2001 (7) TMI 1318 - AT - SEBI

Summary

Issues Involved:
1. Whether the appellant is a promoter of MRL.
2. Whether the appellant is a person deemed to be acting in concert with the acquirers.
3. Whether the appellant is ineligible to participate in the public offer.

Issue-wise Detailed Analysis:

1. Whether the appellant is a promoter of MRL:
The appellant was shown as a promoter in the offer document issued by MRL in February 1992 and in several declarations filed with stock exchanges and financial institutions. Despite the appellant's contention that such disclosures were made without its knowledge or approval, the appellant cannot disown its own declaration filed on 3-4-2001, showing it as a promoter. These statutory declarations cannot be brushed aside as routine or insignificant. Therefore, the SEBI's finding that the appellant is a promoter of MRL is upheld.

2. Whether the appellant is a person deemed to be acting in concert with the acquirers:
The definition of "person acting in concert" in Regulation 2(1)(e) includes those who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, cooperate by acquiring or agreeing to acquire shares or voting rights. The appellant is not involved in the acquisition of shares or voting rights in MRL but is a seller in this case. Therefore, it cannot be considered as a person acting in concert with the acquirers. The argument that the appellant is an investment company under Regulation 2(1)(e)(2)(x) is also not tenable, as the appellant's main business is manufacturing, not investment.

3. Whether the appellant is ineligible to participate in the public offer:
The SEBI's order disqualifying the appellant from participating in the public offer is based on the premise that allowing the appellant, a promoter, to participate would be detrimental to the interests of public shareholders. However, the regulations do not prohibit a promoter simpliciter from participating in a public offer. The argument that the appellant's participation would reduce the quantum of shares available to other public shareholders is not a valid ground to deny the appellant's right to participate. The regulations are designed to protect the interests of all shareholders, and denying the appellant's participation would be contrary to the principles of equality of treatment and opportunity to all shareholders.

Conclusion:
The appeal is allowed, and the SEBI's direction that the appellant shall not be eligible to participate in the public offer is set aside. The appellant, though a promoter of MRL, is not an acquirer or a person acting in concert with the acquirers and is therefore eligible to participate in the public offer. The reasons provided by SEBI for the appellant's exclusion are legally unsound and untenable.