TMI Blog2008 (8) TMI 1016X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulations 1992 ('Insider Trading Regulations') and the Act. Respondent No. 1 and/or his relatives are directors and/or shareholders of respondent Nos. 5 to 8. Respondent Nos. 1 to 8 as pointed out hereinafter, are covered by the definition of 'insider' for the purposes of the Insider Trading Regulations. 1.2 Respondent No. 9 Emami Ltd., is a company incorporated under the provisions of the Act and has its registered office at the address mentioned in the cause title hereinabove. Respondent Nos. 10 to 13 are companies incorporated under the provisions of the Act. It is alleged that respondent No. 9 has illegally acquired 1,90,441 equity shares of the petitioner-company from respondent Nos. 1 to 8 in violation of the provisions of the Insider Trading Regulations and in violation of the provisions of the Takeover Regulations. Respondent Nos. 10 to 13 are said to be persons acting in concert with respondent No. 9 as envisaged in Section 2(e) of the Takeover Regulations. Further, respondent No. 9 has acquired the said 1,90,441 shares of the petitioner in violation of the provisions of Section 372A of the Companies Act, 1956 ('the Act'). The said acquisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which are acquired from the open market under open offer, there is no need or I do not find any need to intervene in the matter. 2.1 The respondent No. 9 has acquired various lots of shares from 7-9-2007 the 9-5-2008 constituting 3.9 per cent of the total paid-up capital of the petitioner-company. Thereafter, on 28-5-2008 the respondent No. 9 has acquired 10.92 per cent of the shares from some of the Vaidya family members and again on 29-5-2008 he has acquired 12.70 per cent of the shares which have been declared as part of the open offer and for which he has made a statement through his senior counsel that he will not vote and which is also mentioned in his public advertisement issued on 21-6-2008. Therefore, the amount of voting right that Emami management, i.e., representative of respondent No. 9 will be exercising at the shareholders meeting of the petitioner, is 14.82 per cent. While hearing the mentioned matter it was specifically asked to the senior counsel appearing for the petitioner to explain what way the 14.82 per cent shareholders can create a problem in shareholders meeting. He was unable to give any specific reply. The Parikh group who are managing the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their pleadings quickly and submit their arguments on 20-8-2008. Once again senior counsels present for both petitioner and respondents argued only for interim relief and not on main petition. 3. Mr. V.V. Tulzapurkar, senior advocate, appearing for the petitioner, argued only on four points. They are as follows: (a) Breach of Takeover Code. (b) Breach of insider trade. (c) Violation of Section 372A of the Act. (d) Violation of Sections 108A and 108G of the Act . He submitted that as per the provisions of regulation 14 of the Takeover Regulations, the existence of a written agreement to acquire shares, voting rights or control of a listed company is not must for triggering the obligation of making of an open offer by the acquirer. Pursuant to the provisions of regulation 14 of the Takeover Regulations even in case of an oral agreement to acquire shares, voting rights or control of a listed company, the acquirer has to make an offer under the provisions of the Takeover Regulations. In this regard, he submitted that as is apparent from the facts stated above, the agreement to acquire 1,90,441 shares of the petitioner was arrived at on 28-5-2008 or anytime befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty as regulation 7 was not mandatory like regulation 10 which provided a legal bar to acquire shares beyond 15 per cent without making public offer could not be accepted. The words shall disclose in regulation 7 read in the light of the scheme of the Regulations indicated that the provision was a mandatory requirement. Hence, the requirements of 7 were mandatory and any act in violation of a mandatory provision was invalid. Another contention raised by the petitioners is that the adjudicating officer of the SEBI is already investigating this matter in terms of Section 15(1) of the SEBI Act and in the event the adjudicating officer comes to the conclusion that the provisions of regulation 7 have not been complied with, the SEBI can levy penalty and if the penalty is paid by the petitioners, it cannot be contended that the shares acquired by them are illegal. He further referred to Aska Investments (P.) Ltd.'s case (supra) - In this case, High Court of Calcutta observed as follows: On a plain reading of regulation 7 it would appear that the regulation clearly stipulates acquirer whereas regulation 10 under Chapter III includes specifically persons acting in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board of directors of the petitioner since September 2005. He is, therefore, as 'insider' as defined under the Insider Trading Regulations. Mr. Tulzapurkar further explained that the respondent No. 1 attended as an invitee of the Board meeting where the Board of directors have discussed the approval of accounts and future sales plan as well as review of the financial position for the year 2007-08 and confirmation of various circular resolutions and codes of conduct pursuant to clause 9 of the listing agreement. 3.3 As per him the respondent No. 1 was in possession of unpublished price sensitive information relating to the petitioner and, therefore, he cannot participate in the market, he cannot deal in securities of the petitioner without pre-clearance procedure, providing undertaking and other requirements of the code of conduct of the petitioner. Respondent Nos. 1 to 8 have violated the provisions of regulations 3 and 3A of the Insider Trading Regulations and also the code of conduct adopted by the petitioner. Thereafter Mr. Tulzapurkar has taken up the point of the contravention of Section 372A. The senior advocate submitted that the acquisition of the 1,17,908 shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulations, the necessary action can be taken by SEBI if there is a violation of Takeover Code. He specifically quoted regulation 44(d) which is as follows: 44. Without prejudice to its right to initiate action under Chapter VI-A and Section 24 of the Act, the Board may, in the interest of securities market or for protection of interest of investors, issue such directions as it deems fit including: (d) directing the target company or the depository not to give effect to transfer or further freeze the transfer of any such shares and not permit the acquirer or any nominee or any proxy of the acquirer to exercise any voting or other rights attached to such shares acquired in violation of regulation 10, 11 or 12; From the above it can be seen that SEBI can direct the targeted company to freeze the voting rights or to transfer or not to transfer shareholding in favour of acquirer. All the prayers of the petitioner in the present petition are covered in this regulation 44(d) of the Takeover Regulations of the SEBI. Further, Mr. Sarkar referred to the case law - Hitachi Home Life Solutions Inc. v. SEBI [2006] 65 SCL 339 (Mum.) wherein it was argued that the Takeover Code ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CPC and that pre-existing common law right is not taken away by the provisions of Sections 15Y and 20A also cannot be accepted. It is because the common law right of rectification which is sought to be enforced and exercised by the plaintiff in the present case arises out of the right conferred on the basis of Takeover Regulations and once the provisions of the Takeover Regulations are invoked then the entire jurisdiction by virtue of the provisions of Sections 15Y and 20A is exclusively conferred on the SEBI authorities. Learned Counsel's argument that under Section 15Y the only jurisdiction conferred on an adjudicating officer is to penalise the party and not for rectification also cannot be accepted because the provisions of Section 15Y are to be read together with Section 20A of the SEBI Act which, inter alia, confers a power on the Board to pass any order which includes directions as contemplated under regulation 44 of the Takeover Regulations. 4.2 Mr. Sarkar, appearing for respondent No. 9, concluded his arguments with a prayer to reject the petition as it is not within the jurisdiction of CLB to determine the Takeover Code violations, etc., and also what the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice from a shareholder to appoint 5 more members as directors on the Board of directors of the petitioner-company. 3. The petitioner-company has already moved SEBI on 23rd June, 2008 for so-called violation of Takeover Code, etc., and without outcome of that petition, has filed the present petition before the CLB which in his opinion is mala fide. He prayed that as the petitioner has come before this Bench with uncleaned hands the petition be dismissed without any further delay. 6. Mr. J.J. Bhatt, senior advocate, appearing for respondent Nos. 12 and 13, stated that he supports the arguments of both Mr. Sarkar and Mr. Mukarjee and he prayed that the petition be dismissed without any interim relief. At this juncture of the hearing the petitioner's counsel has stated that he is not pressing for voting rights to be frozen for respondent Nos. 10 to 13 who are having 31,419 shares which is approximately 4 per cent of the equity capital of the petitioner. 7. The counsel appearing for respondent No. 27 has argued that his client is only a stock broker and is not interested in takeover, etc., of the present petitioner and respondents. He has purchased the shares in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 9 has committed that as advertised in his offer on 2-6-2008 he will not be exercising the voting rights of the shares acquired by him on 29-5-2008 which is to the tune of 12.70 per cent because it is subject to SEBI's approval/clearance. During the hearing the petitioner's counsel has stated that he is not pressing for voting rights to be frozen for respondent Nos. 10 to 13 which is of 31,419 shares which is approximately 4 per cent of the equity capital of the petitioner. This leaves roughly 10.8 per cent of the equity shareholding which is in the possession of respondent No. 9 with voting rights that can be exercised by him, Against this 10 per cent Zandu's themselves are said to be having approximately 33 per cent of the equity capital. 10. Most of the allegations made by the petitioner are yet to be investigated and to be crystallised/confirmed as violations of the law. The allegations of violation of Takeover Code and Insider Trading is to be decided by the SEBI and similarly the allegations of investment beyond the limit under Section 372 of the Act and acquisition of shares creating thereby a dominant undertaking under Section 108A of the Act are to be in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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