Section 15 Z of the Securities and Exchange Board of India Act, 1992 = application for withdrawal of the public offer to acquire shares of the Golden Tobacco Ltd. in terms of public announcement (PA) dated November 12, 2009 under the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the Takeover Regulations). – Thus, there is no justification for automatic withdrawal from public offer without clear prejudice to the acquirer to the extent of rendering the carrying out of public offer impossible. In the facts of the present case, we do not find any ground to interfere with the concurrent finding of the SEBI and the SAT that request for withdrawal from public offer was not justified. = PRAMOD JAIN AND ORS Vs. SEBI ANIL R. DAVE, ADARSH KUMAR GOEL 07/11/2016 = 2016 Nov. http://judis.nic.in/supremecourt/imgst.aspx?filename=44283

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.9103 OF 2014

PRAMOD JAIN AND OTHERS

…APPELLANT(S)

VERSUS

SECURITIES AND EXCHANGE BOARD OF INDIA       …RESPONDENT(S)

J U D G M E N T

ADARSH KUMAR GOEL, J.

1.    This appeal has been preferred under Section 15 Z  of  the  Securities

and Exchange Board of India Act, 1992  (the Act)  against  order  dated  6th

August, 2014 passed by the Securities Appellate Tribunal,  Mumbai (the  SAT)

in Appeal No.111 of 2012.  The SAT  upheld  the  order  of  Securities  and

Exchange Board  of  India  (SEBI)  dated  13th  April,  2012  rejecting  the

application of the appellants for withdrawal of the public offer to  acquire

shares of the Golden Tobacco Ltd.  in  terms  of  public  announcement  (PA)

dated  November  12,  2009  under  the  provisions  of   SEBI   (Substantial

Acquisition  of  Shares  and  Takeovers)  Regulations,  1997  (the  Takeover

Regulations).

Facts :

2.    Golden Tobacco Limited (the target company) is a  company  having  its

registered office at Tobacco House, S.V. Road, Vile Parle (West),  Mumbai  –

400 056.  The equity shares of the target company are listed on  the  Bombay

Stock Exchange Limited (BSE)  and  the  National  Stock  Exchange  of  India

Limited (NSE).

3.    On November 12, 2009, Mr. Pramod Jain and  Pranidhi  Holdings  Private

Limited (the acquirers) along with J.P. Financial Services  Private  Limited

(the person acting in concert (PAC) made PA through  VC  Corporate  Advisors

Private Limited (the merchant banker) in accordance with regulations 10  and

12 read with regulation 14.  As on the date of the  PA,  the  acquirers  and

PAC collectively held 11, 39,  002  equity  shares  (6.47%)  of  the  target

company.  The PA was voluntarily made  by  the  acquirers  and  the  PAC  to

acquire 44, 02, 201 equity shares (25%)  of  the  target  company  from  its

equity shareholders at a price of Rs.101/-  (the  offer  price)  per  equity

share.  At that time, market price of the target company shares was Rs.109/-

per share.  Networth of the target company as  on   31st  March,  2009  was

Rs.42.44 crores.  Net current assets were Rs.134.4 crores  and  gross  sales

were Rs.173.68 crores.  The offer was for hostile  takeover  of  the  target

company.  The PA mentioned that  the  prime  object  of  the  offer  was  to

acquire substantial shares/voting rights accompanied  with  the  change  and

control of the management of the target company.   The  acquisition  was  in

the nature of strategic investment for diversification  and  growth  and  to

reap the benefit of corporate opportunities.   The  draft  letter  of  offer

also mentioned that the PAC had advanced loan against shares of  the  target

company and on account of default, it acquired the said shares  representing

5.05% of the equity share capital.  The  acquirers  and  the  PAC  had  also

acquired 71034 equity shares at highest and average price of  Rs.100.15  and

Rs.89.13 respectively.  Thus, the acquirers and the PAC had 6.47  %  of  the

issue of equity share capital as on the date of PA.  The background  of  the

acquirers mentioned in the DLO was that Mr. Pramod Jain was  prime  Director

of PHPL and had experience in financial and consultancy services.

4.    The acquirers and PAC, through the merchant banker,  filed  the  draft

letter of offer (DLO) with SEBI on November, 26, 2009.   During  examination

of the DLO, certain complaints were received by SEBI against  the  acquirers

and PAC as well as against the  target  company  and  its  promoters.    The

appellants (the acquirer) in their complaints to SEBI and other  proceedings

including petition under Section 397/398 of the  Companies  Act  before  the

Company Law Board and a suit before the Civil Court  inter  alia  questioned

the transaction for joint development of Vile Parle  Property  in  terms  of

Memorandum of Understanding (MoU) dated  26th  September,  2009  with  Sheth

Developers and Suraksha Realty Ltd.  Various correspondences were  exchanged

between SEBI and the merchant banker, acquirers,  PAC,  the  target  company

and certain other entities in respect of such complaints.

5.    The  appellants  vide  application  dated  8th  October,  2011  sought

permission to withdraw the offer under Regulation 27(1)(d).   The  stand  of

the appellants in the said letter was  that  the  SEBI  had  not  taken  any

decision on the DLO in two years during which period the management  of  the

target company had systematically siphoned off  its  coffers,  depleted  its

valuable fixed assets and  eroded  its  net  worth  substantially  with  the

intention of making it a shell company.  This has defeated the  very  object

of the offer,  without  any  fault  on  the  part  of  the  acquirers.   The

management had availed huge high cost borrowing  from  banks  and  financial

institutions against its property, including 18.7 per  cent  shares  out  of

the promoters’ shareholdings.  Disputes were pending before  the  arbitrator

arising out of default in payments.  Most  valuable  assets  of  the  target

company had been encumbered in violation of  SEBI  regulations  and  against

the interest of minority shareholders and the acquirers.  Since the date  of

PA,  financial   position   of   the   target   company   had   deteriorated

substantially.

Order of SEBI

6.    The SEBI  vide  order  dated  13th  April,  2012  declined  to  permit

withdrawal of the PA but observed that alleged violation  of  Regulation  23

by the target company shall be  investigated.   It  was  held  that  as  per

Regulation 23(1), the target company was entitled to dispose of  its  assets

with the approval of the shareholders even  after  the  PA.   Correspondence

which the SEBI had with the acquirers  was  referred  to,  with  a  view  to

explain the delay in deciding the DLO.  It was observed that  the  SEBI  had

informed the merchant banker of the appellants on 3rd  February,  2010  that

it was not competent to  administer  the  authenticity  of  the  process  of

Resolution in the General Body Meeting (GBM) dated 18th January, 2010.   The

merchant banker vide letter dated 5th May, 2010 informed the SEBI  that  the

acquirers had reached a settlement with the  target  company  and  withdrawn

their petition before the Company Law Board  (CLB)  against  the  Resolution

dated 18th January, 2010.  SEBI had also advised the  merchant  banker  that

it had not been provided any  material  in  support  of  the  allegation  of

violation of Regulation 23 by the target  company  in  selling  its  assets.

The merchant banker informed the SEBI vide letter dated 19th May, 2011  that

the acquirers had filed a suit  for  restraining  the  target  company  from

creating any third party interest in the assets of the target company.   The

SEBI had also received complaints against the acquirers and  the  PAC  which

were being looked into when the PAC  vide  letter  dated  2nd  August,  2011

sought permission to withdraw the PA.  Vide letter dated 9th  August,  2011,

the acquirers requested that the process of open offer be kept in  abeyance.

SEBI vide e-mail dated  9th  September,  2011  responded  to  the  merchant

banker, seeking tabulated list of the allegations of the acquirers  and  the

PAC but instead of doing so,  the  merchant  banker  forwarded  request  for

withdrawal of the PA.   It was observed that in the circumstances there  was

no delay on the part of  the  SEBI.    It  was  further  observed  that  the

acquirers had challenged  the  Resolution  of  the  Extra  Ordinary  General

Meeting (EGM) and had also filed a suit.   The  acquirers  entered  into  an

amicable settlement before  the  CLB.   SEBI  had  no  jurisdiction  in  the

matter.  Referring to Regulation 22, it  was  observed  that  the  acquirers

could make PA only after most careful consideration and must ensure that  it

is able to implement the offer. Referring to Regulation 27, it was  observed

that  public  offer  once  made  could  not  be  withdrawn  except  in   the

circumstances provided in the said Regulation  which  had  to  be  construed

strictly.  Unchecked automatic withdrawal of  offer  was  capable  of  being

misused.  It was also observed that  the  acquirers  should  have  used  due

diligence with regard to the allegation in FIR dated 25th July,  2009  about

personal borrowings by promoters of the target  company  by  sale  of  prime

properties as the  PA was much after the FIR.  The  acquirers  and  the  PAC

had already purchased substantial shares of the  target  company  and  thus,

could not make PA without exercising due diligence regarding  the  financial

condition and quality of management of the target  company.   The  acquirers

were not strangers to the target company.  They had 6.47  per  cent  shares.

Discovery of adverse effects pertaining to financial  health  subsequent  to

the PA could not be a ground to withdraw the PA.  Doing so  will  jeopardize

the interests of the shareholders.  The takeover  regulations  laid  down  a

self-contained code and withdrawal of  public  offer  was  not  governed  by

principles of withdrawal of an offer under the Contract Act, 1872.

Order of Sat

7.    The above view has been affirmed by the SAT in its impugned order  (by

majority).  As regards the timeline stipulated  in  Regulation  18,  it  was

observed that under the second proviso thereto, the SEBI could take time  in

making inquiry on a complaint  and  thereafter  could  call  for  a  revised

letter of offer with  or  without  re-scheduling  the  date  of  opening  or

closing the offer.  However, it was observed that in the present case,  SEBI

was wholly unjustified in taking  more  than  two  years  for  offering  its

comments on  the  letter  of  offer  submitted  by  the  appellants.   This,

however, did not constitute a ground to permit withdrawal  of  the  PA.   As

regards the contention that the  public  offer  was  frustrated  and  became

impossible of implementation on account of encumbering of the most  valuable

property of the target company in  violation  of  Regulation  23  and  other

steps of the promoters making the target company a  shell  company,  it  was

observed that the target company had taken  decision  to  develop  its  Vile

Parle property even before the PA.  Appellant No.1 had given his  offer  for

joint development of the said property on 29th September, 2008 but the  said

offer was rejected and Sheth Developers were shortlisted  for  the  purpose.

It was thereafter that the  appellants  decided  to  make  hostile  takeover

public offer to frustrate the decision of the target company to develop  the

property with Sheth Developers.  It will be  appropriate  to  refer  to  the

findings of the SAT in this regard:

“14. We see no merit in the above contentions. Admittedly, GTL  had  decided

to develop the Vile-Parle property even before  public  offer  was  made  by

appellants on November 12, 2009. In fact Appellant No. 1 had made  an  offer

to GTL on September 29, 2008 for joint development  of  Vile-Parle  property

by offering ` 150 crores as non refundable amount and had  suggested  profit

sharing in the joint venture at a ratio 50:50.  However,  GTL  rejected  the

offer made by appellants and on recommendation of Ernst & Young  shortlisted

Sheth Developers as best 20  bidder  for  joint  development  of  Vile-Parle

property. Thereupon appellants decided  to  make  hostile  public  offer  on

November 12, 2009 with a view to frustrate decision of GTL  to  develop  the

Vile-Parle property jointly with Sheth Developers. Although  object  of  the

proposal to acquire 25% shares of GTL at Rs. 101/- per share as against  the

market price of Rs.109/- per share, as stated in the  public  offer  was  to

obtain substantial stake/voting rights of GTL, it is  not  in  dispute  that

appellants were basically interested in developing the Vile-Parle  property.

Thus, it is evident that appellants being frustrated in their  endeavour  to

develop the Vile-Parle property, had resorted to  the  mechanism  of  public

offer with a view to frustrate the decision of  GTL  in  jointly  developing

the Vile-Parle property with Sheth Developers. Therefore, appellants  having

made public offer out of  frustration  on  account  of  not  being  able  to

develop  the  Vile-Parle  property,  are  not  justified  in  alleging  that

entrusting the development of Vile-Parle property to  Sheth  Developers  has

frustrated the public offer made by appellants.

15. Admittedly, after making public  offer,  appellants  had  filed  Company

Petition No. 3 of 2010, wherein specific grievance was made  to  the  effect

that GTL had entered into MOU with Sheth Developers without  disclosing  all

material facts to the shareholders and without the approval of  shareholders

which was in gross violation of regulation 23 of SAST Regulations, 1997.  It

was also alleged in the Company Petition that  the  promoters  of  GTL  have

been mismanaging the affairs of  the  company  and  have  siphoned  of  huge

amounts from the company, as a result whereof, there has been  deep  decline

in the performance and profitability of the  company.  Appellants  had  also

sought an order restraining GTL from holding EGM which was scheduled  to  be

held on January 18, 2010.

16. Company Law  Board  in  its  order  dated  January  19,  2010,  recorded

statement made by counsel for GTL that in the EGM held on January  18,  2010

requisite resolutions have been passed in relation to development  of  Vile-

Parle property and in implementation of  the  said  resolution  third  party

rights have been created. By that order  Company  Law  Board  directed  that

during the pendency of Company Petition No. 3 of  2010  GTL  shall  not  act

upon resolution dated January 18, 2010 any  further.  From  aforesaid  order

passed by Company Law Board it is clear that in view  of  resolution  passed

in the EGM held on January 18, 2010, violation of  regulation  23  committed

by GTL in relation to development of Vile-Parle  property  stood  rectified.

Dispute, if any in relation to passing of resolution  on  January  18,  2010

was to be considered at the hearing of Company Petition No. 3 of 2010.

17. However, on February 8, 2010, appellants withdrew Company Petition  No.3

of 2010 by merely recording  that  the  parties  have  amiably  settled  the

matter without any further claims against each  other.  Having  settled  the

dispute  relating  to  development   of   Vile-Parle   property   with   the

promoters/management of GTL on the basis of undisclosed reasons  and  having

withdrawn Company Petition No. 3 of 2010 unconditionally, it is not open  to

appellants to allege that their public offer is  frustrated  on  account  of

GTL entering into MOU with Sheth Developers for  development  of  Vile-Parle

property.

18. Similarly, having settled the dispute relating to siphoning of funds  by

GTL during 2009-2010 which plea was specifically raised in Company  Petition

No. 3 of 2010, appellants are not  justified  in  agitating  the  very  same

issue before SEBI on ground that GTL has siphoned of its  funds  during  the

year 2009-2010 and 2010-2011. In other words, since the  plea  of  siphoning

of funds by GTL during the year 2009-2010  and  prior  thereto  having  been

specifically raised in Company Petition No. 3 of 2010 and that issue  having

been settled by  appellants  with  the  promoters/  management  of  GTL  for

undisclosed reasons, the appellants are not  justified  in  reagitating  the

very same issue before SEBI in relation to siphoning of funds either  during

2009-2010 or during 2010-2011.

21. It is relevant to note that  appellants,  subsequent  to  withdrawal  of

Company Petition No. 3 of 2010 in February 2010, have filed S. C.  Suit  No.

817 of 2011 in April 2011 before the City Civil Court  at  Mumbai,  alleging

for the first time that the Company Petition No. 3 of 2010 was withdrawn  on

account of  oral  assurance  given  by  promoters  of  GTL  that  Vile-Parle

property would be developed only after holding public auction and  that  the

promoters of GTL have committed breach of that oral assurance.

22. Admittedly, City Civil Court at Mumbai has granted  ad-  interim  relief

in favour of appellants on  April  26,  2011  and  that  ad-  interim  order

continues to be in operation till date. Therefore, irrespective of the  fact

that SEBI was not justified in taking more than two years for approving  the

draft  letter  of  offer,  in  the  facts  of  present  case,  grievance  of

appellants that the public offer is frustrated and has become impossible  of

performance cannot  be  accepted,  because,  both  grounds  based  on  which

appellants had sought withdrawal of public offer, were in  fact  settled  by

appellants on the basis of oral assurance given  by  promoters  of  GTL  and

further, for the alleged breach of oral  assurance,  appellants  have  filed

Suit in the Bombay City Civil Court and  obtained  stay  of  development  of

Vile-Parle property and that stay is admitted operating till date.

23. Strong reliance was placed by counsel  for  appellants  on  decision  of

SEBI dated February 14, 2014 wherein penalty of ` 1 crore  has  been  levied

against the promoters of GTL interalia for violating regulation 23  of  SAST

Regulations, 1997. No doubt that entering into an  MOU  by  GTL  with  Sheth

Developers on November 26, 2009 without obtaining approval of  general  body

of shareholders was in violation  of  regulation  23  of  SAST  Regulations,

1997.  However,  admittedly  on  January  18,  2010  the  general  body   of

shareholders has authorized GTL to enter into  Joint  Development  Agreement

is in respect of Vile-Parle property. In view of  approval  granted  by  the

general body of shareholders on January 18, 2010,  grievance  of  appellants

that Vile-Parle property has been encumbered in violation of  regulation  23

does not survive at least from January 18, 2010.

26. Apart from above, as late as on August 9, 2011 appellants had  addressed

a letter to SEBI requesting them to  keep  the  process  of  open  offer  in

abeyance, because, in the proceedings pending before the  City  Civil  Court

at Mumbai, GTL had filed an affidavit stating that in the  board  resolution

dated May 25, 2011 company has decided not to proceed further with  the  MOU

dated November 26, 2009  (wrongly  stated  therein  as  December  26,  2009)

entered with Sheth Developers and instead take necessary  steps  to  develop

the Vile-Parle property by the company of its own. By the said letter  dated

August 9, 2011 appellants called upon SEBI to investigate  about  the  exact

legal status of the Vile-Parle property,  investigate  regarding  possession

of  the  original  title  deeds  of  Vile-Parle  property  and   investigate

regarding possession of the original title  deeds  of  Vile-Parle  property,

investigate regarding usage of funds etc. It was further stated in the  said

letter until appellants are assured of their concern on  the  above  issues,

SEBI should keep the process of open offer in abeyance.

27. Aforesaid letter dated August 9, 2011, clearly  falsifies  the  case  of

appellants that the actions taken by promoters of GTL during the  course  of

two years has frustrated the public offer,  because,  if  public  offer  was

frustrated, appellants would not have asked SEBI  to  keep  the  process  of

public offer in abeyance. Having asked SEBI on August 9, 2011  to  keep  the

process of public offer  in  abeyance,  appellants  were  not  justified  in

filing application on October 11, 2011 seeking permission  to  withdraw  the

open offer on ground that inordinate delay has frustrated the open offer.”

8.    We have heard learned counsel for the parties.

contentions of the appellants

9.    Main contention raised on behalf of the appellants is  that  there  is

no justification for long  delay  on  the  part  of  the  SEBI  in  granting

approval to the offer of the appellant and situation having changed  to  the

prejudice of the appellant, the appellants are entitled  to  withdraw  their

offer.  Since under the scheme of the regulations, the appellants could  not

withdraw  the  offer  once  made  except  in  circumstances   mentioned   in

Regulation 27, the regulation should be read as creating  an  obligation  on

the part of the SEBI to take speedy decision and if  there  was  unexplained

delay resulting in prejudice to  the  appellants-acquirers,  the  appellants

are entitled to be absolved of the liability to honour the offer.   GTL  had

become a BIFR company on account of siphoning off funds  by  the  promoters.

It was submitted that in absence of obligation to approve the  offer  within

reasonable time, the promoters could take  steps  to  siphon  the  funds  or

dispose of the assets which could prejudice the interests of  the  acquirer.

Thus, it could not be held that the acquirer was indefinitely bound  by  the

offer.  Reference was also made to the timeline provided  in  Regulation  22

and the  provisions of Regulation 23.  It was submitted  that  while  normal

ups and downs in the market may not be a  ground  to  permit  withdrawal  of

offer, unilateral action of the promoters resulting in  transfer  of  assets

could certainly be the ground to permit withdrawal of offer.  The object  of

binding an acquirer  to  the  offer  is  to  protect  the  interest  of  the

shareholders but this was required to be balanced with the interest  of  the

acquirer.   If the assets are unduly transferred by the promoters after  the

PA, the acquirer was entitled to be relieved from the  offer.  SEBI  in  its

capacity as regulator has to adopt an approach which is  fair  to  all.   In

the facts of present case, the decisions of this Court in  Nirma  Industries

Limited vs. Securities and Exchange Board of  India[1]  and  Securities  and

Exchange Board of India vs. M/s. Akshya Infrastructure Pvt. Ltd.[2]   relied

upon in the impugned order are  not  applicable.   Even  if  clause  (d)  of

regulation 27 is read ejusdem generis so as  to  apply  only  in  situations

where it is impossible for the acquirer to  perform  the  public  offer,  it

cannot exclude situations  where  SEBI  itself  is  satisfied  that  serious

prejudice  was  caused  to  the  acquirer  by  intervening  actions  of  the

promoters in alienating or encumbering the assets of the company,  rendering

it inequitable to require the acquirer to be bound  by  its  offer.    Thus,

the obligation of the acquirer cannot be divorced from the  conduct  of  the

promoters  in  the  intervening  period.   Apart  from  distinguishing   the

judgment in Nirma Industries Limited (supra) which has been followed in  the

impugned order, the judgment in M/s. Akshya Infrastructure Pvt. Ltd  (supra)

was also sought to be distinguished as being limited to  cases  where  delay

by SEBI does not cause any serious prejudice to the acquirer.

10.   Thus, the submissions of the appellants are two fold :

(i)   The SEBI failed  to  adhere  to  the  timeline  prescribed  under  the

Takeover Code which rendered it impossible for the  appellants  to  conclude

their open  offer.   Adherence  to  timeline  prescribed  under  Regulations

18(2), 22(2), (3)  and  (4)  are  critical  under  the  Takeover  Code,  the

Bhagwati Committee Report and the International Practice.  The  time  is  of

essence in cases of hostile takeover.

(ii)   The  existing  promoters  should  not  be  given  an  opportunity  to

administer a poison pill to defeat the offer  of  the  potential  acquirers.

This principle is recognized under Regulation 23.

11.   Adverting to the facts it was submitted that first  complaint  against

the appellants was received on 8th January, 2010 i.e. 21 days after the  PA.

Complaints against the appellants  were  frivolous.   The  appellants  duly

responded to the complaints in timely manner.  The complaints were  made  at

the behest of the promoters.  The appellants  pointed  out  various  illegal

acts of the  promoters  but  the  SEBI  failed  to  take  any  action.   The

appellants requested the SEBI to  keep  the  open  offer  in  abeyance  till

action was taken against the promoters. This justifies  the  prayer  of  the

appellants to withdraw the open offer.

12.    Shri  C.A.  Sundaram,  learned  senior  counsel  for  the  appellants

submitted that all the members of the SAT (majority  as  well  as  minority)

have held the delay by SEBI  to  be  unjustified  but  still,  on  erroneous

interpretation, right of the appellants to withdraw  the  public  offer  has

not been upheld.  Reference was made to  the  complaint  about  transfer  of

valuable property of the Company which was un-encumbered at the time of  PA.

The funds raised from the transaction have been siphoned off.  One  of  the

key promoters was arrested by the Economic Offences Wing of the  Police  and

remained in jail for one and a half years.  Chargesheet  was  filed  against

him.  The financial ratio of the target company  reflects  manner  in  which

financial position quickly deteriorated after the PA.   The  petition  filed

by the  acquirers  before  the  Company  Law  Board  was  withdrawn  on  the

assurance of the promoters that the assets will not  be  encumbered  without

the public auction.  Thereafter, the matter was pending in the  civil  suit.

Thus, there was a breach of Regulation 23.

13.   Shri Sundaram submitted that open offer was not a  concluded  contract

but mere invitation to the public to offer their shares.  The result of  not

allowing the offer to be withdrawn will be that the promoters will  be  able

to sell their shares at the price specified in  open  offer  even  when  the

value of the shares was far lower.  This will be against the policy  of  law

underlying the Takeover Regulations.  Moreover, the action of the  SEBI  was

required to be fair, reasonable  and  consistent  with  Article  14  of  the

Constitution.

14.   Shri Sundaram sought to distinguish the judgments  of  this  Court  in

Nirma Industries Limited (supra) and M/s. Akshya  Infrastructure  Pvt.  Ltd.

(supra) by submitting that unlike the  said  cases,  in  the  present  case,

there was undue delay on the part of the SEBI and prejudice  was  caused  to

the acquirers for reasons  not  attributable  to  them.  He  submitted  that

doctrine of frustration under Section 56 of the Contract  Act  will  clearly

apply.  As a regulator, the SEBI is duty bound to protect  the  interest  of

the acquirer and also to ensure that a genuine attempt  by  an  acquirer  is

not defeated by the promoters by their unilateral action.

response by the sebi

15.   Shri Arvind P. Datar, learned senior counsel for the SEBI opposed  the

above submissions, he submitted that adverse finding  against  SEBI  on  the

issue of delay was unjustified, but even if the  said  finding  was  upheld,

the withdrawal of open offer was not permissible under  Regulation  27(1)(d)

of the Takeover Regulations.  The acquirers held 6.47% share  and  had  lent

Rs.8.5 crores to  the  target  company.  They  had  purchased  shares  worth

Rs.63.33 lakhs before making the PA.  The first appellant was aware  of  the

acts of mismanagement by the promoters of the target company.   The  PA  was

made with the intention of curbing fraudulent and the illegal  practices  of

the  promoters  and  for  the  target  company’s  benefit.   The  appellants

approached SEBI to investigate the  illegalities  knowing  fully  well  that

SEBI’s role was only to regulate the security market.  For mismanagement  or

other illegalities, remedy was under Section 397/398 of  the  Companies  Act

which remedy the appellants had taken.  The appellants reached  an  amicable

settlement with the target  company  and  thereafter  approached  the  civil

court.  It was wrong to state that the target company  had  become  defunct.

The target company continued to own the Vile Parle  property  worth  Rs.2000

crores.

16.   Shri  Datar  submitted  that  more  than  43  complaints/letters  were

received which were to be dealt with by SEBI.   In  such  circumstances,  it

could not be held that there was undue delay on the  part  of  the  SEBI  in

dealing with the DLO.

17.   It was submitted that the  appellants  ought  to  have  exercised  due

diligence before making the PA.  The appellants were not strangers  and  had

6.47% shares.  They had advanced loan of Rs.8.5 crores and  acquired  shares

worth Rs.66.33 lakhs before the PA.  They were aware of the FIR and  alleged

acts of mismanagement they had resorted to public offer out  of  frustration

against the decision  of  the  target  company  developing  the  Vile  Parle

property with Sheth Developers.  They settled the matter before the  Company

Law Board with the target company and also approached the  civil  court  for

alleged breach of settlement and obtained stay of development  of  the  Vile

Parle property.  In these circumstances, the plea of frustration  could  not

be allowed to be raised by the appellants.  The PA could not be  allowed  to

be withdrawn merely on the ground that the acquirers find it  not  to  be  a

prudent decision.  Moreover, the company still owns assets  and  was  not  a

shell company and no prejudice was suffered by the acquirers.  Referring  to

the penalty levied by SEBI on the target company for  entering  into  a  MoU

without approval of the General Body, it was submitted that this  could  not

furnish a ground for withdrawal of  the  PA.    Appellants  had  raised  the

issue before the CLB and settled the matter.

questions

18.   The rival submissions require us to determine the following  questions

:

(i)    To  what  extent  is  the  timeline  laid  down  under  the  Takeover

Regulations required to be adhered to and effect of delay  by  SEBI  in  the

present case?

(ii)  To what extent unilateral action of  the  target  company  in  dealing

with the property of the company  after  a  hostile  public  offer  is  made

furnish cause of action to the acquirers to withdraw the  public  offer  and

whether in the present case, decision not permitting  withdrawal  of  public

offer is justified?

the takeover regulations

19.   Needless  to  mention  that  mergers  and  takeovers  are  well  known

processes in the corporate world.  Acquisition of controlling interest of  a

company can be friendly or hostile.  In a friendly  acquisition,  management

of the target company sells its controlling shares to the  acquirer.   Where

management  of  the  target  company  is  unwilling  to  negotiate  with  an

acquirer, the acquirer can directly approach the shareholders by  making  an

open offer which is called Hostile takeover.   A Hostile takeover  helps  to

unlock the hidden value of the shares and puts pressure  on  the  management

to work efficiently.   On  the  other  hand,  it  has  potential  of  unduly

upsetting the normal functioning of a target company.   Thus,  there  is  an

undoubted need to regulate the process of acquisition and takeovers in post-

liberalisation era after 1991.  It is  well  known  that  takeover  attempt

being unpleasant for  the  target  company  is  normally  met  with  defence

strategies  such  as  ‘Poison  Pills’  (making  takeover  unviable  for  the

acquirer  by  making  the  cost   of   acquisition   unattractive),   ‘Shark

Repellents’ (measures to  repel  an  unwanted  takeover)  sale  of  valuable

assets, etc.

20.   Justice P.N. Bhagwati Committee was appointed  in  November,  1995  to

review the existing framework of regulations and to  suggest  amendments  in

the interest of investors and  all  parties  concerned  in  the  acquisition

process.  The Committee kept in mind the following principles :

“i.   Equality of treatment and opportunity to all shareholders.

ii.  Protection of interests of shareholders.

iii. Fair and truthful disclosure of  all  material  information

by the acquirer in all public announcements and offer documents.

iv.   No information  to  be  furnished  by  the  acquirer  and  other

parties to an offer exclusively to any one group of shareholders.

v.    Availability of sufficient time to shareholders  for  making  informed

decisions.

vi.    An  offer  to  be  announced  only  after  most  careful   and

responsible consideration.

vii.  The acquirer and all other intermediaries professionally  involved  in

the offer, to exercise highest standards of care and accuracy  in  preparing

offer documents.

viii. Recognition by all persons connected with the process  of  substantial

acquisition of shares that there  are  bound  to  be  limitations  on  their

freedom of action and on the manner in which the pursuit of their  interests

can be carried out during the offer period.

ix.   All parties to an offer to refrain from creating a false  market

in securities of the target company.

x.    No action to be taken by the  target  company  to  frustrate  an

offer without the approval of the shareholders.” [3]

The Committee made  various  recommendations  including  requirement  of

disclosure  by  the   acquirers,   procedure   for   public   announcements,

obligations of the acquirers and  the  target  company.   This  led  to  the

adoption of the 1997 Takeover Regulations.

21.   We may reproduce some of the Regulations which are necessary  for  the

decision of controversy in the case before us :

“ Acquisition of fifteen per cent or more of the shares or voting rights  of

any company.

10.   No acquirer  shall  acquire  shares  or  voting  rights  which  (taken

together with shares or voting rights, if any, held by  him  or  by  persons

acting in concert with him), entitle such acquirer to exercise  fifteen  per

cent or more of the voting rights in a company, unless such  acquirer  makes

a public announcement to acquire shares of such company in  accordance  with

the regulations.

Acquisition of control over a company.

12.   Irrespective of whether or not  there  has  been  any  acquisition  of

shares or voting rights in a company,  no  acquirer  shall  acquire  control

over the target company, unless such person makes a public  announcement  to

acquire  shares  and  acquires  such   shares   in   accordance   with   the

regulations.…

Timing of the public announcement of offer.

14.    (1)  The  public  announcement  referred  to  in  regulation  10   or

regulation 11 shall be made by the  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 .…

Submission of letter of offer to the Board.

18.   (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 despatched to  the  shareholders  not

earlier than 21 days from its submission to the Board  under  sub-regulation

(1):

Provided that if, within 21 days from the date of submission of  the  letter

of offer, the Board specifies changes,  if  any,  in  the  letter  of  offer

(without being Page 35 of 75 under any obligation to do  so),  the  merchant

banker and the acquirer shall carry out such changes before  the  letter  of

offer is despatched to the shareholders :

[Provided further that if the disclosures in the draft letter of  offer  are

inadequate or the Board has received any  complaint  or  has  initiated  any

enquiry or investigation in respect of the public offer, the Board may  call

for revised letter of  offer  with  or  without  rescheduling  the  date  of

opening or closing of the offer and may offer its comments  to  the  revised

letter of offer within seven working days of filing of such  revised  letter

of offer.

(3) The acquirer shall, while filing the draft  letter  of  offer  with  the

Board under sub-regulation (1), pay a fee  as  mentioned  in  the  following

table,  by  bankers‘  cheque  or  demand  draft  drawn  in  favour  of   the

‘Securities and Exchange Board of India’….

General Objections of the acquirer.

22.   (1) The public announcement of an offer to acquire the shares  of  the

target company shall be made only when the acquirer  is  able  to  implement

the offer.

(2) Within 14 days of the public announcement of  the  offer,  the  acquirer

shall send a copy of the draft letter of offer to the target company at  its

registered office address, for being placed before the  board  of  directors

and to all the stock exchanges where the shares of the company are listed.

(3) The acquirer shall ensure that the letter of offer is sent  to  all  the

shareholders (including non-resident Indians) of the target  company,  whose

names appear on the register of members of the company as on  the  specified

date mentioned in 1 Inserted by the SEBI (Substantial Acquisition of  Shares

and Takeovers) (Second Amendment) Regulations, 2002, w.e.f.  9-9-2002.  Page

47 of 75 the public announcement, so as to reach them within  45  days  from

the date of public         announcement.…

General obligations of the board of directors of the target company.

23.   (1) Unless the  approval  of  the  general  body  of  shareholders  is

obtained after the date of the public announcement of offer,  the  board  of

directors of the target company shall not, during the offer period,—

(a) sell, transfer, encumber or otherwise  dispose  of  or  enter  into  an

agreement  for  sale,  transfer,  encumbrance  or  for  disposal  of  assets

otherwise, not being sale or disposal of assets in the  ordinary  course  of

business, of the company or its subsidiaries; or

(b) issue 2 [or allot] any  authorised  but  unissued  securities  carrying

voting rights during the offer period; or

(c) enter into any material contracts.

Withdrawal of offer.

27.    (1) No public offer, once made, shall be withdrawn except  under  the

following circumstances:—

(a)  [***]

(b) the statutory approval(s) required have been refused;

(c) the sole acquirer, being a natural person, has died;

(d) such circumstances as in the opinion of the Board merit withdrawal.

Board’s right to investigate.

38.   The Board may appoint one or more persons as investigating officer  to

undertake investigation for any of the following purposes, namely:—

(a) to investigate into the complaints  received  from  the  investors,  the

intermediaries or any other person on any matter having  a  bearing  on  the

allegations of substantial acquisition of shares and takeovers ;

(b) to investigate suo motu upon its own knowledge or  information,  in  the

interest of the securities market or investors‘ interest, for any breach  of

the regulations;

(c) to ascertain whether the provisions of the Act and the  regulations  are

being complied with for any breach of the regulations.”

22.   In Nirma Industries Limited (Supra),  the  acquirer  after  making  PA

sought withdrawal therefrom on the ground of embezzlement of  funds  by  the

target company.  SEBI rejected the application  with  the  observation  that

the acquirer ought to have used due diligence prior  to  making  the  public

offer.  Rejecting the plea that the embezzlement and siphoning off of  funds

by the target company could not have been found by third  party  even  after

exercising diligence, this Court held under the scheme of the takeover  code

public offer once  made  could  not  be  withdrawn  so  as  to  deprive  the

shareholders of their valuable right to have exit option and also to  ensure

that public announcement is not made by way of speculation.  The  scheme  of

takeover code was held to be as follows:

“ 59. A conspectus of the aforesaid Regulations would show that  the  scheme

of the Takeover Code is: (a) to ensure that the target company is  aware  of

the substantial acquisition; (b) to  ensure  that  in  the  process  of  the

substantial acquisition or takeover, the security market  is  not  distorted

or manipulated; and (c) to ensure that the  small  investors  are  given  an

option to exit, that is, they are offered a choice to either  offload  their

shares at a price as determined in accordance with the Takeover Code  or  to

continue as shareholders under the new dispensation.  In  other  words,  the

Takeover  Code  is  meant  to  ensure  fair  and  equal  treatment  of   all

shareholders in relation to substantial acquisition of shares and  takeovers

and that the process does not take place in  a  clandestine  manner  without

protecting the interest of the shareholders.  It  is  keeping  in  view  the

aforesaid aims and objects of the  Takeover  Code  that  we  shall  have  to

interpret Regulation 27(1).”

23.   As regards the scheme of Regulation 27, it was further observed :

“62. A bare perusal of  the  aforesaid  Regulations  shows  that  Regulation

27(1) states the general rule in negative terms. It provides that no  public

offer, once made, shall be withdrawn. Since clause (a) has been omitted,  we

are required to interpret only the scope and ambit of clauses (b),  (c)  and

(d).  The  three  sub-clauses  are  exceptions  to  the  general  rule  and,

therefore, have to be construed very  strictly.  The  exceptions  cannot  be

construed in such a manner that would  destroy  the  general  rule  that  no

public  offer  shall  be  permitted  to  be  withdrawn  after   the   public

announcement has been made. Clause (b) would permit a  public  offer  to  be

withdrawn in  case  of  legal  impossibility  when  the  statutory  approval

required has been refused. Clause (c) again provides for impossibility  when

the sole acquirer, being a natural person, has died. Clause (b)  deals  with

a legal impossibility whereas clause (c)  deals  with  a  natural  disaster.

Clearly clauses (b) and (c) are within  the  same  genus  of  impossibility.

Clause (d) also being an exception to the general  rule  would  have  to  be

naturally construed in terms of clauses (b) and (c). Mr. Divan has placed  a

great deal of emphasis on the expression “such circumstances”  and  “in  the

opinion” to indicate that the Board would have a wide discretion  to  permit

withdrawal of an offer even though it is not impossible to perform.  We  are

unable to accept such an interpretation.

67. Applying the aforesaid tests, we have no  hesitation  in  accepting  the

conclusions  reached  by  SAT  that  clauses  (b)  and   (c)   referred   to

circumstances which pertain to a class, category or genus, that  the  common

thread which runs through them is the  impossibility  in  carrying  out  the

public offer. Therefore, the term “such circumstances” in clause  (d)  would

also be restricted to a situation which would make  it  impossible  for  the

acquirer to perform the public offer. The discretion has been  left  to  the

Board by the legislature realising that it is impossible to  anticipate  all

the circumstances that may arise making it impossible to complete  a  public

offer. Therefore, certain amount of discretion has been left with the  Board

to determine as to whether  the  circumstances  fall  within  the  realm  of

impossibility as visualised under clauses (b) and (c). In the present  case,

we are not satisfied  that  circumstances  are  such  which  would  make  it

impossible for the acquirer to perform the  public  offer.  The  possibility

that the acquirer would end-up making losses instead of  generating  a  huge

profit would not bring the situation within the realm of impossibility.

70. Mr. Venugopal, in our opinion, has rightly submitted that  the  Takeover

Regulations, which is a special law to regulate “substantial acquisition  of

shares and takeovers” in a target company lays down  a  self-contained  code

for open offer; and also that interest of  investors  in  the  present  case

required that they should be given an exit route when  the  appellants  have

acquired  substantial  chunk  of  shares  in  the  target  company.  He  has

correctly emphasized in his submissions that the orderly development of  the

securities market as a whole requires that public  offers  once  made  ought

not to be allowed to be withdrawn on the ground of fall in  share  price  of

the target  company,  which  is  essentially  a  business  misfortune  or  a

financial decision of the acquirer having gone wrong. SEBI as  well  as  SAT

have correctly concluded that withdrawal of the open offer in the given  set

of circumstances is neither in the interest of investors nor development  of

the securities market.

90. We are inclined to agree with the submission made by Mr  Venugopal  that

the appellants cannot be permitted to wriggle out of  the  obligation  of  a

public offer under the Takeover Regulation. Permitting them to do  so  would

deprive the ordinary shareholders of their valuable right to  have  an  exit

option under the aforesaid Regulations. The SEBI  Regulations  are  designed

to ensure that public announcement is not made by way of speculation and  to

protect the interest of the other shareholders. Very solemn obligations  are

cast on the Merchant Banker under Regulation 24(1) to ensure that—

“24. (1)(a) the acquirer is able to implement the offer;

(b) the provision relating to escrow account referred to  in  Regulation  28

has been made;

(c) firm arrangements for funds and money  for  payment  through  verifiable

means to fulfil the obligations under the offer are in place;

(d) the public announcement of offer is made in terms of the Regulations;

(e) his shareholding, if any in the  target  company  is  disclosed  in  the

public announcement and the letter of offer.”

91. Regulation 24(2) mandates that the Merchant Banker shall furnish to  the

Board a due diligence certificate which shall accompany the draft letter  of

offer. The aforesaid Regulation clearly indicates  that  any  enquiries  and

any due diligence that has to be made by the acquirer have to be made  prior

to the public announcement. It is, therefore, not  possible  to  accept  the

submission of Mr Shyam Divan that the appellants  are  to  be  permitted  to

withdraw the public announcement based on the  discovery  of  certain  facts

subsequent to the making of the public announcement. In such  circumstances,

in our opinion, the judgments cited by Mr Shyam Divan are of  no  relevance.

24.   As regards the effect of delay on the part of SEBI, it was observed:

“94. A perusal of the aforesaid Regulation clearly shows that  the  acquirer

is required to file the draft letter  of  offer  containing  disclosures  as

specified by the Board within a period of 14 days from the  date  of  public

announcement. Thereafter, letter of  offer  has  to  be  dispatched  to  the

shareholders not earlier than 21 days from  its  submission  to  the  Board.

Within 21 days, the Board is required to specify changes if any, that  ought

to be made in the letter of offer. The  merchant  banker  and  the  acquirer

have then  to  carry  out  such  changes  before  the  letter  of  offer  is

dispatched to the shareholders. But there is no obligation to do  so.  Under

the second proviso, the Board may call for revised letter of offer  in  case

it finds that the disclosures in the draft letter of  offer  are  inadequate

or the Board has received any complaint or  has  initiated  any  enquiry  or

investigation in respect of the public offer.  It  is  important  to  notice

that in the first proviso the Board does not have any obligation to  specify

any change in the draft letter of offer within a period of 21 days.  In  the

present case, in fact, the Board had not specified  any  changes  within  21

days. We have already noticed earlier that the letter of offer  was  lacking

and deficient in detail. The  appellants  themselves  were  taking  time  to

submit details  called  for,  by  their  merchant  bankers  through  various

letters between 8-8-2005 to 20-3-2006. We have already noticed the  repeated

advice given by the Merchant Banker to enhance the issue size  of  the  open

offer and to comply with other requirements  of  the  Takeover  Regulations.

The appellants, in fact, were prevaricating  and  did  not  agree  with  the

interpretation placed on Regulation 27(1)(d) by  the  Merchant  Banker.  We,

therefore, reject the submission of Mr Shyam Divan that there was  delay  on

the part of SEBI in approving the draft letter of offer. ”

25.   In M/s. Akshya Infrastructure Pvt. Ltd. (supra), this Court held  that

SEBI is not justified in causing delay in dealing with the issuance  of  its

comments on a letter of offer  as  delay  can  lead  to  controversy  as  to

whether the belated action  was  bona  fide  exercise  of  statutory  power.

However, delay by itself may not vitiate action of the SEBI.  The  SEBI  has

to be guided by the overall interest of the  shareholders  in  dealing  with

the prayer for withdrawal from the public offer.  The  economic  unviability

is  no  ground  to  justify  prayer  for  such  withdrawal.   The   relevant

observations are:

“30. With regard to delay, we do not find much substance in  the  submission

of Mr C.U. Singh. Mr Singh has sought to explain the  delay  on  the  ground

that information sought by the appellant was not given  by  the  respondent.

In our opinion, this was no ground for the appellant to delay  the  issuance

of comments on the letter of offer,  especially  not  for  a  period  of  13

months. In the event the information was not forthcoming, the appellant  had

the power to refuse the approval of the public offer. It is true that  under

Regulation 18(2), SEBI was required to dispatch  the  necessary  letters  to

the shareholders within a reasonable period. It is a matter of  record  that

the comments were not offered for 13 months. Such kind of  delay  is  wholly

inexcusable and needs to be avoided. It can lead  to  avoidable  controversy

with regard to  whether  such  belated  action  is  bona  fide  exercise  of

statutory power by SEBI. By adopting such a lackadaisical,  if  not  callous

attitude, the very object for which the  Regulations  have  been  framed  is

diluted, if not frustrated. It must be remembered that SEBI is the  watchdog

of the securities market.  It  is  the  guardian  of  the  interest  of  the

shareholders. It is the protective shield against unscrupulous practices  in

the securities market.  Therefore,  SEBI  like  any  other  body,  which  is

established as a watchdog, ought not to act in  a  lackadaisical  manner  in

the performance of its duties. The time-frame stipulated by the Act and  the

Takeover Regulations for performing certain  functions  is  required  to  be

maintained to establish the transparency in the functioning of SEBI.

31. Having said this, we are afraid such delay is of no  assistance  to  the

respondent. It will not result in nullifying the action taken by SEBI,  even

though belated. Ultimately, SEBI is charged with the duty of  ensuring  that

every public offer made is bona fide for the benefit of the shareholders  as

well as acquirers. In the present case, SEBI has found that  permitting  the

respondent to withdraw the public offer would be detrimental to the  overall

interest of the shareholders. The only reason put forward by the  respondent

for withdrawal of the offer is that it is no longer economically  viable  to

continue with the offer. Mr Nariman has referred to a tabular statement  and

data to show that there is no substantial  variation  in  the  share  prices

that ensued making of the public offer.  Having  seen  the  Table,  we  find

substance in  the  submission  of  Mr  Nariman  that  there  is  hardly  any

variation in the shares of the target company from  20-10-2011  till  30-11-

2011. The variation seems to have been between Rs 78.10 (on 24-11-2011)  and

Rs 87.60 (on 20-10-2011). Such a variation cannot be said to be  the  result

of the  public  offer.  But  this  will  not  detract  from  the  well-known

phenomena that public  announcement  of  the  public  offering  affects  the

securities market and the shares  of  the  target  company.  The  impact  is

immediate.

35. We are also not impressed by the submission of Mr Nariman  that  it  has

now become economically impossible to give effect to the public offer.  This

very submission has been rejected in Nirma Industries Ltd. We reiterate  our

opinion in Nirma Industries Ltd. that under Regulations  27(1)(b),  (c)  and

(d), a public offer, once made, can only be permitted  to  be  withdrawn  in

circumstances which make it  virtually  impossible  to  perform  the  public

offer. In fact, the very purpose for deleting  Regulation  27(1)(a)  was  to

remove any misapprehension that an offer once made can be  withdrawn  if  it

becomes economically not viable. We are of the considered opinion  that  the

distinction sought to be made by  Mr  Nariman  between  a  voluntary  public

offer and a triggered public offer is wholly misconceived. Accepting such  a

submission would defeat the very purpose for which  the  Takeover  Code  has

been enacted.”

Our Findings

Re. Question (i)

26.   Applying the decisions of this Court  to  the  facts  of  the  present

case, we are in agreement with the finding recorded by the  SAT  that  there

was undue delay on the part of the SEBI in dealing with the DLO.  No  doubt,

in a given case  timeline  prescribed  under  the  Regulations  may  not  be

adhered to when  the  SEBI  justifiably  takes  time  in  dealing  with  the

complaints, as rightly submitted by Shri Datar, in  the  present  case,  the

stand of the SEBI itself is that it could not go  into  the  complaints  for

which the right forum was CLB.  As regards the time taken  in  dealing  with

the  complaints  against  the  acquirers,  the  SEBI  could  have   promptly

proceeded with the matter.  However, mere upholding of  finding  of  SAT  on

the aspect of delay by SEBI is not enough to hold that  the  appellants  are

entitled to withdrawal of the public offer.  The withdrawal has to be  dealt

with under Regulation 27, as held by this Court.   The general principle  is

that public offer once made cannot be withdrawn.  Exception to the  rule  is

the specified situations under the Regulation as laid down by this Court  in

above decisions particularly in Nirma Industries  Limited  (Supra)[4].    In

the present case, though SEBI was not justified in causing delay  in  giving

its comments on public offer, this  by  itself  is  not  enough  to  justify

withdrawal from public offer so  long  as  the  case  does  not  fall  under

Regulation 27.  First question is answered accordingly.

Re. Question (ii)

27.   As already observed above, under the scheme of the regulations  public

offer has to be made after due diligence (Regulation 22). Obligation of  the

board of  directors  under  Regulation  23  against  alienation  of  assets,

issuance of unissued securities carrying  voting  rights  or  entering  into

material contracts is  applicable  only  if  approval  of  general  body  of

shareholders  is  not  obtained.   We  are  not  dealing  with  validity  of

imposition of fine on the target company for its decision  in  dealing  with

Vile Parle property, without approval of the general body as this  issue  is

not before us. The fact remains that ex post facto approval of  the  general

body has since been obtained.  Moreover, SEBI had observed that this  aspect

of the matter will be separately enquired into.   It  is  clear  that  under

the scheme of Regulation 23,  there  is  no  bar  to  a  decision  with  the

approval of the general body  of  shareholders,  if  otherwise  valid.   The

question whether unilateral decisions of the target  company  have  rendered

the carrying out of the public offer possible, is a question to  be  decided

on facts of each case.  In the present case, the SEBI as  well  as  the  SAT

have concurrently held that public offer is capable  of  being  carried  out

and has not become impossible.  The assets are  available  with  the  target

company.  Finding has also been recorded about the  circumstances  preceding

the public offer and the conduct of the acquirer which is based  on  record.

The steps for development of  the  Vile  Parle  property  had  already  been

initiated and the acquirer had taken remedies before  the  CLB  against  the

decision of the target company and had settled the matter  with  the  target

company.  It is clear from the scheme of the regulations that  there  is  no

absolute bar for the target company  to  take  decision  about  its  assets,

subject to compliance with statutory procedure and subject to  the  decision

being otherwise valid.  There is  no  doubt  that  against  any  mala  fide,

illegal  or  unjustified  decision  of  the  target  company,  remedies   at

appropriate fora are available to the aggrieved parties.  Thus, there is  no

justification for automatic  withdrawal  from  public  offer  without  clear

prejudice to the acquirer to the extent of rendering  the  carrying  out  of

public offer impossible.  In the facts of the present case, we do  not  find

any ground to interfere with the concurrent finding of the SEBI and the  SAT

that request for withdrawal from public offer was not  justified.   Question

(ii) is answered accordingly.

28.   In view of the above, we do not find any merit in this appeal and  the

same is accordingly dismissed.  There shall be no order  as to costs.

………………………………………………..J.

[ ANIL R. DAVE ]

………………………………………………..J.

[ ADARSH KUMAR GOEL ]

NEW DELHI

NOVEMBER 07, 2016

———————–

[1]

[2] (2013) 8 SCC 20

[3]

[4] (2014) 11 SCC 112

[5]

[6] Justice P.N. Bhagwati Committee Report on Takeovers

[7]

[8]  (2013) 8 SCC 20 para 67

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37