TMI Blog2008 (10) TMI 730X X X X Extracts X X X X X X X X Extracts X X X X ..... this appeal under section 15T of the Securities and Exchange Board of India Act, 1992 and Regulation 46 of the Regulations. The main grievance of the appellant is against the direction contained in the impugned communication whereby respondent no.1 has directed that the price offered in the public announcement for acquisition of 20 per cent equity shares of the target company should be recalculated by reckoning the date of the public announcement as the reference date in terms of Regulation 20 of the Regulations. The appellant is also aggrieved by the direction contained in the impugned communication to the effect that the letter of offer should be dispatched to the shareholders within 10 days after carrying out necessary changes and that the offer should open within 5 days thereafter failing which the appellant would be liable to pay interest at the rate of 10% per annum to all the shareholders for the delay in payment. 2. We may now notice the facts of the case in brief. In a meeting held on 16.12.2006, the Board of Directors (BoD for short) of the target company decided to convene an extraordinary general meeting (EGM) of the members of the company to consider, inter alia, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the offer document, wherever required. 4. Offer price and Financial arrangement: a. Under point 7 Re-calculate the offer price by reckoning the date of PA as the reference date in terms of regulation 20 and offer the revised price as re-calculated to all the shareholders. Further, necessary changes in terms of the escrow account and other disclosures may be made at all the relevant places in the offer document. 3. The dispute between the appellant and Respondent no.1 is essentially about the method of pricing of the public offer. However, both sides agree that the price in this case is to be determined in accordance with Regulation 20(4) and Explanation (ii) below Regulation 20(11) of the Regulations which are reproduced below:- Offer Price 20. (1) The offer to acquire shares under regulation 10, 11, or 12 shall be made at a price not lower than the price determined as per sub-regulations (4) and (5). (2) . (3) .. (4) For the purposes of sub-regulation (1), the offer price shall be the highest of- (a) the negotiated price under the agreement referred to in sub regulation (1) of regulation 14; (b) price paid b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 The average of the weekly high and low of the closing prices at BSE in the 26 weeks preceding the date of Board meeting which authorized the preferential Allotment Rs.15.16 4 The average of the daily high and low prices at BSE in the 2 weeks preceding the date of Board meeting which authorized the preferential allotment Rs.17.98 5 The price at which Equity Shares are allotted to the Acquirer, upon exercise of Warrants allotted on a preferential basis. Rs.19.00 6 Highest of the above Rs.19.00 .. The appellant has taken the date of the meeting of the BoD which made the allotment of warrants as the reference date in items 3 and 4 in the above table. Respondent no.1 has directed the appellant to change this reference date of 16.12.2006 to the date of the public announcement which was 21.6 2008. This change, according to the appellant, would impose an additional liability of more than Rs. 24 crores on him since the price of the scrip went up subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Defending the impugned directions, the learned senior counsel for respondent no.1 pointed out that the case of the appellant had been argued entirely on the basis of the understanding that it was the acquisition of warrants by the acquirer that triggered Regulation 11(1) of the Regulations and led to the public offer. According to him, this is not correct and it is the acquisition of voting rights by the acquirer with the issue of shares on conversion of warrants that the Regulations are triggered. On this basis, the learned senior counsel argued that two views are possible. Since the Regulations are triggered only with the acquisition of shares, a view can be taken that the date of allotment of shares to the acquirer by the BoD should be the reference date for the purpose of computing the offer price. An alternative view could be that the preferential allotment was only of warrants and not of shares; in other words, there was no preferential allotment of shares. In that case, the pricing of the public offer would be governed solely by Regulation 20(4)(c) and Explanation (ii) below Regulation 20(11) would not come into the picture at all. The reference date should, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of warrants. 7. The next question to be addressed in this case is what should be the date with reference to which the offer price is to be determined. Respondent no.1 has directed the appellant to treat the date of the public announcement as the reference date on the premise that the allotment of shares to the appellant on conversion of the warrants was not a preferential allotment and, therefore, pricing of the public offer should be strictly on the basis of Regulation 20(4)(c). We do not agree with this proposition. The target company initially made a preferential allotment of warrants to the appellant as approved by the members of the target company in the EGM held on 15.1.2007. The warrants had a lock in period of three years and could be converted to shares upon exercise of option by the appellant at any time within 18 months from their date of issue. The allotment of these converted shares to the appellant by the BoD after the appellant exercised his option was thus clearly on a preferential basis. The allotment of the converted shares was made in two tranches. The allotment of 5,75,000 shares in the first tranche did not trigger the Regulations but the second tranche of a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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