2004 (8) TMI 390 - SC - Indian Laws

Rate of interest for the delay involved in making payment to the shareholders who tendered the shares in the public offer - Held that - While calculating the amount of interest, the amount of dividend paid to the shareholders should be excluded. The shareholders who by reason of default on the part of the acquirer have been deprived of interest payable on the difference of the offer price and market price would be entitled to interest as direction to pay interest being not penal in nature, they cannot make double gains. The Tribunal, in our opinion, has committed an error in holding that the dividend being a participatory benefit available to a shareholder and being distinct from interest, the same should not be taken into consideration. Therefore, direct, having regard to the peculiar facts and circumstances of the case, that the interest of justice would be sub-served, if the rate of interest is directed to be paid at the rate of 10 per cent per annum from March 1998 till 2003.

Issues Involved:
1. Rate of interest for delayed payment to shareholders.
2. Eligibility of shareholders for interest.
3. Adjustment of dividends against payable interest.
4. Jurisdiction and discretion of SEBI and the Tribunal.
5. Rights of the Administrator of the Specified Undertaking of the Unit Trust of India.

Issue-wise Detailed Analysis:

1. Rate of Interest for Delayed Payment to Shareholders:
The primary contention was the rate of interest for the delay in making payment to shareholders. The Tribunal upheld a 15% interest rate, but the Supreme Court found this excessive. The Court noted that the interest should compensate shareholders for the delay, not penalize the acquirer. The Court referenced the declining bank rates and judicial precedents, concluding that a 10% interest rate from March 1998 to 2003 was reasonable. The Court emphasized that interest should be a fair recompense for the delay, considering the market conditions and statutory provisions.

2. Eligibility of Shareholders for Interest:
The Tribunal ruled that only those shareholders who held shares on the triggering date (24-2-1998) and continued to hold them until the closure of the public offer were eligible for interest. The Supreme Court upheld this decision, stating that the purpose of Regulation 44 was to protect investors who suffered due to the delay. The Court clarified that interest should only compensate those who were shareholders during the entire period of delay, ensuring no unjust enrichment.

3. Adjustment of Dividends Against Payable Interest:
The Tribunal had ruled that dividends paid to shareholders should not be deducted from the interest payable. However, the Supreme Court disagreed, stating that dividends received during the delay period should be adjusted against the interest. The Court reasoned that shareholders should not receive double benefits (interest and dividends) for the same period. The adjustment ensures that the compensation is fair and only covers the actual loss due to the delay.

4. Jurisdiction and Discretion of SEBI and the Tribunal:
The Supreme Court discussed the discretionary powers of SEBI and the Tribunal. It emphasized that while SEBI is an expert body, its decisions are subject to appeal and judicial review. The Tribunal, also an expert body, has the authority to review SEBI's decisions comprehensively. The Court highlighted that both bodies must exercise their discretion judiciously, ensuring fairness and adherence to statutory provisions. The Tribunal's jurisdiction is broad, allowing it to make decisions that balance investor protection and market integrity.

5. Rights of the Administrator of the Specified Undertaking of the Unit Trust of India:
The Administrator argued that it should receive interest despite not being a shareholder on 24-2-1998. The Supreme Court acknowledged the unique statutory position of the Administrator, which succeeded the Unit Trust of India. Given the statutory transfer of shares and the Administrator's role, the Court ruled that it was entitled to interest, recognizing its legitimate succession to the shares and the associated rights.

Conclusion:
The Supreme Court modified the Tribunal's decision, setting the interest rate at 10% per annum from March 1998 to 2003, with dividends received during the delay period to be adjusted against the interest. The Court upheld the eligibility criteria for shareholders and recognized the Administrator's right to interest. The judgment balanced the need for fair compensation to shareholders with the principles of equity and statutory compliance.

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