Aurora Uk Bidco Limited vs Sebi

Order Reserved on: 8.7.2020 Date of Decision: 17.7.2020

Misc. Application No.172 of 2020 And Appeal No.149 of 2020

Aurora UK Bidco Limited 22 Grenville Street, St Helier, Jersey, Channel Islands JE4 8PX ... Appellant

Versus

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

Mr. Janak Dwarkadas, Senior Advocate with Mr. Indranil Deshmukh, Mr. Ruetveij Pandya, Ms. Dipti Bajaj and Ms. Samhita Mehra, Advocates i/b Cyril Amarchand Mangaldas for the Appellant.

Mr Pradeep Sancheti, Senior Advocate with Mr. Vivek Shah and Mr. Abhiraj Arora, Advocates i/b ELP for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member

Per : Justice M.T. Joshi, Judicial Member

1.

Aggrieved by the decision of Securities and Exchange

Board of India (hereinafter referred to as „SEBI‟) dated 2

14th February, 2020 appointing an independent Chartered

Accountant in terms of Regulation 8(16) of the Securities and

Exchange Board of India (Substantial Acquisition of Shares

and Takeover) Regulations, 2011 (hereinafter referred to as

„SAST Regulations‟) for computation of offer price in

accordance with Regulation 8(4) of the SAST Regulations

the present appeal is filed.

2. Facts leading to the present appeal are as under:-

a. The Appellant is a private limited company subject to

the jurisdiction of laws of Jersey, Channel Islands. On

November 12, 2019 it entered into a Share Purchase

Agreement (hereinafter referred to as „SPA‟) with

various entities as detailed in the appeal. This transaction

involved multiple jurisdictions across the world which

includes subsidiaries of Accelya Topco Ltd. (hereinafter

referred to as „TOPCO‟). This resulted into acquiring

74.66% of voting share capital of Accelya Solutions

India Limited in India ("Target Company"). It triggered

an open offer under Regulations 3(1) and 4 read with

Regulation 5(1) of the SAST Regulations. The Appellant

was therefore required to make the mandatory open offer

to acquire at least 26% of the outstanding equity share 3

capital of the target company from its public shareholders

at a price as determined according to the provisions of

the SEBI SAST Regulations. The equity shares of the

Target Company are not „frequently traded shares‟ on the

Stock Exchanges, therefore, the Appellant was required

to make an open offer at a price which would be the fair

price of the equity shares of the Target Company, as

determined under Regulation 8(4) of the SAST

Regulations.

b. Regulation 8(4) of the SAST Regulations read as

under:

".....the offer price shall be the fair price of shares of the target company to be determined by the acquirer and the manager to the open offer taking into account valuation parameters including, book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such companies."

c. Regulation 8(16) of the SAST Regulations reads as

under:-

16. "For purposes of clause (e) of sub-regulation (2) and sub-regulation (4), the Board may, at the expense of the acquirer, require valuation of the shares by an independent merchant banker other than the manager to the open offer or an independent chartered accountant in practice having a minimum experience of ten years."

4 d. As per the Regulations, the Manager of the Appellant

appointed two independent Chartered Accountants,

MSKA & Associates and Bansi S. Mehta & Co. to

determine the fair price of the equity shares of the Target

Company in accordance with Regulation 8(4) of the

SEBI SAST Regulations. While MSKA & Associates

determined the fair price at Rs.944.19, Bansi S. Mehta &

Co. determined the same at Rs.939.07. In these

circumstances, the Appellant accepted the higher price of

the two valuation and as per the Regulations arrived at

Rs.944.19/- as offer price for the open offer. Thereafter

public announcement as required by the SAST

Regulations was made. Some complaints were received

upon publication of the public statement. Those

complaints were forwarded to the Manager. Some

shareholders complained that the price should be in the

range of Rs.1250/- to Rs.3,400/-. They applied their

own methodologies. The Manager dealt with those

complaints. Ultimately a draft letter of offer as per

Regulation 16 of the SAST Regulations was filed with

Respondent SEBI on 7th January, 2020. Thereafter

Respondent SEBI sought some clarifications and 5

information from the Manager. After getting detailed

response from the Manager, Respondent SEBI conveyed

its impugned decision dated 14th February, 2020 to the

Manager. It conveyed the decision of appointing M/s.

Varma & Varma for computing the fair price of the

equity shares of the Target Company in accordance with

the parameters specified under SAST Regulations.

Appellant was directed to pay a fees of Rs 300,000/-

to the valuer. Aggrieved by the said communication the

present appeal is preferred.

e. The grounds in the appeal memo, submissions made

by Shri Janak Dwarkadas, learned Senior Counsel for the

Appellant and the written submissions together raise the

following issues.

i. That merely because SEBI has power to appoint

the valuer does not mean that the valuer can be

appointed without assigning any reasons. The

discretion has to be exercised judiciously. The

direction to appoint the valuer at the cost of the

Appellant results in incurring civil liability. In this

circumstance the laconic order without assigning any

reason is liable to be set aside.

6

ii. On the other hand, Mr. Pradeep Sancheti, learned

Senior Counsel for the Respondent submitted that

merely appointing a third valuer in order to find out

fair price of the infrequently traded equity shares does

not involve any fact finding jurisdiction of SEBI. It is,

therefore, an administrative order against which no

appeal lies. He alternatively submitted that the

material available with the Respondent SEBI supports

that there was a contest regarding fair price of this

infrequently traded equity shares. Therefore relying

on the decision of this Tribunal in the case of Tenneco

Inc., Appeal no.108 of 2019 decided on 16th May,

2019 he submits that elaborate procedure of hearing

while appointing the independent valuer by

Respondent SEBI is not required and he therefore

wanted that the appeal be dismissed.

3. Considering the submissions of Mr. Pradeep Sancheti,

learned Senior Counsel, copy of the office note resulting into

the impugned decision was called for and the same has been

provided to us.

4. We have heard Mr. Janak Dwarkadas, Senior Advocate

with Mr. Indranil Deshmukh, Mr. Ruetveij Pandya, Ms. Dipti 7

Bajaj and Ms. Samhita Mehra, Advocates for the Appellant

and Mr Pradeep Sancheti, Senior Advocate with Mr. Vivek

Shah and Mr. Abhiraj Arora, Advocates for the Respondent.

Upon hearing both the sides, in our view, the appeal is liable

to be dismissed for the following reasons.

Reasons

5. As regards the issue of maintainability of the appeal

number of judgements were relied upon by the Appellant in

the written submissions. It is now well established that a

communication/decision conveyed to a person is in the nature

of a quasi judicial order if it affects the right of the party.

The authority who issues such communication must have a

legal authority which determines the question affecting the

rights of the party. [(1) National Securities Depository

Limited v. Securities and Exchange Board of India (2017) 5

SCC 517; (2) Rajesh Toshniwal v. Securities and Appellate

Board of India 2012 SCC OnLine SAT 84.]

6. The impugned decision conveys to the Manager of the

Appellant the decision of the Respondent to appoint an

independent valuer at the cost of the Appellant. This

decision is based on the power drawn by Respondent SEBI

from Regulations 8(16) of the SAST Regulation which 8

provides that the Respondent SEBI "may" exercise the said

discretion. The impugned order directs the Appellant to bear

the expenses of the valuation. Considering all these facts, in

our view, the impugned decision cannot be called as merely

an administrative decision but a quasi-judicial decision,

amenable to the appellate jurisdiction of this Tribunal.

7. This takes us to find out the validity of the decision taken

by Respondent SEBI. In this regard, Mr. Janak Dwarkadas,

learned Senior Counsel heavily relied on the decision of the

Hon‟ble Supreme Court in the case of G.L. Sultania v.

Securities and Exchange Board of India (2007) 5 SCC 133.

As this decision is based on the provisions of Regulation

20(5) of the then SAST Regulations 1997, which is

substantially similar to the present provisions of Regulation

8(16) it is necessary to advert to the said Regulation which

runs as under :-

"(5) Where the shares of the target company are infrequently traded, the offer price shall be determined by the acquirer and the merchant banker taking into account the following factors:

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

(b) the highest price paid by the acquirer or persons acting in concert with him for acquisitions, if any, including by way of allotment in a public or rights or 9

preferential issue during the twenty six week period prior to the date of public announcement;

(c) other parameters including return on networth, book value of the shares of the target company, earning per share, price earning multiple vis-a-vis the industry average:

Provided that where considered necessary, the Board may require valuation of such infrequently traded shares by an independent merchant banker (other than the manager to the offer) or an independent chartered accountant of minimum ten years standing or a public financial institution."

8. The facts of the case in G. Sultania cited supra, would

show that some members of one Somany family pursuant to a

family settlement transferred around 40% of the equity share

capital of the Target Company therein to other brothers. This

triggered the provisions of the SAST Regulations, 1997

which obliged one of the brother i.e. Respondent no.3 therein

to make a public announcement to acquire the shares in

accordance with the SAST Regulations 1997. The shares of

the Company were infrequently traded. In these

circumstances, one Chartered Accountant was appointed to

value the shares. The said Chartered Accountant determined

the price of each shares of the Target Company at Rs.43.02/-.

The Appellant being shareholder of the Company raised

objection with SEBI about this valuation. Accordingly,

Respondent SEBI appointed M/s. Patni and Company to 10

value the shares under the provisions of then prevailing

Regulation 10 and Regulation 20(5) of the SAST

Regulations, 1997. This valuer valued the shares at the rate

of Rs.63.50 per share by one method and Rs.64.17 by another

method. However, Somany brothers were not satisfied with

the higher valuation. Therefore again another valuer namely

M/s. T.R. Chadda and Company was appointed by SEBI to

value the shares of the Target Company. It valued each share

of the Target Company at Rs.60.04. Appellant G.L.Sultania

still dissatisfied with this valuation complained to SEBI and

enclosed copies of two valuation report of two other

approved valuers which valued the shares of the Target

Company at Rs.408 and Rs.590 per share respectively. SEBI

however accepted the valuation report of M/s. Patni and

Company as detailed supra. Appellant G.L. Sultania

challenged the order of SEBI before this Tribunal. The same

was dismissed by the Tribunal. The Hon‟ble Supreme Court

dismissed the appeal challenging the said order.

9. Mr. Janak Dwarkadas, learned Senior Counsel heavily

placed reliance on the observation of the Hon‟ble Supreme

Court made in paragraph no.41. In this paragraph the Hon‟ble 11

Supreme has taken the survey of the Regulation 20(5) of

1997, which reads as under:

"41. The question there arises as to who shall determine whether the valuation of shares is reasonable and acceptable. Undoubtedly Regulation 20(5) mandates that the offer price shall be determined by the acquirer and the merchant banker taking into account the factors mentioned therein. The Board as the regulator is not bound to accept the offer price which is required to be incorporated in the public offer, if it suspects that the offer price does not truly represent the fair value of the shares determined in accordance with Regulation 20(5). It has therefore been provided that if considered necessary the Board may require valuation of such shares by an independent merchant banker. The purpose is only to ensure that the valuation arrived at is a fair valuation after taking into consideration all the enumerated factors in Regulation 20(5). In doing so the Board has to act prudently and within the limits of its jurisdiction. It cannot object to the price offered by the acquirer unless it has reasons to suspect that the price offered has not been determined fairly taking into account the enumerated factors. In case of doubt, it may require valuation of the shares by an independent merchant banker or chartered accountant. If the valuation determined by the acquirer or his merchant banker agrees with the valuation of the Board's valuer, more or less, then the Board has no option but to accept the offer price of the acquirer. It may suggest changes in the draft letter of offer, but it is doubtful if it can compel the acquirer to improve his offer even if the offer price is found to be fairly arrived at after due consideration of the matters enumerated in the Regulation. We do not wish to express any considered opinion in this regard, because that question does not arise in the facts of this case. The acquirer in the instant case did not challenge, rather accepted the suggestion of the Board to incorporate in his offer document the offer price based on the valuation report of M/s. Patni and Company which was the highest."

12 10. Relying on the above observation Mr. Dwarkadas

submits that the Respondent SEBI can direct for appointment

of independent valuer only when it suspects that the offer

price does not truly represent the fair value of the shares.

The Respondent SEBI has to act prudently and within the

limits of its jurisdiction. Mr. Janak Dwarkadas, learned

Senior Counsel further submitted that merely because some

shareholders had complained to SEBI cannot give rise to a

suspicion that offer price arrived by the two independent

valuers does not represent the fair price of the shares. He

further submits that the impugned decision does not even

show application of mind. It is merely a communication that

a third valuer is appointed by SEBI and the Appellant should

pay its fee. He submits that this laconic order cannot be

called as a decision of a quasi-judicial Authority and

therefore is liable to be set aside.

11. However, the facts of the case of G. Sultania as

detailed supra would show that the grievance raised by the

shareholders had caused Respondent SEBI to appoint an

independent valuer as per the then Regulation 20(5) of the

Takeover Regulations 1997. No further material regarding

the suspicion was there on record. Even the issue of 13

parameters of jurisdiction of SEBI in appointing an

independent valuer did not arise in the case as explicitly

expressed by the Hon‟ble Supreme Court as above. On the

other hand as regards the issue in the said case, in para no.45

the Hon‟ble Supreme Court held as under:-

"45. We are of the considered view that the submission urged by the appellants is not tenable. There is nothing in the Regulations which requires the Board to pass a reasoned order for all it does as a regulator. Being a regulator the Board has to take various steps, issue directions from time to time and pass appropriate orders. While considering the offer price to be incorporated in the letter of offer it must no doubt apply its mind to the offer price proposed to be incorporated in the letter of offer and the basis thereof. If it finds that the offer price is reasonable and the valuation report is satisfactory it may approve the offer price to be incorporated in the letter of offer." ( emphasis supplied )

12. Further, in para 47 the Hon‟ble Supreme Court taking

into consideration the provisions of SAST Regulation, 1997

held as under:-

"47. It cannot be lost sight of that the scheme of the Regulations is to permit an intending acquirer to make his offer to the shareholders whose shares are sought to be acquired. Despite the regulatory powers of the Board, the offer still remains that of the acquirer and not of the Board. The Board has only to be satisfied that the offer made is reasonable and fair and in the interest of the shareholders. In case of doubt it may seek the opinion of another expert valuer which impliedly supports the contention that it is not expected to act as an expert valuer."

14 13. Thus, the facts in G.L. Sultania as detailed supra are

akin to the facts involved in the present case. We have gone

through the copy of the office note supplied to us. It could be

found that the grievances of the shareholders has made SEBI

to take the impugned decision to appoint another independent

valuer. The appellant was already made aware of those

grievances. The impugned decision/communication cannot

be faulted with merely on the grounds that the reasons are not

explicitly recorded in the decision. In the case of G.L.

Sultania as noted supra the Hon‟ble Supreme Court also

noted that a reasoned order is not required.

We also find that the Respondent SEBI has un-

necessarily adopted a rigid stand of raising objection to share

office note with the appellant, on the ground of

confidentiality. As already noted by us, the office note does

not contain any confidential information, but merely the

grievances of certain stakeholders about valuation of the

equity shares, already known to the appellant. Respondent

SEBI as a responsible public body functioning as quasi

judicial and regulating authority is expected to be as much

transparent in it‟s actions as far as possible albeit subject to

certain exceptions like confidentiality of investigation, 15

privacy of third party etc. Be that as it may, the impugned

order however cannot be faulted for these reasons.

14. In the case of Tenneco Inc. cited supra, the Appellant

had challenged the appointment of an independent valuer

(Haribhakti) in the similar circumstances and also acceptance

of the report of the said valuer by SEBI. In the said case also

G.L. Sultania was relied on by the Appellant. This Tribunal

vide para no.10 held as under:-

"10. In our view, though elaborate procedure of hearing the acquirer before appointing independent Chartered Accountant by respondent SEBI is not required, the respondent SEBI ought to have given an opportunity to the appellant before revising the offer price by providing material on the basis of which Haribhakti had arrived at different valuation. Then respondent SEBI should have taken decision by recording brief reasons upon consideration of the objections, if any, received from the appellant to the valuation arrived at by Haribhakti."

15. In the result we find that the appeal is devoid of merit.

Hence the following order :-

The appeal as well as the Misc. Application is hereby

dismissed with no order as to costs.

16. Before parting, we find that a number of appeals are

being filed before the Tribunal praying for the quashing of

the communication to appoint a Chartered Accountant under

Regulation 8(16) of the SAST Regulations on the ground of 16

non application of mind or that no reasoned order was

passed. Whereas the Supreme Court in Sultania‟s case

(supra) has held that a regulator is not required to give a

reasoned order, we observe that a regulator while

communicating its decision to appoint a Chartered

Accountant under Regulion 8(16) of the SAST Regulations

may indicate the application of mind while considering the

issue at hand.

17 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 Presiding Officer 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

Dr. C. K. G. Nair Member 17

TARUN Digitally signed by TARUN AGARWAL DN: c=IN, o=PUBLIC WORKS DEPARTMENT UTTAR PRADESH, postalCode=221505, st=Uttar Pradesh,

AGARW 2.5.4.20=30fcf68685192bbc53e6ff160 8a83fb3881de7ac2ab7954d509c85ed 6e0f7c41, serialNumber=095f8b286bb0b1cd07f Justice M.T. Joshi AL f676611f4f5e7999727d404aa38ca422 f9d3529bdb8a3, cn=TARUN AGARWAL Judicial Member Date: 2020.07.17 15:04:47 +05'30'

17.07.2020 RHN