CIVIL APPEAL NO. 6041 OF 2013
Appellant
Securities and Exchange Board of India
Respondent
Mb. Akshya Infrastructure Pvt. Ltd.
Appeal was directed against the judgment and final order of Securities Appellate Tribunal, Mumbai (SAT) dated 19th June, 2013.
The fundamental issue which arose in this appeal was whether an open offer voluntarily made through a Public Announcement for purchase of shares of the target company could be permitted to be withdrawn at a time when the voluntary open offer had become uneconomical to be performed.
In this case, the respondent herein, M/s Akshya Infrastructure Pvt. Ltd., was a part of the Promoter Group of MARS Limited (the Target Company’) had acquired shares in the years 2006-07, 2007-08 and 2010-11. As a consequence of the acquisitions, the acquirers breached the 5% creeping acquisition limit and were required to make a public announcement and comply with the provisions of Regulation 11 of the SEBI (SAST) Regulations, 1997. At that stage, the respondent did not comply with regulation 11 which resulted in SEBI taking the non-compliance into consideration.
On 20th October, 2011, the respondent made a voluntary open offer through a Public Announcement in major National Newspapers, under Regulation 11 of the Takeover Regulations.
The respondent by letter dated 29th March, 2012 addressed to SEBI, sought to contend that the open offer in question had become outdated, thereby outliving its necessity and, therefore, the same ought to be permitted to be withdrawn. It was also contended that the amount of Rs.17.46 crores deposited by the respondent in an escrow account towards the open offer ought to be allowed to be withdrawn. The letter emphasized that the public announcement was in nature of a voluntary open offer under Regulation 11 of the Takeover Regulations for consolidation of shareholding of the Promoter Group in the Target Company. The offer was aimed at presenting a commercially reasonable opportunity to the public shareholders to exit and at the same time it was meant to consolidate the shareholding of the promoter in the Target Company.
The Appellant by its letter dated 30/11/2012 conveyed its comments on the draft letter of offer and sought certain information. The comments of SEBI stating that failure to carry out the suggested changes in the Letter Of Offer (LOO) and violations of provisions of the regulations will attract appropriate action and that no other changes that those specified by SEBI should be carried out in the LOO. These comments were challenged by the respondent before SAT.
The respondent stated that due to the unjustified delay by SEBI in taking a decision as to whether to approve the draft letter of offer has rendered the entire open offer exercise academic and meaningless. It was claimed that the transaction envisaged by the respondent were no longer justifiable on any ground, including the grounds of economic rationale and commercial reasonableness. The respondent sought the withdrawal of open offer made under the public announcement in terms of Regulation 27 of the Takeover Regulations.
Respondent’s plea dismissed and the Appeal was allowed.
Grounds:
As per clause 27(1)(b) (c) and (d), a public offer, once made (whether voluntary offer or a triggered offer), can be permitted to be withdrawn in circumstances which make it virtually impossible to perform the public offer. Delay in taking final decision by SEBI in making its comments cannot fall under Regulation 27(1)(b). SEBI being a watchdog, ought not to act in a lackadaisical manner.
Accepting such withdrawals, would give filed day to unscrupulous elements in securities market to make public offer for acquiring shares in target company, knowing well that they can pull out when the prices of shares have been inflated, due to public offer.
The judgement of the Supreme Court in this matter is in relation to regulations 27 of the erstwhile SEBI takeover regulations,however the ruling will be equally relevant in the context of regulation 23 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011