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

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

Explanation:
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.