TMI Blog2014 (5) TMI 785X X X X Extracts X X X X X X X X Extracts X X X X ..... other regulatory statutes including Foreign Exchange Regulations. Delay by SEBI in taking a final decision in making its comments on the letter of offer would not fall under Regulation 27(1)(b). Respondent has failed to place on the record 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 N atwar Singh Vs. Director of Enforcement & Anr., (2010) 13 SCC 255 wherein it was held that “there must 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 acquisitions when the creeping 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 decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... structure Pvt. Ltd., is a part of the Promoter Group of MARG Limited ( the Target Company ). For 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 Year Percentage Date triggered on 2006-07 14.34% 30.03.2007 2007-08 5.64% 12.10.2007 2010-11 7.11% 19.02.2011 As a 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 Takeover Regulations ). 4. 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay 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 as follows:- Consequently, we 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 New Takeover Regulations ). Regulation 23(1)(d) of the New Takeover Regulations equally empowers withdrawal of an open offer. 6. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 this Hon ble Tribunal 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. 10. 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. 11. We have heard the learned counsel for the parties at length. 12. Mr. C.U. Singh, learned senior counsel appearing for the appellant, has submitted that the issues raised by the appellant herein are squarely covered against the respondent by an earlier judgment of this Court in Nirma Industries Ltd. Anr. Vs. Securities and Exchange Board of India (2013) 8 SCC 20. 13. At this stage, Mr. R.F. Nariman, learned senior counsel appearing for the respondent, has raised certain preliminary objections with regard to the maintainability of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo weeks preceding the Public Announcement. This Public Announcement and the Public Offer was sought to be withdrawn on 29th March, 2012. He points out that in the aforesaid letter; the request for withdrawal is specifically made under Regulation 27 of the Takeover Regulations. Therefore, Mr. Nariman cannot be permitted to, now, submit that Regulation 27 is not applicable to the open offer in the present case. 16. Mr. C.U. Singh then submits that the respondents have consciously proceeded with an open offer and they have rightly not been permitted to withdraw the same by the appellant. The next submission of Mr. C.U. Singh is that Regulation 27 deals with only withdrawal of Public Offer and not withdrawal of Public Announcement . In any event, according to learned senior counsel, submission with regard to withdrawal of Public Announcement has been made, only, at the time of arguments before this Court. It was neither pleaded nor raised before the SEBI/SAT, nor even in the counter affidavit before this Court. He next submitted that under the provisions of Regulation 27, public offer is a rule and withdrawal is an exception. Relying on the interpretation of Regulation 27 in Nir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iman has rebutted the aforesaid submissions of Mr. C.U. Singh. He submits that the single most important distinction between Nirma and this case is that it pertains to a voluntary public offer. This Court had no occasion to deal with a voluntary public offer in Nirma Industries Ltd. (supra). In reply to the other submissions made by Mr. C.U. Singh, Mr. Nariman has also relied on some correspondence. He has also relied upon a table to substantiate the submission that the law laid down in Nirma Industries would not be applicable in the facts and circumstances of this case. Dealing with the issue of delay, it is submitted by Mr. Nariman that there was an unjustifiable and inexplicable delay by SEBI in issuing its comments on the draft letter of offer. In support of this submission, he has relied on some correspondence. 19. He relies on letter dated October 20, 2011, whereby the respondent made a voluntary open offer by Public Announcement under Regulation 11 of the Takeover Regulations. He points out that Clause 11.4 of the Public Announcement clearly states that voluntary open offer can be withdrawn by the respondent at any time. He then points out that on 25th October, 2011, SEBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Regulation 11(1) and 11(2) of the Takeover Regulations. This explanation was reiterated on December 14, 2011 by the respondent/Promoters but there was no response from the appellant to any of the aforesaid letters. This led the respondent to a reasonable belief that the explanation had been accepted. Subsequently, there was a telephonic request by the appellant to provide the same information on the alleged triggers in various formats. The respondent duly re-arranged the same information in the desired format and provided the same to the appellant on January 13, 2012, January 16, 2012 and February 3, 2012. Inspite of all this, still there were no comments from the SEBI. Mr. Nariman emphasized that the unjustifiable, inexplicable and inordinate, delay on the part of the appellant in issuing comments on the draft letter of offer created a situation wherein it was impossible for the respondent to implement the voluntary open offer. By that time, the underlying decision to consolidate shareholding had become infructuous by sheer efflux of time. It was under these circumstances that the respondent intimated its decision to withdraw its voluntary open offer and sought withdrawal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is contrary to Regulation 18. The letter of offer was not dispatched to the shareholders as per Regulation 18(1). Regulation 15(4) deems that the offer is made on the date on which the Public Announcement has appeared in any newspaper. But according to Mr. Nariman, this deeming fiction is for the purpose of price fixation for the offer. It has nothing to do with Regulation 18 which is to dispatch the actual offer to the shareholders. Therefore, according to Mr. Nariman, reliance placed by Mr. C.U. Singh on the expression offer once made in Regulation 27 is misconceived. This expression has to be understood in terms of Regulation 18. Since Regulation 18 had not been complied with and there was no dispatch of the letter of offer to the shareholders, there was no question of any prejudice being caused to the interest of the shareholders. Mr. Nariman then submits that because of the inaction on the part of SEBI, the respondent would be squarely covered under Regulation 27(1)(b). The approval of the letter of offer by the appellant is statutory in nature. Since it had not been granted within the stipulated period of time, the respondent was entitled to assume that it had been refused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. 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 shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission 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) reads no public offer, once made, shall not be withdrawn except under the following circumstances. Accepting Mr. Nariman s submission 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erform 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 merit in the submission of Mr. Nariman that the delay 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 comments on the letter of offer would not fall under Regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Board on the letter 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 substance in the submission of Mr. Nariman that the 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 withdrawn on the ground that it has now become economically unviable. Accepting such a submission, would give a field day to unscrupulous elements in the securities market to make Public An ..... X X X X Extracts X X X X X X X X Extracts X X X X
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