Case: Swedish Match Ab  Vs. Securities &amp; Exchange Board,India

1. Wimco Limited (Wimco) is a target company. Its shares are listed on the stock exchanges at Mumbai, Delhi, Calcutta, Kanpur, as also on the National Stock Exchange. It is engaged in the business of manufacture and sale of a broad range of safety matches.2. The Appellant No.1 herein (Swedish Match) is incorporated in Sweden. It is a holding company of the Appellant No.2 (S.M.S) holding its entire paid up capital. It is also a holding company of Haravon Investments Private Limited (Haravon) and Seed Trading Private Limited (Seed). These four companies hereinafter would be called and referred to as the Swedish Match Group. It had acquired in the target company 52.11% shares, i.e., 46.18% by Haravon and 5.93% by Seed. AVP Trading Private Limited (AVP) and Plash Floods P.Ltd (Plash) were Indian promoters of the target company. They belong to one Jatia Group of companies holding 24.11% of the share capital of the target company, i.e., AVP holding 6.03% and Plash holding 18.08%.3. The Swedish Match entered into an agreement with the Jatia Group to acquire majority shareholding in Haravon and Seed and to make a public announcement of offer to acquire 20% shares in Wimco. The obligation to make a public announcement of offer arose in view of indirect acquisition of more than 10% shares in Wimco (in view of the law as prevailing thence) attracting the provisions of Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter called and referred to for the sake of brevity as "the Regulations").4. On or about 17th December, 1997, the public announcement of offer was made by S.M.S. together with the Jatia Group of Companies, viz., Plash and AVP as "acquirers" and "persons acting in concert". In the letter of offer, it was specified that both Swedish Match Group and Jatia Group intend to exercise joint control over the affairs of Wimco. For the purpose of the public announcement of offer, `Haravon and Seed being subsidiaries of Swedish Match Singapore were deemed to be "persons acting in concert" in terms of Regulation 2(e)(2)(i) of the `Regulations.5. Upon completion of the process of public offer, the share holding in Wimco was as under: Haravon 28.28%, Seed 10.33%, AVP 5% 15%. The aggregate of total share holding of both the groups, thus, came to 58.61%.6. It is not dispute that subsequent to April, 1998 the said Groups were exercising joint control over the affairs of Wimco. By a Special Resolution adopted in this behalf, the target company allotted shares on a preferential allotment basis of Haravon, AVP and Plash purported to be in terms of Section 81(1)(A) of the Companies Act, 1956 whereupon the share holding in Wimco came to as under:7. Haravon18.08%.8. As no preferential shares were allotted to Seed, its shareholding was diluted to 5.93%.9. Swedish Match Group, thus, held 52.11% and Jatia Group held 24.11% of the total shares in Wimco. The aggregate shareholding of both the Groups came to 76.22%. The Government of India by an order dated 5th July, 1999 permitted increase in foreign equity participation in the target company from 38.61% to 52.11%.10. S.M.S. thereafter acquired from Jatia Group (as the latter was desirous of exiting from the joint control over Wimco) the following extent of share AVP%, at a price well above the market price.11. Pursuant to or in furtherance of the letter of the Government of India dated 19th May, 2000 increasing foreign collaboration to the extent of 74.00438%; the Swedish Match Group acquired 74% shareholding and Jatia Group was left with 2.22% in Wimco.12. It is also not in dispute that although the market value of each acquired share of the target company was only Rs. 9.55; the consideration paid to Jatia Group by the Swedish Match Group was Rs. 35/per equity share. Pursuant to or in furtherance of the said arrangement, the Directors belonging to Jatia Group resigned as a result whereof, their joint control with Swedish Match Group ceased leading to sole control of the latter. Allegedly, the cessation of joint control was approved in a general meeting of the shareholders of Wimco held on 27th September, 2000. S.M.S. thereupon by a letter dated 27th September, 2000 in terms of Regulation 7 of the Regulations disclosed to WIMCO its holding of more than 5% of the equity share capital. The said transaction was also brought to the notice of the SEBI (the Board) by a letter dated 28th September, 2000. It also agreed to adhere to therestrictions applicable to the locked in shares forming part of 21.89% shares purchased from AVP and Plash (Jatia Group of Companies). Upon receipt of the said information, SEBI by a letter dated 17th October, 2000 made a query as to whether the said transaction took place in accordance with Regulation 20 (pricing guidelines), Regulation 7 (mandatory disclosures) and Regulation 12 (change in control) of the Regulations, in response whereto, Swedish Match by a letter dated 1st November, 2000 submitted its replies thereto. An additional query by SEBI was made as regard calculation of market price and compliance of the provisions of the Regulations by a letter dated 30th November, 2000; to which a reply was given on 8th January, 2001.PROCEEDINGS BEFORE SEBI:13. Anotice was served upon the Appellants by SEBI asking them to show cause as to why no public announcement of offer had been made in terms of Regulations 10 and 11(1) of the RegulationsAs you have acquired the shares of WI, in the manner as stated above without making a public announcement as required by the provisions of the captioned regulations, you have,violated the provisions of Regulation 10 individually and Regulation 11(1) collectively of the captioned Regulations and, therefore, you are liable for penal action under the Regulations and SEBI Act, 1992.5. In view of the above, you are called upon to show cause as to why one or more or all action (s) under Regulation 44 and Regulation 45(6) of the Regulations and Section 11B of the SEBI Act 1992, should not be initiated against you for violation specified above.The Appellants herein filed a show cause before the Board.ORDER OF SEBI:15. The Chairman, SEBI upon hearing the Appellants by an order dated 4th June, 2002 observed that Regulation 12 has no application.It was, however,view of the above, the submission of the Acquirers that Regulation 11(1) should exclude a transaction involving a transfer of shares as part of cessation of participation in joint control, particularly where such persons in joint control acquired shares as persons acting in concert is not tenable.Therefore, if an Acquirer triggers either of the Regulations, i.e., Regulations 10, 11 or 12, he has to make a public announcement unless the acquisition is specifically exempt in terms of the Regulations. Therefore, each of the Regulations 10, 11 & 12 has to be complied with independently by the Acquirers. The acquisition falling under proviso to Regulation 12 is not automatically exempt from the applicability of Regulations 10 & 11.Consequent upon the said findings, the following directions wereview of the above the exercise of the powers conferred upon me under(3) of Section 4 read with Section 11B SEBI Act 1992 (hereinafter referred to as the Act) read with Regulation 44 & 45 of the Regulations, I hereby direct the Acquirers to make public announcement in terms of Chapter III of the Regulations in terms of(1) of Regulation 11 taking 27/9/2000 as the reference date for calculation of offer price within 45 days of passing of thisTRIBUNAL:17. Aggrieved by and dissatisfied with the said order, an appeal was filed by the Appellants herein before the Securities Appellate Tribunal (Tribunal). The Tribunal took notice of the Appellants letter dated 28.9.2000 contending "We wish to inform you that we have through our wholly owned subsidiary Swedish Match Singapore Pte. Ltd. and pursuant to the requisite approvals acquired on additional 11382800 equity shares from the aforesaid Indian companies such that we are not in sole control of WIMCO ltd." andhas been mentioned correctly thus that they acquired additional shares and thereby acquired sole control of WIMCO Ltd. As the control is relatable to the shareholding in the instant case and to nothing else and cessation of control was due to divesting of the said ownership of shares in the absence of any other evidence to the contrary it can be safely concluded that the Acquires acquired shares from the Jatia Group and consequently Jatia Group ceased to be in joint control of the target company. Assuming that if the Jatia Group had been in joint control due to some other factors, then section 11 would not have attracted. In the instant case, it is a clear case of acquisition of shares and cessation of control consequential to divestment of shares held by the person insupplied)18. Holding that the provisions of Regulations 11(1) and 12 are not in conflict with each other in any manner and further holding that the Regulation is a beneficial legislation, the Tribunallegislative intent behind the Regulations is clear. The objective is to protect the interests in securities. It is with the said objective that regulations 10, 11 and 12 have been framed providing an opportunity to the existing shareholders of a company under acquisition and that exit opportunity cannot be denied by resorting to a narrow and technical interpretation of the regulations. As already stated in this order regulations 10, 11 and 12 are put in position to meet different situations. Which one of these regulations is attracted to an acquisition, would depend on the specific facts. In my opinion in the light of the facts, as the Respondent has held, the acquisition in question attracts the provisions of regulation 11(1).This appeal has been filed by the Appellants herein before this Court in terms of Sectionof the Securities and Exchange Board of India Act, 1992 (for short "the Act")

Court's reasoning:
45. Establishment of independent regulatory agencies and need for expert regulation were long felt primarily as a response to the growing complexity in human affairs and trade and business in particular. It was felt that a regulator who was aware of the realities of that field should be ready to regulate that field. Demand for regulators who were not mere Government officials but people who are experts in the fields came up. Regulations framed by an expert body like SEBI was felt to be an effective substitute for government regulation. The evolution in respect whereof can be traced back to the Great Depression of 1930s. As a part of the new deal, several expert bodies were established like the Federal Communications Commission and Securities Exchange Commission. In the Indian context, this rationale was invoked for the establishment of an expert body to regulate the securities market after the Securities Scam in 1992.It is aprinciple of law that where wordings of a statute are absolutely clear and unambiguous recourse to different principles of interpretations may not be resorted to but where the words of a statute are not so clear and unambiguous, the other principles of interpretation should be resorted to.Regulations 10, 11 and 12operate in three different fields. They seek to control creeping acquisition, which may lead to substantial acquisition and ultimately total control of the company. There may, however, be a case where control of the company is sought to be taken over by transfer of share only i.e. by a single transaction, in which event Regulations 11 and 12 both may apply.Situation, however, would be different when the transfer of joint control to sole control takes place through sale at a price which is higher than the market value of the shares leading to change in control over the target company, which cannot be done pursuant to a resolution passed by the shareholders in a general meeting in terms of the first proviso. In other words, in the event, the change in control is sought to be achieved by sale of shares at a price higher than the market value of the share, Regulation 12 will clearly be attracted marking public announcement imperative. Such public announcement evidently is required to be made having regard to the fact that the interest of investors is required to be protected; pursuant whereto and in furtherance whereof the shareholder would be informed of the value of the share at which the transfer of control would take place so as to enable him to exercise his option to sell his shares at the price offered by the acquirer or continue to keep the same.59. A general meeting of the shareholders of the target company had taken place but the same does notthe requirements of law inasmuch as, it would bear repetition to state, when transfer of control over the target company takes place by reason of acquisition of shares at a price higher than the market price the acquirer has a statutory obligation to make the public announcement. Such a statutory requirement is not capable of being waived by the majority shareholders. In this case, the records reveal that the shareholders were not informed that although the market value of the share was about Rs. 9.55, Jatia Group was offered the price of Rs. 35/per equity share. It was merely disclosed that such acquisition would not be at a price lower than the market price. If such transfer was to take place at a price less than the market price, the second proviso appended to Regulation 12 would have been attracted. It was, therefore, obligatory on the part of the acquirer to furnish correct information as regard the price which was being offered to Jatia Group.The Explanation was inserted evidently with a view to clear the obscurity occurring in Regulation 12 as regard a class of cases of cessation of joint control to sole control.69.It is true that Regulation 12 could have better worded but the application of Regulations 11 and 12 in a case of this nature is free from doubt. This is not a case where having regard to the explanations in the provisos and reading the provision in the manner we have done, it stands obscure. The Explanations (i) and (ii) are not Explanations to the provisos but the main part thereof.72. It would, therefore, be not correct to contend that where there is a mere cessor of control by one out of two persons already in control or where any person or persons are given joint control and the combined degree of control is not greater than being presently exercised, a Resolution in general meeting wouldthe purpose, is devoid of any merit as change in control has taken place by reason of acquisition of shares from another person in control. Having regard to the fact that the price offered to Jatia Group was higher than the market price, a public announcement was imperative so as to enable the shareholders to elect as to whether to sell their shares held by them or not. No exemption from public announcement has been carved out by reason of the proviso appended to Regulation 12 as in terms of the Explanation, Regulation 12 would have no application.Regulation 11, therefore, contemplates both situations, namely, where substantial acquisition of shares may result in change of control and where it does not. Only because in a case where acquisition of additional shares may result in change of control, the same by itself would not exempt the acquirer from complying with the statutory requirement of Regulation 11. Primarily,Regulations 10, 11 and 12operate in different fields which is manifested from a plain reading of Regulations 14, 15 and 16. We may, however, hasten to add that there may be a situation where Regulations 11 and 12 may overlap with each other, in which event, it would be open to the acquirer to issue a combined notice fulfilling the requirement of both Regulations 11 and 12.82. Indisputably, the purport and object of which a regulation is made must be duly fulfilled. Public announcement is at the base ofRegulations 10, 11 andExcept in a situation which would bring the case within one or the other exception clause, the requirement of complying with the mandatory requirements to make public announcement cannot be dispensed with.83. Admittedly in this case no public announcement has been made.84. It may be true that the Board in its impugned order dated 4th June, 2002 proceeded on a wrong premise that having regard to the proviso appended to Regulation 12, Regulation 12 would be attracted. But the SAT, in our opinion, rightly construed the provisions of Regulations 11 and 12 in arriving at a finding that Regulation 11 would be attracted and Regulation 12 would not be. The Tribunal was entitled to take a different view of the matter from that of the Board with a view to sustain the ultimate result in the appeal in exercise of its appellate power. Such a power in the appellate court/ tribunals is akin to or analogous to the principles contained in Order 41 Rule 33 of Code of Civil Procedure. Even otherwise before us the judgment of the Tribunal is in question, this Court is required to consider the correctness or otherwise of the Tribunal. In any event, the reasoning of the tribunal shall prevail over the Board.Although we do not find any difficulty in construing the provisions of Regulations 11 and 12 but assuming Regulations 11 and 12 are not clear, the rule of purposive construction should be taken recourse to.86. It is now trite that when an expression is capable of more than one meaning, the Court would attempt to resolve that ambiguity in a manner consistent with the purpose of the provisions and with regard to the consequences of the alternative constructions.The said decision, thus, runs counter to the submissions of Mr. Nariman. In this case also conditions are imposed in the matter of acquisition of shares. If the conditions have not been complied with, the Act having set up a trap for them, the logical consequences would ensue.Regulations being regulatory in nature, the intent and object sought to be achieved thereby must be firmly applied with. In this view of the matter, we are of the opinion that Regulations do not deserve strict constructions so as to hold that even a public offer was not necessary.The Board is an expert body. As a legislature, it makes the regulations, as an executive, it implements the legislation and in case of a breach it takes upon afunction. While functioning in its judicial capacity, it ha wide discretion. It can initiate criminal proceedings in terms of Section 24 of the Act, issue directions in terms of Sectionand Regulation 44 as also take recourse to penal provisions as contained in Section 24 and ChapterVIA of theAct. Its decision is final subject to the decision of the Tribunal. But the sequences of events, as noticed hereinbefore, clearly go to show that even the Board was not sure of the legal position.d that once a public offer is made the investors would be entitled to elect to transfer their shares their shares at a higher price which may be offered by the acquirer with a view to acquire control over the target company. The investors would also be entitled to interest at such rate as the Board may determine. The provisions of Section 15H of the Act mandates that a penalty of rupeescrore may be imposed. The Board does not have any discretion in the matter and, thus, the adjudication proceeding is a mere formality. Imposition of penalty upon the Appellant would, thus, be a forgone conclusion. Only in the criminal proceedings initiated against the Appellants, existence of mens rea on the part of the Appellants will come up for consideration.117. We, therefore, are of the opinion that it is a fit case where this Court should exercise its jurisdiction under Article 142 of the Constitution to direct the Board to forbear from proceedings with the adjudication proceeding against the Appellants. This may not, however, be treated to be a precedent.