkadas contended that the Resolution only authorised the persons named therein to act on behalf of Modipon Fibres Co., which was the Fibres Division of Modipon Limited, and not on behalf of Modipon Limited itself. Mr. Chagla, on the other hand, submitted that it was not necessary to go into that question, because, admittedly, Modipon Limited moved this High Court by filing a writ petition challenging the communication of SEBI to Modipon Limited dated 29th May, 2001, informing Modipon Limited that it was not eligible to participate in the public offer made by the acquirers. It is not their case that Modipon Limited had not authorised the filing of such a petition before the High Court. That writ petition, being Writ Petition (Lodging) No. 1536 of 2001, was disposed of by this Court, in view of the statement made by Counsel appearing on behalf of SEBI that SEBI would hear the parties, and then pass a fresh order. Thereafter, the Chairman of SEBI passed the impugned order dated 16th July, 2001 which was also challenged by Modipon Limited in the aforesaid writ petition. This Court, however, did not interfere with the decision, in view of the fact that an appeal lay before the appellate Tribunal against the order of the Chairman of SEBI. This Court, therefore, permitted Modipon Limited to prefer an appeal before the Appellate Authority, and, in fact, directed the Appellate Authority to decide the appeal on or before 31st July, 2001. Mr. Chagla, therefore, submitted that pursuant to an order of this Court in a duly constituted proceeding, the appeal was preferred before the appellate Tribunal. The appellants, therefore, cannot contend that the filing of the appeal was not authorised by the Board of Directors of the company. We have earlier noticed that the filing of the writ petition challenging the decision of SEBI to exclude Modipon Limited from participation in the public offer has not been challenged on the ground that it was not authorised by Modipon Limited. The filing of the appeal before the appellate authority was, therefore, pursuant to the directions of this Court in a duly constituted proceedings before this Court. We find considerable force in the submission of Mr. Chagla, and it must be held that the appeal filed before the Appellate Tribunal was maintainable, and did not suffer from any legal infirmity.

Decision reasoning: 0[ds]The Regulations deal inter alia with substantial acquisition of shares in companies by an acquirer. They do not, in any manner, inhibit the right of the owner of shares to sell his shares to a willing purchaser. In fact, the law leans in favour of free transferability of shares. Mr. Chagla, therefore, rightly emphasized that the purpose of the regulations is to regulate acquisition, and not divestment of shares. Regulations 10, 11 and 12, therefore do not secure any advantage to an acquirer, but, in fact, act to his detriment as the acquirer is inhibited from acquiring unlimited number of shares without making a public offer.Regulation 2(1)(h) defines "promoter" to mean the person or persons who are in control of the company, or person or persons named in any offer document as promoters. It is, therefore, apparent that in respect of a company, a promoter may be in control of the company or it may be that other persons are in control of the company. Such other persons are in control of the company are deemed to be promoters under Regulation 2(1)(h). Even a person or persons named in any offer document as promoters is or are deemed to be promoters.Regulation 8 merely obliges a promoter to disclose the number and percentage of shares or voting rights held by him and by persons acting in concert with him. The mere fact that a promoter as required to disclose his shareholding in the company does not necessarily make him an acquirer. So far as the acquirer is concerned, there can be no dispute as to who are the acquirers. In the public announcement required to be made, the acquirers have to disclose their identity. But, since acquirer includes within its definition persons acting in concert with him, the question arises as to who are the persons acting in concert withthe appellate Tribunal has rightly pointed out, there is no hard and fast rule that a promoter must always be deemed to be an acquirer or a person acting in concert with the acquirer. On the facts, it may be held that a promoter shares the common objective or purpose of substantial acquisition of shares with the acquirer. It may well be that he may not share the said common objective or purpose. If he does, he shall be deemed to be a person acting in concert with the acquirer, but if he does not, he cannot be deemed to be acquirer merely because he happens to be promoter. Regulation 2(1)(e)(2) also makes this clear. The persons named therein are deemed to be persons acting in concert with other persons in the same category, unless the contrary is established. It, therefore, follows that even though there is a presumption that the persons described therein may be deemed to be persons acting in concert with the acquirer, the presumption is rebuttable, and, therefore, in each case, the facts have to be examined to reach a conclusion as to whether a person is or is not acting in concert with the acquirer for the purpose of substantial acquisition of shares or voting rights or gaining control over the targetmere fact that one of the promoters of the company wishes to do so, is no reason to hold that the other promoters also necessarily share his objective or purpose. The other promoters may, in fact, be opposed to the acquirer acquiring further shares in the target company, and if they fail to prevent the acquirer from doing so, they may be inclined to dispose of the shares held by them. In such a situation, it cannot be said that the other promoters share the common objective or purpose of the acquirer.It is true that the public offer is made under the Regulations to enable the other shareholders of the company to take an informed decision as to whether they will continue as shareholders or whether they will offer their shares to the acquirers who have made the public offer to purchase them at a stipulated price. It may well be urged that by a clever device, by fraud or collusion, the benefit to which the other shareholders of the company are entitled may be sought to be conferred on awho is really acting in concert with the acquirer though pretending to be otherwise. However, in the instant case, there is no allegation that Modipon Limited is acting in collusion with the acquirers. On the contrary, there is a bitter contest between them, inasmuch as Modipon Limited wishes to sell off its shares, while the acquirers contend that Modipon Limited cannot participate in the public offer made by them to the shareholders of thefacts of this case clearly establish that though Modipon Limited is aof MRL, it does not share the common objective or purpose of the acquirers, inasmuch as it is not interested in acquiring further shares, but, on the contrary, is interested in selling off itsin MRL with a view to meet its financial obligations. On facts, therefore, it must be held that Modipon Limited is not acting in concert with the acquirers. In law, the mere fact that Modipon Limited is a promoter, does not confer on it the status of an acquirer, or a person acting in concert with theour view, the submission has no force. Whether Regulation 11(1) applies to the acquirers or not, is a question which has to be determined on facts. The mere fact that the acquirers have treated a promoter as a person acting in concert with them, even though such promoter does not share their common objective and purpose, will not make such a promoter a person acting in concert with the acquirers. The acquirers have no right to arbitrarily treat any person as a person acting in concert with them. That is a question which must be decided on the fact of each case.We are, therefore, of the considered opinion that aof the target company, merely by reason of his being acannot be said to be a person acting in concert with the acquirer who also happens to be one of the promoters of the target company, unless the evidence on record clearly establishes that the promoter shares the common objective or purpose of substantial acquisition of shares or voting rights for gaining control over the target company, with the acquirer. The question whether a promoter is acting in concert with the acquirer is a question of fact, and the answer, therefore, must depend on the facts of each case.Mr. Dwarkadas then contended that the appeal preferred before the Appellate Tribunal was not authorised by Resolution of the Board of Directors of Modipon Limited or by its Chairman. The Appellate Tribunal has relied upon the Resolution of the Board of Directors of Modipon Limited dated 24th March, 1998. Mr. Dawarkadas contended that the Resolution only authorised the persons named therein to act on behalf of Modipon Fibres Co., which was the Fibres Division of Modipon Limited, and not on behalf of Modipon Limited itself. Mr. Chagla, on the other hand, submitted that it was not necessary to go into that question, because, admittedly, Modipon Limited moved this High Court by filing a writ petition challenging the communication of SEBI to Modipon Limited dated 29th May, 2001, informing Modipon Limited that it was not eligible to participate in the public offer made by the acquirers. It is not their case that Modipon Limited had not authorised the filing of such a petition before the High Court. That writ petition, being Writ Petition (Lodging) No. 1536 of 2001, was disposed of by this Court, in view of the statement made by Counsel appearing on behalf of SEBI that SEBI would hear the parties, and then pass a fresh order. Thereafter, the Chairman of SEBI passed the impugned order dated 16th July, 2001 which was also challenged by Modipon Limited in the aforesaid writ petition. This Court, however, did not interfere with the decision, in view of the fact that an appeal lay before the appellate Tribunal against the order of the Chairman of SEBI. This Court, therefore, permitted Modipon Limited to prefer an appeal before the Appellate Authority, and, in fact, directed the Appellate Authority to decide the appeal on or before 31st July, 2001. Mr. Chagla, therefore, submitted that pursuant to an order of this Court in a duly constituted proceeding, the appeal was preferred before the appellate Tribunal. The appellants, therefore, cannot contend that the filing of the appeal was not authorised by the Board of Directors of the company. We have earlier noticed that the filing of the writ petition challenging the decision of SEBI to exclude Modipon Limited from participation in the public offer has not been challenged on the ground that it was not authorised by Modipon Limited. The filing of the appeal before the appellate authority was, therefore, pursuant to the directions of this Court in a duly constituted proceedings before this Court. We find considerable force in the submission of Mr. Chagla, and it must be held that the appeal filed before the Appellate Tribunal was maintainable, and did not suffer from any legal infirmity.