TMI Blog2009 (7) TMI 1386X X X X Extracts X X X X X X X X Extracts X X X X ..... arget company's debt and also for additional working capital requirements. A notice dated 3-3-2006 was issued under Section 81(1A) of the Companies Act to the shareholders, inter alia, informing them that an EGM would be held on 27-3-2006 for seeking their approval for allotment to the appellants on preferential basis 50,32,700 Part A convertible debentures of Rs. 100 each carrying interest of 7 per cent per annum which will be compulsorily and automatically converted within 18 months from the date of allotment into 3,41,20,000 equity shares of Rs. 5 each at a premium of Rs. 9.75 per share. Further, as regards Part B optionally convertible debentures, the appellants had the option to convert them into equity shares of Rs. 5 each at a conversion price of Rs. 50 per share. We are not concerned with these Part B optionally convertible debentures in the present appeal. The EGM was held as scheduled on 27-3-2006 and the resolutions were passed. For the issue of convertible debentures and optionally convertible debentures, the target company also made an application to BSE seeking its in-principle approval for the same in terms of its listing agreement. On 26-6-2006 BSE gave its in-p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r code got triggered and the appellants were required to make a public announcement to acquire further shares of the target company. They made a public announcement through YES Bank Ltd. as their merchant banker on 22-1-2008 (4 days before the conversion on 26-1-2008) to acquire shares from the public shareholders up to 2,52,95,496 fully paid-up equity shares of the face value of Rs. 5 each representing 20 per cent of the voting paid-up equity share capital of the target company at a price of Rs. 14.75 per fully paid-up equity share payable in cash. In the public announcement, the price at which the shares were offered to the shareholders was calculated at Rs. 14.75 per share. After the public announcement was made and within the time prescribed by Regulation 18 of the takeover code, the appellants through their merchant banker prepared a draft of the letter of offer and the same was sent to the Securities and Exchange Board of India (for short 'the Board') for its comments. The proviso to Regulation 18(2) provides that if the Board on receipt of the letter of offer specifies changes, if any, in the letter of offer, merchant banker and the acquirer shall carry out such chan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merchant banker not later than four working days of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein.... (2) In the case of an acquirer acquiring securities, including Global Depository receipts or American Depository Receipts which, when taken together with the voting rights, if any already held by him or persons acting in concert with him, would entitle him to voting rights, exceeding the percentage specified in regulation 10 or regulation 11, the public announcement referred to in Sub-regulation (1) shall be made not later than four working days before he acquires voting rights on such securities upon conversion, or exercise of option, as the case may be. 18. Submission of letter of offer to the Board.--(1) Within fourteen days from the date of public announcement made under regulation 10, 11 or 12 as the case may be, the acquirer shall, through its merchant banker, file with the Board, the draft of the letter of offer containing disclosures as specified by the Board. (2) The letter of offer shall be dispatched to the shareholders not earlier than 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne the EGM under Section 81(1A) of the Companies Act for seeking approval of the shareholders for allotment of Part A convertible debentures to the appellants on preferential basis. This meeting of the BoD was held on 3-3-2006 and, according to the appellants, it was this board meeting which authorised the preferential allotment to them and that the offer price was rightly calculated with reference to this date. In the alternative, Shri P.N. Modi learned Counsel for the appellants argued that the date for determining the offer price could be the date of the board meeting in which the BoD made the allotment of Part A convertible debentures to the appellants. This meeting was held on 21-7-2006 and, according to Shri Modi, it was on this day when the preferential allotment of convertible debentures was made to the appellants and, therefore, this could be the date with reference to which the offer price may be calculated. He referred to the definition of shares in Clause (k) of Regulation 2(1) of the takeover code and contended that the compulsorily convertible debentures which entitled the appellants to receive shares with voting rights were 'shares' within the meaning of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceding the date of public announcement is to be worked out and the highest of the two shall be the offer price. It is thus clear that this Clause pitches the offer price with reference to the date of public announcement made by the acquirer. Sub-regulation (11) of Regulation 20 requires the letter of offer to contain justification or the basis at which the price has been worked out. Explanation (it) to this sub-regulation is relevant to the price determination under Sub-regulation (4) of Regulation 20 and is an exception thereto. It provides that where the public announcement is made pursuant to acquisition by way of firm allotment in a public issue or preferential allotment, then the offer price under Sub-regulation 4(c) is to be worked out with reference to twenty-six week period preceding the date of 'the board resolution which authorized the firm allotment or preferential allotment'. In the case before us, the compulsorily convertible debentures were allotted to the appellants on a preferential basis after the shareholders of the target company had authorised the BoD in the EGM held on 27-3-2006. The offer price has, therefore, to be determined with reference to twenty- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs authorise the preferential allotment when the shareholders had yet to consider the issue in the EGM which was to be held later. We have, therefore, no hesitation in rejecting the first contention of Shri Modi. Again, we find no merit in his second contention either. July 21, 2006 is the other date to which reference has been made by the learned Counsel for the appellants. He contends that on this date the BoD in their meeting had allotted the compulsorily convertible debentures to the appellants after obtaining sanction from the shareholders. Referring to Clause (k) of Regulation 2(1) of the takeover code, he argued that these debentures which entitled the appellants to receive shares with voting rights were shares within the meaning of the takeover code and, therefore, 21-7-2006 is the date on which the BoD authorised the preferential allotment. The argument looks attractive but we have not been able to persuade ourselves to accept the same. Undoubtedly, the compulsorily convertible debentures were allotted to the appellants by the BoD in their meeting on 21-7-2006 and even though these debentures were shares for the purposes of the takeover code, they did not carry any voting ..... X X X X Extracts X X X X X X X X Extracts X X X X
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