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Mr. Victor Fernandes and Ms. Sangeeta Fernandes Versus Securities and Exchange Board of India, Mumbai and Others

2016 (5) TMI 883 - SECURITIES APPELLATE TRIBUNAL MUMBAI

Shares acquired in open offer - Whether SEBI by its communication was justified in permitting respondent no. 2 to 4 (‘acquirers’) to acquire shares of respondent no. 6 i.e. Network 18 Media & Investments Limited (‘target company’) at an open offer price of ₹ 41.04 per share as against the open offer price of ₹ 5,68,430.32 per share claimed by the appellants? - Held that:- Appellants while challenging the decision of SEBI dated 17.11.2014 have deemed it fit not to challenge the decisi .....

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which are covered in the decision of SEBI dated 09.02.2015.

Argument of the appellants that SEBI by its communication dated 17.11.2014 ought to have approved the open offer price at ₹ 5,68,430.32 per share of the target company instead of approving the open offer price at ₹ 41.04 per share of the target company is without any merit. Under SPA dated 29.05.2014 acquisition of 60,000 shares of the six holding companies by respondent no. 2 from the Bahl Group constituted acqu .....

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which entitled the respondent no. 2 to exercise voting rights in the target company in excess of twenty-five percent, obligation to make public announcement of an open offer under the Takeover Regulations, 2011 got triggered. In such a case, if the gross amount paid under the SPA dated 29.05.2014 for acquisition of the shares of the six holding companies and RBHPL and consequently acquiring shares of the target company and TV 18 from the Bahl Group (through six holding companies) is segregated, .....

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sider the clauses contained in the ZOCD agreement. Perusal of various clauses contained in the ZOCD agreement as more particularly set out in para 16 above, led us to believe, prima facie, that by executing ZOCD agreement on 27.02.2012 the Bahl Group sought to divest its control over the six holding companies and consequently sought to divest control over the target company and TV 18 without receiving any consideration which is rather strange and unusual to say the least.

In our opini .....

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g in the said communication to suggest that various clauses contained in the ZOCD agreement have been considered by SEBI. In any event, since SEBI has failed to give reasons as to why various clauses contained in the ZOCD agreement do not amount to divesting control over the target company from the Bahl Group to the respondent no. 2, we in public interest direct SEBI to reinvestigate the question as to whether the respondent no. 2 in the guise of executing ZOCD agreement, indirectly acquired con .....

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e J.P. Devadhar, Presiding Officer and Jog Singh, Member For The Appellants : Mr. Victor Fernandes For The Respondent : Mr. Fredun Devitre, Senior Advocate with Mr. Mihir Mody, Mr. Harekrishna Ashar and Mr. Saurabh Bachhawat, Advocates i/b K. Ashar & Co., Mr. Rafique Dada, Senior Advocate with Mr. Rohan Rajadhyaksha, Advocate i/b AZB, Mr. Janak Dwarkadas, Senior Advocate with Mr. Vaidhyanathan Iyer, Mr. Shwetank Ginodia and Mr. Dhirajkumar Totala, Advocates, i/b AZB, Mr. Rohan Rajadhyaksha, .....

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n offer price of ₹ 41.04 per share as against the open offer price of ₹ 5,68,430.32 per share claimed by the appellants. It is not in dispute that in implementation of SEBI communication dated 17.11.2014 the acquirers have acquired the shares of the target company at an open offer price of ₹ 41.04 per share from the public investors of the target company and the entire open offer process has been completed on 26.12.2014. It is also not in dispute that instead of participating i .....

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gers open offer obligation, then the open offer price shall be the highest negotiated price per share of the company for any acquisition under the agreement attracting the obligation to make a public announcement of an open offer. In the present case, appellants submit that the highest negotiated price per share of the target company as per the Share Purchase Agreement ( SPA for short) dated 29.05.2014 which triggered the obligation to make public announcement of an open offer comes to ₹ 5 .....

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0.32 per share which according to the appellants is the highest price paid by the acquirers for acquisition of the shares of the target company under the SPA dated 29.05.2014. 3. Facts relevant for the present appeal are as follows:- a) Appellants are shareholders of the target company. The shares of the target company are listed on the Stock Exchanges. b) Respondent no. 5, a Merchant Banker, was the Lead Manager to the public offer made by the acquirers (respondent no. 2 to 4) for the purpose o .....

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d the Bahl Group. These six companies 100% owned and controlled by the Bahl group are hereinafter referred to as six holding companies . d) The six holding companies along with another company promoted by Bahl Group held 48.30% shares of the target company. As a result of holding 100% shares of the six holding companies, the Bahl Group apart from having 100% direct control over the six holding companies, had indirect control over 48.30% shares of the target company (through the six holding compa .....

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Respondent no. 2 Trust held 1.85% shares of the target company. As per the Trust Deed, the trustee (DCPL) had the power to vote on behalf of respondent no. 2 Trust. Thus, the aggregate indirect control of Bahl Group over the target company was 50.15% (i.e. 48.30% indirect control through six holding companies + 1.85% indirect control as a trustee of respondent no. 2 Trust). It is not in dispute that in view of certain employee welfare trusts which also had shares of the target company, the aggre .....

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to invest amounts in the six holding companies by subscribing to the Zero Coupon, Optionally and fully Convertible Debentures ( ZOCD for convenience). The investment agreement dated 27.02.2012 is hereinafter referred to as the ZOCD agreement . Maturity period for each ZOCD under the ZOCD agreement was 10 years from the completion date i.e. the date on which allotment of the ZOCDs were completed. h) As per the ZOCD agreement, the amounts invested by respondent no. 2 in the six holding companies b .....

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f issuance of ZOCDs till maturity of the ZOCDs issued under the ZOCD agreement. i) In implementation of the ZOCD agreement, the respondent no. 2 invested ₹ 2211.80 crore in the six holding companies by subscribing to 22,11,79,894 ZOCD s. It is not in dispute that the respondent no. 2 could opt for conversion of ZOCD s at any time and on such option being exercised, the six holding companies were required to issue 221,17,98,940 equity shares in favour of respondent no. 2 and in that event, .....

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t no. 2 has sought conversion of ZOCD s and hence, the question of the six holding companies issuing equity shares in favour of respondent no. 2 did not arise at all. Consequently, the Bahl Group holding 60,000 shares of the six holding companies continued to be 100% shareholders of the six holding companies with 100% voting rights and the respondent no. 2 continued to be holder of ZOCDs issued under the ZOCD agreement. j) It is not in dispute that the six holding companies have utilized the amo .....

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. Ltd. ( SCPL for short) were inducted as additional trustees of respondent no. 2 Trust. l) On 29.05.2014 a Share Purchase Agreement ( SPA for short) was entered into by and between the Bahl Group, respondent no. 2, six holding companies and RB Holdings Pvt. Ltd. ( RBHPL for short). Admittedly, 100% shares of RBHPL were held by the Bahl Group. As per the said SPA, the respondent no. 2 was to acquire 100% equity shares of six holding companies held by the Bahl Group (i.e. 60,000 shares) as also 1 .....

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s as per details set out in schedule 3 and Clause 4.1 of the SPA provides that the said loan shall be utilized by the six holding companies to repay their liabilities to the entities specified in Schedule 5. ii) Clause 3.2 of the SPA provides that the respondent no. 2 shall provide loan to RBHPL under the head RBH loan Amount which is defined under Clause 1.1 of the SPA to mean loan of ₹ 304,94,08,453/- payable by the respondent no. 2 to RBHPL. Clause 4.2 of the SPA provides that the afore .....

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voting rights in the target company which entitle them to exercise 25% or more of the voting rights in such target company, then, such acquisition triggers open offer obligation. In the present case, since indirect acquisition of the shares of the target company under the SPA was in excess of 25%, the respondent no. 2 was required to make an open offer for acquiring the shares of the target company in accordance with the Takeover Regulations, 2011. Accordingly, on 29.05.2014, the respondent no. .....

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king Services Pvt. Ltd. on 29.05.2014, the fair value per equity share of the target company as on 29.05.2014 was ₹ 40.50 per share. However, the acquirers/manager to the offer considered that the highest negotiated price of the shares of the target company ought to be ₹ 41.04 per share, which is higher than the price determined by the above valuer appointed by respondent no. 2. n) On 11.06.2014, the acquirers viz the respondent no. 2 to 4 filed draft letter of offer with SEBI togeth .....

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n that representation it was stated that the open offer obligation got triggered more than two years ago on execution of ZOCD agreement and the claim made in the letter of offer that SPA dated 29.05.2014 triggered open offer obligations besides being gross misrepresentation of facts amounts to harming the interest of investors. p) On 12.06.2014, respondent no. 5 submitted its due diligence certificate to SEBI stating that the acquirer has duly discharged its responsibility for the correctness, a .....

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the sellers under the SPA was in fact ₹ 5,68,430.32 per share, whereas, in the draft letter of offer the acquirers have sought to acquire shares of the target company at ₹ 41.04 per share which is in violation of regulation 8(1) and 8(2) of the Takeover Regulations, 2011. In the said complaint SEBI was requested to direct the acquirers under regulation 32(f) of the Takeover Regulations, 2011 to revise the offer price and make an open offer for acquiring shares of the target company .....

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rs to acquire shares of the target company at an open offer price of ₹ 41.04 per share. r) The acquirers complied with the observations contained in SEBIs letter dated 17.11.2014 and submitted their final letter of offer to SEBI on 21.11.2014. Thereafter, the public offer process was conducted in accordance with the Takeover Regulations, 2011 and the public offer was completed on 26.12.2014. Admittedly, appellants did not participate in the public offer by offering to sell the shares of th .....

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ehalf of the appellants. Mr. Devitre, Mr. Dwarkadas, Mr. Dada, learned Senior Advocates made oral submissions and also tendered written submissions on behalf of respondent no. 1, respondent no. 5 and respondent no. 2 respectively. Mr. Rajadhyaksha learned advocate appearing on behalf of respondent nos. 3,4 & 6 has adopted the submissions made by counsel for respondent no. 2. 5. Crux of the arguments advanced by Mr. Fernandes on behalf of appellants (orally and by way of written submissions) .....

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companies to repay their outstanding liabilities to the parties specified under Schedule 5 of the SPA. i) ₹ 304.94 crore being the loan to be paid by respondent no. 2 to RBHPL so as to enable RBHPL to repay its outstanding liabilities to the parties specified in Schedule 6 of the SPA. Thus, in the draft letter of offer it is stated that the transactions under the SPA were for ₹ 1054.98 crore (Rs. 706.96 Cr + ₹ 43.08 Cr + ₹ 304.94 Cr). However, as per the disclosures made .....

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irers on the basis of two distinct agreements namely, the ZOCD agreement dated 27.02.2012 and SPA dated 29.05.2014. Therefore, the acquirers were not justified in including the consideration amount of ₹ 2211.80 crore paid under the ZOCD agreement while determining the highest negotiated price paid by respondent no. 2 under the SPA dated 29.05.2014. b) By subscribing to the ZOCD s under the ZOCD agreement dated 27.02.2012, the acquirers had effectively acquired 99.997% shares of the six hol .....

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the acquirers even prior to entering in to the SPA, SEBI was not justified in approving the decision of the acquirers to include the amount invested under the ZOCD agreement dated 27.02.2012 while determining the highest negotiated price per share paid under the SPA dated 29.05.2014. c) Admittedly, the amounts paid by respondent no. 2 under the ZOCD agreement dated 27.02.2012 have been utilized by the said six holding companies for acquiring the shares of the target company and TV 18 under the r .....

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er to determine at each stage (one) the amounts paid by the acquirers (two) the economic interest acquired by the acquirers in each of the six holding companies and (three) the corresponding economic interest acquired by the acquirers in the shares of the target company. Since SEBI has failed to consider each of the two agreements independently, the impugned decision of SEBI cannot be sustained. d) According to SEBI, SPA dated 29.05.2014 attracted the obligation to make public announcement of an .....

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he shares of the target company under the SPA dated 29.05.2014. e) SEBI has failed to evaluate individually, the acquisition of shares of the target company by each of the six holding companies. Instead, SEBI has only considered the total number of shares i.e. 74.619 crore shares of the target company held by the six holding companies while determining the offer price at ₹ 41.04 per share of the target company. SEBI has also committed an error in including the amount of ₹ 2211.80 cro .....

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igation. In the present case, since the SPA dated 29.05.2014 triggered open offer obligation, the aggregate amount of ₹ 1054.98 crore paid thereunder alone ought to have been considered for determining the offer price. By including the amount of ₹ 2211.80 crore paid under the ZOCD agreement, SEBI has wrongly considered the amount of ₹ 3266.78 crore as the total consideration paid by respondent no. 2 for indirect acquisition of the shares of the target company and TV 18 from the .....

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or agreed to acquire any shares or voting rights in the target company during the offer period, at a price higher than the offer price, then the offer price shall stand revised to the highest price paid or payable for any such acquisition. In the present case, indirect acquisition of the shares of the target company and TV 18 under the SPA were completed on 07.07.2014 for an aggregate amount of ₹ 1054.98 crore during the offer period. As the provisions of regulation 8(8) got triggered duri .....

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he amount of ₹ 1054.98 crore paid for direct acquisition of the shares of the six holding companies and indirect acquisition of the shares of the target company and TV 18 from the Bahl Group were methodically reviewed, it would lead to the clear conclusion that the highest price paid by respondent no. 2 to the Bahl Group on 07.07.2014 would be ₹ 5,68,430.32 per share of the target company. The said price being the highest price, SEBI could not have approved the offer price of ₹ .....

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shares of the target company by respondent no. 2 has to be worked out in the following manner:- i) Under the ZOCD agreement, the respondent no. 2 had invested ₹ 2211.80 crore in six holding companies by subscribing to the ZOCDs and the amounts so invested were to be utilized for acquiring the shares of the target company and TV 18 under the rights issue. On acquiring the shares of the target company and TV 18 under the rights issue, the total number of shares held by the six holding compan .....

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originally issued by six holding companies to the Bahl Group). Thus, on conversion of ZOCD s, into equity shares the respondent no. 2 would hold 99.997% shares /economic interest and the Bahl Group would 0.003% shares/economic interest in the six holding companies. Consequently, respondent no. 2 would have 99.997% indirect economic interest in the shares of the target company held by the six holding companies and the Bahl Group would have 0.003% indirect economic interest in the shares of the t .....

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, out of 6,77,33,486 shares of TV 18 held by six holding companies, respondent no. 2 as a result of ZOCD agreement would have indirect economic interest in 6,77,31,750 shares and the Bahl Group would have indirect economic interest in 1736 shares (0.003%). Thus, on execution of the ZOCD agreement, the direct and indirect economic interest of the Bahl Group in the six holding companies and the target company/TV 18 would got reduced from 100% to 0.003%, whereas, the direct and indirect economic in .....

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mes to 20360 shares it is evident that for acquiring those indirect economic interest in the target company as also 0.003% indirect economic interest in TV 18 the respondent no. 2 has paid under the SPA ₹ 1054.98 crore which effectively works out to acquiring each share of the target company at ₹ 5,68,430.32 per share. That being the highest negotiated price SEBI ought to have determined the open offer price at ₹ 5,68,430.32 per share. iv) Takeover Regulations, 2011 is based on .....

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he target company has to be as on the date of the letter of offer and for that purpose the percentage holding has to be taken on the basis of diluted share capital as defined in the Takeover Regulations, 2011. The expression diluted share capital is defined under the Takeover Regulations, 2011 to mean the total number of shares in the target company assuming full conversion of the outstanding convertible securities into equity shares of the target company. Therefore, in the facts of the present .....

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acquisition and holding of any convertible security be regarded as shares. As the diluted share capital has not been taken into consideration in computing the offer price, the respondent no. 2 as also SEBI violated the provisions contained in the Takeover Regulations, 2011. h) Regulation 5(2) of the Takeover Regulations, 2011 stipulates the circumstances under which the indirect acquisition attracting the provisions of regulation 5(1) shall be regarded as direct acquisition. Applicability of reg .....

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tible security shall also be regarded as shares and disclosures of such acquisitions and holdings shall be made accordingly. To put it simply, in view of regulation 5(2) read with regulation 28(2), the acquisition and holding of ZOCD s must necessarily be regarded as holding shares of each of the six holding companies to the extent permissible under the ZOCD agreement and accordingly compute the acquisition of the economic interest in the shares of the target company by the respondent no. 2 from .....

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ithout considering the ZOCD s, then the very purpose for the disclosure obligation related to shareholding in a company to include and consider convertible securities as shares would be negated and would tantamount to giving a free reign to acquirers to circumvent and void the regulatory intent, purpose and underlying philosophy of the Takeover Regulations. In support of the above contentions, reliance is placed on the decision of the Apex Court in case of Nirma Industries Ltd. vs SEBI in (2013) .....

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n company prism (held in the form of equity shares and convertible securities). Since SEBI has approved the open offer price by taking diluted shareholding in the aforesaid case, even in the present case, SEBI ought to have approved the open offer price by taking the diluted shareholding of the target company acquired under SPA dated 29.05.2014. k) With the help of a chart, the appellants sought to demonstrate that if the gross amount of ₹ 1054.98 crore paid by the acquirers under the SPA .....

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(1)(e) & 2(1)(o) of Chapter I, regulations 3,6,7 & 10 of Chapter II, regulation 16 in Chapter III and regulation 32 under Chapter VI. Since the expression shareholding is not defined under the Takeover Regulations 2011, it becomes necessary to review and understand that expression within the overall frame work of the Takeover Regulations, 2011. Regulation 28(2) clearly provides that acquisition and holding of any convertible security shall also be regarded as shares and disclosures of su .....

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in the present case. m) The format for the letter of offer prescribed by SEBI under regulation 16(1) in Chapter III titled open offer process mandates that the pre and post offer shareholding pattern of the target company in the table format specified by SEBI be disclosed as on the date of letter of offer. The note below the specified table format states that The percentage holding shall be taken on the basis of diluted share capital as defined in the SAST Regulations, 2011 . Since none of the .....

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ply to Chapter III is without any merit. In support of the above submission reliance is placed on the decision of the Apex Court in case of R.B.I. vs Peerless General Finance & Investment Co. Ltd. reported in AIR 1987 S.C. 1023. n) As per the TRAC Report on the basis of which the Takeover Regulations, 2011 is framed, the disclosure obligations under the Takeover Regulations are fairly critical and form an important component of the legal regime governing substantial acquisition of shares and .....

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uirer held indirectly through the six holding companies is computed without considering the ZOCDs, then the very purpose for the disclosure obligation would be defeated and would tantamount to giving a free reign to acquirers to circumvent and void the regulatory intent, purpose and underlying philosophy of the Takeover Regulations, 2011. p) The format prescribed under regulation 16(1), mandates the acquirers to ensure that the minimum disclosure requirements are contained in the letter of offer .....

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the ZOCD s under the ZOCD agreement the acquirers had acquired economic interest in 99.997% of the 71.25% shareholding in the target company and therefore, fact that the respondent no. 2 has not sought conversion of ZOCDs into equity share would not result in any change in the economic interest held by the acquires in the target company. r) In para 59 of its affidavit in reply SEBI has admitted that while processing the draft letter of offer dated 11.06.2014 it is noticed that the respondent no .....

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ions contained in the Takeover Regulations, 2011. In such a case, where the disclosures made in the draft letter of offer do not depict true picture the economic interest (shareholding) in the target company, SEBI was not justified in approving the offer price at ₹ 41.04 per share of the target company. s) As per clause 1.1.22 of the ZOCD agreement dated 27.02.2012 the expression Equity Securities would inter alia include the ZOCDs. Thus, by investing in the ZOCD s, the respondent no. 2 ha .....

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knowledge that the diluted share capital of the six holding companies was definitely not the same as their outstanding share capital . Since the holding in a company is determined on the basis of its diluted share capital, SEBI is not justified in contending that by executing SPA, the respondent no. 2 acquired 100% shares of the six holding companies held by the Bahl Group. By subscribing to the ZOCD s, the respondent no. 2 had acquired from Bahl Group 99.997% economic interest in six holding c .....

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needed to be taken into consideration while determining the highest negotiated price under regulation 8(8) as the said transactions were effected during the offer period. v) Irrespective of the date on which the acquirers obligation to make a public announcement for the open offer got triggered, in the facts of present case, the acquisitions completed by the acquirers on 07.07.2014 would attract the provisions of offer price related regulation 8(8) as the said transactions were executed within .....

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over Regulations, 2011. The appellants unwillingness to tender shares in the open offer at offer price of ₹ 41.04 cannot be construed as an unwillingness to tender shares in the open offer at an offer price of ₹ 5, 68,430.32 per share. Since the open offer did not provide for any conditional acceptance by the shareholders of the target company, the appellants could not have participated in the open offer by contending that determination of the open offer price at ₹ 41.04 is in .....

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5 failed in its duty to protect interest of investors. The respondent no. 5 has knowingly and willfully acted contrary to the code of conduct prescribed for Merchant Bankers by SEBI and also acted in violation of Takeover Regulation, 2011. In support of above contention reliance is placed on facts set out in Table E , para 33 of the affidavit in rejoinder filed by the appellants. By relying on a decision of this Tribunal in case of Enam Securities Pvt. Ltd. vs SEBI (Appeal No. 39 of 2011 decided .....

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cement obligation under the Takeover Regulations, 2011, get triggered on the date on which the option to convert such securities into shares is exercised. In the present case, the option for conversion of ZOCDs has not been exercised by respondent no. 2 and therefore, the six holding companies have not issued equity shares in favour of respondent no. 2. In the absence of acquiring equity shares, the respondent no. 2 could not exercise any voting rights or control over the six holding companies b .....

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y when the respondent no. 2 entered into SPA dated 29.05.2014 for acquiring 60,000 shares of the six holding companies which constituted acquisition of 100% shares of the six holding companies, the public announcement obligation under the Takeover Regulations, 2011 got triggered. Accordingly, public announcement was made on 29.05.2014 by offering to purchase shares of the target company from the public shareholders at ₹ 41.04 per share being the highest negotiated price per share of the ta .....

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-alia alleged that the open offer obligation got triggered on execution of ZOCD agreement and not on execution of SPA as wrongly stated in the open offer document. It was further alleged in the said complaint that there are various infirmities in the open offer process carried out by respondent no. 2 through respondent no. 5 and therefore appropriate action be taken against the acquirers and respondent no. 5. Apart from the above, it was alleged that in the facts of present case, the open offer .....

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reasons recorded therein. 9. Even before receiving the communication of SEBI dated 09.02.2015, appellants had filed the present appeal on 29.12.2014 to challenge the communication of SEBI dated 17.11.2014. However, on receipt of communication dated 09.02.2015, the appellants have neither chosen to amend the present appeal so as to challenge the communication of SEBI dated 09.02.2015 nor the appellants have filed any independent appeal to challenge the communication of SEBI dated 09.02.2015 wher .....

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ons allegedly committed by respondent no. 5 as lead Manager to the open offer made by the acquirers viz. respondent nos. 2 to 4. Thus, the only issue that falls for consideration in this appeal is, whether SEBI by its communication dated 17.11.2014 was justified in approving the open offer price at ₹ 41.04 per share of the target company offered by the acquirers as against the open offer price claimed by the appellants at ₹ 5,68,430.32 per share of the target company. 10. Open offer .....

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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 the said regulations. Regulation 4 provides that irrespective of acquisition or holding of shares or voting rights in a target company, no acquirer shall acquire, directly or indirectly, control over the target company, without making a public announcement of an open offer. Regulation 5 provides for public announcement of an .....

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n, or control over, any company or other entity, that would enable any person and persons acting in concert with him to exercise or direct the exercise of such percentage of voting rights in, or control over, a target company, the acquisition of which would otherwise attract the obligation to make a public announcement of an open offer for acquiring shares under these regulations, shall be considered as an indirect acquisition of shares or voting rights in, or control over the target company. (2 .....

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sation of the target company as a percentage of the enterprise value for the entity or business being acquired; is in excess of eighty per cent, on the basis of the most recent audited annual financial statements, such indirect acquisition shall be regarded as a direct acquisition of the target company for all purposes of these regulations including without limitation, the obligations relating to timing, pricing and other compliance requirements for the open offer. 11. In the present case, it is .....

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or the quarter ending on December 31, 2011. Thus, at the relevant time, the Bahl Group were the promoters of six holding companies and the said six holding companies were the promoters of the target company and TV 18. Since the six holding companies (promoted by Bahl Group) and RBHPL (also promoted by Bahl Group) held 48.30% shares of the target company, under the Takeover Regulations 2011, the Bahl Group would be deemed to have 48.30% indirect shareholding in the target company. 12. The respond .....

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r payment. It is not in dispute that as per the ZOCD agreement the respondent no. 2 has invested ₹ 2211.80 crore by subscribing to the ZOCDs and the said amount has been utilized by the six holding companies for acquiring the shares of the target company and TV 18 under the rights issue. It is also not in dispute that till date the respondent no. 2 has not exercised its option either to seek refund of ₹ 2211.80 crore invested under the ZOCD agreement or seek conversion of ZOCD s into .....

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ations 2011, provides that where an acquirer acquires shares or voting rights in or control over the target company upon converting the convertible securities without a fixed date of conversion, then the open offer obligation gets triggered on the date on which the option to convert such securities into shares of the target company is exercised. Thus, in the ordinary course, when a person subscribes to the ZOCDs under a ZOCD agreement without a fixed date for conversion of ZOCDs into equity shar .....

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amount invested by respondent no. 2 under the ZOCD agreement dated 27.02.2012 and hence we deemed it fit to look into the clauses contained in the said ZOCD agreement. 15. On perusal of the ZOCD agreement dated 27.02.2012 we were surprised to find that although the parties to the said agreement were the six holding companies, the respondent no. 2 and the Bahl Group consisting of Mr. Raghav Bahl and his wife Mrs. Ritu Kapur, the ZOCD agreement is signed only by Mr. Raghav Bahl and his wife Mrs. R .....

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ed that on execution of the ZOCD agreement, the respondent no. 2 without giving any consideration to the Bahl Group shall be entitled to exercise control over the six holding companies and consequently exercise control over the target company and TV 18, even before the respondent no. 2 exercised option to seek conversion of ZOCDs into equity shares of the six holding companies. The said unusual clauses in the ZOCD agreement are as follows:- a) Clause 5.5 & 5.6 of the ZOCD agreement records t .....

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at the sole object of the respondent no. 2 in executing the ZOCD agreement was not to advance loan to the six holding companies but to invest requisite amount for acquiring the shares of the target company and TV 18 under the rights issue through the six holding companies. b) Clause 6.1 of the ZOCD agreement records that from the date of the ZOCD agreement till completion date i.e. the date on which allotment of ZOCDs are completed, the six holding companies and the Bahl Group shall ensure that .....

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t no. 2, at its will, was entitled to receive equity shares amounting to 99.997% shareholding of the six holding companies. c) Clause 7.1 of the ZOCD agreement records that the respondent no. 2 is entering into the ZOCD agreement by relying on the shareholder warranties given by the Bahl Group as more particularly set out in Schedule 2 to the ZOCD agreement. Schedule 2 to the ZOCD agreement records that the Bahl Group inter alia agrees that on the respondent no. 2 opting for conversion of ZOCDs, .....

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eiving any consideration from respondent no. 2. It is inconceivable that the Bahl Group would agree to such a clause in the ZOCD agreement, which had the effect of divesting direct and indirect control of the Bahl Group over the six holding companies and the target company/TV 18 respectively without the Bahl Group receiving any consideration. d) Clause 9 of the ZOCD agreement records that the Bahl Group as shareholders of the six holding companies shall not transfer any equity securities of the .....

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Bahl Group receiving any consideration, the Bahl Group further represented to the respondent no. 2 under clause 9 of the ZOCD agreement that they shall not transfer the shares of the six holding companies held by them without the prior written consent of respondent no. 2. e) Clause 11.1 of the ZOCD agreement records that the Bahl Group shall procure from the target company & TV 18 that they shall not issue any equity securities of any type or class to any person whether by way of rights issu .....

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ondent no. 2 not only exercised control over the Bahl Group but the respondent no. 2 through the Bahl Group exercised control over the six holding companies as well as the target company & TV 18. f) Clause 11.4 read with clause 1.1.42 of the ZOCD agreement provides that the Bahl Group shall ensure that the promoter group entities listed in Part A, Part B & Part C of Schedule 6 shall not transfer any equity securities or any right, title or interest of the target company & TV 18 witho .....

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f the ZOCD agreement records that each party to the said agreement shall not, without the prior written consent of the other party, disclose the terms and conditions of the ZOCD agreement to any third party. As noted earlier, the Bahl Group alone being signatories to the ZOCD agreement there was no question of either keeping the terms of the agreement as secret or disclosing it to third parties with the consent of the other party. In any event, if the ZOCD agreement was a mere loan agreement, th .....

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e 6.1, clearly show that on execution of the ZOCD agreement, respondent no. 2 conducted the business of the six holding companies in the manner desired by respondent no. 2 and that too before the respondent no. 2 exercised its option to seek conversion of ZOCDs into equity shares. i) Clause 14.1 of the ZOCD agreement provides that Mr. Raghav Bahl undertakes to own and control the companies listed in Part A of Schedule 6 and shall continue to remain the Trustee of trusts listed in Part B of Sched .....

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le Unit Agreement . The expression Single Unit Agreement as per clause 1.1.54 of the ZOCD agreement means an agreement to act as a Single Unit as required under the Ministry of Information and Broadcasting Guidelines among the target company and the promoters of the six holding companies (including the six holding companies, Mrs. Ritu Kapur & Mr. Raghav Bahl) for managing the matters of the target company & TV 18 and to appoint majority of the Board of Directors of the target company &am .....

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j) Apart from the above, it is relevant to note that Mr. Raghav Bahl and his wife Mrs. Ritu Kapur have given warranties on behalf of six holding companies and RBHPL (see clause 8.11 in Schedule 7 to the SPA dated 29.05.2014) to the effect that none of those companies have any employees. Thus it is evident that all activities of the six holding companies were executed by the Bahl Group and the Bahl Group for the reasons best known to it agreed to divest control over the six holding companies and .....

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he motive behind executing such ZOCD agreement. 18. Counsel for respondent no. 2 by his oral (as also by written arguments) submitted that the ZOCD agreement in question was executed in the ordinary course of business. It is submitted that since the Bahl Group did not have the requisite resources to subscribe to the shares of the target company and TV 18 under the rights issue and the only asset of the six holding companies were the shares of the target company & TV 18 valued at ₹ 2450 .....

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was in control over one of the trustees of respondent no. 2 viz. Nirlab Media Pvt. Ltd. (now DCPL). It is further submitted that the restriction imposed on transfer of shares held by Bahl Group was to ensure that the control of the target company remains with Mr. Raghav Bahl and even after execution of ZOCD agreement Mr. Raghav Bahl continues to control and manage the target company as agreed between the parties. 19. Counsel for SEBI on instruction submitted that SEBI has already looked into the .....

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d 11 thereof) by merely recording that the respondent no. 2 has not acquired any voting rights, shares or control over the six holding companies by subscribing to the ZOCDs and therefore, the question of respondent no. 2 exercising or directing the exercise of voting rights in the shares of the target companies held by six holding companies under the ZOCD agreement does not arise. Admittedly, the appellants have chosen not to challenge the said communication of SEBI dated 09.02.2015, hence it wo .....

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ses contained in the ZOCD agreement. Accordingly, we direct SEBI to reinvestigate matter to find out as to whether the respondent no. 2 in the guise of entering into ZOCD agreement acquired direct control over the six holding companies and indirect control over the target company from the Bahl Group so as to trigger open offer obligation under the Takeover Regulations, 2011 and if so, take appropriate action for not complying with the said obligation so that such instances do not occur again in .....

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of offer having stated that the transactions under the SPA were for ₹ 1054.98 crore, in the disclosures made in the draft letter of offer, the transaction consideration under the SPA could not have been enhanced from ₹ 1054.98 crore t o ₹ 3266.78 crore by including the amount of ₹ 2211.80 crore which was invested by the respondent no. 2 in the six holding companies under the ZOCD agreement dated 27.02.2012. There is no merit in this contention because, adding any amount t .....

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fer price. 23. Second argument of the appellants is that by subscribing to the ZOCDs under the ZOCD agreement dated 27.02.2012 the acquirers had acquired 99.997% shares of the six holding companies and, therefore, even though the SPA dated 29.05.2014 refers to acquisition of 100% of the outstanding shares of the six holding companies from the Bahl Group, in reality acquiring 60,000 shares from the Bahl Group amounts to acquiring 0.003% of the fully diluted shares capital of the six holding compa .....

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rights in, or control over the target company upon converting convertible securities without a fixed date of conversion, the obligation to make public announcement of an open offer, if any, arises on the date on which option for conversion of such securities into shares of the target company is exercised. In the present case, no such option is exercised and hence it cannot be said the respondent no. 2 has acquired 99.997% shares of the six holding companies. As on the date of ZOCD agreement and .....

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nto ZOCD agreement had acquired control over the six holding companies as well as control over the target company is not the question that falls for consideration in this appeal. In fact by choosing not to challenge the decision of SEBI contained in its letter dated 09.02.2015, appellants are precluded from agitating the above question in the present appeal. However, fact that this Tribunal has directed SEBI to reinvestigate the matter cannot be a ground to uphold the contention of the appellant .....

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cause, respondent no. 2 has not opted for conversion of ZOCDs into equity shares under the ZOCD agreement and consequently no equity shares have been issued to the respondent no. 2 under the ZOCD agreement. In such a case, it cannot be said any voting rights or shares have been acquired by respondent no. 2 by subscribing to the ZOCDs under the ZOCD agreement. 25. If the argument of the appellants that on execution of the ZOCD agreement, 99.997% interest in the shares of the six holding companies .....

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rigger open offer obligation and consequently determining the highest negotiated price paid per share of the target company under SPA dated 29.05.2014 does not arise at all. 26. Argument of the appellants based on regulation 5(2),8(2)(a) and regulation 8(8) of the Takeover Regulations is mutually contradictory. The deeming fiction of regarding indirect acquisition as direct acquisition under regulation 5(2) comes into operation only in the circumstances set out therein. None of those circumstanc .....

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se, determining the highest negotiated price per share on the basis of the amount paid under SPA dated 29.05.2014 for acquiring 60,000 shares would be much less than ₹ 41.04 per share. Therefore, no fault could be found with SEBI in determining the highest negotiated price at ₹ 41.04 per share by including the amount invested by respondent no. 2 under the ZOCD agreement. 27. Argument of appellants that acquisition of shares of the six holding companies by respondent no. 2 from the Ba .....

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plaint dated 25.06.2014 was refuted by SEBI perfunctorily vide communication dated 09.02.2015 and the appellants have chosen not to challenge the said decision of SEBI contained in communication dated 09.02.2015. Therefore, the argument of the appellants that under SPA dated 29.05.2014, acquisition of 60,000 shares of the six holding companies from the Bahl Group by respondent no. 2 represented acquisition of 0.003% interest in the diluted share capital of the six holding companies cannot be acc .....

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al number of shares in the target company assuming full conversion of the outstanding convertible securities/warrants into equity shares of the target company. No doubt, that the format for the letter of offer prescribed by SEBI under regulation 16(1) in Chapter III titled open offer process mandates that the pre and post offer shareholding pattern of the target company in the table format specified by SEBI be disclosed as on the date of letter of offer and the note below the specified table for .....

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the expression diluted share capital is not defined under any of the regulations framed in Takeover Regulations and that expression defined in the format prescribed under the Takeover Regulations, 2011 is restricted for the purpose of disclosures only. Even regulation 28(2) contained in Chapter V, of the Takeover Regulations, 2011 provide that for the purposes of the said Chapter relating to disclosures of shareholding and control, the acquisition and holding of any convertible security shall a .....

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a contention would mean extending the deeming fiction beyond the scope for which it is created which is not permissible in law. 29. Apart from the above, when regulation 13(2)(b) of the Takeover Regulations specifically provides that the date on which option for conversion of ZOCDs into equity shares is exercised shall be the date for triggering the open offer process, it would be improper on the basis of the format set out in the Takeover Regulations, 2011 to hold that even if option is not exe .....

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ns, 2011 has to be applied while determining the highest negotiated price for the purposes of open offer under the Takeover Regulations, 2011. 30. Reliance placed by the appellants on various decisions of the Apex Court as also decisions of this Tribunal are misplaced, because, in none of those decisions it is held that the deeming fiction created for a particular purpose can be extended beyond the purpose for which it is created and therefore, all those decisions being distinguishable on facts .....

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the acquirers and respondent no. 5 which are covered under the decision of SEBI dated 09.02.2015. In these circumstances, we decline to consider grievances of the appellants against the acquirers and respondent no. 5 which are covered in the decision of SEBI dated 09.02.2015. b) Argument of the appellants that SEBI by its communication dated 17.11.2014 ought to have approved the open offer price at ₹ 5,68,430.32 per share of the target company instead of approving the open offer price at & .....

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s. Since acquisition of 100% shares of the six holding companies amounted to the respondent no. 2 indirectly acquiring the shares of the target company from the Bahl Group (through the six holding companies) which entitled the respondent no. 2 to exercise voting rights in the target company in excess of twenty-five percent, obligation to make public announcement of an open offer under the Takeover Regulations, 2011 got triggered. In such a case, if the gross amount paid under the SPA dated 29.05 .....

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amount invested under the ZOCD agreement cannot be faulted. c) Decision of the acquirers to consider the amount invested under the ZOCD agreement while determining the open offer price, led us to consider the clauses contained in the ZOCD agreement. Perusal of various clauses contained in the ZOCD agreement as more particularly set out in para 16 above, led us to believe, prima facie, that by executing ZOCD agreement on 27.02.2012 the Bahl Group sought to divest its control over the six holding .....

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