2019 (12) TMI 1656 - Board - SEBI

Violation of Regulation 11(1) of the SAST Regulations - Non issue of open offer - Huge rise of traded volumes and price of the shares on BSE - Whether agreement/decision/intention to acquire the shares and control of the Target Company by the acquirer triggers the open offer requirement under Regulations 10 and 12 of SAST Regulations, 1997 respectively? - HELD THAT - Any person either by himself or along with the persons acting in concert who agrees to acquire shares or voting rights or agrees to acquire control over the target company would come within the definition of acquirer irrespective of the time when actual acquisition of shares happened. As per Regulation 2(1)(b) i.e. definition of acquirer ; Regulation 10 relating to acquisition of 15% or more shares or voting rights; Regulation 12 relating to acquisition of control and the provisions of Regulation 14(1) and 14(3) relating to public announcement, open offer requirement under SAST Regulations, 1997 are triggered by person along with persons acting in concerts on (i) agreeing to acquire shares of the Target Company above the limits prescribed; (ii) agreeing to acquire control of a target company. Therefore, agreement/decision/intention to acquire the shares and control of the Target Company by the acquirer triggers the open offer requirement under Regulations 10 and 12 of SAST Regulations, 1997 respectively. Whether the Noticees had the agreement/decision/intention to acquire the shares of FFSL and to take control of the management of FFSL? - Whether the MOU is only in the nature of mere understanding or has taken the character of agreement which records the rights and obligations agreed between the parties? - HELD THAT - As no proof of communication of rescission of MOU was given by the Noticees. Instead, even as per their case, some tranches of physical share certificates were continued to be transferred in the name of BPJ nominees in the month of April, 2012. If the MOU has been rescinded in November 2010, there was no occasion for acceptance of physical share certificates later in April 2012 which only go to show the Noticees were acting still pursuant to the MOU. Further, BPJ vide letter dated January 30, 2019 has stated that AMPL and NVPL had backed out in the month of June 2010. However, instead of rescinding the MOU even at that stage, their shares were subsequently transferred to Mr. R Rathinmala and Mr. B Satya Prakash respectively showing further that the argument of rescission of MOU is only an afterthought. It is further noted the basis of the trigger of respective provisions of the SAST Regulations, 1997 in the instant matter is on the basis of agreement to acquire shares and control. Therefore, the consideration of arguments which goes to establish that the actual acquisition of threshold limits of shares or actual acquisition of control did not happen as advanced by the Noticees, does not require consideration. Accordingly, those arguments are not considered. As per the MOU dated May 27, 2010, Noticees (except) BPJHUF had an agreement / decision / intention to acquire 58.08% of the shares of FFSL for a consideration of Rs. 21,76,650 /- (by issuing cheques / post-dated cheques) and control of management of FFSL by appointing majority of directors on the Board on FFSL. Whether the Noticees are acquirers/Persons Acting in Concert? - As upon perusal of MOU dated May 27, 2010 and letters attached thereto, I note that BPJ-HUF was neither the part of MOU dated May 27, 2010 nor issued any cheques to Mr. Natarajan or promoter of FFSL for acquisition of shares of FFSL. Hence, on May 27, 2010, BPJ-HUF did not have any agreement / decision / intention to acquire the shares of FFSL and control over FFSL. Thus, on May 27, 2010 BPJ-HUF was neither the acquirer nor person acting in concert for the acquisition of 21,76,650 equity shares (58.08%) of FFSL and control over FFSL. Hence, find merit in the said contention of BPJ-HUF. Whether the Noticees have violated the provisions of Regulations 10 and 12 of SAST Regulations, 1997 and Section 12A(f) of SEBI Act, 1992 as alleged in the SCN? - In the instant matter, it is noted that Noticees (except BPJ-HUF) had agreed / decided that nominees of BPJ shall be appointed on the Board of FFSL leaving one promoter director. Thus, on May 27, 2010 Noticees (except BPJ-HUF) had agreed / decided to the right to appoint the majority of directors on the Board on FFSL i.e. to have control over the management of FFSL. Thus, Noitcees (except BPJ-HUF) were required to make public announcement of offer within 4 working days from the date of deciding the changes that would result in control over management of FFSL. However, it is noted that Noticees (except BPJ-HUF) did not made any public announcement of offer within 4 working days from May 27, 2010. Hence, Noticees (except BPJ-HUF) had violated the provisions of regulation 12 read with regulation 14(3) of SAST Regulations, 1997. Thus, the allegation for the violation of the provisions of Regulations 10 and 12 of SAST Regulations, 1997 and Section 12A(f) of SEBI Act, 1992 against Noticees (except BPJHUF) stands established. BPJ-HUF had not violated the provisions of Regulations 10 and 12 of SAST Regulations, 1997. Thus, the allegation for the violation of the provisions of Regulations 10 and 12 of SAST Regulations, 1997 and Section 12A(f) of SEBI Act, 1992 against BPJ-HUF does not stand established. What directions should be issued against the Noticees? - As the fact that the scrip is under suspension further strengthens the case that in the interest of shareholders / investors, it is fit case to direct the Noticees (except BPJ-HUF) to make a public announcement of open offer. ORDER B. P. Jhunjhunwala, Ruhi Jhunjhunwala, Mala Jhunjhunwala, Skyed Network Private Limited, Anurodh Merchandise Private Limited, Nandlal Vyapaar Private Limited, BPJ Holdings Private Limited and Radhasoami Resources Limited shall make a public announcement to acquire shares of the target company in accordance with the provisions of the SAST Regulations, 1997, within a period of 45 days from the date of service of this order; B. P. Jhunjhunwala, Ruhi Jhunjhunwala, Mala Jhunjhunwala, Skyed Network Private Limited, Anurodh Merchandise Private Limited, Nandlal Vyapaar Private Limited, BPJ Holdings Private Limited, Radhasoami Resources Limited shall, alongwith the consideration amount, pay interest at the rate of 10% per annum on the consideration amount to the eligible shareholders as per the ratio laid down in Clariant International Limited and another vs. SEBI 2004 (8) TMI 390 - SUPREME COURT after adjustment of dividend paid, if any.

Summary

Issues Involved:
1. Whether agreement/decision/intention to acquire the shares and control of the Target Company by the acquirer triggers the open offer requirement under Regulations 10 and 12 of SAST Regulations, 1997 respectively?
2. Whether the Noticees had the agreement/decision/intention to acquire the shares of FFSL and to take control of the management of FFSL?
3. Whether the Noticees are acquirers/Persons Acting in Concert?
4. Whether the Noticees have violated the provisions of Regulations 10 and 12 of SAST Regulations, 1997 and Section 12A(f) of SEBI Act, 1992?
5. What directions should be issued against the Noticees?

Detailed Analysis:

Issue 1: Whether agreement/decision/intention to acquire the shares and control of the Target Company by the acquirer triggers the open offer requirement under Regulations 10 and 12 of SAST Regulations, 1997 respectively?

The judgment clarifies that the open offer requirement under Regulations 10 and 12 of SAST Regulations, 1997 is triggered by the agreement/decision/intention to acquire shares and control of a target company. This is supported by the definitions of "acquirer" and the provisions of Regulations 10, 12, 14(1), and 14(3) of SAST Regulations, 1997. The Hon’ble SAT and Supreme Court rulings reinforce that an agreement to acquire shares or control, irrespective of the actual acquisition, mandates a public announcement to provide an exit opportunity to shareholders.

Issue 2: Whether the Noticees had the agreement/decision/intention to acquire the shares of FFSL and to take control of the management of FFSL?

The MOU dated May 27, 2010 between BPJ and Mr. P. Natarajan, representing promoters and shareholders of FFSL, indicated an agreement to acquire 58.08% shares of FFSL and control over its management. The MOU contained specific terms for the acquisition, including the issuance of cheques/post-dated cheques and the appointment of nominees on the Board of FFSL. Despite the Noticees' contention that the MOU was not binding, the judgment concluded that the MOU was indeed an agreement reflecting the intention to acquire shares and control.

Issue 3: Whether the Noticees are acquirers/Persons Acting in Concert?

The judgment found that BPJ, Ruhi, Mala, SNPL, AMPL, NVPL, RSPL, OIPL, and BPJHPL acted in concert to acquire 58.08% shares of FFSL. The MOU and the issuance of cheques/post-dated cheques demonstrated a common objective and cooperation to acquire shares and control over FFSL. BPJ-HUF was excluded as it neither participated in the MOU nor issued cheques for the acquisition.

Issue 4: Whether the Noticees have violated the provisions of Regulations 10 and 12 of SAST Regulations, 1997 and Section 12A(f) of SEBI Act, 1992?

The Noticees (except BPJ-HUF) violated Regulations 10 and 12 of SAST Regulations, 1997 by failing to make a public announcement of the open offer within four working days of the MOU dated May 27, 2010. This failure deprived shareholders of their exit opportunity as mandated by the regulations.

Issue 5: What directions should be issued against the Noticees?

The judgment directed BPJ, Ruhi, Mala, SNPL, AMPL, NVPL, BPJHPL, and Radhasoami Resources Limited to make a public announcement to acquire shares of FFSL in accordance with SAST Regulations, 1997 within 45 days. They were also ordered to pay interest at 10% per annum on the consideration amount to eligible shareholders. The SCN against BPJ-HUF was disposed of without any directions.

Order:
1. BPJ, Ruhi, Mala, SNPL, AMPL, NVPL, BPJHPL, and Radhasoami Resources Limited to make a public announcement to acquire shares of FFSL within 45 days.
2. Pay interest at 10% per annum on the consideration amount to eligible shareholders.
3. The SCN against BPJ-HUF is disposed of without any directions.