Abhey Ram Dahiya & Anr. vs Sebi

Date of Hearing: 11.2.2019 Date of Decision: 15.2.2019

Misc. Application No.195 of 2018 And Misc. application No.205 of 2018 And Appeal No.192 of 2018

1.

Abhey Ram Dahiya C/o. Amardeep Singh Dahiya Constituted Attorney of Abhey Ram Dahiya House No.329, Section 21-A, Chandigarh - 160 022.

2. Amardeep Singh Dahiya House No.344, Sector 2, Panchkula .... Appellants

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No.C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent

Mr. Prakash Shah, Advocate for the Appellants.

Mr. Mustafa Doctor, Senior Advocate with Ms. Vidhi Jhawar, Advocate i/b. The Law Point for the Respondent no1.

Mr. Saurabh Bachhawat, Advocate i/b. Harsh Kesaria, Advocate for the Respondent no.2.

Mr. Arun Goenka, Intervener represented by Mr. Kushal Goenka in Misc. Application No.195 of 2018.

Mr. Umanath Agarwal, Intervener in person in Misc. Application no.205 of 2018.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member

Per : Justice Tarun Agarwala

1. On 20th April, 1999 the appellant entered into a Memorandum of

Understanding (hereinafter referred to as 'MOU') with the erstwhile 2

promoters for acquiring of 9,54,450 shares representing 28.09% shares of

the equity capital of Polo Hotels Ltd.(hereinafter referred to as 'the Target

Company') @ Rs. 8.50 per share. Based on this MOU the appellant,

namely, the acquirers made a public announcement on 24th April, 1999 to

acquire 20% shares @ Rs.8.75 per share of the Target Company in terms of

Regulation 10 of the Securities and Exchange Board of India (Substantial

Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter

referred to as 'the Regulations of 1997'). In furtherance there to the

appellant submitted a draft Letter of Offer to Securities and Exchange

Board of India ('SEBI') on 5th May, 1999. Subsequently, the Letter of

Offer was sent to the shareholders of the Target Company. Thereafter,

based on the complaints received a show cause notice dated 22nd June, 2001

was issued by SEBI to show cause as to why action under Regulation 44

and 45(6) of the Regulations, read with Sections 11B and 24 of SEBI Act,

1992, should not be initiated against them for the alleged violation(s)

including directions under Section 11B of the SEBI Act, such as to make an

open offer for 20% of the voting capital of the Target company at a

minimum offer price of Rs.23.75/- per share alongwith interest @ 15% p.a.

for the period from 15.4.99 to the actual date of payment of consideration

in the open offer to be made and to pay the balance amount i.e. Rs.23.75/-

plus interest as calculated above minus Rs.8.75/- (already paid) to all the

shareholders whose shares have been accepted in the offer made in 1999.

2. The appellant submitted its reply and after providing an opportunity

of hearing SEBI passed an order dated 1st August, 2003 holding that the

public announcement made by the acquirer on 24th April, 1999 was not

made in accordance with the provisions of the Regulations and the same

had affected the interests of the shareholders of the Target Company. SEBI 3

accordingly directed the Acquirer to make a public announcement for 20%

shares as required under Chapter III of the said Regulations in terms of

regulation 10 to the shareholders of the Target company and to pay the

shareholders whose shares were accepted in the offer at the rate of

Rs.23.75/- per share alongwith interest @ 15% p.a. for the period from

16/11/99 to the actual date of payment of consideration. SEBI also directed

the Acquirer to pay the balance amount to all the shareholders whose shares

had been accepted in the public offer made on 24.4.99, the balance amount

being Rs.15 [Rs.23.75/- minus Rs.8.75/- {already paid}] plus interest @

15% p.a. for the period from 16.11.99 (date of actual payment of Rs.8.75/-

being 15/11/99) to actual date of payment of balance consideration. SEBI

therefore directed that the aforesaid payment would be made within 45 days

of coming into effect of the order.

3. The appellant being aggrieved filed an appeal before this Tribunal

which was dismissed by an order dated 19th April, 2006. The appellant

thereafter preferred a Special Leave Petition before the Supreme Court

which was dismissed by judgement dated 26th November, 2015. The

review petition was rejected by an order dated 13th July, 2016. The

appellant thereafter filed a curative petition which was also dismissed by an

order dated 2nd March, 2017.

4. Thereafter, SEBI directed the appellant and its Merchant Banker

vide letter dated 3rd August, 2017 to comply with the SEBI's order of

1st August, 2003 within 7 days. Based on the said letter, the Merchant

Banker issued an email dated 4th August, 2017 indicating to the appellant

that the size of the offer would be 44,74,851 equity shares which in terms

of Regulation 21 of the Regulations. The appellant being aggrieved by the 4

size of the offer filed Appeal no.25 of 2017 before this Tribunal which was

dismissed by an order dated 29th August, 2017.

5. It transpires that thereafter certain correspondence was made by the

appellant with the Merchant Banker who eventually agreed with the

submissions of the appellant and accordingly the Merchant Banker filed a

draft Letter of Offer on 14th November, 2017 for acquisition of 6,79,520

equity shares. SEBI vide letter dated 11th May, 2018 communicated to the

Merchant Banker that as per the order of SEBI dated 1st August, 2003 the

appellant was required to make a public announcement for 20% shares

under Chapter III of the Regulations and that the public announcement

should be made for acquiring 44,74,851 equity shares which would

constitute 20% of the capital of the target company which is 2,23,74,253 as

per Regulation 21 of the Regulations. The appellant being aggrieved by the

modification done by SEBI vide its communication dated 11th May, 2018

has filed the present appeal.

6. We have heard Shri Prakash Shah, the learned counsel for the

appellant and Mr. Mustafa Doctor, the learned Senior counsel assisted by

Ms. Vidhi Jhawar, Advocate for the respondent. A preliminary objection

was raised by the learned Senior Counsel for the respondent that the appeal

was not maintainable in as much as the impugned order was only a

communication and an administrative order and was not a quasi judicial

order. It was urged that no appeal lies against an administrative order. In

support of his submission the learned counsel relied upon the decision of

the Supreme Court in National Securities Depository Ltd. vs. SEBI

[(2017) 5 SCC 517] where the Supreme Court held that an administrative

circular which is issued by SEBI under Section 11 of the Securities and 5 Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act')

cannot be a subject matter of appeal under Section 15T of the said Act.

7. Having heard the learned counsel for the parties on this issue we are

of the opinion that the communication dated 11th May, 2018 issued by

SEBI modifying the draft Letter of Offer amounts to a quasi judicial order

and cannot be termed as an administrative order. We find that the draft

Letter of Offer issued by the Merchant Banker indicated that the size of

offer would be 6,79,520 which was modified by SEBI to 44,74,851 equity

shares. The said communication by SEBI has civil consequences and

affects the rights of the appellant. Such communication made by SEBI

which decided the rights of the appellant in our opinion becomes

appealable. We, accordingly, reject the preliminary objection raised by the

learned Senior counsel for the respondent and hold that in the given facts

the instant appeal is maintainable.

8. It was urged by the learned counsel for the appellant that SEBI in the

impugned order dated 11th May, 2018 has taken into consideration

Regulation 16(4) of the Securities and Exchange Board of India

(Substantial Acquisition of Shares and Takeovers) Regulations, 2011

(hereinafter referred to as 'Regulations of 2011) which is wholly incorrect

in as much as the Regulations of 1997 can only be taken into consideration

as SEBI in its order of 1st August, 2003 had made it clear that the public

announcement was required to be made in terms of the Regulations of

1997. It was thus contended that the impugned order dated 11th May, 2018

should be quashed on this ground itself.

9. In our opinion, the submission of the learned counsel for the

appellant is correct to the extent that Regulations of 2011 is not to be

considered and that the Regulations of 1997 can alone be considered while 6

complying with the directions of SEBI dated 1st August, 2003. Having said

this it does not mean that the impugned order becomes patently illegal. In

our opinion, the use of the words Regulation 16(4) of the Regulations of

2011 is only a clerical error and such clerical error will not be fatal in as

much as the provisions of Regulation 18 of the Regulations of 1997 is more

or less pari materia to Regulation 16(4) of the Regulations of 2011. Thus

the use of Regulation 16(4) of Regulations, 2011 was only a clerical error

and will not vitiate the impugned order.

10. The learned counsel for the appellant next contended that the

Regulation of 1997 does not require two public announcements to be made

for the same transactions. It was contended that the public announcement

was earlier made on 24th April, 1999 and the date of closure of the offer

was 13.11.1999. It was contended that under Regulation 2(1)(f) the offer

period starts from the date of public announcement of the first offer which

is 24th August, 1999 and ends on the date of closure which in the instant

case is 13th November, 1999. It was thus contended that offer size was

already determined and thus there was no requirement for a fresh offer to be

made. The learned counsel contended that only a corrigendum was

required to be issued on the already issued public announcement for

amending the price of share from Rs.8.75 paise to Rs.23.75 paisa. The

learned counsel thus contended that the open offer is only now required to

be made to the existing shareholders as on 13th November, 1999.

11. The said argument of the learned counsel for the appellant was

strongly refuted by the learned Senior counsel for the respondent

contending that the public announcement made on 24th April, 1999 was not

found to be valid and accordingly SEBI directed that the acquirer should

make a fresh public announcement under Chapter III of the Regulations 7

within 45 days from the date of the order. It was contended that in terms of

Chapter III the appellant was required to make a fresh public announcement

and the provisions of Regulations 10, 14, 15, 18, 20, 21 was required to be

followed afresh.

12. Having given our thoughtful consideration in the matter, we are of

the opinion that the contention raised by the learned counsel for the

appellant is devoid of merit and such contention cannot be sustained.

Regulation 10 as it stood at the relevant point of time reads thus:

"Acquisition of [15%] or more of the shares or voting rights of any company. - 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."

13. Regulation 14 provides that the public announcement referred in

Regulation 10 is required to be made within four working days of entering

into an agreement for acquisition of shares. Under Regulation 15 the public

announcement under Regulation 10 is required to be made in all editions of

one English national daily with wide circulation and one Hindi national

daily. Regulation 16(iii) stated that the public announcement shall indicate

the minimum offer price for each fully paid up or partly paid up share.

Further, Regulation 16(viii) provides that the information that the highest

and the average price paid by the acquirer with regard to acquisition of

shares, if any, of the target company may during 12 months period prior to

the date of the public announcement would also be indicated. Regulation

20(2)(b) provides that the minimum offer price shall be the highest price

paid by the acquirer for any acquisition of shares of the target company

during this 26 week period prior to the date of public announcement. 8

14. SEBI in its order of 1st August, 2003 had recorded that the appellant

had acquired shares from Haryana State Industrial Development

Corporation (HSIDC) @ Rs.23.75 paisa which was not disclosed in the

public offer made by the appellant on 24th August, 1999 and thus was not in

accordance with the provisions of the Regulations and suffered from grave

infirmity as the offer price was not correct. SEBI found that the public

announcement made under Regulation 10 on 24th April, 1999 was not in

accordance with the provisions of the Regulations and the same had

affected the interest of the shareholders of the Target Company. SEBI,

accordingly, directed the appellant/acquirer to make public announcement

under Chapter III of the Regulations of 1997. In our opinion, such public

announcement has to be made afresh and the provisions of Chapter III of

the Regulations of 1997 was required to be complied with afresh. The

contention that only a corrigendum to the earlier public announcement was

required to be issued is per se misconceived and cannot be accepted. The

public announcement that was made on 24th August, 1999 was not accepted

by SEBI and the same had become invalid on account of violation of the

provisions of Chapter III of the Regulations of 1997. Consequently, issuing

a corrigendum would not cure the illegality. It was thus essential and

necessary for the appellant to make a fresh public announcement under

Chapter III of the Regulations of 1997 in terms of the order of SEBI dated

1st August, 2003. It is immaterial whether equity share capital of the

company has increased in the interim; one of the reasons submitted by the

appellant for sticking to the 24th April, 1999 number of shares to be bought

under the open offer.

15. Consequently, for the reasons stated aforesaid, we do not find any

merit in the appeal and the same is dismissed with costs which we quantify 9

at Rs.50,000/- since we find that the order of SEBI dated 1st August, 2003

has not been complied with for almost 15 years inspite of the said order

reaching finality. The said costs shall be deposited before the Registrar of

this Tribunal within four weeks from today.

16. The intervention applications are accordingly disposed off.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

15.2.2019 Prepared and compared by RHN