2004 (8) TMI 389 - SC - Companies Law

Whether in exercise of its jurisdiction under Article 142 of the Constitution of India a direction should be issued directing the Board to forbear from proceeding under section 15H of the Act against the Appellant? Held that - it is a fit case where this Court should exercise its jurisdiction under article 142 of the Constitution to direct the Board to forbear from proceedings with the adjudication proceeding against the Appellants. This may not, however, be treated to be a precedent. It is accepted that once a public offer is made the investors would be entitled to elect to transfer their shares at a higher price which may be offered by the acquirer with a view to acquire control over the target company. The investors would also be entitled to interest at such rate as the Board may determine. The provisions of section 15H of the Act mandates that a penalty of rupees twenty-five crore may be imposed. The Board does not have any discretion in the matter and, thus, the adjudication proceeding is a mere formality. Imposition of penalty upon the Appellant would, thus, be a foregone conclusion. Only in the criminal proceedings initiated against the Appellants, existence of mens rea on the part of the Appellants will come up for consideration.

Issues Involved:
1. Applicability of Regulations 10, 11, and 12 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
2. Requirement of public announcement of offer.
3. Interpretation of the term "change in control."
4. Application of penal provisions under SEBI Act, 1992.

Issue-wise Detailed Analysis:

1. Applicability of Regulations 10, 11, and 12 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997:
The core issue was the interpretation of Regulations 10, 11, and 12. Regulation 10 deals with initial acquisition of shares, Regulation 11 pertains to consolidation of holdings, and Regulation 12 addresses the acquisition of control over a company. The court found that these regulations operate in different fields but can overlap in certain situations. Specifically, the court held that Regulation 11 was applicable in this case as it pertains to the acquisition of additional shares beyond a certain threshold, which necessitates a public announcement.

2. Requirement of Public Announcement of Offer:
The court emphasized that public announcement is a crucial mechanism to protect the interests of shareholders. It was noted that the Swedish Match Group was required to make a public announcement upon acquiring additional shares from the Jatia Group, which they failed to do. This omission violated the mandatory provisions of Regulation 11, which necessitates a public offer when additional shares are acquired that increase voting rights by more than 5%.

3. Interpretation of the Term "Change in Control":
The court examined whether the cessation of joint control and the acquisition of sole control by the Swedish Match Group constituted a "change in control" under Regulation 12. It was determined that the proviso to Regulation 12, which exempts changes in control approved by a resolution in a general meeting, was not applicable. The explanation to Regulation 12 clarified that the cessation of joint control by one party does not constitute a change in control, thereby excluding the need for a public announcement under this regulation.

4. Application of Penal Provisions under SEBI Act, 1992:
The court considered whether penal provisions should be applied for the failure to make a public announcement. It was noted that SEBI had the discretion to initiate criminal proceedings, impose monetary penalties, or issue directions under Section 11B of the SEBI Act. However, given the complexities and ambiguities in interpreting the regulations, the court exercised its jurisdiction under Article 142 of the Constitution to direct SEBI to forbear from proceeding with the adjudication against the appellants. This decision was made to avoid imposing a penalty where the legal position was not clear.

Conclusion:
The court allowed the appeal in part, holding that the appellants violated Regulation 11 by failing to make a public announcement. However, it directed SEBI to refrain from penal actions due to the ambiguities in the regulations, emphasizing that this decision should not be treated as a precedent.

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