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TMI Blog2015 (11) TMI 1426X X X X Extracts X X X X X X X X Extracts X X X X ..... r buyback of the shares of HSIDC. The said clause is reproduced for facility of reference: BUY BACK ARRANGEMENT:- 24 (a) At any time after the Company goes in for commercial production, the Corporation may with the consent of the Collaborator offload its shareholding in the Company partially or fully in such manner as it may deem fit. The Collaborator will however have the pre-emptive right to buy the shareholding of the Corporation. Similarly, after the shares of the Company are duly listed on the Stock Exchange/DTCET, and with the consent of the Corporation, the Collaborator may buy its shareholding at a mutually agreed price which shall be equal to or higher than that provided under sub clause (c). (b) After expiry of five years from the date of commencement of commercial production by the Company or at the expiry of seven years from the date of its incorporation whichever is earlier, the Collaborator shall be bound to purchase the Equity share holding of the Corporation in the Company. Provided that the Corporation may at its discretion retain the shares acquired by it through over subscription or rights issue or bonus shares. (c) On buy back of shareholding of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st-dated cheques in respect of the said buy-back obligations, amounting to a total of Rs. 71,25,466/-. HSIDC, vide its letter dated 19.4.1999 to Garg, accepted the joint request made by him and the Appellant. Subsequently, the Appellant, Garg and HSIDC entered into a tripartite financial collaboration agreement, whereby HSIDC consented to the Appellant stepping into the shoes of Garg. 4. On 20.4.1999, Garg and the Appellant entered into an agreement whereby the Appellant agreed to purchase the entire share capital of 28.09% held by Garg at the rate of Rs. 8.50 per fully paid up equity share. Since this acquisition was in excess of 15% of the total shareholding of the Target Company, the Regulations under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, were attracted. In order to comply with the Regulations, the Appellant made a public announcement on 24.4.1999 making an offer to the remaining shareholders of the Target Company to purchase a minimum of 20% shares of the said company at an offer price of Rs. 8.75 per equity share. 5. On 5.5.1999, a draft letter of offer was sent by the merchant banker of the Appellant to SEBI for its approval. Neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial institution and such co-promoter(s); xxx xxx xxx xxx xxx xxx CHAPTER III SUBSTANTIAL ACQUISITION OF SHARES OR VOTING RIGHTS IN AND ACQUISITION OF CONTROL OVER A LISTED COMPANY 10. Acquisition of 15% or more of the shares or voting rights of any company.- No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise fifteen per cent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the Regulations. 11. Consolidation of holdings.- (1) No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15 per cent or more but less than 75% 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% of the voting rights, in any period of 12 months, unless such acquirer makes a public announcement to acquire shares in accordance with the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with interest at the rate of 15% per annum for the period from 16.11.1999 to the actual date of payment of consideration. SEBI further directed the Appellant to pay the balance amount at the aforesaid rate to all the shareholders who had offered their shares in pursuance to the public announcement dated 24.4.1999 along with interest. Aggrieved by this order, the Appellant preferred an appeal. 8. Before the Securities Appellate Tribunal the Appellant contended that the amount deposited with HSIDC via post-dated cheques was not in consideration for the buy-back of shares. Instead it was deposited by way of comfort/security for the buy-back obligation so as to demonstrate to HSIDC that the Appellant was a man of means who could buy-back the shares subsequently (an assertion which in any case stood belied by the dishonour of the cheques). The Tribunal rejected this contention by placing reliance on two letters. The first letter, issued by the Appellant on 15.4.1999, was addressed to HSIDC, where in no uncertain terms the Appellant had stated that the payment by means of post-dated cheques was in consideration for the buy-back of shares. The second letter referred to by the Tribunal w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquirer or persons acting in concert with him for any acquisitions, including by way of allotment in a public or rights issue, if any, during the 26 week period prior to the date of public announcement; (c) the price paid by the acquirer under a preferential allotment made to him or to persons acting in concert with him at any time during the twelve months period up to the date of closure of the offer; (d) the average of the weekly high and low of the closing prices of the shares of the Target Company as quoted on the stock exchange where the shares of the company are most frequently traded during the 26 weeks preceding the date of public announcement. Explanation............... 10. The Tribunal observed that from a perusal of Regulation 20(2)(b) it was clear that the highest price paid by an acquirer for any acquisition would be taken into consideration for determining the minimum offer price. As the Appellant had paid Rs. 23.75 per share to HSIDC within the period of 26 weeks prior to the date of public announcement, this transaction had to be taken into consideration for determining the minimum offer price. The Tribunal negated the specific contention of the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Learned Senior Counsel for the Respondent contends that the Regulations were triggered when the purchase was made by one promoter from another, that is by the Appellant from Garg, and not from the purchase by the Appellant from HSIDC. Evidence was placed on record to prove that the Appellant was still carrying on business of the Target Company. Counsel contended that on 31.3.1999, the Appellant agreed to step into the shoes of Garg. On 15.4.1999 HSIDC received intimation from the Appellant regarding the agreement and also received four postdated cheques amounting to Rs. 71,25,466 as consideration for the purchase of three lac equity shares in the Target Company, thus taking his share in the Target Company to 8.83%. On 19.4.1999, the Tripartite agreement between the Appellant, Garg and HSIDC was entered into. Subsequently, on 20.4.1999, the Appellant and Garg entered into an agreement as per which the Appellant purchased Garg's entire share capital of 9,54,450 shares amounting to 28.09% share in the Target Company at the rate of Rs. 8.50 per fully paid up equity share. It was this transaction which triggered Regulation 10, as there was an acquisition of more than 15% of the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns that the buy-back transaction between the Appellant and HSIDC was incapable of triggering Regulation 10, as the said transaction was protected by Regulation 3. However, the acquisition of the entire share capital of Garg by the Appellant attracted Regulation 10 as the acquisition was in excess of 15%. Further, as this transaction was between two promoters, it did not have the protection of Regulation 3. As required under Regulation 10, the Appellant did make a public announcement, but did not disclose its buy-back transaction with HSIDC. The Appellant has vainly and incorrectly attempted to justify his act of non-disclosure by stating that the transaction with HSIDC was protected by Regulation 3, which placed it beyond the ambit of Regulation 10, 11 and 12. In our view, Regulation 3 only protects a transaction between a copromoter and a State financial institution to the extent that, as a consequence of such transaction a public announcement will not be required to be made as provided under Regulations 10, 11 and 12. However, it does not imply that the said transaction is to be protected from the rigours of other Regulations provided for under the Act. Thus, the transaction betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cture of their value. In the background of such an intention it would fallacious to suggest that the said transaction did not tantamount to an acquisition. 16. In order to dispel doubts regarding the term 'acquisition', the same was subsequently defined in the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. Under Regulation 2 Clause (1) Sub-clause (a)- 'acquisition' means directly or indirectly acquiring or agreeing to acquire shares or voting rights in, or control over, a Target Company. This definition clarifies that an acquisition takes place the moment the acquirer decides or agrees to acquire, irrespective of the time when the transfer stands completed in all respects. The definition explicates that the actual transfer need not be contemporaneous with the intended transfer and can be in futuro. 17. Further, the letter on which the Counsel for the Appellant had placed reliance to prove that there was no acquisition, is dated 9.12.1999, which was well after the public announcement dated 24.4.1999 where the Appellant was required to make disclosures in compliance with the Regulations. This clearly indicates, that at th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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