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2016 (12) TMI 255 - SC - Companies LawGuilty of contravening the provisions of Regulation 22(7) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 - whether the words Memorandum of Understanding are not words of Art conveying a single meaning? - Held that - In the present case, while Burren was the acquirer, UBL was the person acting in concert. This is evident from the letter of offer (public announcement) dated 15th February, 2005. The embargo under Section 22(7) is both on the acquirer and a person acting in concert. The expression person acting in concert includes a corporate entity Regulation 2(1)(e)(2)(i) of the Regulations and also its directors and associates Regulation 2(1)(e)(2)(iii) of the Regulations . If this is what is contemplated under the Regulations we do not see how the first argument advanced by Shri Divan on behalf of the respondents can have our acceptance. Insofar as the second argument advanced by Shri Divan is concerned it is correct that in the definition of offer period contained in Regulation 2(1)(f) of the Regulations, relevant for the present case, a concluded agreement is not contemplated to be the starting point of the offer period. But such a consequence must naturally follow once the offer period commences from the date of entering into a Memorandum of Understanding which, in most cases would reflect an agreement in principle falling short of a binding contract. If the offer period can be triggered of by an understanding that is yet to fructify into an agreement, we do not see how the same can be said not to have commenced/started from the date of a concluded agreement i.e. share purchase agreement as in the present case. Thus we will have to hold that the learned Tribunal was incorrect in reaching its impugned conclusions and in reversing the order of the Adjudicating Officer. Consequently the order of the learned Tribunal is set aside and that of the Adjudicating Officer is restored. The penalty awarded by the Adjudicating Officer by order dated 25th August, 2006 shall be deposited in the manner directed within two months from today.
Issues:
Challenge to order of Securities Appellate Tribunal reversing guilt for contravening Regulation 22(7) of SEBI Regulations. Analysis: 1. The appeal challenges the Securities Appellate Tribunal's order reversing guilt for violating Regulation 22(7) of SEBI Regulations, imposing a penalty of ?25 lakhs on each respondent. SEBI appeals the reversal. 2. The case involves Burren Energy India Ltd. acquiring the equity share capital of Unocal Bharat Limited, which held 26.01% shares of Hindustan Oil Exploration Co. Ltd., triggering the Regulations due to exceeding the 15% threshold. 3. Burren appointed Directors on UBL's and the target company's boards on the same day as the share purchase agreement, leading to alleged violation of Regulation 22(7) during the offer period. 4. The Tribunal interpreted the "offer period" as starting from the public announcement date, not requiring a Memorandum of Understanding, thus finding no violation by the respondents. 5. The appellant argued that a Memorandum of Understanding could include a concluded agreement, and the offer period should start from the share purchase agreement date. 6. The Court held that the Regulations disqualify both the acquirer and persons acting in concert, including corporate entities, from board appointments, rejecting the respondent's argument. 7. The Court found that while the Regulations do not specify a concluded agreement as the offer period start, it logically follows that it should commence from that date, as in the present case. 8. The Court concluded that the Tribunal erred in its decision, reinstating the Adjudicating Officer's order and directing the penalty payment within two months. 9. The appeal was allowed in favor of SEBI, upholding the violation of Regulation 22(7) and the penalty imposed on the respondents.
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