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2015 (11) TMI 1426 - SC - Companies LawBuy back arrangement - collaboration for profitable implementation - Appellant contended that as his buy-back from HSIDC, was a transfer of shares from a State level financial institution to a co-promoter of the Target Company, it was exempt under Regulation 10 - Tribunal dismissed the contention stating that the exemption under Regulation 10 was only with respect to making a public announcement and does not permit the Appellant from not disclosing the transaction for the purpose of calculating the minimum offer price - whether the transaction of buy-back of shares which transpired between the Appellant and HSIDC was required to be disclosed in the public announcement dated 24.4.1999 Held that - It is evident from a reading of the Regulations 10, 11 and 12 the buy-back transaction between the Appellant and HSIDC was incapable of triggering Regulation 10, as the said transaction was protected by Regulation 3. However, the acquisition of the entire share capital of Garg by the Appellant attracted Regulation 10 as the acquisition was in excess of 15%. Further, as this transaction was between two promoters, it did not have the protection of Regulation 3. As required under Regulation 10, the Appellant did make a public announcement, but did not disclose its buy-back transaction with HSIDC. The Appellant has vainly and incorrectly attempted to justify his act of non-disclosure by stating that the transaction with HSIDC was protected by Regulation 3, which placed it beyond the ambit of Regulation 10, 11 and 12. In our view, Regulation 3 only protects a transaction between a co-promoter and a State financial institution to the extent that, as a consequence of such transaction a public announcement will not be required to be made as provided under Regulations 10, 11 and 12. However, it does not imply that the said transaction is to be protected from the rigours of other Regulations provided for under the Act. Thus, the transaction between the Appellant and HSIDC will have to be subject to Regulations 16 and 20, and the rate at which the Appellant bought back the shares from HSIDC had to be disclosed in the public announcement. Find no force whatsoever in the contention of the Learned Counsel for the Appellant that the post-dated cheques forwarded to HSIDC enclosed with letter dated 15.4.1999 were given by way of a guarantee, especially in light of the fact that the same was denied by HSIDC in its letter to SEBI dated 11.1.2001, wherein HSIDC stated that the post-dated cheques had been issued in consideration of the buy-back of shares. Cheques presented dishonoured on presentation - It has already been held beyond doubt that the post-dated cheques issued by the Appellant in favour of HSIDC were in consideration of the buy-back of the shares held by HSIDC in the Target Company. The Appellant had submitted that the cheques were post-dated because he was suffering from a liquidity crunch. In our view, the post-dated cheques amounted to a promise to pay and that promise would be fulfilled on the date mentioned on the cheque. Thus, this promise to pay amounted to a sale of shares/equity. The subsequent dishonouring of the post-dated cheque would have no bearing on the case. At the time of making the public announcement the Appellant had bought back the shares of HSIDC by making payment via the said post-dated cheques. Further, as the buy-back was in pursuance of an agreement, there was consensus ad idem. The Appellant has subsequently shirked his responsibility and has tried to slither away from honouring the agreement, which he cannot be allowed to gain from, as is established by the legal maxim commodum ex injuri su non habere debet. As per Regulation 2 Clause (1) Sub-clause (a)- acquisition means directly or indirectly acquiring or agreeing to acquire shares or voting rights in, or control over, a Target Company. This definition clarifies that an acquisition takes place the moment the acquirer decides or agrees to acquire, irrespective of the time when the transfer stands completed in all respects. The definition explicates that the actual transfer need not be contemporaneous with the intended transfer and can be in futuro. Also the letter on which the Counsel for the Appellant had placed reliance to prove that there was no acquisition, is dated 9.12.1999, which was well after the public announcement dated 24.4.1999 where the Appellant was required to make disclosures in compliance with the Regulations. This clearly indicates, that at the date of making the public announcement the Appellant was under the impression that the acquisition has taken place.
Issues Involved:
1. Validity of the buyback transaction between the Appellant and HSIDC. 2. Applicability of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. 3. Requirement of disclosure in the public announcement. 4. Determination of the minimum offer price. 5. Impact of dishonoured post-dated cheques on the acquisition. Issue-wise Detailed Analysis: 1. Validity of the Buyback Transaction: The core issue revolves around the buyback agreement between the Appellant and HSIDC. Garg defaulted on his obligations, leading to an agreement with the Appellant for the sale of Garg's shareholding in the Target Company. The Appellant agreed to buy back HSIDC's shares, providing post-dated cheques as consideration. HSIDC accepted the Appellant as the new guarantor, and a tripartite agreement was formed. The Tribunal and SEBI concluded that the post-dated cheques were indeed consideration for the buyback, not mere security, as evidenced by communications from both the Appellant and HSIDC. 2. Applicability of SEBI Regulations: The Appellant argued for exemption under Regulation 3(1)(i), which exempts transfers from state financial institutions to co-promoters from the requirements of Regulations 10, 11, and 12. However, the Tribunal and SEBI found that while the transaction with HSIDC did not trigger a public announcement requirement under Regulation 10, the subsequent acquisition of Garg's shareholding (28.09%) did. This acquisition exceeded the 15% threshold, thus necessitating compliance with Regulation 10. 3. Requirement of Disclosure in the Public Announcement: Regulation 16 mandates disclosure of the highest price paid by the acquirer in the public announcement. The Appellant failed to disclose the buyback transaction with HSIDC in the public announcement dated 24.4.1999. The Tribunal and SEBI held that this non-disclosure violated Regulation 16(viii), which requires transparency to protect shareholders' interests. The Appellant's argument that the transaction was exempt under Regulation 3 was dismissed, as Regulation 3 does not exempt the transaction from other regulatory requirements, including disclosure. 4. Determination of the Minimum Offer Price: Regulation 20(2)(b) requires that the highest price paid by the acquirer within 26 weeks prior to the public announcement be considered for determining the minimum offer price. The Tribunal found that the Appellant paid Rs. 23.75 per share to HSIDC, which was higher than the public offer price of Rs. 8.75. Despite the Appellant's contention that the acquisition had not been completed due to dishonoured cheques, the Tribunal held that the promise to pay via post-dated cheques constituted an acquisition, thus necessitating the higher price in the public offer. 5. Impact of Dishonoured Post-dated Cheques: The Appellant argued that since the post-dated cheques were dishonoured, the acquisition was incomplete. However, the Tribunal and SEBI held that the issuance of post-dated cheques amounted to a promise to pay, thus constituting a sale of shares at the time of the public announcement. The dishonour of cheques did not negate the acquisition, as the agreement and intention to buy back the shares were clear. The legal maxim "commodum ex injuria sua non habere debet" (one should not benefit from their own wrong) was applied to prevent the Appellant from escaping liability due to the dishonoured cheques. Conclusion: The Tribunal and SEBI concluded that the Appellant violated the SEBI Regulations by failing to disclose the buyback transaction and by offering a lower price in the public announcement. The Appellant was directed to make a fresh public announcement offering Rs. 23.75 per share along with interest. The appeal was dismissed, upholding SEBI's order and emphasizing the importance of transparency and compliance with regulatory requirements to protect shareholders' interests.
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