Arun Goenka vs Sebi

Date of Decision : 11.12.2019

Appeal No. 220 of 2019

Arun Goenka 709, Meadows Sahar Palwai Complex, J.N. Nagar, Mumbai - 400 059. ..... Appellant

Versus

1.

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051.

2. Mr. Pramod Jain, H-28, Green Park Extension, New Delhi - 110 016.

3. Plus Corporate Ventures Pvt. Ltd.

Registered office L-7, First Floor, Green Park Extension, New Delhi - 110 016.

4. M/s J.P. Financial Services Pvt. Ltd.

Regd. Office at 2, Abhoy Guha Road, Howrah - 711 204.

5. Golden Tobacco Ltd.

At Darjipura, Post Amaliya, Vadodara, Gujarat - 390 022. ....Respondents

Mr. Arun Goenka, Appellant-in-person.

Mr. Kumar Desai, Advocate with Mr. Vivek Shah, Advocate i/b ELP for Respondent No. 1.

Mr. Manish Chhangani, Advocate i/b Khaitan & Co. for Respondent No. 4.

2

CORAM : Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member

Per : Dr. C.K.G. Nair, Member

1. Aggrieved by the observation letter dated March 27,

2018 issued by Securities and Exchange Board of India

('SEBI' for short) to the Merchant Banker on the Draft Letter

of Offer (DLOF) submitted by the acquirers, this appeal has

been filed. Appellant disputes the price offered by the

acquirers and seeks to re-examine the open offer and to revise

the price to Rs. 800/- as well as to direct the acquirers to make

payment of interest to all shareholders whose shares have

been accepted in the open offer from February 2, 2010 for the

delay in implementing the open offer from 2010 to 2018.

2. Appellant is an investor and holds 5000 shares (jointly

with his wife) in the Target Company, namely, Golden

Tobacco Limited ('GTL' for short; Respondent No. 5).

Consequent to certain acquisition made by one Shri Pramod

Jain and others, the acquirers (Respondent Nos. 2 - 4) came

out with a public announcement proposing a voluntary open

offer pursuant to Regulation 10 and 12 of the SEBI

(Substantial Acquisition of Shares and Takeovers) 3

Regulations, 1997 ('Takeover Regulations 1997' for short) to

the shareholders of GTL. On November 12, 2009 public

announcement was made with an offer price of Rs. 101/- per

share for acquiring 25% of the equity shares of GTL.

However, instead of implementing the public announcement,

in August 2011 the acquirers made an application to SEBI,

inter alia, requesting SEBI to permit them to withdraw the

offer on the ground of inordinate delay by SEBI in issuing its

observations. On April 13, 2012 SEBI rejected the said

request. An appeal was filed against the said order of SEBI

before this Tribunal and vide order dated August 6, 2014 the

appeal was dismissed. On November 7, 2016, the Hon'ble

Supreme Court also dismissed a consequential appeal

preferred by the acquirers. Thereafter, a Review Petition was

also filed by the acquirers which was also dismissed by the

Hon'ble Supreme Court on February 1, 2017.

3. Thereafter, on December 30, 2017 the acquirers came

out with a detailed public statement and on January 28, 2018

a Draft Letter of Offer was published. On March 27, 2018

SEBI communicated its comments to the Draft Letter of

Offer. On April 18, 2018 the Letter of Offer was published.

On April 27, 2018 the offer opened and on May 16, 2018 the 4

offer closed. May 31, 2018 was the last date of dispatch of

consideration to respondents / those who tendered the shares

in the open offer.

4. The appellant appearing in person strenuously

contended that the offer price made by the acquirers was

grossly inadequate as the Target Company GTL had a plot of

land worth about Rs. 2000 crore which was not reflected in

the said valuation. To press home his contention appellant

also relied on submission made by the acquirers in their

appeal before this Tribunal seeking to withdraw the open

offer made that the appellants therein had acquired shares of

the Target Company GTL because of GTL having property

worth about Rs. 2000 crore.

5. The appellant further submitted that GTL made a

valuation of its shares on March 20, 2018 @ Rs. 58. 90 which

was a sham valuation report got prepared by the acquirers

through an unqualified Chartered Accountant. Because the

said Chartered Accountant did not have the mandatory ten

years experience at the relevant time to undertake such

valuation tasks. Moreover, it was contended that all the public

shareholders who surrendered the shares are entitled for

interest from 2010 to 2018, since GTL had sought to 5

withdraw the public offer which was implemented only in

2018 consequent to the dismissal of even the Review Petition

by the Hon'ble Supreme Court. In short, the appellant

contends that the shareholders are entitled for a higher price

@ Rs. 800/- per share and they are also entitled for interest on

the same. It is also the contention of the appellant that since a

fresh public announcement was made in 2018 and at that time

the shares of the GTL was infrequently traded a fresh

valuation exercise needs to be done taking into account the

assets of GTL correctly in such a valuation exercise.

6. The learned counsel Shri Kumar Desai appearing for

respondent no. 1 SEBI submitted that since the entire process

of offer and payment of consideration thereon have been

completed the appeal has become infructuous. He also fairly

submits that though in their reply the issue of locus etc. has

been raised SEBI is not pressing the same.

7. The learned counsel for respondent no. 1 SEBI further

contended that the trigger date for the public announcement /

open offer was November 12, 2009. At the relevant time the

shares of GTL was frequently traded and therefore the open

offer price had to be fixed in terms of Sub-Regulation 20(4)

of Takeover Regulations 1997. Sub-Regulation 20(5) is not 6

relevant, as submitted by the appellant since that provision is

for infrequently traded scrips. Citing the relevant portion of

the public announcement made by the acquirers dated

November 12, 2009 it was emphasized by the learned counsel

that the maximum offer price applicable at that time was

Rs. 100.15 and the acquirers had offered Rs. 101/- by

rounding of the same. Thereafter though the appellants sought

to withdraw the open offer which was finally dismissed by the

Hon'ble Supreme Court, the trigger date for the public

announcement / open offer remains the same i.e. November

12, 2009. Therefore as on the trigger date share of GTL was a

liquid scrip, frequently traded on both NSE and BSE and

therefore the price arrived at in terms of Sub-Regulation 20(4)

@ Rs. 101/- per share was appropriate. Moreover, relying on

the order of the Hon'ble Supreme Court in the matter of

Clariant International Limited & Anr. vs SEBI reported in

(2004) 8 SCC 524 the learned counsel for respondent no. 1

submits that shareholders holding securities on the reference

date only would be entitled to interest. This also has been

provided in the open offer by giving interest @ of Rs. 60.25

to the original shareholders and Rs. 0.45 to other than original

shareholders. Therefore, the learned counsel submits that the

valuation report prepared by the Chartered Accountant which 7

arrived at a value of Rs. 58.30 per share or other valuations

done are totally irrelevant to the matter. It was also contended

that the document dated December 30, 2017 was not an offer

letter; instead it was a detailed public statement which SEBI

had asked the merchant banker to issue because of the eight

year gap between the original public announcement and the

open offer to enable the shareholders to be informed about the

full background of the matter. The learned counsel

emphasized the table relating to tentative schedule of

activities in the Detailed Public Statement issued on

December 30, 2017 wherein the original schedule as per 2009

announcement and the revised schedule as per the Detailed

Public Statement are juxtaposed. The learned counsel for the

respondent no. 1 also relied on the order of this Tribunal in

the matter of Arun Goenka vs SEBI (Appeal No. 244 of 2014

decided on 14.10.2014) and contended that only shareholders

of the Target Company who holds the shares on the trigger

date are eligible to get compensated in terms of interest which

was also held in the matter of Clariant International Ltd.

(supra).

8. Learned counsel Shri Manish Chhangani, appearing for

the acquirer (Respondent No. 4), in addition to supporting the 8

submissions made by the learned counsel for respondent no. 1

SEBI, submits that Regulation 35(2)(c) of the Takeover

Regulations 2011 explicitly states that all public

announcements made under the Takeover Regulations 1997

have to be completed under the 1997 Regulations itself and

submits that the regulatory provisions are very clear and

without any ambiguity that Sub-Regulation 20(4) of the

Takeover Regulations 1997 and not Sub-Regulation 20(5) is

what is to be complied with in the instant matter and that is

what has been implemented. Relying on the Post Offer Report

dated June 25, 2018 submitted to SEBI by the Merchant

Banker, the learned counsel submits that the said Post Offer

Report also was filed under Sub-Regulation 24(7) of the 1997

Takeover Regulations.

9. Having heard all the parties and after perusing the

documents on record we find no merit in the appeal. The

appellant, instead of emphasizing the relevant facts over-

emphasized three valuation reports and the infrequently

traded nature of GTL shares in 2018 which has no relevance

and sought interest to all shareholders etc. which is untenable.

The crux of the matter is simple; whether the price offered by

the acquirers and the interest paid thereon to certain 9

shareholders are in consonance with the applicable regulatory

provisions and Court orders thereon.

10. For convenience we quote Sub Regulation 20(4) of the

Takeover Regulation 1997 and Sub Regulation 35(2)(c) of the

Takeover Regulations 2011:-

Takeover Regulations 1997

"Offer price.

20(1) The offer to acquire shares under regulation 10,

11 or 12 shall be made at a price not lower than the price determined as per sub-regulations (4) and (5).

20(2) ..........

20(3) ..........

20(4) For the purposes of sub-regulation (1), the offer price shall be the highest of--

(a) the negotiated price under the agreement referred to in sub-regulation (1) of regulation 14;

(b) price paid by the acquirer or persons acting in concert with him for acquisition, if any, including by way of allotment in a public or rights or preferential issue during the twenty-six week period prior to the date of public announcement, whichever is higher;

(c) the average of the weekly high and low of the closing prices of the shares of the target company as quoted on the stock exchange where the shares of the company are most frequently traded during the twenty-six weeks or the average of the daily high and low of the prices of the shares as quoted on the stock exchange where the shares of the company are most frequently traded during the two weeks preceding the date of public announcement, whichever is higher:

10

Provided that the requirement of average of the daily high and low of the closing prices of the shares as quoted on the stock exchange where the shares of the company are most frequently traded during the two weeks preceding the date of public announcement, shall not be applicable in case of disinvestment of a Public Sector Undertaking.

Explanation.--In case of disinvestment of a Public Sector Undertaking, the relevant date for the calculation of the average of the weekly prices of the shares of the Public Sector Undertaking, as quoted on the stock exchange where its shares are most frequently traded, shall be the date preceding the date when the Central Government or the State Government opens the financial bid."

Takeover Regulations 2011

"35(2) Notwithstanding such repeal, --

(a) ............

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

(c) any open offer for which a public announcement has been made under the repealed regulations shall be required to be continued and completed under the repealed regulations."

11. Clearly for frequently traded shares Sub Regulation

20(4) is applicable and if an open offer has been made under

Takeover Regulations 1997 that process has to be completed

under the same Regulations as is explicitly stated in Sub

Regulation 35(2)(c) of the new Takeover Regulations 2011.

Here, it is an undisputed fact that the trigger for public

announcement / open offer came on November 12, 2009 and

consequently public announcement was made. Though the 11

open offer was delayed on account of the subsequent stand

(for recalling the public announcement) taken by the acquirers

the original date of trigger does not change. The valuation

done as per the applicable methodology under Regulation

20(4) is not questioned; what is questioned is the valuation in

2018 which is not applicable in the matter. When the offer

price of Rs. 101/- per share was made based on the price

given by the acquirers in 2009 what is implemented here is

the same price. Moreover, since the market price captures the

intrinsic value of the GTL shares including GTL's properties,

assets etc. in 2009 and since it was a frequently traded share

rightly no valuation was necessary as per the applicable

Regulations.

12. It is also an undisputed fact that interest to original

shareholders who tendered their shares have been given by

the acquirers @ Rs. 60.25 per share and for other shareholders

@ Rs. 0.45. Here, we quote the relevant paragraphs from the

order in Clariant International Ltd. & Another (supra)

where the Hon'ble Supreme Court held:-

"56. While compensating a person, the court should see that he is not unjustly enriched. Interest is directed to be paid on the default of the acquirer occasioning loss suffered by an investor of his money. The question of paying interest by way of compensation to persons who had not suffered any loss, thus, would not arise.

12 88. We uphold that part of the decision of the Tribunal whereby it was held that those persons who were the shareholders till 24-2-1998 and continued to be shareholders on the closure day of public offer alone would be entitled to interest."

13. In the light of the aforesaid reasons, we find no merit in

the submissions made by the appellant regarding either the

offer price or the entitlement of all shareholders for receiving

interest.

14. For all the above reasons we find no merit in the appeal

and the same is dismissed with no order on costs.

Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member

11.12.2019 Prepared and compared by: msb