Case: A.R. Dahiya Vs. Securities &amp; Exchange Board Of India&amp;Ors

Target Company made by him during the twelve month period prior to the date of public announcement.13. The first issue that has to be addressed before us is whether the transaction of buy-back of shares which transpired between the Appellant and HSIDC was required to be disclosed in the public announcement dated 24.4.1999. In order to determine this requirement, we must examine the operative clauses of the relevant Regulations. Regulation 3 states that Regulations 10, 11 and 12 shall have no applicability to any transfer of shares from state level financial institutions, including their subsidiaries, to co-promoter(s) of the company pursuant to an agreement between such financial institution and such co-promoter(s). Regulations 10, 11 and 12 mandate the making of a public announcement, if any of the criteria mentioned therein are satisfied. Regulation 16 provides the contents and essential disclosures that are to be made at the time of making a public announcement. Regulation 20 establishes the method of computation to be employed in order to determine the minimum offer price which the acquirer must offer to purchase shares in a public announcement under Regulation 10, 11 or 12. It is evident from a reading of the above Regulations that the buy-back transaction between the Appellant and HSIDC was incapable of triggering Regulation 10, as the said transaction was protected by Regulation 3. However, the acquisition of the entire share capital of Garg by the Appellant attracted Regulation 10 as the acquisition was in excess of 15%. Further, as this transaction was between two promoters, it did not have the protection of Regulation 3. As required under Regulation 10, the Appellant did make a public announcement, but did not disclose its buy-back transaction with HSIDC. The Appellant has vainly and incorrectly attempted to justify his act of non-disclosure by stating that the transaction with HSIDC was protected by Regulation 3, which placed it beyond the ambit of Regulation 10, 11 and 12. In our view, Regulation 3 only protects a transaction between a co-promoter and a State financial institution to the extent that, as a consequence of such transaction a public announcement will not be required to be made as provided under Regulations 10, 11 and 12. However, it does not imply that the said transaction is to be protected from the rigours of other Regulations provided for under the Act. Thus, the transaction between the Appellant and HSIDC will have to be subject to Regulations 16 and 20, and the rate at which the Appellant bought back the shares from HSIDC had to be disclosed in the public announcement. 14. We also find no force whatsoever in the contention of the Learned Counsel for the Appellant that the post-dated cheques forwarded to HSIDC enclosed with letter dated 15.4.1999 were given by way of a guarantee, especially in light of the fact that the same was denied by HSIDC in its letter to SEBI dated 11.1.2001, wherein HSIDC stated that the post-dated cheques had been issued in consideration of the buy-back of shares. 15. The next contention that was raised by the Counsel for the Appellant was that as the cheques presented had been dishonoured on presentation, the said transaction did not culminate in an acquisition. It has already been held beyond doubt that the post-dated cheques issued by the Appellant in favour of HSIDC were in consideration of the buy-back of the shares held by HSIDC in the Target Company. The Appellant had submitted that the cheques were post-dated because he was suffering from a liquidity crunch. In our view, the post-dated cheques amounted to a promise to pay and that promise would be fulfilled on the date mentioned on the cheque. Thus, this promise to pay amounted to a sale of shares/equity. The subsequent dishonouring of the post-dated cheque would have no bearing on the case. At the time of making the public announcement the Appellant had bought back the shares of HSIDC by making payment via the said post-dated cheques. Further, as the buy-back was in pursuance of an agreement, there was consensus ad idem. The Appellant has subsequently shirked his responsibility and has tried to slither away from honouring the agreement, which he cannot be allowed to gain from, as is established by the legal maxim commodum ex injuri su non habere debet. While interpreting the term acquisition, we must conceptualize the intention behind these Regulations which, it seems to us, is to safeguard the shareholders from adverse consequences of acquisitions and takeovers as far as the value of the shares is concerned. Not infrequently, the new management’s endeavour is to manipulate the market price of the shares in a manner calculated to induce the existing shareholders to off load their holdings at a low price. This is achieved by portraying a false picture of their value. In the background of such an intention it would fallacious to suggest that the said transaction did not tantamount to an acquisition. 16. In order to dispel doubts regarding the term ‘acquisition’, the same was subsequently defined in the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. Under Regulation 2 Clause (1) Sub-clause (a)- ‘acquisition’ means directly or indirectly acquiring or agreeing to acquire shares or voting rights in, or control over, a Target Company. This definition clarifies that an acquisition takes place the moment the acquirer decides or agrees to acquire, irrespective of the time when the transfer stands completed in all respects. The definition explicates that the actual transfer need not be contemporaneous with the intended transfer and can be in futuro.17. Further, the letter on which the Counsel for the Appellant had placed reliance to prove that there was no acquisition, is dated 9.12.1999, which was well after the public announcement dated 24.4.1999 where the Appellant was required to make disclosures in compliance with the Regulations. This clearly indicates, that at the date of making the public announcement the Appellant was under the impression that the acquisition has taken place.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]is evident from a reading of the above Regulations that the buy-back transaction between the Appellant and HSIDC was incapable of triggering Regulation 10, as the said transaction was protected by Regulation 3. However, the acquisition of the entire share capital of Garg by the Appellant attracted Regulation 10 as the acquisition was in excess of 15%. Further, as this transaction was between two promoters, it did not have the protection of Regulation 3. As required under Regulation 10, the Appellant did make a public announcement, but did not disclose its buy-back transaction with HSIDC. The Appellant has vainly and incorrectly attempted to justify his act of non-disclosure by stating that the transaction with HSIDC was protected by Regulation 3, which placed it beyond the ambit of Regulation 10, 11 and 12. In our view, Regulation 3 only protects a transaction between a co-promoter and a State financial institution to the extent that, as a consequence of such transaction a public announcement will not be required to be made as provided under Regulations 10, 11 and 12. However, it does not imply that the said transaction is to be protected from the rigours of other Regulations provided for under the Act. Thus, the transaction between the Appellant and HSIDC will have to be subject to Regulations 16 and 20, and the rate at which the Appellant bought back the shares from HSIDC had to be disclosed in the public announcement.In order to dispel doubts regarding the termthe same was subsequently defined in the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. Under Regulation 2 Clause (1) Sub-clause (a)-means directly or indirectly acquiring or agreeing to acquire shares or voting rights in, or control over, a Target Company. This definition clarifies that an acquisition takes place the moment the acquirer decides or agrees to acquire, irrespective of the time when the transfer stands completed in all respects. The definition explicates that the actual transfer need not be contemporaneous with the intended transfer and can be in futuro.17. Further, the letter on which the Counsel for the Appellant had placed reliance to prove that there was no acquisition, is dated 9.12.1999, which was well after the public announcement dated 24.4.1999 where the Appellant was required to make disclosures in compliance with the Regulations. This clearly indicates, that at the date of making the public announcement the Appellant was under the impression that the acquisition has taken place.