TMI Blog2020 (2) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... r Regulations 1997 in directing two different persons/entities to make an open offer at different moment of time. The promoters violated the listing regulations and were involved in fraudulent transfer of shares to itself. They were asked to make an open offer. The appellants, on the other hand, violated Regulation 10, 11 and 12 of the Takeover Regulations 1997 and were thus required to make a public announcement. We find that the direction to make an open offer was pursuant to violation of different provisions of law and violation at different point of time. No doubt Regulation 44 of the Takeover Regulation 1997 provides consequences of the breach and gives flexibility to the WTM to enforce Regulation 11 by way of several directions and, one such direction is, to make an open offer for acquiring the shares of the Target Company. The guiding principle for issuance of a direction under Regulation 44 is the interest of the investors and securities market. Had the appellants made the open offer within a period of 4 days from the date of acquisition in accordance with the Takeover Regulations 1997 and complied with the time line specified therein, the formalities could have been com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend paid, if any. 4. The facts leading to the filing of the present appeals are that the appellant Baader is a licensed Bank regulated by the Bundesanstalt fur Finanzdienstleistungsaufsicht (BaFin) in Germany and is one of the leading financial service providers in Germany. Baader Bank is a member of all the German regional stock exchanges, Xetra Frankfurt and Xetra Vienna, EUREX Frankfurt, SIX Swiss Exchange, SWX Europe, London NYSE Euronext. The shares of the Baader are listed on the Frankfurt Stock Exchange. Baader made its foray into the Indian market in 2006 by investing more than ₹ 40 crore in the Target Company which was a stock broker registered with SEBI. 5. The appellant GIS is an Oman based Company listed at the Muscat Securities Market. At the time of investment in the Target Company, GIS was engaged in investments and financial services. Since then it has restricted its operations and is now an investment holding Company while the financial services business are owned by its subsidiary, Gulf Baader Capital Markets SAOC (GBM), a joint venture between GIS and Baader. 6. The Sareshwala family are the promoters of the Target Company. Mr. Zafar Sareshwal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any were listed. It was contended that the promoters represented to the appellants that BSE after seeking appropriate clearances from SEBI would issue the exemption and thereafter would list the shares. The promoters also represented that they would obtain the necessary exemption from BSE. It was urged that on account of the aforesaid belief, the appellants did not make the open offer. 14. It was contended that the promoters were running a successful stock broking business in Mumbai and Ahmedabad and believed that the Target Company were well versed with SEBI laws and the Takeover Regulations 1997. On the other hand, it was urged that the appellants, being foreign investors, were not acquainted with the Indian laws and therefore relied upon the promoters to take the exemptions from the appropriate authorities. It was further contended that when the shares of the appellants were not listed on the Stock Exchange after more than one year of its acquisition, and in view of the audit report issued by the statutory auditors for the FY 2007-08, the appellants decided to have a legal due diligence carried out in relation to the operations of the Target Company. This due diligence was ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making an open offer from BSE cannot be believed. The appellants had a legal opinion with them and knew fully well that the application for exemption was required to be filed before SEBI and not before BSE. The appellants for reasons best known to them failed to file any application seeking exemption from making an open offer. Further, there is nothing on record to indicate that the appellants have filed any criminal or civil case against the promoters in respect of the alleged fraud, breach of trust, or misrepresentation. 18. In this regard it may be stated here that from a bare reading of Regulation 3 and 4 it is clear that an application seeking exemption from making an open offer has to be made before making the acquisition and not after making the acquisition. 19. The contention that the appellants were ignorant of the SEBI laws or the Takeover Regulations 1997 is unacceptable and cannot be believed. The appellants Baader is a leading financial services provider in Germany and GIS offers comprehensive range of investment services in Oman. Both the appellants have a financial and securities market background and are professional investors who knowingly invested over ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 25 lakh. 22. The learned counsel, thus, contended that when the promoters of the Target Company had played such a serious fraud manipulating the register of members with its integrity being foundationally undermined, the direction of SEBI to make an open offer would only benefit the Sareshwalas as they have been found to transfer fake shares to itself or its front entities. It was contended that if the appellants were to make an open offer the promoters of the Target Company would participate and would thus benefit from the wrongdoings done by them. 23. We find that the said submission is untenable. The WTM has factored this aspect into consideration while passing the impugned order. The WTM while directing the appellants to make an open offer have restrained the promoters, their associates and family members from tendering their shares. We have further been informed by the respondent that the fraudulently transferred 80,800 shares of 252 shareholders to the promoters have been cancelled and the said shares have been returned to the 252 shareholders. 24. Thus, the grievance of the appellants that the open offer would only benefit the Sareshwalas/promoters is thus misc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... soli namely, Zafar Yunus Sareshwala and Uves Yunus Sareshwala have been directed to make a public offer through a merchant banker to acquire shares from public shareholders by paying them the price as determined in the manner prescribed in regulation 23 of the delisting regulations framed by the Board. The direction in para 12(d) is only consequential and if, on the implementation of the direction in para 12(c), the public shareholding of Parsoli falls below the minimum required to be maintained, then it has to be delisted compulsorily. 28. Thus the said direction of compulsorily delisting was only consequential and contingent upon the happening of certain events as stated in the order of WTM. The contention that the delisting has been ordered since the register of members of the Target Company was compromised is baseless. As held earlier, there is no evidence of tampering with the register of members. The open offer was directed because the promoters were fraudulently trying to transfer shares in their names or its entities. Thus the contention raised by the appellants has no merit and is rejected. 29. It was lastly contended that the remedial measures/direction given by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egulation 12 as well. These provisions make the acquisition conditional upon a public announcement being made. The primary object of the takeover code is to provide an exit route to the public shareholders when there is substantial acquisition of shares or a takeover. This right to exit is an invaluable right and the shareholders cannot be deprived of this right lightly. It is only when larger interest of investor protection or that of the securities market demands that this right could be taken away. Therefore, as a normal rule, a direction to make a public announcement to acquire shares of the target company should issue to an acquirer who fails to do that. The Board need not give reasons as to why such a direction is being issued because that is the mandate of Regulations 10, 11 and 12. However, if the issuance of such a direction is not in the interest of the securities market or for the protection of interest of investors, the Board may deviate from the normal rule and issue any other direction as envisaged in Regulation 44 of the takeover code. In that event, the Board should record reasons for deviation.' 31. We are in agreement with the decision of the Tribunal in Ni ..... X X X X Extracts X X X X X X X X Extracts X X X X
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