Bhavook Tripathi- Appeal Lodging ... vs Sebi

Aggrieved by the said decision appellant Tenneco filed

Appeal no.108 of 2019 before this Tribunal. Appellant

Chandra Prakash Tripathi had also filed Appeal no.182 of

2019. Appellant Tenneco had raised a contention before us

that without giving any opportunity to the appellant the third

valuer was appointed by SEBI. No opportunity was given to

the appellant before accepting the values fixed by the said

valuer. Opportunity should have been given by SEBI before 7

making the observation and, therefore, appellant wanted that

the said order be set aside and instead the offer price of

Rs.400 be upheld.

6. Appellant Chandra Prakash Triphati on the other hand

then put a grievance before us that infact the valuation of

eventhird valuer is too low. According to him, the valuation

should have been at par with comparable valuation of other

entities like WABCO India Ltd which was recently acquired

by another international corporation at the rate of Rs.6318

per equity share.

7. After hearing all the parties this Tribunal passed the

following order dated 16th May, 2019.

"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.

11. In the circumstance, in view of the above fact there is no need to consider the plea of Mr. Mohan Krishnaswamy, the appellant in Appeal No.182 of 2019 and counter submissions of the appellant. In the circumstances, we pass the following order. 8

1. The appeal no.108 of 2019 is hereby allowed with no order as to costs.

2. The impugned observation/direction is hereby set aside.

3. The case is remitted back to the respondent SEBI. Since the appellant has now received the valuation report of Haribhakti and other documents during the pendency of the appeal it would be at liberty to raise objections to the report before the respondent SEBI, within a period of three weeks from the date of this order.

4. The appellant Mr. Chandrakant Tripathi and the intervener Mr. Mohan Krishnaswamy would be at liberty to make written representation to the respondent SEBI within the same period.

5. The respondent SEBI thereafter shall take an appropriate decision after considering the objections, if any, of the appellants or intervener within a period of four weeks."

8. After remittal of the matter, the appellant made

submission/representation before the respondent SEBI dated

6th June, 2019. Respondent SEBI also held a meeting with

the representative of appellant Tenneco on 20th June, 2019 in

order to give an opportunity to explain the objection on the

valuation report of Haribhakti. Additionally, more written

submission were made by the appellant hereinabove vide

letter dated 25th June, 2019. The impugned order states that 9

respondent SEBI also examined the representations of the

interveners.

9. It appears from the record that respondent SEBI

forwarded all the material to Haribhakti and after obtaining

the response from Haribhakti dated 1st July, 2019 passed the

impugned order, principally putting the reasons given by

Haribhakti in it's response.

10. Hence the present appeal by appellant Tenneco.

11. Appellant Chandra Prakash Tripati being aggrieved

by the said order also filed the present appeal, while Mr.

Bhavook Tripathi also challenged said order vide Appeal

Lodging No.458 of 2019. He also filed another Appeal

Lodging No.459 of 2019 raising the issue of non deposit of

offer price in escrow account by appellant Tenneco as per the

Regulations. Misc. Application No.418 of 2019 for

intervention is filed by Mr. Mohan Krishna Swamy who

appeared in person.

12. Heard Mr. Janak Dwarkadas, Senior Advocate

assisted by Mr. Somasekhar Sundaresan, Ms. Struti Rajan,

Mr. R. Pandya, Mr. Rushin Kapadia, Ms. Dipti Bajaj, Ms.

Mitali Mehta, Ms. Jeeta Nayak, Mr. Pratham Masurekar, Mr. 10

Ravishekhar Pandey, Advocates for the Appellants and Mr.

Pradeep Sancheti, Senior Advocate assisted by Mr. Vivek

Shah, Mr. Abhiraj Arora, Mr. Kumar Desai, Advocates for

the Respondents.

Heard Mr. Mohan Krishan Swamy in person.

Shri Janak Dwarkadas, learned senior counsel for the

appellant submitted as under:-

That respondent SEBI without paying any heed to

the material made available to it by the appellant, had simply

forwarded it's objections to Haribhakti; sought Haribhakti's

response and merely cut and pasted remarks of Haribhakti.

The response of Haribhakti however was received by

respondent SEBI after the meeting/hearing took place and,

thus, no opportunity to file objections to the response of

Haribhakti was given. Thus, respondent SEBI has abdicated

its jurisdiction by outsourcing the objection raised by the

appellant. There is non application of mind as regards the

directions of this Tribunal. Alternatively, the learned counsel

took us through the valuation report of MKSA and Jhaveri as

also the valuation report of Haribhakti to show that

Haribhakti's report is flawed being against the Regulations as 11

well as the decisions of Supreme Court and High Courts etc.

He therefore submitted that the appeal be allowed, the

impugned decisions be quashed and it should be held that the

valuation of shares of Rs.400 is a fair valuation.

13. Appellant Chandra Prakash Tripathi and Bhavook

Tripathi on the other hand for reasons forwarded by them

contended that the fair price is required to be arrived at

Rs.820 per share and at Rs.1877 respectively.

14. Upon hearing both the sides, in our view all the

appeals are liable to be dismissed for the reasons to follow:-

Reasons

1. Though appellant Tenneco and respondent SEBI are

at loggerheads on the issue of valuation of shares

there is atleast an agreement and rightly so, that the

valuation of shares of a Company is not a precise

science. The conclusion arrived by expert valuer

would be subjective and depend upon individual

exercise. In the circumstances, there cannot be any

indisputable single value. (Para 17 of the copy of the

submissions of appellant Tenneco to respondent

SEBI dated 6th June, 2019 Exhibit 16). The Target 12

Company is a going concern but it's shares are

infrequently traded. In the circumstances, sub

Regulation 8(2)(e) of the SAST Regulation as quoted

above provides a guideline for valuation of the

shares which is already referred above. The

valuation has to be carried out by taking into account

valuation parameters including (1) book value (2)

comparable trading multiples and (3) such other

parameters as are customary for valuation of shares

of such companies.

2. Submission of all the parties would revolve around

the weightage to be given to these parameters. So

far as Book value/NAV method is concerned

Haribhakti considered the same. However, for the

reasons that the Target Company is a going concern

with it's share infrequently traded, its NAV would be

insignificant and, therefore kept the said valuation

out of calculation. On the other hand, two valuers

appointed by the appellant had given weightage to

these parameters. Weightage of one was given to

book value, while two each was given to 13

Comparable Companies Multiple (CCM) and market

price (para 5.4 of the valuation report at Exhibit 2).

Jhaveri had also adopted the same formula.

3. According to the appellant, this valuation is on the

basis of the ratio of G.L. Sultania and Another vs

SEBI (2007) 5 SCC 133 (Sultania judgement).

Another dispute relates to the CCM. There is vast

diversion between the claims of the appellant

Tenneco, respondent SEBI or the other appellants as

to which Companies should be selected for

comparison.

4. Haribhakti's report would show that it relied on the

data of the peer set which included Bosch and

WOBCO India. Appellant Tenneco's contention is

that these are not comparable companies for the

reasons that their revenue is generated from different

range of products. Cadbury India Ltd. (2015) 125

CLA 77 High Court of Bombay is relied on to

buttress the argument.

5. On the other hand, counsel for the Respondent SEBI

and other appellants submitted that data of Bosch 14

and WABCO is also required to be considered as

the target company had also patented technology like

that of Bosch and WABCO India Ltd.

6. Having heard all the parties and upon appreciating

the ratio of Sultania and Cadbury cited above,

according to us, after remand of the matter to the

respondent SEBI had rightly obtained the response

of the appellant. It has also examined the

submission of the intervener i.e. present appellant

Chandra Prakash Tripathi. It also sought response

from Haribhakti and thereafter made the observation

vide the impugned direction.

7. The objection of the appellant that respondent SEBI

has merely cut and paste the observation of

Haribhakti after the hearing was concluded, though

appears to be attractive, the same will have to be

repelled for the reasons that Haribhakti has not given

any fresh response, but had merely relied on its

earlier report.

8. In the case of Sultania as well and in Cadbury it had

been observed that the valuation being not a precise 15

science and though all the parameters are required to

be considered, the weightage to be given to each of

the parameters may depend upon the facts and

circumstances of each of the case, we do not find any

defect in the approach of SEBI.

9. For the similar reason the objection of Mr. Chandra

Prakash Tripathi and Bhavook Tripathi will have to

be rejected.

10. Mr. Bhavook Tripathi had submitted before us the

alleged systematic oppression of the minority

shareholders and mis-management of the Target

Company in order to create false negative picture of

the Target Company. However, the issue is beyond

the scope and jurisdiction of this Tribunal.

11. In Appeal Lodging No.458 of 2019 Mr. Bhavook

Tripathi claims that as per Regulation 22 of the

SAST Regulations, the control of Indian Company

cannot be transferred without completion of the open

offer process or without deposit of 100% funds

required for the open offer in an escrow account.

This issue is also beyond the scope of the present 16

appeal. Appellant Bhavook Tripathi would be at

liberty to raise the same issue before the respondent

SEBI. If such an application is filed before SEBI, the

same will be disposed off expeditiously in

accordance with law.

12. In the result, Appeal nos. 352, 359 of 2019,

Appeal Lodging Nos.458 and 459 of 2019 are hereby

dismissed. The application of the intervener No. 418

of 2019 is also disposed of.

13. The acquirer had deposited 25% of the

consideration under the open offer in terms of

Regulation 17 of the SAST Regulations, 2011.

Since the offer price has now increased to Rs.608.46,

the acquirer is required to make good the deficiency.

However considering the fact that on account of

dispute being raised by the acquirer and others, the

consideration towards the offer price is still being

enjoyed by the acquirer. Thus in the peculiar

circumstances we direct the acquirer to deposit the

total consideration towards the offer price in the

escrow account under Regulation 17 read with 21 of 17

the SAST Regulation within four weeks from today

after adjusting the amount already deposited so as to

complete the payment of consideration to

shareholders who have tendered their shares in

acceptance of the open offer.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member

7.11.2019 Prepared and compared by RHN