Anupkumar S. Sheth vs Sebi

Order Reserved on: 3.3.2021 Date of Decision : 24.3.2021

Misc. Application No.139 of 2021 And Misc. Application No.140 of 2021 And Appeal No.95 of 2021

1.

Reliance Mediaworks Financial Services P. Ltd.

Communication Centre, Film City Complex, Goregaon (East), Mumbai - 400065.

2. Reliance Capital Limited Kamala Mills Compound, Trade World, B Wing, 7th Floor, S.B. Marg, Lower Parel, Mumbai-400 013. ...Appellants

Versus

1. Securities & Exchange Board of India SEBI Bhavan, Plot No.C4-A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400051.

2. IDBI Trusteeship Services Ltd.

Asian Building, Ground Floor, 17, R. Kamani Marg, Ballard Estate, Mumbai - 400001.

3. Credit Suisse A.G. 10th Floor, Ceejay House, Plot F, Dr. Annie Besant Road, Worli, Mumbai -400018.

2

4. Keynote Financial Services Ltd.

The Ruby, 9th Floor, Senapati Bapat Marg, Dadar-West, Mumbai - 400028.

5. A2R Holdings C/o. Amicorp (Mauritius) Limited, 6th Floor, Tower 1, NeXTeracom Building, Ebene, Republic of Mauritius.

6. ARR Studio Private Ltd.

201, Priyanka Apartments, N.S., 6th Road, JVPD Scheme, Juhu, Mumbai-400056.

7. Mr. Namit Malhotra 16, Totterbridge Common, London, N208BL, United Kingdom.

8. Prime Focus Ltd.

Prime Focus House, Opposite Citi Bank, Linking Road, Khar-West, Mumbai - 400052. ...Respondent

Mr. Ravi Kadam, Senior Advocate with Mr. Zerick Dastur, Ms. Smriti Singh, Ms. Palak Agrawal, Mr. Khushil Shah, Mr. Malhar Zatakia and Mr. Kunal Kothary, Advocates i/b. Zerick Dastur, Advocates & Solicitors and Mr. Ashish Deshmukh, Authorized Representative for the Appellant.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Mihir Mody and Mr. Arnav Misra, Advocates i/b. K. Ashar & Co. for Respondent No.1.

Mr. Janak Dwarkadas, Senior Advocate i/b T.N. Tripathi & Co. for Respondent No.2.

3

Mr. Somasekhar Sundaresan, Advocate with Mr. Jayesh H., Mr. Shubhabrata Chakraborti, Mr. Avikshit Moral, Ms. Smriti Jha, Ms. Jui Masurekar and Mr. Hafeez Patanwala, Advocates i/b. Juris Corp for Respondent No.

3.

Mr. Zal Andhyarujina, Advocate with Ms. Akanksha Agrawal, Mr. Chetan Thakkar and Ms. Tejal Patankar, Advocates i/b. Kanga & Co. for Respondent No.4.

Mr. Gaurav Joshi, Senior Advocate with Mr. Aditya Sikka, Mr. Ravi Kumar, Ms. Manita Doshi, Mr. Rohan Banerjee and Mr. Varun Srinivasan, Advocates i/b. Cyril Amarchand Mangaldas for Respondent Nos.5 to 7.

Mr. Aditya Sikka, Advocate with Mr. Ravi Kumar, Ms. Manita Doshi, Mr. Rohan Banerjee and Mr. Varun Srinivasan, Advocates i/b. Cyril Amarchand Mangaldas for Respondent No.8.

And Appeal No.105 of 2021

Anupkumar S. Sheth 3/3A, Bijal Apartments, Link Road, Malad 400064. ...Appellant

Versus

1. Securities & Exchange Board of India SEBI Bhavan, Plot No.C4-A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400051.

2. Key Note Financial Services Ltd.

The Ruby, 9th Floor, Senapati Bapat Marg, Dadar (West), Mumbai - 400028.

4

3. A2R Holdings C/o. Amicorp (Mauritius) Limited, 6th Floor, Tower 1, Nexteracom Building Ebene, Republic of Mauritius.

4. ARR Studio Private Ltd.

201, Priyanka Apartments, N.S., 6th Road, J.V.P.D. Scheme, Juhu, Mumbai-400056.

5. Mr. Namit Malhotra 16, Totterbridge Common, London, N208BL, United Kingdom.

6. Prime Focus Ltd.

Prime Focus House, Opposite Citi Bank, Linking Road, Khar (West), Mumbai - 400052. ...Respondent

Mr. P.N. Modi, Senior Advocate with Mr. Kunal Katariya and Ms. Dhwani Mehta, Advocates i/b. D M Law Chambers for the Appellant.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocates i/b. K. Ashar & Co. for Respondent No. 1.

CORAM: Justice Tarun Agarwala, Presiding Officer Justice M.T. Joshi, Judicial Member

Per : Justice Tarun Agarwala, Presiding Officer

1. The present appeal has been filed against an order

dated 15th January, 2021 passed by the respondent 5

no.1, Securities and Exchange Board of India

(hereinafter referred to as „SEBI‟). The appellant has

prayed not only for the quashing of the order but has

also prayed for variety of reliefs some of which are that

respondent no.3 Credit Suisse A.G. should be

restrained from selling the shares which have been

pledged in their favour and, further direct SEBI to

appoint an independent valuer under Regulation 8(16)

of the Securities and Exchange Board of India

(Substantial Acquisition of Shares and Takeovers)

Regulations, 2011 (hereinafter referred to as „SAST

Regulations‟) and, further, initiate proceedings against

respondent no.3 for violation of the SAST Regulations.

2. The facts leading to the filing of the present appeal

is, that appellant nos.1 and 2 are companies

incorporated under the Companies Act, 2013 and 1956

respectively. Respondent no.1 SEBI is a statutory

body exercising powers and performing its functions

under the Securities and Exchange Board of India Act,

1992 (hereinafter referred to as „SEBI Act‟) and is a

regulator of the securities market. Respondent no.2 6

IDBI Trusteeship Services Ltd. is registered as a

debenture trustee with SEBI under the relevant

provisions of Securities and Exchange Board of India

(Debenture Trustees) Regulations, 1993 (hereinafter

referred to as „Debenture Trustee Regulations‟).

Respondent no.3 Credit Suisse A.G. is the Mumbai

branch of Credit Suisse A.G. of Switzerland and has

obtained approval from the Reserve Bank of India for

setting up a bank branch in India. Respondent no.4

Keynote Financial Services Ltd. is the Manager to the

open offer issue. Respondent no.5 A2R Holdings is a

Mauritius based entity and is controlled by respondent

no.7 Mr. Namit Malhotra who in turn is a promoter of

Prime Focus Ltd., respondent no.8. Respondent no.6

ARR Studio Private Ltd. is a private entity and is

controlled by Mr. Namit Malhotra. Respondent no.7 is

a promoter of Prime Focus Ltd., respondent no.8 and

respondent no.8 Prime Focus Ltd. is the target

company whose shares are sought to be sold by

respondent nos.2 and 3 to respondent nos.5, 6 and 7. 7

3. The background leading to the selling of the shares

of the target company Prime Focus Ltd by respondent

nos.2 and 3 to respondent nos.5, 6 and 7 are as follows:

4. On 28th March, 2018, appellant no.1 issued

redeemable non-convertible debentures aggregating to

Rs.650 crores vide a debenture trust deed executed

between appellant no.1 and respondent no.2 IDBI

Trusteeship Services Ltd. Respondent no.2 was

appointed as a debenture trustee on behalf of and for

the benefit of respondent no.3 Credit Suisse A.G.

Appellant no.2 Reliance Capital Limited was a

corporate guarantor and security provider to the

aforesaid issuance of non-convertible debentures by

appellant no.1 and, in furtherance of being a security

provider, a share pledge agreement between

respondent nos.2 and appellant no.1 was executed on

27th March, 2018. In this pledge agreement, appellant

no.1 pledged 10.49 crores of Prime Focus Ltd. shares

held by appellant no.1 for the benefit of respondent

no.3 Credit Suisse A.G. 8

5. The appellants defaulted in the payment of the loan

and, accordingly, respondent no.2 on behalf of

respondent no.3 invoked the pledge on 28th November,

2019 on 7.33 crores out of 10.49 crores shares of Prime

Focus Ltd. which were held by appellant no.1.

6. On 24th December, 2020, a share pledge agreement

was executed between respondent no.2 IDBI

Trusteeship Services Ltd. and respondent no.5 A2R

Holdings wherein respondent no.5 agreed to acquire

10,49,39,361 equity shares of the target company

Prime Focus Ltd. respondent no.8, based on which,

respondent no.4 Manager to the open offer issued a

public announcement on 24th December, 2020 on

behalf of the acquirer respondent nos.5, 6 and 7 for

open offer for acquisition of 8,23,71,046 shares having

a face value of Rs.1/ each of the target company Prime

Focus Ltd. from the public shareholders.

7. On 28th December, 2020, the appellant no.1 made a

representation before SEBI alleging that since

respondent no.3 Credit Suisse A.G. had acquired the

shares of the target company Prime Focus Ltd. and was 9

in control of 33.12% of the shareholding of the target

company, respondent no.3 is required to make an open

offer under the SAST Regulations which they have

failed to make and, therefore, SEBI should initiate

proceedings against respondent no.3. It was further

contended that the shares of the target company are

infrequently traded and the value declared in the open

offer by the Manager to the issue is drastically

undervalued. It was contended that the value should

not be less than Rs.150/ per share and, therefore prayed

that SEBI should investigate the matter to ensure that

the interest of the investors and shareholders are

protected. The appellant no.1 in its representation

prayed that pending investigation SEBI should restrain

Credit Suisse A.G. from selling the shares of the target

company and appoint an independent valuer to carry

out the fair value of the shares of the company and

further direct Credit Suisse A.G. to make an open offer

under the SAST Regulations.

8. On 1st January, 2021 a detailed public statement in

terms of Regulation 3(2) read with Regulation 13(4), 10 14(3) and 15(2) of the SAST Regulations was issued

and on 8th January, 2021, respondent no.4 on behalf of

respondent nos.5.6 and 7 filed a draft letter of offer of

the target company before SEBI as per Regulations

16(1) of the SAST Regulations.

9. In the meanwhile, SEBI on receipt of the

representation of appellant no.1 had forwarded the

representation to respondent nos.3, 4 and 5 and sought

their comments. Respondent no.3 submitted its

response on 11th January, 2021, respondent no.4

submitted its response on 13th January, 2021 and

respondent no.5 submitted its response on 12th January,

2021. All the three respondents denied any kind of

violation of the SAST Regulations and contended that

the open offer was in accordance with the provisions of

the regulations. These three responses was forwarded

by SEBI to the appellant vide letter dated 15th January,

2021 which is impugned in the present appeal.

Subsequently, the appellants replied vide letter dated

29th January, 2021 against the responses given by

respondent nos.2, 4 and 5 and again reiterated that a 11

detailed investigation should be made by SEBI and that

an independent valuer should be appointed and

respondent no.3 should be booked for violation of the

SAST Regulations.

10. Notwithstanding the aforesaid, SEBI submitted its

final comments on 4th February, 2021 agreeing to the

draft open offer made by the Manger to the issue on

behalf of respondent nos.5, 6 and 7. It was contended

that the comments of SEBI was uploaded on its

website.

11. Based on the comments submitted by SEBI,

respondent no.4 had on 12th February, 2021 informed

BSE that the letter of offer has been sent to all the

shareholders indicating therein that 23rd February, 2021

is the date when the offer would be opened and that the

offer would close on 3rd March, 2021. In this letter it

was also indicated that the price of the open offer was

Rs.44.15 per shares.

12. On 15th February, 2021, a valuation report was

submitted by the appellant no.1 to SEBI. This

valuation report was obtained at the instance of 12

appellant no.1. In this valuation report it was indicated

that the price of the shares of the target company is

Rs.115.21 per share. Based on this valuation report,

the appellant again requested SEBI to consider the

valuation report and take appropriate measures on the

valuation of the shares of the target company. It is

contended that since no response was received the

present appeal was filed.

13. We have heard Mr. Ravi Kadam, Senior Advocate

assisted by Mr. Zerick Dastur, Ms. Smriti Singh, Ms.

Palak Agrawal, Mr. Khushil Shah, Mr. Malhar Zatakia

and Mr. Kunal Kothary, Advocates and Mr. Ashish

Deshmukh, Authorized Representative for the

appellant and Mr. Pradeep Sancheti, Senior Advocate

assisted by Mr. Mihir Mody and Mr. Arnav Misra,

Advocates for the respondent no.1, Mr. Janak

Dwarkadas, Senior Advocate for the Respondent No.2,

Mr. Somasekhar Sundaresan, Advocate assisted by Mr.

Jayesh H., Mr. Shubhabrata Chakraborti, Mr. Avikshit

Moral, Ms. Smriti Jha, Ms. Jui Masurekar and Mr.

Hafeez Patanwala, Advocates for the Respondent 13

No.3, Mr. Zal Andhyarujina, Advocate assisted by Ms.

Akanksha Agrawal, Mr. Chetan Thakkar and Ms. Tejal

Patankar, Advocates for the Respondent No.4, Mr.

Gaurav Joshi, Senior Advocate assisted by Mr. Aditya

Sikka, Mr. Ravi Kumar, Ms. Manita Doshi, Mr. Rohan

Banerjee and Mr. Varun Srinivasan, Advocates for the

Respondent Nos.5 to 7, Mr. Aditya Sikka, Advocate

assisted by Mr. Ravi Kumar, Ms. Manita Doshi, Mr.

Rohan Banerjee and Mr. Varun Srinivasan, Advocates

for the Respondent No.8 in appeal no.95 of 2021 and

Mr. P.N. Modi, Senior Advocate assisted by Mr. Kunal

Katariya and Ms. Dhwani Mehta, Advocates for the

appellant and Mr. Pradeep Sancheti, Senior Advocate

assisted by Mr. Mihir Mody and Mr. Sushant Yadav,

Advocates for the Respondent No.1 in appeal no.105

of 2021.

14. Long drawn arguments were made by the counsels

for the parties. The learned senior counsel Mr. Ravi

Kadam for the appellants contended that the impugned

order dated 15th January, 2021 is violative of the

principles of natural justice. It was contended that no 14

opportunity of hearing was provided. It was further

contended that the representation of the appellants was

rejected summarily without applying its mind and

without giving any reason and such mechanical order,

being violative of article 14 of the Constitution of

India, was liable to be quashed. It was urged that SEBI

had failed to protect the interest of the investors and

the shareholders by accepting the undervalued price of

Rs.44.15 whereas substantial evidence was filed to

show that the valuation of the scrip of the target

company was far more than Rs.44.15. In this regard,

the valuation report submitted by the appellant was

duly referred to. The learned senior counsel contended

that the perusal of the valuation report submitted by

respondents and compared with the valuation reports

submitted by the appellants would show that the price

fixed by the respondents was in gross violation of

Regulations 8, 8(1) and 8(2) of the SAST Regulations.

It was contended that since the shares were

infrequently traded, the best way to find out the value

of the shares was for SEBI to appoint an independent 15

Merchant Banker under Regulation 8(16) which they

have miserably failed to do so and, in any case, SEBI

has overall powers under section 11 and 11 B of the

SEBI Act to take measures to protect the interest of the

investors and the shareholders. It was also contended

that the appellants are still the shareholders to the

extent of 9% as these shares have not been invoked by

the respondent and, therefore, they are an aggrieved

person and have a right to file an appeal under section

15T of the SEBI Act. On the valuation report, it was

urged that various parameters indicated in the

regulations were not considered which have been

considered and a comparison has been made in the

valuation report submitted by the appellants. It was

contended that SEBI should be directed to consider the

valuation report submitted by the appellant and/or take

steps to appoint an independent Merchant Banker

under section 8(16) so as to arrive at the correct

valuation of the shares of the target company.

15. The learned senior counsel further urged that under

the regulations it is obligatory for the Manager to the 16

issue to place relevant documents for inspection so that

the investors/shareholders can arrive at an informed

decision. It was contended that in the instant case the

valuation report was not placed for inspection. It was

contended that valuation report is germane to the issue

for an investor to take a call as to whether he would

like to accept the open offer of not. In the absence of

the valuation report not being provided for inspection

no informed decision could be taken by an investor

and, therefore, non-submission of the valuation report

was in gross violation of the SAST Regulations and,

consequently, the open offer process becomes vitiated.

16. It was further contended that the comments of the

SEBI dated 4th February, 2021 was not placed on the

website of SEBI. Only information was placed that

SEBI has given its comments but the contents of the

comments was not displayed on the website and,

therefore, one was not aware as to what exactly were

the comments given by SEBI on the draft letter of offer

submitted by respondent no.4. It was contended that

on account of lack of transparency and the cloak and 17

dagger game being played by the regulator shows that

there is something amiss which requires a detailed

investigation into the matter and such conduct and the

manner in which the exercise was carried out by SEBI

shows not only lack of transparency but also shows

disinterest in the protection of the interest of the

shareholders/investors. Learned counsel contended

that in the event the price of the shares of the target

company are revised it will benefit everyone including

the pledgee respondent no.3 who would stand to gain

more as they would receive a higher price. In the end,

it was urged that the SEBI having not exercised its

authority and discretion has failed to protect the

interest of the shareholders/investors. In support of his

submissions the learned counsel placed reliance upon a

decision of the Supreme Court in G.L. Sultania & Ors.

vs. SEBI & Ors. (2007) 5 SCC 133. It was also

contended that since no reasons were provided the

order cannot be sustained and, in support of this

submission, the learned counsel placed reliance upon

the two decisions of this Tribunal in Teneco Inc. vs. 18

SEBI (2019) SCC Oline SAT 235 & Arora UK Bidco

Ltd. vs. SEBI (2020) SCC Oline SAT 92.

17. Mr. Pradeep Sancheti, the learned senior counsel

for SEBI contended the procedure as per the SAST

Regulations have been duly followed and that the

respondent has not only considered the valuation

reports but has duly applied its mind and came to the

conclusion that the draft letter of offer was in order,

based on which the comments were uploaded on the

website on 4th February, 2021. The learned counsel

contended that the fact that the respondent has applied

its mind can be culled out from the file which the

respondents were willing to produce before the

Tribunal for its perusal. It was contended that no

detailed reasons were required to be recorded while

giving comments to the draft letter of offer and this

aspect has been duly proved by the Supreme Court in

G.L. Sultania‟s case (supra). The learned senior

counsel contended that no final decision was taken by

the respondent on 15th January, 2021 on the question of

draft letter of offer or on the representation of the 19

appellants and that a final decision was taken when the

comments were uploaded on the website on 4th

February, 2021. The learned senior counsel contended

that the letter of the respondent dated 15th January,

2021 was only a communication to the appellants

forwarding the responses of respondent nos.3, 4 and 5

for their consumption and that no decision on the draft

letter of offer or on the representation of the appellants

was taken on 15th January, 2021. It was, thus, urged

that the appeal should be dismissed on this short

ground itself. The learned senior counsel further

contended that in any case the appeal is not

maintainable in as much as the appellant has no share

to offer since the shares were pledged in favour of

respondent no.3. It was contended that until and unless

the shares were redeemed by the appellant they can

have no grievance on the offer price. The learned

senior counsel has also placed reliance on certain paras

of G.L. Sultania & Ors. and Teneco Inc. (supra).

18. Mr. Janak Dwarkadas, learned senior counsel

appearing for respondent no.2 contended that the 20

appellants are pledgors and have no right to question

the draft open offer or the valuation report as they have

no shares to offer. The pledge given by them was

invoked. In support of his contention, the learned

senior counsel has placed reliance upon the rights of a

pledgee under section 176 of the Contract Act and,

further, placed reliance on a decision of the Bombay

High Court in Prime Broking Company (India) Ltd.

vs. National Securities Clearing Corporation Ltd.

(2017) SCC Online Bom 43 wherein it was held as

under:

"16. The legal position as to relationship between a pledgor and the pledgee arising out of section 176 of the Contract Act has been the subject matter of several decisions including, but not restricted to S. L. Ramaswamy Chetty (supra) and State Bank of India v. Neela A. Naik (supra) etc.. All these decisions hold that the pledgor cannot compel the pledgee to exercise power of sale of the pledged goods in order to discharge any debt or liability which may have crystalised. The pledgor's right, in such circumstances extends only to the following:

"(i) in case the Pledgee exercises the power of sale, to insist that it should be honestly and properly done and the sale proceeds applied to the debt;

21 (ii) in case the pledgee does not exercise the power of sale, then the Pledgor can redeem the pledge on payment of the debt or such part of it that has remained unpaid; and

(iii) in case the sale was improperly exercised, to get damages caused thereby."

19. Mr. Somashekhar Sundaresan, learned counsel

appearing for respondent no.3 Credit Suisse A.G.

contended that the valuation report submitted by the

appellant was misleading and is not as per the

parameters laid down under the regulations. The

learned counsel contended that the comparison of the

entities made in the valuation report is per se incorrect

in as much as the said entities do not conduct the

business which the target company does and, therefore,

there cannot be any comparison with such entities. It

was, thus, contended that the basis of the fixation of

the price of the scrip of the target company with these

companies is patently erroneous and, therefore, the

valuation report fails on this ground itself.

20. Mr. Zal Andhyarujina, the learned senior counsel

appearing for respondent no.4 contended that the

valuation report submitted by the appellants were 22

correct and in accordance with the parameters laid

down under the regulations. It was further contended

that due process was followed as per the regulations

and that the basis of the valuation done by the

appellant was erroneous and cannot be accepted.

21. Mr. Gaurav Joshi, learned senior counsel appearing

for respondent nos.5, 6 and 7 contended that the

appellant has no locus standi to file the appeal as they

are not aggrieved persons and that they have no

remedy under the SAST Regulations and the remedy,

if any, is under the civil law.

22. Having heard the learned counsel for the parties at

length, it is necessary to deal with the question of the

locus standi of the appellant in preferring the present

appeal under section 15T of the SEBI Act. For facility

the said provision is extracted hereunder.

"Appeal to the Securities Appellate Tribunal.

15T. (1) Save as provided in sub-section (2), any person aggrieved,--

(a)by an order of the Board made, on and after the commencement of the Securities Laws (Second Amendment) 23

Act, 1999, under this Act, or the rules or regulations made thereunder; or

(b)....................

(c) ...................

may prefer an appeal to Securities Appellate Tribunal having jurisdiction in the matter."

23. From a perusal of the aforesaid provision, it is clear

that any person aggrieved can file an appeal against an

order of SEBI before the Securities Appellate Tribunal.

The question is, whether the appellant is an aggrieved

person under the SEBI Act qua the SAST Regulations.

A perusal of the SAST Regulations indicates that the

parties to the lis are the acquirer, the target company

and its shareholders. A shareholder has a right under

the SAST Regulations to accept the open offer given

by the acquirer or reject the same. The choice is his.

A shareholder if aggrieved by the pricing of the shares

made by the acquirer is entitled to raise his grievance

before SEBI to the effect that the said pricing is not as

per the regulations and, in any case, not in the interest

of the shareholders. The reason for a shareholder to be

interested in the offer price is that if the shareholder

accepts the offer given by the acquirer then he off 24

loads his shares that he has in the target company and

exits upon receiving payments as per the offer price.

Thus, in order to be aggrieved, you are required to hold

the shares of the target company. The mere fact that

you may be a shareholder in the register of members

maintained by the company under the Companies Act

does not entitle you to challenge the offer price given

by the acquirer under the SAST Regulations unless you

have the shares to offer to the acquirer. In the absence

of shares, in our opinion, does not entitle the person to

question the offer price under the SAST Regulations.

24. In view of the aforesaid, we find that the appellant

no.1 had pledged 10.49 crore shares of the target

company for the benefit of respondent no.3. The

moment the shares are pledged the appellant no.1

cannot offer those shares for sale to the acquirer until

and unless the pledged shares are redeemed by the

appellant itself. The option to redeem the shares is

always open to the appellants till the end but so long as

it is not redeemed, the pledgee gets a right to sell those

shares under section 176 of the Contract Act. 25

25. In the instant case, we find that the pledged shares

have not been redeemed as yet and, therefore, the

appellant no.1 has no share to offer to the acquirer.

Since he has no share to acquire he cannot be

aggrieved by the offer price nor can he challenge the

offer price in the present appeal. In our opinion, he is

not an aggrieved person and, therefore, the appeal at

the instance of the appellants is not maintainable. The

appellants have no locus standi at the present moment

to file an appeal questioning the offer price given by

the acquirer under the SAST Regulations. The

remedy, if any, available to the appellant is under the

civil law.

26. In this regard, section 176 of the Contract act may

also be considered which provides as under:-

176. Pawnee's right where pawnor makes default.--If the pawnor makes default in payment of the debt, or performance; at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale.

26 If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.

27. A contract of pledge carries with it the obligation

that the security may be made available to satisfy the

obligation and enable the pawnee in possession to sell

on default in payment although the pawn may redeem

on any moment upto sale. Once the pawn under

section 176 of the Contract Act sell the goods the

pawnor‟s right of redelivery is extinguished though his

right to redeem continues until sale. The power to sell

is conferred for the benefit of the pawnee and can be

exercised at his discretion.

28. In this regard, we must know what a pledge is. A

pledge or pawn is a "bailment of goods" by the debtor

to his creditor to be kept by him till the debt is

discharged. The bailment is intended to be a security

for some debt or engagement. A simple example of a

bailment is a contract for hire of goods. Possession of

goods is handed over to someone who is not their 27

owner and that person, namely, the bailee is subject to

certain obligations in relation to the goods which

obligations are owed to the owner, namely, the bailor.

Thus, the general property in the goods pledged

remains in the pledgor but a special property in them

passes to the pledgee in order that he may be able to

sell the goods if his right to sell arises. This special

property is based on the right to possession of goods

together with the power to sell upon default.

29. In the instant case, there is no dispute to this

special power being given to respondent nos.2 and 3 on

the basis of a pledge agreement executed by the

appellants. Once the pledge has been invoked the right

to sell the shares can be exercised by the respondent

under section 176 of the Contract Act which right has

been validly exercised. There is nothing to indicate that

the exercise done is dishonest or that it was not done

properly.

30. In view of the aforesaid, we are of the opinion that

the appellants have no locus standi to file the present

appeal as they are not an aggrieved person. In any 28

case, the impugned order dated 15th January, 2021 is

only a communication enclosing the comments

submitted the respondent no. 2,3 &4 and is not a

disposal of the representation of the appellants.

31. Before parting, we may point out that the SAST

Regulation is basically between the acquirer, the target

company and the Regulator. When the acquisition of a

company takes place beyond the threshold of a certain

percentage, the procedure in the SAST Regulation is

required to be followed. There is a time prescribed for

carrying out various actions under the regulations

within the prescribed period as time is the essence of

the entire process. An open offer made by the acquirer

is required to considered by SEBI as to whether the

offer price is correct or not and whether it is in the

interest of the shareholders and whether the interest of

the shareholders are adequately protected under the

regulations. SEBI is required to ensure that their

interests are protected but it does not mean that a

shareholder cannot approach SEBI and intimate them

either with regard to the procedure not being followed 29

in accordance with the regulations or can intimate

SEBI about the pricing of the shares or can state that

the offer price is drastically low. In such a situation,

SEBI is required to consider the

objection/representation of such shareholders and

decide the same objectively and in accordance with the

provisions of the regulations. SEBI is required to pass

an appropriate order and intimate the shareholders of

its decision howsoever brief it may be but the order

must show that the regulator has applied its mind on

the issues that has been raised by the shareholders.

32. We further find that in the instant case, the Manger

was required to allow the shareholders to inspect the

documents. Unfortunately, the valuation reports was

not placed for inspection. According to SEBI, the

regulations does not require placing the valuation

report for inspection and, therefore, nothing wrong was

found by SEBI in the non-production of the valuation

report to the shareholders. We beg to differ. The

provisions of the SAST Regulations are wide enough

to include the valuation report for inspection. This is 30

essential to enable the shareholders to take an informed

decision as to whether the price offered is fair and

reasonable under regulation 15(2) & 15(3) of the SAST

Regulations. The shareholder can only arrive at an

informed decision only when he has an access to the

valuation report. We also find that in many cases the

valuation report was given by the acquirer for

inspection to the shareholders. We, therefore, direct

SEBI that in future SEBI will ensure that the valuation

report is one of the essential document which is

required to be displayed for inspection under clause 9

and especially 9.1.12of The Format Of The Standard

Letter Of Offer provided under the Standard Letter Of

Offer For An Open Offer In Terms Of The SEBI

(Substantial Acquisition Of Shares And Takeovers)

Regulations 2011 read with 15(2) & 15(3) of the SAST

Regulations.

33. Further, merely by stating on the website that SEBI

has given its comments to the draft letter of offer is by

itself insufficient to comply with the provisions of the

regulations. SEBI as a regulator is required to show its 31

transparency and the contents of the comments must be

displayed on the website. This comments is required to

be supplied to the acquirer and the same is required to

be part of the letter of offer and is an essential

document to be displayed for inspection under clause

9.1.9 of the Regulations of 2011. This should be

strictly adhered to by SEBI in future.

34. For the reasons stated aforesaid, the appeal is

dismissed with no order as to costs. Misc.

Applications nos.139 and 140 of 2021 are also

disposed of accordingly.

35. In appeal no.105 of 2021, the appellant has

challenged the offer price given by the acquirer

contending that the price is drastically low. We find

that the appellant has filed a representation before

SEBI and immediately thereafter has filed the appeal

without waiting for its disposal.

36. We have already held in appeal no.95 of 2021

Reliance Mediaworks Financial Services P. Ltd. that if

a shareholder is aggrieved by the valuation given by

the acquirer the shareholder can always represent to 32

SEBI and that SEBI is required to consider and pass an

appropriate order and communicate the same to the

complainant/ shareholders.

37. In view of the aforesaid, we dispose of the appeal

directing SEBI to consider and pass appropriate orders

in accordance with law on the representation made by

the appellant within two weeks from today.

38. The present matter was heard through video

conference due to Covid-19 pandemic. At this stage it

is not possible to sign a copy of this order nor a

certified copy of this order could be issued by the

registry. In these circumstances, this order will be

digitally signed by the Private Secretary on behalf of

the bench and all concerned parties are directed to act

on the digitally signed copy of this order. Parties will

act on production of a digitally signed copy sent by fax

and/or email.

Justice Tarun Agarwala Presiding Officer

Justice M.T. Joshi Judicial Member 24.3.2021 RAJALA Digitally by signed

KSHMI NAIR RAJALAKSHMI H

RHN Date: 2021.03.25 H NAIR 12:36:53 +05'30'