1998 (12) TMI 489 - HC - Companies Law

Summary

Issues Involved:
1. Legality of the acquisition of 39.5% shares of SVCL by respondents 4 to 13.
2. Compliance with SEBI Takeover Regulations.
3. SEBI's authority to pass interim orders.
4. Interests of SVCL shareholders regarding the public offer.
5. SEBI's procedural obligations in investigating the complaint.

Detailed Analysis:

1. Legality of the Acquisition of 39.5% Shares of SVCL:
The petitioner challenged the acquisition of 39.5% shares of SVCL by respondents 4 to 13, alleging it was done in violation of SEBI regulations. The petitioner argued that the acquisition was executed by shell companies controlled by Dr. B.V. Raju and his associates, raising serious questions about the legality of the transaction. The SEBI was tasked with investigating whether these companies acted in concert and whether the acquisition violated the Takeover Code, particularly Regulations 7, 10, and 14.

2. Compliance with SEBI Takeover Regulations:
The court noted that the acquisition raised several critical questions, including whether the nine companies acted in concert, whether the transactions were executed in violation of the Takeover Code, and the implications of the sale of shares without prior approval from financial institutions. The SEBI was directed to investigate these issues thoroughly. The petitioner contended that the acquisition should have triggered a public announcement as required by Regulation 10, which was not made, thus violating the Takeover Code.

3. SEBI's Authority to Pass Interim Orders:
The court affirmed that SEBI has the power to pass interim orders to protect the interests of investors and regulate the securities market. This power is derived from Section 11 of the SEBI Act, which allows SEBI to take necessary measures to protect investors and promote the securities market. The court held that SEBI's decision not to suspend the public offer process was within its discretion and was not arbitrary or irrational, given that it was in the interest of shareholders to receive the offer price of Rs. 100 per share.

4. Interests of SVCL Shareholders Regarding the Public Offer:
The court considered the interests of SVCL shareholders, noting that the public offer price of Rs. 100 per share was significantly higher than the prevailing market price. It was argued that suspending the public offer would harm shareholders who stood to benefit from the higher offer price. The court directed respondents 4 to 13 to secure the shares of SVCL and not to sell, transfer, or create third-party interests in these shares until SEBI completed its investigation.

5. SEBI's Procedural Obligations in Investigating the Complaint:
The court outlined the detailed procedure for SEBI's investigation as per the Takeover Regulations, emphasizing the need for a thorough and expeditious inquiry. SEBI was directed to complete the investigation by January 31, 1999. The court also highlighted the necessity for SEBI to consider all relevant facts and defenses raised by the parties during the investigation.

Conclusion:
The writ petition was disposed of with specific directions to SEBI to complete its inquiry expeditiously and to ensure that the shares acquired by respondents 4 to 13 were secured until the investigation was concluded. The court upheld SEBI's discretion in allowing the public offer to proceed, emphasizing the importance of protecting shareholders' interests and ensuring compliance with the Takeover Code.