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2015 (9) TMI 1070 - SUPREME COURT

2015 (9) TMI 1070 - SUPREME COURT - TMI - Unfair Trade Practices relating to Securities Market - main contention of the appellant is that SEBI failed to consider that the appellant was not only a promoter having more than 15% shares of SIL but it was also in the business of sale and purchase of shares which was being done simultaneously and hence exceeding the limit of 5% at any one point of time was immaterial unless on a net accounting it could be found that such ceiling of 5% had been violate .....

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tpones the time for required public announcement to acquisition of voting rights when purchased securities are actually converted. According to the contention, only when securities or shares are converted by the acquirer into voting rights by getting it registered or upon exercise of option to acquire voting rights, the liability of making public announcement can be fastened. - Held that:- We find that the plea that the matter at hand relates to Regulation 14(2) was not raised before the origina .....

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n preferred by the same appellant under Section 15Z of the Securities & Exchange Board of India Act, 1992 (for short, SEBI Act ). The main appeal is of 2006 and requires detailed consideration. It is directed against order dated 08th August 2005 passed by the Securities Appellate Tribunal upholding and confirming the order of Securities & Exchange Board of India (SEBI) dated 27th January 2004 directing the appellant to make public announcement in terms of Regulation 11(1) of the Securiti .....

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n behalf of the appellant, the essential facts may be noticed only in brief. The appellant, Kosha Investments Ltd., acquired shares of another company Snowcem India Ltd. (hereinafter referred to as SIL ) from one of the original promoters of SIL and thus itself became one of the promoters. An investigation by SEBI covered the period June 1999 to August 1999 when there was an initial upward movement in the price of shares of SIL and also substantial increase in the volume of their trade. As a res .....

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ellant had consistently bought and sold shares of SIL prior to June 1999 and also after August 1999. As per record it was holding 21,32,900 shares of SIL constituting 20.29% of total paid up capital of SIL. The appellant made additional purchase of shares amounting to 10.81% of the paid up capital of SIL in violation of Regulation 11(1) of the Regulations of 1997 as it failed to make the required public announcement in terms of the said Regulation. After granting personal hearing and considering .....

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hat the appellant was already holding between 15% to 75% shares of the target company SIL and it could acquire additional shares of this company through creeping acquisition mode, that is, without public announcement only upto 5% of its paid up capital during the period of 12 months ending on 31st March 2000. However, by acquiring 11,36,700 shares of SIL during June 1999 to August 1999 it acquired shares constituting more than 5% of the paid up capital of SIL. For making such acquisition, the ap .....

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f regulation 11(1) of the said Regulations taking June 29, 1999 as the reference date for calculation of offer price. The public announcement shall be made within 45 days of passing of this order. 16. …….. The Acquirers are hereby accordingly directed to pay interest @ 15% per annum to the share holders for the loss of interest caused to the shareholders from October 28, 1999 till the date of actual payment of consideration for the shares to be tendered and accepted in the offer di .....

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appellant preferred an appeal before the Securities Appellate Tribunal to challenge the order dated 27th January 2004 passed by Whole Time Member of SEBI. The main contention of the appellant before the Tribunal is recorded in paragraph 7 of the impugned judgment and is as follows : Learned counsel for the appellant argued that KIL had been regularly purchasing and selling shares of SIL. He also argued that KIL had not acquired 5% or more than 5% shares or voting rights in respect of shares of S .....

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ccept that KIL did not acquire 5% or more shares at any point of time since sale and purchase of shares was being done simultaneously and did not trigger the Takeover Code. He argued that SEBI ought to have taken into account that KIL also sold shares during the relevant period. He went on to argue that it was erroneous to determine the total share holding of KIL at any given point of time during the investigation by completely ignoring the sale of shares made by it during the relevant period. H .....

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eriod June 1999 to August 1999 the appellant had acquired 6,61,800 shares which constituted 6.29% of the paid up capital of SIL which was beyond the permissible limit of 5% and hence the requirement of making public announcement in terms of Regulation 11(1) had to be met by the appellant which the appellant failed to do. 5. Before the Tribunal as well as before us the main contention of the appellant is that SEBI failed to consider that the appellant was not only a promoter having more than 15% .....

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5% of the paid up capital of target company was no doubt to be reckoned during a period of 12 months, that is, a financial year but the requirement of Regulation 11(1) of the Regulations of 1997 of making a public announcement was triggered not only on actual acquisition beyond the 5% limit but even on entering into an agreement for such acquisition or deciding to acquire such volume of shares or voting rights, in view of provisions of Regulation 14(1) of the Regulations of 1997. A strong emphas .....

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ven year. If it were to increase its holding by say 3 per cent and subsequently reduce it to 2 per cent. It at that point it intended to purchase 4 per cent shares again, whether by way of fractions or otherwise, it would cross the threshold of 5 per cent. It would then have to make compliance with Regulation 11. We hasten to clarify that if the aggregate percentage of acquisitions at any point of time during the financial year exceeds 5 per cent, the provision would get triggered. In other word .....

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ifty five per cent (55%) of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5 per cent of the voting rights, in any financial year ending on 31st March unless such acquirer makes a public announcement to acquire shares in accordance with the regulations. 12. …. …. …. …. 13. Before making any public announcement of off .....

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uire shares or voting rights exceeding the respective percentage specified therein: Provided that in case of disinvestment of a Public Sector Undertaking, the public announcement shall be made by the merchant banker not later than 4 working days of the acquirer executing the Share Purchase Agreement or Shareholders Agreement with the Central Government or the State Government as the case may be, for the acquisition of shares or voting rights exceeding the percentage of shareholding referred to i .....

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(1) shall be made not later than four working days before he acquires voting rights on such securities upon conversion, or exercise of option, as the case may be. 7. A careful reading of the aforesaid Regulations discloses that the public announcement should not be delayed beyond four working days of the agreement or decision to acquire the requisite number of shares or voting rights. We are in agreement with the finding of the Tribunal on this issue and find no merit in the contentions of the a .....

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e concept of permitting creeping acquisitions by permitting not more than 5% of the shares or voting rights in a company limits the period for such acquisition to a financial year ending by 31st March. But such concept does not dilute the requirement of making a public announcement within the time mentioned in Regulation 14(1) if the acquisition even if only once made and divested, is of more than 5% of shares or voting rights in the target company. In other words, even if such acquisition is fo .....

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