2005 (12) TMI 603 - AT - Companies Law

Summary

Issues Involved:
1. Condonation of delay in filing the appeals.
2. Valuation of shares under Regulation 20(5) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.
3. Acceptance of consideration by appellants and subsequent claim for enhancement.
4. Determination of fair market value by SEBI and appointed Chartered Accountants.
5. Alleged undervaluation and non-compliance with established accounting principles.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeals:
The appellants submitted that the delay of nine days was due to the Durga Puja festival, which prevented them from approaching the court in time. The court, noting the statutory nature of the appeal and the bona fide delay, condoned the delay after hearing both parties. Consequently, the appeals were admitted.

2. Valuation of Shares under Regulation 20(5) of SEBI Takeover Code:
The core grievance was that SEBI and the merchant banker did not value the shares of the target company in accordance with Regulation 20(5) of the Takeover Code. The appellants sought an enhancement of the share value, arguing that the valuation did not adhere to the parameters set out in the regulation. Initially, the merchant banker determined the share price at Rs. 40 per share, which was based on a memorandum of understanding. This valuation was contested by the appellants.

3. Acceptance of Consideration by Appellants and Subsequent Claim for Enhancement:
Despite accepting the consideration offered under the takeover code, the appellants tendered their shares "without prejudice" and later sought an enhancement of the share value. This situation arose from the appellants' dissatisfaction with the offered price and their subsequent appeal for a higher valuation.

4. Determination of Fair Market Value by SEBI and Appointed Chartered Accountants:
SEBI appointed multiple Chartered Accountants to determine the fair market value of the shares. Deloitte initially valued the shares at Rs. 43.02 per share. Following objections, SEBI appointed Patni & Co., which valued the shares at Rs. 63.50 and Rs. 64.17 per share using different methods. The merchant bankers later appointed Chadha & Co., which valued the shares at Rs. 60.04 per share. SEBI, considering public interest, accepted the highest valuation by Patni & Co. at Rs. 64.17 per share plus interest, leading to a final offer price of Rs. 81.28 per share.

5. Alleged Undervaluation and Non-Compliance with Established Accounting Principles:
The appellants argued that the valuation did not comply with established accounting principles and that the assets of Ace Glass Containers, a subsidiary of the target company, were not considered. However, the court noted that Ace Glass was not a subsidiary as per the Companies Act, 1956, since the target company did not hold more than half of its equity share capital. The court also found that the Chartered Accountants had broadly complied with the parameters under Regulation 20(5), including return on net worth, book value, and earnings per share.

Conclusion:
The court concluded that there was no evidence of mala fide actions by the Chartered Accountants or SEBI. The valuation reports were found to be credible, and the highest valuation was accepted by SEBI in the interest of fairness. The appeals were dismissed, and no order as to costs was made.