Case: Sebi Vs. Akshya Infrastructure Pvt.Ltd

3. In this case, the respondent herein, M/s Akshya Infrastructure Pvt. Ltd., is a part of the Promoter Group of MARG Limited (‘the TargetFor the years 2006-07, 2007-08 and 2010-11, the gross acquisition by the Promoter Group of shares in the Target Company was as under :Financial YearPercentageDate triggereda consequence of the foregoing acquisitions, the acquirers breached the 5% creeping acquisition limit and were required to comply with the provisions of Regulation 11 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the. On 20th October, 2011, the respondent made a voluntary open offer through a Public Announcement in major National Newspapers, under Regulation 11 of the Takeover Regulations wherein the public shareholders of the Target Company were given an opportunity to exit at an offer price of Rs.91/- per equity share. This price represents a premium of 10.3% over the average market closing price for the two weeks preceding the Public Announcement. The tendering period was scheduled to commence on 1st December, 2011 and conclude on 20th December, 2011. The consideration for the tendered shares was to be paid on or before 4th January, 2012. As on the date of the open offer, the list of Promoters/Promoter Group Entities was as under:-Sl. No.Name1.Mr. G.RK. Reddy2.Mr. G. Raghava Reddy3.Ms. V.P. Rajini Reddy4.Mr. G. Madhusudan Reddy5.GRK Reddy & Cons (HUF)6.M/s. Global Infoserve Ltd.7.M/s. Marg Capital Markets Limited8.M/s. Exemplarr Worldwide Limited9.M/s. Marg Projects and Infrastructure Limited (formerly Marg Holdings and Financial Services Limited)10.M/s. Akshya Infrastructure Private Limited5. However, due to certain events, which have been highlighted by both the parties, the respondent by letter dated 29th March, 2012 through M/s. Motilal Oswal Investment Advisors (P) Ltd., the Managers to the Issue (hereinafter referred to as the, addressed to SEBI, sought to contend that the open offer in question had become outdated, thereby outliving its necessity and, therefore, the same ought to be permitted to be withdrawn. It was also contended that the amount of Rs.17.46 crores deposited by the respondent in an escrow account towards the open offer ought to be allowed to be withdrawn. The letter emphasizes that the public announcement was in nature of a voluntary open offer under Regulation 11 of the Takeover Regulations for consolidation of shareholding of the Promoter Group in the Target Company. The offer price of Rs.91/- per equity share of the Target Company was aimed at presenting a commercially reasonable opportunity to the public shareholders to exit and at the same time it was meant to consolidate the shareholding of the promoter in the Target Company. It was further stated that due to the unjustified delay by SEBI in taking a decision as to whether to approve the draft letter of offer has rendered the entire open offer exercise academic and meaningless. It was claimed that the transaction envisaged by the respondent is no longer justifiable on any ground, including the grounds of economic rationale and commercial reasonableness. The respondent sought the withdrawal of open offer made under the public announcement in terms of Regulation 27 of the Takeover Regulations. The exact prayer made by the respondent was aswe hereby seek withdrawal of the open offer made under the public announcement in terms of Regulation 27 of the Takeover Regulations (the benefit of which continue to accrue to us in terms of Regulation 35(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011). Regulation 23(1)(d) of the New Takeover Regulations equally empowers withdrawal of an open offer.The appellant by letter dated 30th November, 2012 conveyed its comments in terms of the proviso to Regulation 16(4) of the Takeover Regulations on the draft letter of offer. Certain information was sought in the aforesaid letter. No reference was made in this letter with regard to the request made by the respondent for permission to withdraw the open offer. Rather it was stated as undernote that failure to carry out the suggested changes in the letter of offer as well as violation of provisions of the Regulations will attract appropriate action. Please also ensure and confirm that apart from above, no other changes are carried out in the letter of offer submitted toaforesaid comments of SEBI were challenged by the respondent before SAT in Appeal No.3 of 2013.7. The respondent claimed that the impugned directions, ostensibly in the form of comments and observations on the draft letter of offer, reject the plea of the petitioner that the delay caused by SEBI in clearance of the draft letter of offer, now renders the open offer unviable and academic. Further, the impugned directions purport to bind the appellant and thereby constitute an order by which the respondent was aggrieved; and necessitated the appeal before the SAT.8. In the appeal before SAT, the respondent claimed that the directions contained in the impugned letter of SEBI dated 30th November, 2012, incorrectly allege that prima facie requirement to make an open offer was triggered by the promoters and the promoter group entities of the Target Company (Promoter Group) under Regulation 11(1) of the Takeover Regulations on three past occasions, viz. March 30, 2007, October 12, 2007 and February 19, 2011 (Alleged Triggers). It was further claimed that the directions to revise the offer price, on account of the requirement to make open offers pursuant to the alleged triggers was illegal and without jurisdiction. It was also claimed that the directions contained in the impugned letter has caused severe civil consequences to the respondent. It was also claimed that the submissions on the issues presented by the respondent before the appellant have neither been considered nor appreciated.9. The appeal was contested by the appellant by filing a detailed affidavit on 12th April, 2013. As noticed above, the aforesaid appeal has been allowed by SAT in terms of prayer clause (a), (b) and (c) of Para 7 of the appeal filed by the respondent, which are asble Tribunal be pleased to set aside the Impugned Direction;(b) That thisTribunal be pleased to order and direct the respondent to allow the appellant to withdraw the open offer without any adverse orders or directions against the appellants or the Promoter Group;(c) That thisTribunal be pleased to order and direct the respondent to allow the appellant to withdraw the amount of Rs.17.46 crores deposited in escrow in lieu of the Open Offer.It was, however, made clear that SAT has not made any observation on the merits of the issue regarding the three alleged triggers and the contentions of the parties in this regard were kept open. Aggrieved by the aforesaid impugned judgment, SEBI has filed the present Civil Appeal.

Court's reasoning:
25. Factually, it cannot be denied that in the years 2006-07, 2007- 08 and 2010-11, the respondent had acquired shares in excess of 5% which breached the 5% creeping acquisition limit. In our opinion, the respondent was required to comply with Regulation 11 and make a Public Announcement to acquire shares in accordance with law. The respondent admittedly not having complied with Regulation 11, in our opinion, the appellant was perfectly justified in taking the non-compliance into consideration whilst considering the feasibility of the public offer made on 20th October, 2011.26. With regard to delay, we do not find much substance in the submission of Mr. C.U. Singh. Mr. Singh has sought to explain the delay on the ground that information sought by the appellant was not given by the respondent. In our opinion, this was no ground for the appellant to delay the issuance of comments on the letter of offer, especially not for a period of 13 months. In the event the information was not forthcoming, the appellant had the power to refuse the approval of the public offer. It is true that under Regulation 18(2), SEBI was required to dispatch the necessary letters to the shareholders within a reasonable period. It is a matter of record that the comments were not offered for 13 months. Such kind of delay is wholly inexcusable and needs to be avoided. It can lead to avoidable controversy with regard to whether such belated action is bona fide exercise of statutory power by SEBI. By adopting such a lackadaisical, if not callous attitude, the very object for which the regulations have been framed is diluted, if not frustrated. It must be remembered that SEBI is the watchdog of the Securities Market. It is the guardian of the interest of the shareholders. It is the protective shield against unscrupulous practices in the Securities Market. Therefore, SEBI like any other body, which is established as a watchdog, ought not to act in a lackadaisical manner in the performance of its duties. The time frame stipulated by the Act and the Takeover Regulations for performing certain functions is required to be maintained to establish the transparency in the functioning of SEBI.27. Having said this, we are afraid such delay is of no assistance to the respondent. It will not result in nullifying the action taken by SEBI, even though belated. Ultimately, SEBI is charged with the duty of ensuring that every public offer made is bona fide for the benefit of the shareholders as well as acquirers. In the present case, SEBI has found that permitting the respondent to withdraw the public offer would be detrimental to the overall interest of the shareholders. The only reason put forward by the respondent for withdrawal of the offer is that it is no longer economically viable to continue with the offer. Mr. Nariman has referred to a tabular statement and data to show that there is no substantial variation in the share prices that ensued making of the public offer. Having seen the table, we find substance in the submission of Mr. Nariman that there is hardly any variation in the shares of the Target Company from 20th October, 2011 till 30th November, 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.28. We are unable to agree with the submission of Mr. Nariman that Regulation 27 would not be applicable to a voluntary public offer. A perusal of Regulation 27(1) makes it patently clear that Regulation 27(1) readspublic offer, once made, shall not be withdrawn except under the followingsubmission would be to reconstruct the aforesaid provision. This Court, or any other court, whilst construing the statutory provision cannot reconstruct the same. The plain reading of the aforesaid regulation makes it clear that no public offer whether it is voluntary or triggered by Regulation 11 can be withdrawn, unless it satisfies the circumstances set out in Regulation 27(1)(b), (c) and (d). There can be no distinction between a triggered public offer and a voluntary public offer. Both have to be considered on an equal footing. We find substance in the submission made by Mr. C.U. Singh that Regulation 18(2) has no relevance to the case projected by the respondents having singularly failed to give the necessary information to SEBI with regard to the earlier three acquisitions.29. We also do not agree with Mr. Nariman that Regulation 27 has to be read in the context of the Regulation as it existed when it was first enacted. As noticed earlier, Regulation 27(1)(a) before its deletion on September 9, 2002 permitted the public offer to be withdrawn, consequent upon any competitive bid. We see no reason to differ from the view taken in Nirma Industries Ltd. (supra) wherein we have observed asA bare perusal of the aforesaid Regulations shows that Regulation 27(1) states the general rule in negative terms. It provides that no public offer, once made, shall be withdrawn. Since clause (a) has been omitted, we are required to interpret only the scope and ambit of clauses (b), (c) and (d). The three sub-clauses are exceptions to the general rule and, therefore, have to be construed very strictly. The exceptions cannot be construed in such a manner that would destroy the general rule that no public offer shall be permitted to be withdrawn after the public announcement has been made. Clause (b) would permit a public offer to be withdrawn in case of legal impossibility when the statutory approval required has been refused. Clause (c) again provides for impossibility when the sole acquirer, being a natural person, has died. Clause (b) deals with a legal impossibility whereas clause (c) deals with a natural disaster. 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 expressionn theto 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.The submission with regard to the non-applicability of ejusdem generis for interpretation of the Takeover Regulations has been considered and rejected in Nirma Industries Ltd. (supra) (Paragraphs 63 to 71).31. We are also not impressed by the submission of Mr. Nariman that it has now become economically impossible to give effect to the public offer. This very submission has been rejected in Nirma Industries Ltd. (supra). We reiterate our opinion in Nirma Industries Ltd. (supra) that under Clause 27(1)(b)(c) and (d), a Public Offer, once made, can only be permitted to be withdrawn in circumstances which make it virtually impossible to perform the Public Offer. In fact, the very purpose for deleting Regulation 27(1)(a) was to remove any misapprehension that an offer once made can be withdrawn if it becomes economically not viable. We are of the considered opinion that the distinction sought to be made by Mr. Nariman between a voluntary public offer and a triggered public offer is wholly misconceived. Accepting such a submission would defeat the very purpose for which the Takeover Code has been enacted.32. We also do not find any meritthe submission of Mr. Nariman that thedelay of 13 months by SEBI in issuing the impugned directions would permit the respondent to withdraw the Public Offer under Regulation 27(1)(b). The consideration by SEBI is as to whether a Public Offer is in conformity with the provisions of the SEBI Act and the Takeover Regulations. Delay in performance of its duties by SEBI can not be equated to refusal of the statutory approval requires from other independent bodies, such as under the RBI, Taxation Laws and other regulatory statutes including Foreign Exchange Regulations. Delay by SEBI in taking a final decision in making its commentsthe letter of offerwould not fall under Regulation 27(1)(b).33. This now brings us tothe submission of Mr. Nariman thatthere was abreach of Rules of Natural Justice. It is matter of record that the respondent had asked for an opportunity of hearing but none was granted. But the question that arises is as to whether this is sufficient to nullify the decision of SEBI. In our opinion, the respondent has failed to placerd either before SAT or before this Court the prejudice that has been caused by not observing Rules of Natural Justice. It is by now settled proposition of law that mere breach of Rules of Natural Justice is not sufficient. Such breach of Rules of Natural Justice must also entail avoidable prejudice to the respondent. This reasoning of ours is supported by a number of cases. We may, however, refer to the law laid down in Natwar Singh Vs. Director of Enforcement & Anr., [(2010) 13 SCC 255] wherein it was held thatmust also have been caused some real prejudice to the complainant; there is no such thing as a merely technical infringement of natural justice.All the information sought by SEBI related to the three earlier acquisitionsng limit for acquisition has been breached for triggering the mandatory Takeover Regulations. In appeal, SAT has left the question with regard to the earlier three acquisitions open and to be decided in accordance with law. Therefore, clearly no prejudice has been caused to the respondent.35. Finally, we are unable to acceptthe submission of Mr. Nariman thatratio of law as declared in Nirma Industries Ltd. (supra) would not be applicable to the facts and circumstances of this case. As pointed out earlier, we do not accept the distinction sought to be made by Mr. Nariman with regard to voluntary open offer and mandatory open offer which is the result of a triggered acquisition. The consequences of both kinds of offers to acquire sharesthe Target Company,at a particular price, are the same. As soon as the offer price is made public, the securities market would take the same into account in all transactions. Therefore, the withdrawal of the open offer will have to be considered by the Board in terms of Regulation 27(1)(b)(c) and (d). Further, the deletion of Regulation 27(1)(a) does not, in any manner, advance the case of the respondent. It rather reinforces the conclusion that an open offer once made can only be withdrawn in circumstances stipulated under Regulation 27(1)(b)(c) and (d). We also do not agree with Mr. Nariman that voluntary open offer made by the respondent ought to be permitted to be withdrawn under Regulation 27(1)(b) for the reasons already stated. We have already come to the conclusion that the delay in offering comments by the Boardletter containing voluntary open offer, though undesirable, is not fatal to the decision ultimately taken by the Board. We, therefore, reiterate our conclusion in Nirma Industries (supra).36. We also do not find substancethe submission of Mr. Nariman thatthe judgment in Nirma Industries (supra) needs reconsideration. In our opinion, the ejusdem generis principle is fully applicable for the interpretation of Regulation 27(1)(b)(c) and (d) as there is a common genus of impossibility. This impossibility envisioned under the aforesaid regulation would not include a contingency where voluntary open offer once made can be permitted to be withdrawnnd that it has now become economically unviable. Accepting such a submission, would give a field day to unscrupulous elementsthe securities marketto make Public Announcement for acquiring sharesthe Target Company,knowing perfectly well that they can pull outprices of the shares have been inflated, due to the public offer. Such speculative practices are sought to be prevented by Regulation 27(1)(b)(c) and (d), that is precisely the reason why Regulation 27(1)(a) was deleted. Merely because there has not been any substantial changece of shares in this particular case, would not, in any manner, invalidate the conclusion reached in Nirma Industries (supra).37. Last but not least, we are not able to approve the approach adopted by SAT in adopting the Issue of Capital and Disclosure Requirements Regulations, 2009 (ICDR) Regulation for interpreting the provisions contained in Regulation 27 of the Takeover Regulations. The regulations in Takeover Code have to be interpreted by correlating these regulations to the provisions of the SEBI Act.