TMI Blog2012 (7) TMI 1145X X X X Extracts X X X X X X X X Extracts X X X X ..... p, including the appellant, held 1,28,01,010 shares which amounts to 49.62 per cent shares in the equity capital of the company. The shareholding of the appellant in the target company for the quarter ending December 31, 2009 was 94,47,814 shares (36.62 per cent). The company proposed to issue equity shares on preferential basis to raise funds for its ongoing project of e-commerce and for payment of existing liabilities. After following due procedures under the Companies Act, the appellant was allotted 28,25,000 shares at par on preferential allotment basis on March 3, 2010. Subsequent to this preferential allotment, the shareholding of the appellant in the target company increased to 1,22,72,814 shares. With this allotment of shares to the appellant on preferential basis, while the total shareholding of the promoter group increased from 49.62 per cent to 54.59 per cent, the individual shareholding of the appellant in the promoter group increased from 36.62 per cent to 42.87 per cent. Thus, pursuant to the said preferential allotment, the shareholding and voting rights of the appellant in the target company increased by 6.25 per cent. On such increase, according to the Board, regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total promoter group was less than 5 per cent. In support of his contentions and interpretation of regulation 11(1) of the takeover code, learned counsel for the appellant has relied on the interpretive letter dated April 2, 2009 issued by the Board in favour of Suryajyoti Spinning Mills Ltd. and also on the order dated August 28, 2008 passed by the adjudicating officer in the case of Jamnalal Sons Private Limited. Under similar circumstances, in the case of Suryajyoti Spinning Mills Ltd., where the shareholding of the acquirers increased more than 5 per cent after preferential issue but overall increase in holding of the promoter group remained within 5 per cent, the interpretive letter expressed the view as under: 4.1 In terms of Regulation 11(1) of the Regulations, an acquirer (including persons in concert with him) who has acquired 15% or more but less than 55% shares or voting rights in a target company may acquire upto 5% shares or voting rights in a financial year ending 31st March, without making a public announcement in terms of the Regulations. In case of acquisitions through preferential allotment, the said creeping limit of 5% is reckoned with respect to enhanced equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of regulation 11(1) of the takeover code and is not binding either on the Board or on this Tribunal. With regard to the statement showing shareholding pattern of Bajaj Hindustan Limited, it was stated by the learned senior counsel that this statement is of no help to the appellant as this was never under scrutiny or examination by the Board and no order, either accepting or rejecting the said statement, is available on record. Learned senior counsel for the Board has also drawn our attention to the judgment of the Apex Court in the case of Swedish Match AB vs. Securities Exchange Board of India (Civil Appeal No. 2361 of 2003 decided on August 25, 2004) in which the Supreme Court has interpreted the provisions of regulation 11 of the takeover code and has observed that if the additional shares are acquired entitling an acquirer to exercise more than 5 per cent of the voting rights, the statutory embargo to the effect that the acquirer must make a public announcement to acquire shares in accordance with the Regulation comes into operation. The decision of the Apex Court is of 2004 which has not been considered either while issuing the interpretive letter dated April 2, 2009 or whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra), has observed that the pre-conditions attracting regulation 11 are: (i) that an acquirer had acquired shares in concert with another; (ii) such acquisition was more than 15% but less than 50% of the shares or voting rights in a company; (iii) in the event, the acquirer intends to acquire such additional shares or voting rights which would allow him to exercise more than 5% of the voting rights within a period of 12 months, public announcement is required to be made therefore. (iv) such acquisition of additional shares contemplates three different situations, i.e., the acquisition may be by acquirer himself or through or with the person acting in concert with the person with whom they had acquired shares earlier in concert with each other. (Emphasis supplied) The Court has also observed that regulation 11 does not brook any other interpretation. The Apex Court further observed that if additional shares are acquired entitling an acquirer to exercise more than 5 per cent of the voting rights, the statutory embargo to the effect that the acquirer must make a public announcement to acquire shares in accordance with the regulation comes into operation. 6. In view of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he adjudicating officer has failed to consider the mitigating factors and has imposed maximum penalty that could have been imposed under the law. The adjudicating officer has specifically recorded that the price of acquisition was above the prevailing market price and, therefore, it cannot be concluded that the appellant had made any unfair gain. He has also stated that the loss to the investors is a notional loss and not the actual loss. If the Board felt that non-compliance on the part of appellant will lead to loss to the investors, it could have very well issued a direction to the appellant to come out with an open offer as stipulated by regulation 11(1) of the takeover code. There is nothing on record to show that any such step was taken by the Board. The Board itself has chosen not to issue any direction to the acquirer to come out with a public offer under section 11(1) but decided to initiate adjudication proceedings and levied penalty. While deciding the quantum of penalty, the stand taken by the Board in its interpretive letter dated April 2, 2009 issued to Suryajyoti Spinning Mills Ltd. and the order dated August 28, 2008 passed by the adjudicating officer in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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