2016 (11) TMI 297 - SC - Companies Law

Justification for long delay on the part of the SEBI in granting approval to the offer of the appellant and situation having changed to the prejudice of the appellant, the appellants are entitled to withdraw their offer - Held that - We are in agreement with the finding recorded by the SAT that there was undue delay on the part of the SEBI in dealing with the DLO. No doubt, in a given case timeline prescribed under the Regulations may not be adhered to when the SEBI justifiably takes time in dealing with the complaints, as rightly submitted by Shri Datar, in the present case, the stand of the SEBI itself is that it could not go into the complaints for which the right forum was CLB. As regards the time taken in dealing with the complaints against the acquirers, the SEBI could have promptly proceeded with the matter. However, mere upholding of finding of SAT on the aspect of delay by SEBI is not enough to hold that the appellants are entitled to withdrawal of the public offer. The withdrawal has to be dealt with under Regulation 27, as held by this Court. The general principle is that public offer once made cannot be withdrawn. Exception to the rule is the specified situations under the Regulation as laid down by this Court in above decisions particularly in Nirma Industries Limited (2013 (5) TMI 629 - SUPREME COURT OF INDIA). In the present case, though SEBI was not justified in causing delay in giving its comments on public offer, this by itself is not enough to justify withdrawal from public offer so long as the case does not fall under Regulation 27. First question is answered accordingly. To what extent unilateral action of the target company in dealing with the property of the company after a hostile public offer is made furnish cause of action to the acquirers to withdraw the public offer and whether in the present case, decision not permitting withdrawal of public offer is justified? - Held that - In the present case, the SEBI as well as the SAT have concurrently held that public offer is capable of being carried out and has not become impossible. The assets are available with the target company. Finding has also been recorded about the circumstances preceding the public offer and the conduct of the acquirer which is based on record. The steps for development of the Vile Parle property had already been initiated and the acquirer had taken remedies before the CLB against the decision of the target company and had settled the matter with the target company. It is clear from the scheme of the regulations that there is no absolute bar for the target company to take decision about its assets, subject to compliance with statutory procedure and subject to the decision being otherwise valid. There is no doubt that against any mala fide, illegal or unjustified decision of the target company, remedies at appropriate fora are available to the aggrieved parties. Thus, there is no justification for automatic withdrawal from public offer without clear prejudice to the acquirer to the extent of rendering the carrying out of public offer impossible. In the facts of the present case, we do not find any ground to interfere with the concurrent finding of the SEBI and the SAT that request for withdrawal from public offer was not justified. Question (ii) is answered accordingly.

Issues Involved
1. Delay by SEBI in dealing with the Draft Letter of Offer (DLO).
2. Unilateral actions by the target company affecting the public offer.
3. Applicability of Regulation 27 for withdrawal of the public offer.
4. Interpretation of the Takeover Regulations and the obligations of the acquirers and the target company.

Detailed Analysis

Issue 1: Delay by SEBI in Dealing with the DLO
The appellants contended that SEBI's delay in approving the DLO rendered it impossible to conclude their open offer. They argued that adherence to the timeline prescribed under Regulations 18(2), 22(2), (3), and (4) is critical, especially in hostile takeovers. SEBI, however, justified the delay by citing the need to address complaints and conduct investigations. The court acknowledged the undue delay by SEBI but emphasized that mere delay does not justify withdrawal of the public offer unless it falls under Regulation 27.

Issue 2: Unilateral Actions by the Target Company
The appellants argued that the target company's actions, such as encumbering valuable property and siphoning funds, frustrated the public offer. They claimed these actions violated Regulation 23 and made it impossible to implement the offer. SEBI and the SAT found that the target company had initiated steps for the development of its property before the public offer and had obtained ex post facto approval from the general body of shareholders. The court held that unilateral decisions by the target company, if approved by the shareholders, do not automatically justify withdrawal from the public offer.

Issue 3: Applicability of Regulation 27 for Withdrawal of the Public Offer
The appellants sought withdrawal under Regulation 27(1)(d), arguing that circumstances merited it due to SEBI's delay and the target company's actions. The court reiterated that public offers cannot be withdrawn except in specific situations under Regulation 27, which must be construed strictly. The exceptions include legal impossibility, death of the sole acquirer, and other circumstances rendering the offer impossible. The court found that the appellants' situation did not meet these criteria and upheld the SEBI and SAT's decision to deny the withdrawal.

Issue 4: Interpretation of the Takeover Regulations
The court reviewed the principles laid down by the Justice P.N. Bhagwati Committee, which emphasized fair treatment of shareholders, truthful disclosure, and careful consideration before making public announcements. The court reiterated that the Takeover Regulations are a self-contained code ensuring that public offers are not made speculatively and that shareholders' interests are protected. The court found that the appellants had not exercised due diligence before making the public offer and were aware of the target company's financial issues.

Conclusion
The court dismissed the appeal, holding that:
1. SEBI's delay, while unjustified, did not alone merit withdrawal of the public offer.
2. The target company's actions, approved by shareholders, did not render the public offer impossible.
3. The appellants' request for withdrawal did not meet the strict criteria under Regulation 27.
4. The Takeover Regulations require careful consideration and due diligence, which the appellants failed to demonstrate.

The judgment underscores the importance of adhering to regulatory timelines and the stringent conditions under which public offers can be withdrawn.

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