M/S. Shri Housing Private Limited vs Sebi

Date of Decision : 20.07.2015

M/s. Shri Housing Private Limited 1st Floor, Karunaikudil, 226 Cathedral Road, Chennai - 600 086. ...Appellant Versus

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

Mr. Khamir Kamdar, Advocate i/b P.H. Bathiya & Associates for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Rushin Kapadia, Advocate i/b K Ashar & Co. for the Respondent.

CORAM : Justice J.P. Devadhar, Presiding Officer Jog Singh, Member

Per : Jog Singh (Oral)

1.

The present appeal is preferred by the appellant against the impugned

order dated June 30, 2014 imposing monetary penalty of Rs. 8 lakh on the

appellant under section 15H(ii) of the SEBI Act, 1992 by the learned

adjudicating officer u/s. 15-I of the Securities and Exchange Board of India

Act, 1992 read with Rule 5 of SEBI (Procedure for Holding Inquiry and

Imposing Penalties by Adjudicating Officer) Rules, 1995.

2. Brief facts of the case are that, the appellant is a company

incorporated under the Companies Act, 1956 and it entered into two Share

Purchase Agreements ('SPA's') each dated March 31, 2008 thereby

acquiring 40,47,538 shares (24,000 fully paid-up shares and 16,47,538 2

partly paid-up shares) of M/s. Premier Energy and Infrastructure Limited

(for short 'Premier'), which triggered the requirement of making public

offer as per the Takeover Regulations, 1997. The appellant was, in fact,

required to make an open offer under Regulations 10 and 12 and other

connected regulations of the SEBI (Substantial Acquisition of Shares and

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

within 4 days of such acquisition, but the open offer came to be made by the

appellant only on June 28, 2008 i.e. with a delay of 89 days.

3. The case of the appellant is that although Regulations 10 and 12 of

the Takeover Regulations, 1997 require that in case of acquisition of 15% or

more of the shares or voting rights of any company, the acquirer is required

to make public announcement of such shares in accordance with the

Regulations within four days, but the same could not be made on time due

to reasons beyond its control.

4. Learned counsel for the appellant, Mr. Khamir Kamdar, vehemently

argued that although Regulation 14(1) prescribes four days limitations for

making public announcement yet Regulation 24(1) requires the merchant

banker to ensure that the arrangements for funds and money before the

public announcement could be made. Such finances could only be organized

by the acquirer within 85 days of the two SPA's, thus, the open offer was

rightly made on 89th day and the delay is, therefore, liable to be condoned.

Moreover, an interest was also paid for such a delay, and as such no

prejudice occasioned to the shareholders. It is also one of the contentions

raised by Mr. Khamir Kamdar, learned counsel for the appellant, that

Section 15H of SEBI Act, 1992 does not talk about delay in making public

offer and, therefore, the penalty could not be imposed on the appellant. 3

5. Mr. Kumar Desai, learned counsel for the respondent opposed the

case put forth by the appellant.

6. We have heard learned counsel for the parties at length and perused

the appeal as well as concerned Regulations. We are of the considered

opinion that the very purpose of public offer envisaged under the Takeover

Regulations, 1997 would be frustrated if the acquirers are given opportunity

to make public announcement after a long lapse of time from the date of

acquisition i.e. the date of SPA's are signed by the parties to acquire shares

beyond 15% and/or control of a particular company by the acquirer. It is not

disputed that the appellant acquired more than 15% shares of Premier

Energy and Infrastructure Limited by way of two SPA's on March 31, 2008.

Admittedly, the public announcement was made on June 28, 2008 with a

delay of 89 days. It has, therefore, caused definite prejudice to the

shareholders of Premier in the matter of exercising their statutory rights /

option to exit or to continue with the said company through open offer

mechanism at the very inception when the SPA's were entered into by the

appellant. Therefore, the violation of such a valuable statutory right of

shareholders to exit and/or to continue with the company cannot be

compensated by paying meager interest by the acquirer. The time limit of 4

days prescribed in Regulation 14(1) is crucial and important as time is of the

essence in such acquisitions and consequent open offer. The value of time

limit prescribed in Regulation 14(1) cannot be undermined by reading into it

Regulation 24 in the normal course unless exceptional circumstances are

proved to exist.

7. We would like to reproduce relevant provisions of the Takeover

Regulations, 1997 and SEBI Act, 1992 for the sake of convenience:- 4

Takeover Regulations 1997:

"Acquisition of [fifteen] per cent or more of the shares or voting rights of any company.

10. No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise [fifteen] per cent of more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the regulations.

Acquisition of control over a company.

12. Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company, unless such person makes a public announcement to acquire shares and acquires such shares in accordance with the regulations:

Provided that nothing contained herein shall apply to any change in control which takes place in pursuance to a special resolution passed by the shareholders in a general meeting: Provided further that for passing of the special resolution facility of voting through postal ballot as specified under the Companies (Passing of the Resolutions by Postal Ballot) Rules, 2001 shall also be provided.

Timing of the public announcement of offer.

14. (1) The public announcement referred to in regulation 10 or regulation 11 shall be made by the merchant banker not later than four working days of entering into an agreement for acquisition of shares or voting rights or deciding to a acquire shares or voting rights exceeding the respective percentage specified therein:

Provided that in case of disinvestment of a Public Sector Undertaking, the public announcement shall be made by the merchant banker not later than 4 working days of the acquirer executing the Share Purchase Agreement or Shareholders Agreement with the Central Government or the State Government as the case may be, for the acquisition of shares or voting rights exceeding the percentage of shareholding referred to in regulation 10 or regulation 11 or the transfer of control over a target Public Sector Undertaking.

General obligations of the merchant banker.

24. (1) Before the public announcement of offer is made, the merchant banker shall ensure that-

(a) the acquirer is able to implement the offer;

(b) the provision relating to escrow account referred to in regulation 28 has been made;

5 (c) firm arrangements for funds and money for payment through verifiable means to fulfil the obligations under the offer are in place;

(d) the public announcement of offer is made in terms of the regulations;

(e) his shareholding, if any in the target company is disclosed in the public announcement and the letter of offer."

SEBI Act, 1992:

15H. Penalty for non-disclosure of acquisition of shares and take-overs.-If any person, who is required under this Act or any rules or regulations made thereunder, fails to,-

(i) disclose the aggregate of his shareholding in the body corporate before he acquires any shares of that body corporate; or

(ii) make a public announcement to acquire shares at a minimum price;

(iii) make a public offer by sending letter of offer to the shareholders of the concerned company; or

(iv) make payment of consideration to the shareholders who sold their shares pursuant to letter of offer.

he shall be liable to a penalty twenty-five crore rupees or three times the amount of profits made out of such failure, whichever is higher.

8. On the contrary, a perusal of Regulation 24 shows that the

conditionality lays down in it is to be met with and satisfied by the acquirer

beforehand i.e. before acquiring shares and not at later date of his choice, at

his will, to be communicated to a merchant banker. Such an interpretation

would frustrate the main objective of underlining the making of prompt

public announcement by an acquirer. We, therefore, do not find any legal

infirmity in the impugned order and same deserves to be upheld. Monetary

penalty of Rs. 8 lakh imposed by the learned adjudicating officer under

section 15H(ii) of the SEBI Act, 1992 on the appellant is not

disproportionate as compared to the maximum penalty of Rs. 25 crore

imposable for such a violation of the Takeover Regulations, 1997.

9. Lastly, section 15 H undoubtedly talks about making of open offer by

the acquirer in accordance with law and does not talk of delayed open offer. 6

However, such open offer by an acquirer has to be made under the Takeover

Regulations, 1997 and regulations have to be looked into and interpreted in

totality. Therefore, any offer made by an acquirer after the statutory time

limit of 4 days prescribed in Regulations 14(1) would not amount to

sufficient compliance of Takeover Regulations and, therefore, the

respondent would be justified in imposing suitable penalty in a given

situation depending upon the facts and circumstances of the each case.

10. The Appeal is, accordingly, dismissed with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

20.07.2015 Prepared & compared by-msb/ddg