Chandra Prakash Tripathi vs Sebi

interalia the appellant was directed to revise the offer price

for acquiring 26 percent of the shares of the target Company

to Rs.608.46 from the proposed offer of the appellant of

Rs.400 per share.

Appeal bearing no.182 of 2019 filed by Mr. Chandra

Prakash Tripathi is filed to challenge the very same order 3

however, on different grounds. He claims that he is an

investor in the target company. According to him the target

company has exclusive patented technology solutions to meet

the emission norms and improve fuel efficiency. Taking into

consideration the price the appellant Tenneco Inc has paid for

acquisition of the holding company of the present target

company in US, the offer price ought to have been Rs.6,318

per share for the reasons given in the present appeal.

Appellant in Appeal No.108 of 2019 is a public limited

corporation based in USA. In view of the agreement with

Icahn Enterprises L.P. and other public limited corporations

in the USA it had become the holding Company of Federal

Mogul LLC. Following completion of the primary transfer

on 1st October, 2018, Federal Mogul merged into the

appellant. The appellant have therefore become 100 percent

owner of chain of subsidiaries of erstwhile Federal Mogul

Holding Ltd (referred to hereinafter as 'FMHL') and Federal

Mogul Vermogensverwaltungs GMBH (referred to

hereinafter as 'FMVG') involving multiple jurisdictions

including the United Kingdom, India etc.

These FMHL and FMVG were the promoters of the

present target company in India i.e. Federal Mogul Goetze 4

(India) Ltd. (referred to hereinafter as 'FMGL'). Their

holdings in FMGL were 60.05 percent and 14.93 percent

respectively. It has thus triggered the requirement for

making an open offer for remaining 26 percent of the shares

from various shareholders.

2. It is an admitted fact that the shares of FMGL are not

frequently traded. Therefore, in terms of Regulation 8(a) to

(e) of Securities and Exchange Board of India (Substantial

Acquisition of Shares and Takeovers) Regulations, 2011

(hereinafter referred to as 'SAST Regulations') the

appellant's manager appointed two valuers for valuing the

shares of this company. These valuers were MSKA and

Associates (MSKA) and J.D. Jhaveri (JDAA). These valuers

determined the per share fair value at Rs.372.10/- and

Rs.397.66/- respectively. The appellant therefore rounded up

the value to Rs.400 per share as a fair price and public

announcement was made. As per the SAST Regulations, the

appellant filed a draft letter of offer with the respondent SEBI

on 16th October, 2018.

On receipt of this draft letter of offer it was scrutinized

by the respondent SEBI. According to the respondent, some

complaints from various shareholders were also received by 5

it. The respondent SEBI therefore resorted to the provisions

of Regulation 8(16) of the SAST Regulations and appointed

M/s. Haribhakti and Company LLP (referred to hereinafter as

'Haribhakti') as Chartered Accountant for computation of

fair price of the target company. Haribhakti submitted its

valuation report to the respondent assessing the price at

Rs.600/- per share. Ultimately, vide the impugned

letter/observation the appellant interalia was directed by

respondent SEBI to revise the offer price to Rs.608.46/-.

Aggrieved by the said letter/observation the present appeal

has been filed.

3. The submission in the appeal memo as well as oral and

written submissions on behalf of the appellant are as under:

That without giving any opportunity to the appellant,

Haribhakti was appointed by respondent SEBI despite the

fact that two independent expert's valuation reports were on

record. Further, no opportunity was given to the appellant

before accepting the valuation report of Haribhakti. The

respondent did not even have in its possession, the workings

that formed the basis of the Haribhatki Valuation report. It

was submitted that the appellant was required to be heard by

the respondent before making the observations or issuing 6

directions which entailed into civil consequences of raising

the aggregate offer price by more than Rs.300 crores. In the

circumstances, the appellant wanted that the impugned

letter/observation of the respondent be set aside and instead

the offer price of Rs.400/- be upheld.

4. Respondent SEBI opposed the submissions. It

contended that as a regulator the respondent's role is to

protect the interest of the investors. The valuation reports

submitted by the appellants would show that the very valuers

followed different methods of valuation and, therefore, there

is a huge variance. By book value method, the price is

arrived at Rs.110.1/- while by market value method the price

is arrived at Rs.534.2/-. The subsequent exercise undertaken

by these valuers also suffers from the same vice. Therefore,

in terms of Regulation 8(16) of the SAST Regulations, the

respondent has rightly appointed Haribhakti as an

independent Chartered Accountant for computation of fair

price of shares of the target Company in terms of the

parameters specified under Regulation 8(4) of the SAST

Regulations. On the basis of Haribhakti's report the

appellant was directed to revise the offer price from Rs.400/-

to Rs.608.46/- per share together with enhancement at the 7

rate of 10 percent in terms of Regulation 8(12) of the SAST

Regulations. Thereafter, the appellant sought copies of the

working/computation based on which Haribhakti had arrived

at the valuation report. The same was provided to the

appellant on 5th April, 2019. Haribhakti has set out different

methods of valuation. The reason for adopting a particular

method of valuation is also set out. The valuation determined

by Haribhakti is the proper offer price of the company. On

the request of the appellant, calculations made by Haribhakti

were also furnished to the appellant. The correctness of the

same is not questioned by the appellant in the memo of

appeal. The said valuation report of Haribhakti proceeds on

the basis of the share prices etc. of the comparable companies

while the valuation report submitted by the appellants shows

that two of the comparable companies are not compared

namely Bosch Limited and WABCO India Limited.

Regulation 8(16) of SAST Regulations would show that

passing a reasoned order is not mandated while directing

appointment of an independent Chartered Accountant by the

respondent SEBI. Therefore, there was no question of

violation of principles of any natural justice while appointing

Haribhakti.

8

5. During the course of hearing one Mr. Mohan

Krishnaswami claiming to be minority shareholder of the

company orally sought to address certain issues with regard

to the determination of fair value. He was allowed to make

oral submissions. He submitted that fifty acre land owned by

the target Company at Bengaluru is going to be monetized as

pollution control board is increasingly issuing orders for

relocation of the factories from the area. He submitted that

the market value of the said land have now reached an

astronomical level which factor is not taken into

consideration even by Haribhakti.

6. Mr. Chandra Prakash Tripathi, the appellant in Appeal

no.182 of 2019 submitted that the offer price directed by the

respondent SEBI is too low. According to him the proper

peer group is not taken into consideration by respondent

SEBI. Considering the exclusive patented technology

solutions with the target company the value of the target

company can be compared with WABCO India Ltd. which is

recently acquired by ZF Friedrichshafen AG at Rs.6318 per

equity share. The learned counsel for the appellant

challenged the version of the appellant in Appeal no.182 of

2019 and intervener on legal as well as factual aspect. The 9

appellant as well as the respondent relied on various

authorities right from G.L. Sutlania and Another vs. SEBI

(2007) 5 SCC 133 and Cadbury India Ltd (2015) 125 CLA

77 High Court of Bombay. The learned counsel for the

respondent also relied on the observations of Sultania to

show that reasoned order from the Regulator like SEBI is not

required in such matters.

7. Upon hearing all the parties, we deem it appropriate to

remit the matter back to the respondent SEBI for the

following reasons:-

REASONS

1. Regulation 8 of the SAST Regulations provide the

methodology for fixing the offer price in the

circumstances as has arisen in the present appeal.

2. Sub-regulation 8(2)(e) provides as under:-

(e) where the shares are not frequently traded, the price 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; and"

This takes us to Sub-Regulation (16) of this Regulation

8 which runs as under.

10

"(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."

8. Considering the report of the two valuers submitted by

the appellant Tenneco Inc. alongwith the draft letter,

respondent SEBI took the course of appointing an

independent Chartered Accountant Haribhakti. On the basis

of this third valuation report in its direction/observation has

revised the offer price to Rs.608.46/-.

9. The record of SEBI as produced before us would show

that after communicating these observations the appellant

sought the material from respondent SEBI on the basis of

which Haribhakti had arrived at the said conclusion.

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 11

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.

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 12

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.

12. Appeal no.182 of 2019 stand disposed of. Original

record is returned.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member

16.5.2019 Prepared and compared by RHN