RAGHU HARI DALMIA & ORS v. SEBI [SAT]

Increase in the shareholding of the promoters as a result of the buyback of shares by the Company in which the promoters did not participate, will not constitute acquisition of shares by the promoters within the meaning of takeover regulations.

Decided on 21^st November, 2011

Facts :

• The Appellants herein were the promoters/members of promoter group OCL India Ltd (“Company”).
• The company announced a scheme to buy back its equity shares as a result of which the percentage shareholding of the Appellants in the company increased from 62.56 per cent to 75 per cent of the total paid up capital.
• On October 9, 2006 a writ petition was filed in the Delhi High Court against the company stating that due to the increase in the percentage shareholding of the Appellants has triggered regulations 11(1) and 11(2) of the SEBI(Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the takeover code) which required to make a public announcement to acquire shares.
• The Delhi High Court directed SEBI (“Board”) to treat the same as a representation and to deal with it in accordance with law.  Consequently, the Board issued a show cause notice against the Appellants directing them to make a public announcement .
• After affording an opportunity of hearing to the Appellants, the Board found the Appellants to be guilty. Feeling aggrieved by the aforesaid order, the Appellants filed an Appeal before the Tribunal.

Decision: Appeal allowed.

 Reason:

 In this case the Appellants had made no acquisition of shares or voting rights and that it was only as a consequence of the buyback that their voting rights increased.

• The word “acquire” as used in regulation 11(1) is a verb and according to Black’s Law Dictionary (Sixth Edition) it means “To gain by any means, usually by one’s own exertion; to get as one’s own; to obtain by search, endeavour investment, practice or purchase”.
• A non-promoter shareholder may increase his percentage of shareholding without participating in the buy back, over which he has no control. In such an event he would be burdened with an onerous liability to make a public announcement.
•  It is well settled principle of law that a provision ought not to be interpreted in a manner which may impose upon a person an obligation which may be highly onerous or require him to do something which is impossible for no action of his.

In this view of the matter, it was opined that passive acquisition does not attract the provisions of regulations 11(1) of the takeover code.