Pramod Jain And Ors vs Sebi

2. Golden Tobacco Limited (the target company) is a company having its registered office at Tobacco House, S.V. Road, Vile Parle (West), Mumbai – 400 056. The equity shares of the target company are listed on the Bombay Stock Exchange Limited (BSE) and the National Stock Exchange of India Limited (NSE).

3. On November 12, 2009, Mr. Pramod Jain and Pranidhi Holdings Private Limited (the acquirers) along with J.P. Financial Services Private Limited (the person acting in concert (PAC) made PA through VC Corporate Advisors Private Limited (the merchant banker) in accordance with regulations 10 and 12 read with regulation 14. As on the date of the PA, the acquirers and PAC collectively held 11, 39, 002 equity shares (6.47%) of the target company. The PA was voluntarily made by the acquirers and the PAC to acquire 44, 02, 201 equity shares (25%) of the target company from its equity shareholders at a price of Rs.101/- (the offer price) per equity share. At that time, market price of the target company shares was Rs.109/- per share. Networth of the target company as on 31st March, 2009 was Rs.42.44 crores. Net current assets were Rs.134.4 crores and gross sales were Rs.173.68 crores. The offer was for hostile takeover of the target company. The PA mentioned that the prime object of the offer was to acquire substantial shares/voting rights accompanied with the change and control of the management of the target company. The acquisition was in the nature of strategic investment for diversification and growth and to reap the benefit of corporate opportunities. The draft letter of offer also mentioned that the PAC had advanced loan against shares of the target company and on account of default, it acquired the said shares representing 5.05% of the equity share capital. The acquirers and the PAC had also acquired 71034 equity shares at highest and average price of Rs.100.15 and Rs.89.13 respectively. Thus, the acquirers and the PAC had 6.47 % of the issue of equity share capital as on the date of PA. The background of the acquirers mentioned in the DLO was that Mr. Pramod Jain was prime Director of PHPL and had experience in financial and consultancy services.

4. The acquirers and PAC, through the merchant banker, filed the draft letter of offer (DLO) with SEBI on November, 26, 2009. During examination of the DLO, certain complaints were received by SEBI against the acquirers and PAC as well as against the target company and its promoters. The appellants (the acquirer) in their complaints to SEBI and other proceedings including petition under Section 397/398 of the Companies Act before the Company Law Board and a suit before the Civil Court inter alia questioned the transaction for joint development of Vile Parle Property in terms of Memorandum of Understanding (MoU) dated 26th September, 2009 with Sheth Developers and Suraksha Realty Ltd. Various correspondences were exchanged between SEBI and the merchant banker, acquirers, PAC, the target company and certain other entities in respect of such complaints.

5. The appellants vide application dated 8th October, 2011 sought permission to withdraw the offer under Regulation 27(1)(d). The stand of the appellants in the said letter was that the SEBI had not taken any decision on the DLO in two years during which period the management of the target company had systematically siphoned off its coffers, depleted its valuable fixed assets and eroded its net worth substantially with the intention of making it a shell company. This has defeated the very object of the offer, without any fault on the part of the acquirers. The management had availed huge high cost borrowing from banks and financial institutions against its property, including 18.7 per cent shares out of the promoters’ shareholdings. Disputes were pending before the arbitrator arising out of default in payments. Most valuable assets of the target company had been encumbered in violation of SEBI regulations and against the interest of minority shareholders and the acquirers. Since the date of PA, financial position of the target company had deteriorated substantially.

Parle property and in implementation of the said resolution third party rights have been created. By that order Company Law Board directed that during the pendency of Company Petition No. 3 of 2010 GTL shall not act upon resolution dated January 18, 2010 any further. From aforesaid order passed by Company Law Board it is clear that in view of resolution passed in the EGM held on January 18, 2010, violation of regulation 23 committed by GTL in relation to development of Vile-Parle property stood rectified. Dispute, if any in relation to passing of resolution on January 18, 2010 was to be considered at the hearing of Company Petition No. 3 of 2010.

11. Adverting to the facts it was submitted that first complaint against the appellants was received on 8th January, 2010 i.e. 21 days after the PA. Complaints against the appellants were frivolous. The appellants duly responded to the complaints in timely manner. The complaints were made at the behest of the promoters. The appellants pointed out various illegal acts of the promoters but the SEBI failed to take any action. The appellants requested the SEBI to keep the open offer in abeyance till action was taken against the promoters. This justifies the prayer of the appellants to withdraw the open offer.

18. Similarly, having settled the dispute relating to siphoning of funds by GTL during 2009-2010 which plea was specifically raised in Company Petition No. 3 of 2010, appellants are not justified in agitating the very same issue before SEBI on ground that GTL has siphoned of its funds during the year 2009-2010 and 2010-2011. In other words, since the plea of siphoning of funds by GTL during the year 2009-2010 and prior thereto having been specifically raised in Company Petition No. 3 of 2010 and that issue having been settled by appellants with the promoters/ management of GTL for undisclosed reasons, the appellants are not justified in reagitating the very same issue before SEBI in relation to siphoning of funds either during 2009-2010 or during 2010-2011.

(2) The letter of offer shall be despatched to the shareholders not earlier than 21 days from its submission to the Board under sub-regulation (1):

(2) Within 14 days of the public announcement of the offer, the acquirer shall send a copy of the draft letter of offer to the target company at its registered office address, for being placed before the board of directors and to all the stock exchanges where the shares of the company are listed.

23. (1) Unless the approval of the general body of shareholders is obtained after the date of the public announcement of offer, the board of directors of the target company shall not, during the offer period,—

(d) such circumstances as in the opinion of the Board merit withdrawal.

Clearly clauses (b) and (c) are within the same genus of impossibility. Clause (d) also being an exception to the general rule would have to be naturally construed in terms of clauses (b) and (c). Mr. Divan has placed a great deal of emphasis on the expression “such circumstances” and “in the opinion” to indicate that the Board would have a wide discretion to permit withdrawal of an offer even though it is not impossible to perform. We are unable to accept such an interpretation.

(b) the provision relating to escrow account referred to in Regulation 28 has been made;

(c) firm arrangements for funds and money for payment through verifiable means to fulfil the obligations under the offer are in place;

(d) the public announcement of offer is made in terms of the Regulations;

(e) his shareholding, if any in the target company is disclosed in the public announcement and the letter of offer.”

91. Regulation 24(2) mandates that the Merchant Banker shall furnish to the Board a due diligence certificate which shall accompany the draft letter of offer. The aforesaid Regulation clearly indicates that any enquiries and any due diligence that has to be made by the acquirer have to be made prior to the public announcement. It is, therefore, not possible to accept the submission of Mr Shyam Divan that the appellants are to be permitted to withdraw the public announcement based on the discovery of certain facts subsequent to the making of the public announcement. In such circumstances, in our opinion, the judgments cited by Mr Shyam Divan are of no relevance. ”

2011. The variation seems to have been between Rs 78.10 (on 24-11-2011) and Rs 87.60 (on 20-10-2011). Such a variation cannot be said to be the result of the public offer. But this will not detract from the well-known phenomena that public announcement of the public offering affects the securities market and the shares of the target company. The impact is immediate.

Re. Question (ii)

(ii) is answered accordingly.

28. In view of the above, we do not find any merit in this appeal and the same is accordingly dismissed. There shall be no order as to costs.