Case: M/S Daiichi Sankyo Company Vs. Jayaram Chigurupati

(formal or informal), directly or indirectly cooperate by acquiring or agreeing to acquire shares or voting rights in the target company or to acquire control over the target company. The word "comprises" in regulation 2(1)(e) is significant. It applies to regulation 2(1)(e)(2) as much as to regulation 2(1)(e)(1). A fortiori, a person deemed to be acting in concert with others is also a person acting in concert. In other words, persons who are deemed to be acting in concert must have the intention or the aim of acquisition of shares of a target company. It is the conduct of the parties that determines their identity. Whether a person is or is not acting in concert with the acquirer would depend upon the facts of each case. In order to hold that a person is acting in concert with the acquirer or with another person it must be established that the two share the common intention of acquisition of shares of some target company. For example, there is no hard and fast rule that every foreign institutional investor (FII) would share with the sub-account(s) the common objective of acquiring substantial stakes or control in some target company. Whether in a given case an FII and his sub-account(s) have a common objective of making investment in India to earn profits in unit holders or whether they have a common objective of acquiring substantial stakes or control in some target company would depend on the facts of each case. In the former case regulation 2(1)(e)(2)(v) would not apply whereas in the latter case the said sub-regulation would apply. The above illustration brings out the true purport of the expression "unless the contrary is established" which expression finds place in regulation 2(1)(e)(2).49. Something else that is of utmost importance is to understand that the deeming fiction under sub-regulation (2) can only operate prospectively and not retrospectively. That is to say the deeming provision would give rise to the presumption, as explained above, only from the date two or more persons come together in one of the specified relationships and not from any earlier date. Thus, in the case in hand, the deeming provision under sub-regulation (2) would give rise to the presumption that Daiichi and Ranbaxy were "persons acting in concert", provided of course the other conditions as explained above were also satisfied, only from October 20, 2008, the date on which Ranbaxy became a subsidiary of Daiichi and not before that. Hence, the purchase of Zenotech shares by Ranbaxy in January 2008 cannot be said to be by a "person acting in concert" with Daiichi.50. In light of the discussion made above, we are of the view, that the Appellate Tribunal was in error in proceeding on the basis that the material date for Ranbaxy and Daiichi to be acting in concert was the date of the public announcement for the Zenotech shares. The Tribunal Observed:"It is, thus, clear that on January 19, 2009, the material date on which the offer price for indirect acquisition is being worked out, Ranbaxy, being a subsidiary, was acting in concert with the Daiichi and that it (Ranbaxy) had paid Rs.160 per share to the shareholders of the target company during January 16 and January 28, 2008 when it acquired their shares under the Ranbaxy-Zenotech deal which period falls within twenty-six weeks prior to June 16, 2008."51. The Appellate Tribunals error is the result of mixing up the provisions of sub-regulations (12) and (4) of regulation 20. As explained earlier sub-regulation (12) came to be introduced in regulation 20 as a consequence of extension of time for making public announcement for the secondary and indirectly targeted company by insertion of sub-regulation (4) in regulation 14. Sub-regulation (12) of regulation 20 obliges the acquirer to work out the best value for the shares of the indirectly targeted company as obtaining on the date of the public announcement for the parent target company as well as on the date of the public announcement for the concerned indirectly targeted company and then to offer the shareholders the better of the two values. This is for the simple reason that the extension allowed for making the public announcement for the indirectly targeted company should not cause any prejudice to its shareholders. Sub-regulation (12) does not in any way affect sub-regulation (4) which remains unamended and it certainly does not alter the meaning of "person acting in concert" as used in that sub-section. 52. We are clearly of the view that for the application of regulation 20(4)(b) it is not relevant or material that the acquirer and the other person, who had acquired the shares of the target company on an earlier date, should be acting in concert at the time of the public announcement for the target company. What is material is that the other person was acting in concert with the acquirer at the time of purchase of shares of the target company.53. The true meaning of the idea of "persons acting in concert", as explained above will also clear all the doubts sought to be created by Mr. Divans illustration as noted above. In that illustration, persons A, B and C earlier purchased shares of company A separately and as strangers. Those purchases were, therefore naturally not by "persons acting in concert". But later on, all the three persons came together. They agreed to pool the benefits of their share with one another and to takeover company X, and they further agreed that they would vote together going forward. Thus the earlier purchases were brought within the concept subsequently by an express agreement between the three persons even though at the time of purchase the purchasers were not acting in concert. Hence, the earlier purchases too would fully attract the regulatory provisions of the Takeover Code.54. This is how we are able to follow the correct meaning of the expression "person acting in concert" as defined in regulation 2(e) and as used in regulation 20(4)(b) of the Takeover Code.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]24. In order to clearly understand the ways in which the offer price is to be determined in the case of an indirect takeover of a company, as in the present case, it would be useful to examine regulation 20 from the rear end, that is to say starting from(12). This may sound a little strange but it is because(12) was introduced in the Takeover Code later, along with and as a consequence of insertion of(4) of regulation 14 to deal specifically with the offer pricing of the shares of a target company the acquisition of which takes place as a result of the direct takeover of some other company. We have seen above that the second Bhagwati Committee had, for good reasons, recommended for a separate and extended time period for making the public offer for a company that gets taken over following the acquisition of a target company. While making the recommendation, the Committee took care to see that the extended period for making the public offer does not act to the detriment of the ordinary shareholders of the company that gets taken over as a result of acquisition of a target company.ion (12) of regulation 20. Now, if we read regulation 20(12), it plainly says that the offer price for the shares of a company being taken over indirectly and as a consequence of the acquisition of the primary target, would be determined with reference to two dates, one when the public offer was made in regard to the "Parent company" (that is, the company, the acquisition of which resulted in the takeover of the secondary target company) and the other when the public offer is made for the secondary target company and the higher of the two will be taken as the offer price. In terms of(12) of regulation 20, therefore, the share price of Zenotech was required to be determined as on June 16, 2008 (the date of the public announcement for Ranbaxy, the parent company) and as on January 19, 2009 (the date of the public announcement for Zenotech, the indirectly target company). Regulation 20(12) tells us the dates with reference to which the offer price is to be determined but it does not tell us how the offer price is to be determined. For that it refers us back to(4) and (5). It needs to be stated here that(4) and (5) remained unchanged and did not undergo any amendments following the introduction of(4) in regulation 14 and(12) in regulation 20. This is to say that the provisions of(4) and (5) apply both to cases of direct and indirect takeover; they were not designed only for cases of indirect takeover.26.(5) of regulation 20 lays down the method for determining the offer price for a company the shares of which are infrequently traded. That is not the case with Zenotech; hence, we may leave out(5). This takes us to(4) of regulation 20.(4) prescribes three ways for determining the share price with the stipulation that the highest among them would be the offer price. Clause (a) of(4) refers to the negotiated price under the agreement. This would clearly apply to a case of direct takeover and shall have no application to a case of indirect takeover like the present one. Clause (b) is based on the price paid by the acquirer or persons acting in concert with him for acquisition of shares of the target company within the period of twenty six weeks prior the date of the public announcement and clause (c) is based on the price of the shares of the target company as quoted on the stock exchange.From the rival contentions it is clear that the real controversy among the parties is about the applicability of regulation 20(4)(b) to determine the offer price for Zenotech shares in the public announcement made by Daiichi. Regulation 20(4)(b) speaks of the price paid by the acquirer or persons acting in concert with him for acquisition of shares , if any, during the twenty six weeks period prior to date of public announcement. It does not speak of any agreement to acquire shares or of any voting rights or control over the target company but the actual price paid for acquisition of its shares. Here a question arises, to what point in time does the expression "person acting in concert" used in regulation 20(4)(b) refer? Should the person be acting in concert with the acquirer at the time of the public announcement or at the time of acquisition of shares of the target company? To make the matter more explicit, assuming that Daiichi and Ranbaxy together comprised "persons acting in concert" on the date Daiichi made the public announcement for Zenotech shares, was it sufficient that they were in that relationship on that date or for the application of regulation 20(4)(b) it was necessary that Daiichi and Ranbaxy should have been in that relationship when Ranbaxy had made acquisition of Zenotech shares. The Appellate Tribunal has of course proceeded on the basis that since Daiichi and Ranbaxy were "persons acting in concert" on the date of the public announcement made by Daiichi for Zenotech shares(b) of regulation 20(4) would be attracted regardless of the fact that the two were not in that relationship on the dates of purchase of Zenotech shares by Ranbaxy.41. On behalf of the respondents much argument was made to show that even before Ranbaxy became a subsidiary of Daiichi the two were covered by the definition of "persons acting in concert" on signing the SPSSA. Whether Ranbaxy became a persons acting in concert with Daiichi on signing the SPSSA or on becoming its subsidiary is one aspect of the matter but if the basis on which the Appellate Tribunal has proceeded is correct then it hardly matters if Ranbaxy was acting in concert with Daiichi on signing the SPSSA or on becoming its subsidiary, as long as it was in that relationship with Daiichi when Daiichi made the public announcement for Zenotech shares.42. We now proceed to examine the question whetherDaiichi and Ranbaxy came together in the relationship of "persons acting in concert" as claimed by the respondents and connected with it the larger question as to the stage when the relationship of "persons acting in concert" must be in existence for the applicability of regulation 20(4)(b) of the TakeoverCode. For this, we must first understand what is the true meaning of "persons acting in concert" as defined in regulation 2(e).43. To begin with, the concept of "person acting in concert" under regulation 2(e)(1) is based on a target company on the one side, and on the other side two or more persons coming together with the shared common objective or purpose of substantial acquisition of shares etc. of the target company. Unless there is a target company, substantial acquisition of whose shares etc. is the common objective or purpose of two or more persons coming together there can be no "persons acting in concert". For, dehors the target company the idea of "persons acting in concert" is as irrelevant as a cheat with no one as victim of his deception. Two or more persons may join hands together with the shared common objective or purpose of any kind but so long as the common object and purpose is not of substantial acquisition of shares of a target company they would not comprise "persons acting in concert".44. The other limb of the concept requires two or more persons joining together with the shared common objective and purpose of substantial acquisition of shares etc. of a certain target company. There can be no "persons acting in concert" unless there is a shared common objective or purpose between two or more persons of substantial acquisition of shares etc. of the target company. For, dehors the element of the shared common objective or purpose the idea of "person acting in concert" is as meaningless as criminal conspiracy without any agreement to commit a criminal offence. The idea of "persons acting in concert" is not about a fortuitous relationship coming into existence by accident or chance. The relationship can come into being only by design, by meeting of minds between two or more persons leading to the shared common objective or purpose of acquisition of substantial acquisition of shares etc. of the target company. It is another matter that the common objective or purpose may be in pursuance of an agreement or an understanding, formal or informal; the acquisition of shares etc. may be direct or indirect or the persons acting in concert may cooperate in actual acquisition of shares etc. or they may agree to cooperate in such acquisition. Nonetheless, the element of the shared common objective or purpose is the sin qua non for the relationship of "persons acting in concert" to come into being.45. The submission made on behalf of the respondents that on signing the SPSSA Ranbaxy became a person acting in concert with Daiichi overlooks this basic precondition and ingredient of the relationship. The consequential takeover of Zenotech and its acknowledgment are not same thing as the shared common objective or purpose of substantial acquisition of shares or voting rights or gaining control over Zenotech. As stated above, the relationship of "persons acting in concert" is not a fortuitous relationship. It can come into being only by design. Hence, unless it is shown that Daiichi and Ranbaxy entered into the SPSSA for the common objective or purpose of substantial acquisition of shares or voting rights or control over Zenotech they can not be said to have come in the relationship of "persons acting in concert". This is not even the case of the respondents. The inevitable conclusion, therefore, is that on signing the SPSSA Daiichi and Ranbaxy did not come within the relationship of persons acting in concert within the meaning of regulation 2(e)(1) of the Takeover Code.46. We may now proceed to the deeming provision as contained in sub clause (2) of regulation 2(e). Here, it would be better to restate the obvious that the deeming provision can not do away either with the target company or the common objective or purpose of substantial acquisition of shares etc. of the target company shared by two or more persons because to do so would be destructive of the very idea of "persons acting in concert" as defined in(1) of regulation 2(e). We, therefore, see no merit in the submission, as urged at one stage, on behalf of the respondents that subregulation (2) of regulation 2(e) containing the deeming clause should be seen as a `stand alone provision, independent of(1) of regulation 2(e). The deeming provision under(2) operates only within the larger framework of(1) of regulation2(1)(e)(2) defines "person acting in concert". It is a deeming provision. It has to be read in conjunction with regulation 2(1)(e)(1) which states that person acting in concert comprises of persons who in furtherance of 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 cooperate by acquiring or agreeing to acquire shares or voting rights in the target company or to acquire control over the target company. The word "comprises" in regulation 2(1)(e) is significant. It applies to regulation 2(1)(e)(2) as much as to regulation 2(1)(e)(1). A fortiori, a person deemed to be acting in concert with others is also a person acting in concert. In other words, persons who are deemed to be acting in concert must have the intention or the aim of acquisition of shares of a target company. It is the conduct of the parties that determines their identity. Whether a person is or is not acting in concert with the acquirer would depend upon the facts of each case. In order to hold that a person is acting in concert with the acquirer or with another person it must be established that the two share the common intention of acquisition of shares of some target company. For example, there is no hard and fast rule that every foreign institutional investor (FII) would share with thethe common objective of acquiring substantial stakes or control in some target company. Whether in a given case an FII and hishave a common objective of making investment in India to earn profits in unit holders or whether they have a common objective of acquiring substantial stakes or control in some target company would depend on the facts of each case. In the former case regulation 2(1)(e)(2)(v) would not apply whereas in the latter case the saidwould apply. The above illustration brings out the true purport of the expression "unless the contrary is established" which expression finds place in regulation 2(1)(e)(2).49. Something else that is of utmost importance is to understand that the deeming fiction under(2) can only operate prospectively and not retrospectively. That is to say the deeming provision would give rise to the presumption, as explained above, only from the date two or more persons come together in one of the specified relationships and not from any earlier date. Thus, in the case in hand, the deeming provision under(2) would give rise to the presumption that Daiichi and Ranbaxy were "persons acting in concert", provided of course the other conditions as explained above were also satisfied, only from October 20, 2008, the date on which Ranbaxy became a subsidiary of Daiichi and not before that. Hence, the purchase of Zenotech shares by Ranbaxy in January 2008 cannot be said to be by a "person acting in concert" with Daiichi.50. In light of the discussion made above, we are of the view, that the Appellate Tribunal was in error in proceeding on the basis that the material date for Ranbaxy and Daiichi to be acting in concert was the date of the public announcement for the Zenotech shares. The Tribunal Observed:"It is, thus, clear that on January 19, 2009, the material date on which the offer price for indirect acquisition is being worked out, Ranbaxy, being a subsidiary, was acting in concert with the Daiichi and that it (Ranbaxy) had paid Rs.160 per share to the shareholders of the target company during January 16 and January 28, 2008 when it acquired their shares under thedeal which period falls withinweeks prior to June 16, 2008."51. The Appellate Tribunals error is the result of mixing up the provisions of(4) of regulation 20.As explained earlier(12) came to be introduced in regulation 20 as a consequence of extension of time for making public announcement for the secondary and indirectly targeted company by insertion of(4) in regulation 14.(12) of regulation 20 obliges the acquirer to work out the best value for the shares of the indirectly targeted company as obtaining on the date of the public announcement for the parent target company as well as on the date of the public announcement for the concerned indirectly targeted company and then to offer the shareholders the better of the two values. This is for the simple reason that the extension allowed for making the public announcement for the indirectly targeted company should not cause any prejudice to its shareholders.(12) does not in any way affectWe are clearly of the view that for the application of regulation 20(4)(b) it is not relevant or material that the acquirer and the other person, who had acquired the shares of the target company on an earlier date, should be acting in concert at the time of the public announcement for the target company. What is material is that the other person was acting in concert with the acquirer at the time of purchase of shares of the target company.53. The true meaning of the idea of "persons acting in concert", as explained above will also clear all the doubts sought to be created by Mr. Divans illustration as noted above. In that illustration, persons A, B and C earlier purchased shares of company A separately and as strangers. Those purchases were, therefore naturally not by "persons acting in concert". But later on, all the three persons came together. They agreed to pool the benefits of their share with one another and to takeover company X, and they further agreed that they would vote together going forward. Thus the earlier purchases were brought within the concept subsequently by an express agreement between the three persons even though at the time of purchase the purchasers were not acting in concert. Hence, the earlier purchases too would fully attract the regulatory provisions of the Takeover Code.54. This is how we are able to follow the correct meaning of the expression "person acting in concert" as defined in regulation 2(e) and as used in regulation 20(4)(b) of the Takeover Code.