TMI Blog1998 (12) TMI 489X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the register of members as on the close of the business hours of 5-8-1998 offering to acquire upto 47,44,000 equity shares of SVCL at a price of Rs. 100 per share, fully paid up, payable in cash, representing upto 20 per cent of the issued capital of SVCL, from the shareholders. 2. Brief facts giving rise to the writ petition are as follows: The third respondent Raasi Cement Ltd. (RCL) was incorporated under the Companies Act, 1956 in the year 1983. The company was promoted by the fourth respondent Dr. B.V. Raju, his relatives and associates. They controlled the management of the third respondent. The third respondent is one of the promoter shareholders of the fourteenth respondent SVCL. The third respondent at the time of promotion of the fourteenth respondent invested substantial sum of money in the latter. At that point of time it held approximately 27 per cent of the equity share capital of the fourteenth respondent. It is the case of the petitioner that both the third and the fourteenth respondents were being controlled by the fourth respondent Dr. B.V. Raju and his relatives/associates. It appears that the fourteenth respondent fell on bad days and became a sick co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98 the petitioner acquired some shares of the RCL. After the acquisition of shares of RCL by the petitioner in May, 1998 and by India Cement Group in December, 1997, a complaint was filed by the former on 15-7-1998 with the SEBI in respect of the manner in which Raju and others purchased 39.5 per cent shares of SVCL from RCL and a suit was filed by RCL against Dr. B.V. Raju and his associates on 5-8-1998 in the Court of the Chief Judge, City Civil Court at Hyderabad for cancellation of the above said sale agreements dated 5-12-1997 and 15-12-1997. Both in the complaint and the suit it was primarily urged that RCL was divested of the shares of SVCL by the fourth respondent and his associates by violating the Takeover Code and by perpetrating a fraud on RCL. 3. Insofar as the Civil suit is concerned, it needs to be noticed that the Civil Court by means of an interim order dated 7-8-1998 restrained Raju Group from in any manner dealing with or alienating or encumbering the shares of SVCL acquired by them from RCL. In this writ petition we are not concerned with the order passed by the Court of the Chief Judge, City Civil Court at Hyderabad. 4. While the compliant of the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 and 14(1) they cannot be allowed to make any offer for acquisition of shares of any listed company for a period of 12 months from the date of closure of the offer as per Regulation 22(15). It was also contended therein that the public offer should be suspended till the completion of the investigation as the acquisition of 39.5 per cent shares of SVCL belonging to RCL by Raju Group of Companies was illegal. 6. On 4-8-1998, pursuant to the complaint of the petitioner, the SEBI by means of a notice sought explanation from Dr. B.V. Raju why action should not be taken against him under the provisions of the Takeover Regulations. On receipt of the notice Dr. Raju by his letter dated 7-8-1998 sought inspection of the complaint and other connected documents. The SEBI thereupon provided the text of the complaint to Dr. Raju through Lezard Credit Capital Ltd. which was acting on behalf of Dr. Raju. Thereafter, all concerned including the petitioner were given a hearing by the Board. On 4-9-1998 the SEBI made the following directions: "I have gone through and taken into account the submissions advanced on behalf of all these parties. Taking into consideration the complaints received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies in purchase of 39.5 per cent shares of SVCL held by RCL. Also, SEBI must complete the inquiry within about two months, and take further action in accordance with law on the result of the inquiry report. We do not find adequate grounds, however, to interfere with the above offer made by Dr. B.V. Raju and others for purchase of 20 per cent shares from public at their stage and reject this request for reasons mentioned above. In view of above order of SEBI is upheld. It must, however, complete the enquiry initiated by it by 15th December, 1998 and take further action in accordance with law during this period." The petitioner being aggrieved of the above said order of the appellate authority has filed the instant petition. 8. Mr. Arun Jaitley and Mr. K. Parasaran, the learned senior counsel for the petitioner and the third respondent respectively, contended that the appellate authority and the SEBI were not right in allowing the public offer process to proceed. They ought to have suspended the public issue in view of the irregularities and illegalities in the acquisition of 39.5 per cent shares of SVCL by respondents 4 to 13. The learned counsel submitted that in order to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and compliance of SEBI guide-lines where necessary. According to item No. 8 of the minutes of the 110th meeting, the board, inter alia, took the decision on the ground that even though SVCL was earning profits for the last four years, it could not wipe out its past losses fully or declare dividend so far. It was also noted that SVCL would take some more years to pay dividend to its shareholders and the present market rate of SVCL shares was varying from Rs. 7 to Rs. 9. The board authorised Dr. B.V. Raju, Executive Chairman, Shri N.K.P. Raju, Executive Vice-Chairman and Managing Director, and Mr. K.V. Vishnu Raju, Managing Director of the company, to identify the purchasers for the disposal of the said equity shares of SVCL and finalise the terms of the sale. Again at 120th meeting of the board of directors of RCL held on 17-9-1997, a decision was taken to disinvest the remaining 50 per cent shares of SVCL at a price of Rs. 10 per share subject to the necessary approvals, if any, required from the financial institutions or any other agency like BIFR, etc. Armed with the authorisation for sale of the shares of SVCL, steps were taken by the above said Rajus leading to agreements for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntext of the Regulation 11(1): ( i )Each one of the nine companies made identical offers to RCL to buy shareholding in SVCL; ( ii )All the agreements whereby the transfer of shares took place were executed on two dates, viz., December 5, 1997 and December 18, 1997 at Isnapur outside the limits of Hyderabad though Six of the nine companies have a common registered office at Hyderabad; ( iii )Stamp papers for the agreements were purchased from the same stamp vendor, namely, N. Laxmi; ( iv )All the agreements contained the same terms and conditions; ( 4 ) Whether the acquisition of 39.5 per cent of the equity shareholding of SVCL from RCL by the nine companies was ( a )in violation of the Regulation 7 which provides that any acquirer who acquires shares or voting rights (which taken together with shares or voting rights, if any, held by him) would entitle him to more than five per cent shares or voting rights in a company, shall disclose the aggregate of his shareholding or voting rights in that company, to the company within four working days from the receipt of information of allotment of shares, or the acquisition of shares or voting rights, as the case may be, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese questions are of a serious nature and the fact that the SEBI has instituted an inquiry shows that there is a prima facie case of violation of the Takeover Code by the nine companies, but the matter is one for the investigation of the SEBI. Under Chapter V of the Takeover Regulations detailed procedure has been laid down for the investigation by the SEBI into the complaint received from the investors, the intermediaries or any other person on any matter having a bearing on the allegations of substantial acquisition of shares and takeovers. The SEBI can also investigate the matter suo moto upon its own knowledge or information, in the interest of securities market or investors interests, for any breach of the Regulations. The investigation can also be carried out by the Board to ascertain whether the provisions of the SEBI Act and the Regulations have been complied with. For the purpose of investigation the Board is authorised to appoint one or more persons as investigating officer. Under Regulation 40, it is the duty of the acquirer, the seller, the target company, the merchant banker whose affairs are being investigated and of every director, officer and employee thereof, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding criminal prosecution under section 24 of the SEBI Act, can issue directions including ( a )a direction to the person concerned not to further deal in securities; ( b )direction to the person concerned interdicting him from disposing of any of the securities acquired in violation of these Regulations; ( c )direction to the person concerned to sell the shares acquired in violation of the provisions of these Regulations; ( d )direction for taking action against the person concerned. Regulation 45 lays down penalties for non-compliance of the provisions of the Regulations. Regulation 46 provides for appeal to the Central Government from an order of the SEBI under the Regulations. 13. Thus, it is clear that the Board has the power to carry out investigations and to take action in accordance with the Regulations against the one who violates the Takeover Regulations, namely, acquirer, the seller, the target company, the merchant banker, as the case may be. In this context a question also arises for consideration as to whether the Board has the power to pass interim orders. It seems to me that the SEBI has power to pass interim orders before and during the inquiry or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estow its consideration on the issues which arise in the case. The determination of these questions will not be made by this Court sitting in writ jurisdiction when such determination lies in the domain of the authorities mentioned in the Regulations. Not only the authorities have to consider the questions raised by the petitioner and the third respondent, they have also to consider the defences which may be raised by respondents 4 to 13 in regard to the allegation of violation of Takeover Regulations including the ones which were indicated by Mr. Desai, while making his submissions on behalf of respondents No. 4 to 13, which can be summarised thus: ( a )that the public offer is in the interest of the investors as they are being paid Rs. 100 for each share as against the average price preceding the date of public announcement at the three stock exchanges being between Rs. 13.49 and Rs. 14.02. No other person has made an offer to buy the shares of SVCL at a price higher than Rs. 100 per share. ( b )that Takeover Code is not applicable as the same person who are promoters of SVCL remained in control thereof at all material points of time as prior to December, 1997 Raju group was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e violated the Takeover Code it can always pass orders to undo the wrong. For the purpose of illustration he submitted that the SEBI can even ask the respondents 4 to 13 to hand over shares to the financial institutions or such other persons as it would deem appropriate. 16. Mr. V.P. Singh, the learned senior counsel appearing on behalf of body of shareholders of SVCL submitted that the sale of shares pursuant to the public offer made by respondents No. 4 to 13 is in the interest of the shareholders and the transactions should be allowed to be completed. 17. In the circumstances, I am not inclined to interfere with the order passed by the AAIFR except to the extent of issuing a direction to the respondents 4 to 13 to secure the availability of the shares of SVCL held by respondents 4 to 13 and those they will acquire as a result of the public announcement. Accordingly, respondents 4 to 13 are interdicted from selling, transferring, alienating or parting with the shares of SVCL so far acquired by them, and those which may be acquired by them as a result of the public offer until the decision by the SEBI. The respondents 4 to 13 shall also not create third party interests in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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