Rajagopal Viswanathan vs Sebi

Order Reserved On: 10.01.2020 Date of Decision : 22.01.2020

Appeal No. 290 of 2019

Rajagopal Viswanathan A-4, Angelica, Pride Park, Ghodbunder Road, Thane (West) - 400 607 ...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. Rajagopal Viswanathan, Appellant in Person.

Mr. Shyam Mehta, Senior Advocate with Mr. Mihir Mody and Mr. Shehaab Roshan, Advocates i/b K. Ashar & Co. for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member

Per: Dr. C.K.G. Nair

1.

This appeal has been preferred challenging the order of the

Whole Time Member ("WTM" for convenience) of the

Securities and Exchange Board of India ("SEBI" for

convenience) dated February 28, 2019 whereby SEBI granted 2

exemption from complying with the requirements of

Regulations 3 and 4 of the Securities and Exchange Board of

India (Substantial Acquisition of Shares and Takeovers)

Regulations, 2011, ("SAST Regulations" for convenience) in

respect of the acquisition of the shares/ voting rights in the

target company, Dredging Corporation of India Limited

("DCIL" for convenience).

2. The appellant is a small investor holding 13000 shares of

DCIL and submits that despite the mandate of protecting

minority shareholders' interest, by arbitrarily granting

exemption through the impugned order minority shareholders

like him have been penalized by SEBI. Further, it was

contended that the reasons provided in the impugned order for

granting such an exemption are untenable as there is nothing

called indirect control by the Government and when the

Government divested its stake it has lost control over DCIL

because though the Central Government has the power to

appoint the Chairman and Deputy Chairman of the four Port

Trusts which acquired those stakes there is also a provision for

electing some of the trustees. Moreover, the four Port Trusts are

statutorily autonomous as per the provisions of the Major Port

Trusts Act, 1963. Therefore, the Government holding 73% of 3

the shares of DCIL and the four Major Port Trusts to whom

those shares have been transferred holding the same and thereby

controlling the target company DCIL means quite different

impact on minority shareholders in terms of assured dividend

etc. Therefore, the exemption granted by SEBI to the four

acquirers of the divested Government stake in DCIL was not in

public interest and is against the interest of the minority

shareholders.

3. Shri Shyam Mehta, Learned Senior Counsel representing

SEBI took us though the background of the entire issue in re the

decision of the Cabinet Committee on Economic Affairs

regarding divesting the Government stake in DCIL; application

made by the four acquirers, namely, Visakhapatnam Port Trust,

Paradip Port Trust, Jawaharlal Nehru Port Trust and Deendayal

Port Trust because of the positive linkages between the

operations of the target company and the acquirers; the

application made by these acquirers to SEBI seeking exemption

from the obligation to make an open offer and SEBI's

considerations in granting the exemption. On the last point, it

was further submitted by the learned senior counsel that though

the proposal was not covered under Regulation 10 of the SAST

Regulations which are general exemptions the matter is squarely 4

covered under Regulation 11(1) which provides SEBI the

powers to give such exemptions on a case to case basis by

explicitly giving reasons for providing such exemptions.

4. It was further contended by the learned senior counsel that

the impugned order in paragraph 5D clearly articulates the

reasons for providing the exemption as recorded therein. Since

the four acquirers are public sector undertakings controlled by

the Central Government, the target company also would be

indirectly controlled by the Central Government irrespective of

whether the Government holds the shares of DCIL or these four

entities hold the same. Therefore, the entire issue was of a

larger public interest and as decided by the Government. SEBI

clearly having powers to provide exemptions have used the

same power in a reasonable and logical manner to provide the

given exemption.

5. Having heard the parties, we find no reason to intervene in

the impugned order. SEBI has issued the order giving

exemption to the four public sector companies who have

acquired the shares of DCIL held by the Central Government

through a disinvestment process. The reasons recorded by SEBI 5

in the impugned order in paragraph 5D are legitimate and valid.

For convenience paragraph 5D is reproduced below:

"5D. Having regard to the facts of the instant Application, I find that the proposed acquisition will change the nature of control exercised by the GOI from direct to indirect control as the direct control would be with the 4 Port Trusts governed by the Board of Trustees appointed by the GOI. It will however, not have the effect of a change in control of the Target Company, from a takeover perspective, since the GOI shall continue to exercise supervisory control over the Target Company through the Acquirers 1-4 as detailed at paragraph 4(iv) of page 4. I also note that the proposed acquisition is necessitated as part of the strategic disinvestment of the Target Company as approved by the GOI. Further, I note that the pre- acquisition and post-acquisition shareholding of the Promoter and Promoter Group in the Target Company will remain the same and there will also be no change in the public shareholding of the Target Company. I also note that the Target Company shall continue to be in compliance with the minimum public shareholding requirements under the Securities Contracts Regulation Rules, 1957 ("SCRR") and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015."

6 6. Regulation 11(1), which grants powers to SEBI to give

exemptions is reproduced below for convenience:

"Exemptions by the Board.

11.(1) The Board may for reasons recorded in writing, grant exemption from the obligation to make an open offer for acquiring shares under these regulations subject to such conditions as the Board deems fit to impose in the interests of investors in securities and the securities market."

Further the appellant has not given any reason as to how the

exemption granted by SEBI has adversely affected the minority

shareholders, except stating that an open offer might have

helped him. Given these reasons we find no merit in the appeal.

7. Appeal is dismissed with no orders on costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 22.01.2020 Prepared & Compared By: PK