TMI Blog2014 (9) TMI 1154X X X X Extracts X X X X X X X X Extracts X X X X ..... fide belief rather than as an attempt to consolidate their shareholding in violation of Takeover Regulations,1997. Further, the acquisition with regard to which fault is found in this case is only for 27,633 shares (0.40%) of share capital of the Target Company The noticees are now entitled to avail the benefit of further creeping acquisition of 5% in every financial year. In this case, the noticees had acquired the shares which are found to be in violation of regulation 11(2) of the Takeover Regulations, 1997 at an average price of ₹ 97.14 per share. If the public announcement were to be directed under regulation 44 read with regulation 11(2) of the Takeover Regulations, 1997, the open offer would be at price of ₹ 129.05 per share (calculated in terms of regulation 20 of the Takeover Regulations, 1997 alongwith interest @ 10% per annum thereon) whereas the present average market price of the shares of the Target Company considering the trading on BSE and NSE in the last six months is ₹ 280/per share. Thus, the public announcement, if made now would be a mere formality. Direction to sell 27,633 shares of the Target Company in small lots on the concerned stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idham Industries Pvt. Ltd. acquired 3,47,477 shares (constituting 4.99% of the share capital) of the Target Company. Consequently, the collective shareholding of the promoters had increased from 55% to 59.99% of the share capital of the Target Company. On April 06, 2009, Madhusudan Jhunjhunwala - HUF further acquired 19,915 shares (0.287%) at a price of ₹ 39 per share. Consequently, the promoters' collective shareholding in the Target Company increased to 60.28% i.e. more than the permissible threshold limit of 5% prescribed under regulation 11(2) of Takeover Regulations, 1997. Thus, prima facie, these acquisitions had triggered the obligation to make public announcement in accordance with the provisions of regulation 11(2) read with regulation 14(1) of Takeover Regulations, 1997 within 4 working days from April 6, 2009. 3. Since the promoters of the Target Company who were alleged to be acting in concert with respect to the above acquisitions had failed to make the requisite public announcement a Show Cause Notice (SCN) dated March 28, 2014, was issued calling upon them to show cause as to why suitable directions under sections 11, and 11B of the SEBI Act, regulations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere also made to the stock exchanges within the prescribed time. v. Till August 6, 2009, the above ambiguity with respect to applicability of regulations 11(2) was clarified by SEBI when it issued circular dated August 6, 2009, wherein it was inter alia, clarified that an acquirer may acquire additional shares or voting rights upto a maximum of 5% voting rights in a target company in one or more tranches, without any restriction on the time-frame. vi. It is only on subsequent to issuance of this interpretative circular, it became clear that the acquisition of 5% was permitted on a one time basis. The Noticees were unaware about the exact permissible limit under regulation 11(2) till the issuance of this circular. vii. The acquisitions beyond 55% were thus under bona fide belief rather than as an attempt to consolidate the shareholding in violation of law. Even, the Takeover Regulations, 2011 allows a creeping acquisition limit of 5% without being under obligation to make an open offer in every financial year. viii. In view of the above, the Noticees have requested SEBI to take a lenient view in the matter and drop the proceedings against them. 5. I have considered th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities Contracts (Regulation) Rules, 1957, or in terms of any relaxation granted from strict enforcement of the said rule, this sub-regulation shall apply as if for the words and figures seventy five per cent. (75%)‟, the words and figures ninety per cent. (90%)‟ were substituted. 7. In terms of the above regulation 11(1), an acquirer holding 15% or more but less than 55% of the shares or voting rights in a target company, in which mandatory minimums public shareholding limit was 25%, could acquire additional 5% shares or voting rights in any financial year ending on 31st March. This acquisition of 5% in every financial year is commonly called as 'creeping acquisition'. However, in terms of above provision of regulation 11(2) an acquirer, holding 55% or more but less than 75% shares or voting rights in such target company could acquire any additional shares or voting rights therein only by way of an open offer by making a public announcement in accordance with the Takeover Regulations, 1997. On harmonious construction of these two provisions, the provisions of regulation 11 (1) were being applied such that an acquirer holding less than 55% shares or voting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very financial year, etc. In view of such doubts and ambiguities, SEBI issued interpretative circular dated August 06, 2009 under regulation 5 of the Takeover Regulations, 1997 for removal of difficulties in interpretation of the second proviso to regulation 11(2). The said circular provided as under:- SEBI has been receiving representations from market participants / listed companies with respect to the interpretation of the proviso inserted by the aforesaid amendment. After examining these representations, it is hereby clarified that a) The acquisition, within the limit of five per cent (5%) under the second proviso to sub-regulation (2) of regulation 11, may be made by an acquirer who, together with persons acting in concert with him, holds fifty five per cent (55 %) or more but less than seventy five per cent (75 %) of the shares or voting rights in the target company ; b) The acquirer together with persons acting in concert with him, holding shares or voting rights as specified at (a) above, may acquire additional shares or voting rights upto a maximum of five per cent (5 %) voting rights in the target company in one or more tranches, without any restriction on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith regard to their acquisitions on or before August 06, 2009. 14. I further note that as on August 06, 2009, the noticees collectively held 43,73,167 shares (constituting 62.92% of shares capital) of the Target Company and two of the promoters viz; Madhusudan Jhunjhunwala- HUF, and Satidham Industries Pvt Ltd. acquired additional 27,633 shares (0.40%) in the Target Company from August 06, 2009 till September 23, 2011. These acquisitions were admittedly made when doubts with regard to applicability of regulation 11(2) post the above amendment were removed on August 06, 2009. Thus, they cannot feign ignorance about applicability of regulation 11(2) as clarified by circular dated August 06, 2009 and cannot be given benefit of doubt with regard to these acquisitions. Since these acquisitions were clearly in breach of regulation 11(2), the consequences of this breach should follow. In this regard, I note the Hon'ble SAT vide order dated September 08, 2011 in the matter of Nirvana Holdings Private Limited vs. SEBI (Appeal no. 31/2011) observed as follows: It must be remembered that whenever an acquirer violates Regulation 10, 11 or 12 of the takeover code by not making a publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquisitions were through open market purchase in normal segment on the stock exchange and post acquisition shareholding of the noticees remained below 75%} were complied with in this case. The most of the acquisitions had happened when the doubts and ambiguities as mentioned above were prevailing in the market and such acquisitions were under bona fide belief rather than as an attempt to consolidate their shareholding in violation of Takeover Regulations,1997. Further, the acquisition with regard to which fault is found in this case is only for 27,633 shares (0.40%) of share capital of the Target Company. I further, note that subsequently, regulation 3(2) of the Takeover Regulations , 2011, which came into force on October 23, 2011, permits creeping acquisition of 5% by any acquirer who holds 25% or more shares or voting rights in a target company during every financial year. Accordingly, the noticees are now entitled to avail the benefit of further creeping acquisition of 5% in every financial year. In this case, the noticees had acquired the shares which are found to be in violation of regulation 11(2) of the Takeover Regulations, 1997 at an average price of `97.14 per share. If ..... X X X X Extracts X X X X X X X X Extracts X X X X
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