2017 (5) TMI 494 - AT - Companies Law

Open offer obligation under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 - whether the inter-se promoter transfers made prior to completion of 3 years of listing the target company are eligible for general exemption from open offer under Regulation 10(1)(a)(ii) of SAST Regulations? - Held that - Regulation 10(1)(a)(ii) clearly states that in order to be eligible for exemption from making an open offer inter-se transfers of shares amongst persons named as promoters in the shareholding pattern by the target company in terms of its listing agreement has to be for not less than 3 years prior to the proposed acquisition. The argument that the promoters have to be named in the listing agreement for minimum period of 3 years overall, not necessarily 3 years subsequent to the signing of the listing agreement, cannot be accepted by a plain reading of Regulation 10(1)(a)(ii). The impugned order clearly states that the inter-se transfers amongst promoters on July 9-10, 2014, September 5, 2014 and October 20, 2014 were not exempted from the open offer obligations. Further, vide e-mail dated December 4, 2015 addressed to the Manager to the Open Offer it was stated that Regulation 10(1)(a)(ii) of SAST/Takeover Regulations, 2011 was triggered. As such, there is no ambiguity in the order as the provision relating to exemption of inter-se promoter transfers from the open offer obligations is available only under Regulation 10(1)(a)(ii) of SAST/Takeover Regulations, 2011. An interpretation provided under the Scheme by an official of department of SEBI cannot be used against the correct interpretation of law (in the instant matter SAST/Takeover Regulations, 2011). Thus no reason to interfere with the impugned direction of SEBI dated May 5, 2016. As a result, the appeals fail.

Summary

Issues Involved:
1. Eligibility of inter-se promoter transfers for exemption from open offer obligations under Regulation 10(1)(a)(ii) of SAST Regulations, 2011.
2. Legal status and binding nature of informal guidance issued by SEBI under the SEBI (Informal Guidance) Scheme, 2003.
3. Implementation of open offer price and interest payment to shareholders.

Detailed Analysis:

1. Eligibility of Inter-se Promoter Transfers for Exemption from Open Offer Obligations:

The primary issue in these appeals was whether the inter-se promoter transfers made prior to the completion of three years of listing the target company were eligible for general exemption from open offer obligations under Regulation 10(1)(a)(ii) of SAST Regulations, 2011. The appellants argued that since the promoters of both the parent company and the target company remained unchanged for more than three years, they should qualify for the exemption. They relied on the interpretation of both Regulation 3(1)(e)(iii) of SAST Regulations, 1997, and Regulation 10(1)(a)(ii) of SAST Regulations, 2011, and the intention behind the amendments made to the regulations.

The respondents, SEBI, contended that the regulation clearly stated that the shareholding pattern filed by the target company in terms of the listing agreement must be available for at least three years post-listing. Since the target company was listed on July 30, 2012, and the inter-se transfers occurred between July and October 2014, the required three-year period had not been met. The tribunal agreed with SEBI's interpretation, stating that the plain reading of Regulation 10(1)(a)(ii) required a minimum of three years post-listing for the exemption to apply. The tribunal concluded that the inter-se promoter transfers were not eligible for exemption from the open offer obligations.

2. Legal Status and Binding Nature of Informal Guidance Issued by SEBI:

The appellants also argued that they relied on informal guidance issued by SEBI to another entity (Weizmann Forex Ltd.) in 2012, which they believed to be applicable to their case. They contended that informal guidance should be binding on SEBI and cited various judgments to support their argument.

SEBI countered that informal guidance issued under the SEBI (Informal Guidance) Scheme, 2003, was not legally binding and could not override the clear provisions of the statute. The tribunal agreed with SEBI, emphasizing that informal guidance constituted the view of a department and was not binding on the board. The tribunal cited its earlier decision in Deepak Mehra vs. SEBI, which held that informal guidance could not be construed as law and was not appealable. The tribunal further noted that the Weizmann Guidance was not a correct interpretation of the law and could not be used to shelter against the correct interpretation of SAST Regulations, 2011.

3. Implementation of Open Offer Price and Interest Payment to Shareholders:

The tribunal directed the appellants to proceed with implementing the open offer at the revised price of ?6.30 per share, as directed by SEBI. Additionally, the appellants were ordered to pay a simple interest of 10% per annum from the trigger dates to the shareholders who held shares on the date of the inter-se promoter transfers and whose shares were accepted in the open offer.

The tribunal also addressed the miscellaneous applications filed by some shareholders seeking to secure their interest in the open offer. The appellants had already secured an amount of ?115 crore to enable the open offer at ?3.20 per share. The tribunal directed the appellants to deposit this amount with SEBI, along with interest, within four weeks. Subject to this payment, SEBI was directed not to enforce the impugned order for a period of four weeks to allow the appellants to move the Apex Court.

Conclusion:

The tribunal upheld SEBI's decision, stating that the inter-se promoter transfers were not exempt from open offer obligations under Regulation 10(1)(a)(ii) of SAST Regulations, 2011. The tribunal also clarified that informal guidance issued by SEBI was not legally binding and could not override statutory provisions. The appellants were directed to implement the open offer at the revised price and pay the required interest to shareholders.