M.T. Joshi, Judicial Member
1. Aggrieved by the directions of the learned Whole Time Member (‘WTM’ for short) of respondent Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) under Regulation 32 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as ‘Takeover Regulations, 2011’) to make a public announcement to acquire shares of the target Company in accordance with the provisions of the Takeover Regulations, 2011 within 45 days from the date of the order the present appeal is preferred.
2. The factual matrix of the case is admitted . The appellant is the holding Company of the target Company, namely, Vakrangee Ltd. Takeover Regulations permits acquisition of shares within permitted limit every year. However, if the acquisition is made beyond the permitted limit then according to the Regulations the same cannot be made without making a public announcement of the same.
Regulation 3 of the Takeover Regulations is a complete code in this regard which provides as under: “Substantial acquisition of shares or voting rights. 3.(1) No acquirer shall acquire shares or voting rights in a target company which taken together with shares or voting rights, if any, held by him and by persons acting in concert with him in such target company, entitle them to exercise twenty-five per cent or more of the voting rights in such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations. (2) No acquirer, who together with persons acting in concert with him, has acquired and holds in accordance with these regulations shares or voting rights in a target company entitling them to exercise twenty-five per cent or more of the voting rights in the target company but less than the maximum permissible non-public shareholding, shall acquire within any financial year additional shares or voting rights in such target company entitling them to exercise more than five per cent of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations: Provided that such acquirer shall not be entitled to acquire or enter into any agreement to acquire shares or voting rights exceeding such number of shares as would take the aggregate shareholding pursuant to the acquisition above the maximum permissible non-public shareholding.
Explanation.— For purposes of determining the quantum of acquisition of additional voting rights under this sub-regulation,— (i) gross acquisitions alone shall be taken into account regardless of any intermittent fall in shareholding or voting rights whether owing to disposal of shares held or dilution of voting rights owing to fresh issue of shares by the target company. (ii) in the case of acquisition of shares by way of issue of new shares by the target company or where the target company has made an issue of new shares in any given financial year, the difference between the pre-allotment and the post-allotment percentage voting rights shall be regarded as the quantum of additional acquisition . (3) For the purposes of sub-regulation (1) and sub-regulation (2), acquisition of shares by any person, such that the individual shareholding of such person acquiring shares exceeds the stipulated thresholds, shall also be attracting the obligation to make an open offer for acquiring shares of the target company irrespective of whether there is a change in the aggregate shareholding with persons acting in concert. [(4) Nothing contained in this regulation shall apply to acquisition of shares or voting rights of a company by the promoters or shareholders in control, in terms of the provisions of Chapter VI-A of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.]”
3. It is an admitted fact that the appellants were allowed to acquire up to 25 percent of the shares of the target Company during the relevant period. However, in the months of May and June, 2013 the appellant made acquisition of the shares beyond the permitted limit. While there is some confusion in the impugned order regarding the calculation of this acquisition, during appeal it became an admitted fact that the appellants have acquired one percent additional shares than permitted during this period. The acquisition was duly notified to the stock exchanges. Within 18 days however the appellants retracted and the said one percent of the shareholding was disposed of through the stock exchange platform and the same was also duly notified to the exchanges.
4. Respondent SEBI while making investigation in the trading of the target company in general, found that the appellants had made excess acquisition of the shares and retracted from the same within 18 days as detailed above. However, as there was violation of the Regulations the show cause notice was issued to the appellant after four years of the alleged transactions on June 8, 2017. The appellant inter alia submitted that in the meantime the number of the shareholders have increased from 9828 to 1,35,000. The share price had also increased from approximately Rs.67 to Rs.321. Further, a bonafide mistake was committed by the appellant in exceeding the limit which was immediately rectified. The said acts were done by the appellant not in secret but was duly notified to the exchanges. In the circumstances, it prayed for withdrawal of the notice.
5. Upon hearing, the learned WTM however held that the sanctity of the threshold cannot be allowed to be undermined. Such act affects the rights of the investors to exit in case of breach of Takeover Regulation. The said right to exit is an invaluable right of which the investors should not be ordinarily deprived of. Therefore, placing reliance on the declaration made by this Tribunal in the case of M/s. Nirvana Holdings Pvt. Ltd. v. SEBI, appeal no.31 of 2011 decided on 8th September, 2011 the impugned direction was issued to the effect that the appellant shall make a public announcement to acquire shares of the target Company in accordance with the provisions of the Takeover Regulations, 2011 within 45 days from the date of the order. Hence, the present appeal.
6. Heard Mr. Janak Dwarkadas, Senior Advocate assisted by Mr. Chetan Kapadia, Mr. Rahul Sarda, Mrs. Manik Joshi, Mr. Mantul Bajai and Mr. Vrushabh Vig, Advocates for the Appellant and Mr. Pradeep Sancheti, Senior Advocate assisted by Mr. Anubhav Ghosh and Mr. Ravishekhar Pandey, Advocates for the Respondent.
7. Mr. Dwarkadas, the learned senior counsel for the appellant submitted that the show cause notice was issued after four years of the alleged transactions. Within this period around 94% of the original shareholders who were holding the shares at the time of disputed transactions had already exited. Even the share price had increased manifold as detailed above. He further submitted that the conduct of the appellant would show that it was a bonafide mistake which was immediately rectified and hence he submitted that the order be set aside.
8. Mr. Sancheti, the learned senior counsel appearing for the respondent on the other hand submitted that the sanctity of the Takeover Regulations cannot be violated. The base of the Takeover Regulations is to make public announcement in case the acquirer want to acquire the shares of a target Company beyond the prescribed limit. Delay if any in issuing notice has not anyway caused any prejudice to the appellant. In the circumstances, relying on the decisions of Bhavesh Pabari vs. Adjudiating Officer, SEBI, MANU/SC/0296/2019, Pooja Vinay Jain vs. SEBI, appeal no. 152 of 2019 decided on 17thMarch, 2020, SEBI vs. Akshaya, Kosha Investment Ltd. Vs. SEBI, M/s. Nirvana Holdings Pvt. Ltd. Vs. SEBI, (2011) SAT 137, Swedish Match AB & Anr. Vs. SEBI & Anr. MANU/SC/0693/2004 he submitted that the appeal be dismissed.
9. While the decisions in the case of Bhavesh Pabari and Pooja are regarding the delay in issuing the show cause notice causing prejudice to the appellant, in the present case the appellant submits that the delay in issuing the show cause notice has lost the purpose of direction to make public announcement as majority of the shareholders had exited. In the circumstances, these authorities had no role to play in the present situation.
10. Thid takes us to consider the ratio of other cases relied on by the respondent as cited supra. In the case of SEBI vs. Akshaya, it was a case of withdrawing the public offer by the acquirer on the ground that the acquisition did not remain viable. In the case of Swedish Match it was a case of argument from the acquirer that within a group if upon cessation of control of one member over the company the another continues to control the target Company by acquisition of shares of the said member, a public announcement is not required. In such scenario, the Supreme Court disagreeing with the same had ruled that public announcement is at the base of the Regulations. In the case of Kosha Investment Ltd. vs. SEBI the argument of the acquirer was that he was entitled to cross the permitted limit of acquisition of shares in a financial year as many times he wanted. However, once he retracts the same within the same financial year the Takeover Regulations would not be applicable. In the circumstances, the arguments were rejected. All these cases thus are regarding different fact situations although in each of the cases importance of making public announcement is highlighted.
11. In the case of Nirvana, relied by Mr Sancheti the respondent SEBI had imposed penalty for violation of the SAST Regulations. In the circumstances, disagreeing with the same this Tribunal held that normal rule would be to make public announcement.
12. The appellant also relied on the ratio of very Nirvana Holdings Pvt. Ltd holding that direction to make a public announcement is a normal rule however, the same can have exception as like the present case.
13. Upon hearing both the sides, in our view, the present case clearly shows that the appellant had acquired one percent additional share than permitted and within 18 days sold those shares through the exchange platform. All these actions were duly notified to the exchanges meaning thereby there was no backdoor acquisition. Disposing of the additional shares within a period of 18 days would clearly demonstrate that the appellant became aware of the mistake committed by it which has been rectified.
14. In these circumstances, it would be relevant to advert the attention to the provisions of Regulation 32 of the Takeover Regulations under which the impugned order is issued. It provides as under :
“Power to issue directions. 32.(1) Without prejudice to its powers under Chapter VIA and section 24 of the Act, the Board may, in the interest of investors in securities and the securities market, issue such directions as it deems fit under section 11 or section 11B or section 11D of the Act, including,—
(a) directing divestment of shares acquired in violation of these regulations, whether through public auction or in the open market, or through an offer for sale under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, and directing the appointment of a merchant banker for such divestiture;
(b) directing transfer of the shares, or any proceeds of a directed sale of shares acquired in violation of these regulations to the Investor Protection and Education Fund established under the Securities and Exchange Board of India (Investor Protection and Education Fund) Regulations, 2009;
(c) directing the target company or any depository not to give effect to any transfer of shares acquired in violation of these regulations;
(d) directing the acquirer or any person acting in concert, or any nominee or proxy not to exercise any voting or other rights attached to shares acquired in violation of these regulations;
(e) debarring any person who has violated these regulations from accessing the capital market or dealing in securities for such period as may be directed, having regard to the nature and gravity of the violation;
(f) directing the acquirer to make an open offer for acquiring shares of the target company at such offer price as determined by the Board in accordance with these regulations;
(g) directing the acquirer not to cause, and the target company not to effect, any disposal of assets of the target company or any of its subsidiaries contrary to the contents of the letter of offer, where the conditions set out in the proviso to sub-regulation (2) of regulation 25 are not met;
(h) directing the acquirer who has failed to make an open offer or has delayed the making of an open offer, to make the open offer and to pay interest at such rate as considered appropriate by the Board along with the offer price;
(i) directing the acquirer who has failed to make payment of the open offer consideration to shareholders, not to make any open offer or enter into any transaction that would attract the obligation to make an open offer in respect of shares of any target company for such period as the Board may deem fit;
(j) directing the acquirer who has made an open offer but has delayed making payment of the open offer consideration to shareholders, to pay interest at such rate as considered appropriate by the Board for the delayed period;
(k) directing any person to cease and desist from exercising control acquired over any target company without complying with the requirements under these regulations;
(l) directing divestiture of such number of shares as would result in the shareholding of an acquirer and persons acting in concert with him being limited to the maximum permissible non-public shareholding or below.
(2) In any proceedings initiated by the Board, the Board shall comply with principles of natural justice before issuing directions to any person.
(3) The Board may, for failure to carry out the requirements of these regulations by any intermediary registered with the Board, initiate appropriate proceedings in accordance with applicable regulations.”
15. The reading of this Regulation with Regulation 3, would show that making of public announcement as per the provisions of the regulations is base of the Regulations as held by this Tribunal in the case of Nirvana. It should however be noted that it is not the only available mode and other alternate directions can also be issued by respondent SEBI taking into consideration the facts and circumstances of the case. In th
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e circumstances of the present case, in considering the facts of the present case as detailed supra, in our view, the respondent SEBI instead of direcring to make public announcement, ought to have directed the appellant to transfer the proceeds of the sale of the shares acquired in violation of the regulations to the Investor Protection and Education Fund established by SEBI as provided in sub-regulation (b) of Regulation 32 of the Takeover Regulations, 2011. In the circumstance the following order. 16. The appeal is hereby partly allowed without any order as to costs. The direction of the respondent SEBI directing the appellant to make a public announcement to acquire shares of the target Company in accordance of the provisions of the Takeover Regulations, 2011 is hereby set aside. 17. Instead the appellants are directed to transfer the proceeds of the sale of the shares in question disposed after acquisition by it in violation of the regulation with interest at the rate of 8% p.a. from the date of acquisition of the shares to the extent acquired in violation of the regulations, within in a period of six weeks from the date of the order. 18. The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor a certified copy of this order could be issued by the registry. In these circumstances, this order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally signed copy sent by fax and/or email.