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2018 (7) TMI 114 - AT - Companies LawAdditional shares entitling voting rights - additional shares acquired in violation of regulation 11(2) - Second proviso to regulation 11(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 permitting to acquirer to acquire additional shares without making public announcement of an open offer, entitling additional voting rights only up to 5% of the total voting rights of the target company - Held that - Fact that the shares acquired after 06.08.2009 were directed to be sold in the peculiar facts of that case, would not come in the way of SEBI in reconsidering the question as to why benefit of doubt should not be extended to the appellants in relation to the acquisitions made prior to 06.08.2009. In the present case, acquisitions made by the appellants in violation of regulation 11(2) relate to the period prior to 06.08.2009. Therefore, if by order dated 05.09.2014 benefit of doubt could be given to Madhusudan Jhunjhunwala & Ors. in respect of additional shares acquired in violation of regulation 11(2) prior to 06.08.2009, there is no reason as to why the same benefit of doubt ought not be extended to the appellants in Appeal We answer the first question by holding that under the second proviso to regulation 11(2), additional shares entitling voting rights up to a maximum of 5% alone could be acquired without making open offer. Since the appellants had acquired additional shares entitling more than 5% voting rights in the target company in violation of regulation 11(2), appellants were liable to make open offer. However, in view of the decision of WTM dated 04.09.2014 in case of Madhusudan Jhunjhunwala & Ors., we restore the issue for the limited purpose of considering the question as to whether the benefit of doubt extended to Madhusudan Jhunjhunwala & Ors. (2014 (9) TMI 1154 - SECURITIES AND EXCHANGE BOARD OF INDIA) in relation to acquisitions in violation of regulation 11(2) on or before 06.08.2009 could be extended to the appellants in Appeal. Whether the expression bulk deal in the second proviso to regulation 11(2) of the 1997 Regulations disentitles the acquirer covered under regulation 11(2) from acquiring additional shares entitling up to 5% of voting rights without making open offer, if additional shares are acquired in excess of 0.5% shares of the target company by a single transaction executed during the day in the normal market segment? - Held that - The appellants in their letters/ reply had erroneously admitted that by acquiring additional shares in excess of 0.5% they have committed technical breach cannot be a ground to disregard the clarification issued by SEBI vide interpretative Circular dated 06.08.2009. Similarly, fact that BSE and NSE have shown the transactions of the appellants in the category of bulk deal cannot be a ground to deny the benefit of the second proviso to regulation 11(2) especially in view of the interpretative Circular of SEBI dated 06.08.2009. Accordingly, we answer the 2nd question by holding that as per the second proviso to regulation 11(2) of the 1997 Regulations read with the interpretative Circular issued by SEBI on 06.09.2009, an acquirer covered under regulation 11(2) could acquire additional shares entitling more than 0.5% voting rights in a single transaction up to a maximum of 5% voting rights without making an open offer.
Issues Involved:
1. Interpretation of the second proviso to regulation 11(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. 2. Definition and implications of 'bulk deal' under the second proviso to regulation 11(2). Detailed Analysis: First Issue: Interpretation of the Second Proviso to Regulation 11(2) 1. Background: The appellants in Appeal No. 265 of 2015 acquired additional shares without making a public announcement of an open offer, arguing that their acquisitions were within the permissible limits of the second proviso to regulation 11(2) of the 1997 Regulations. 2. Appellants’ Argument: The appellants contended that due to the lack of clarity in the second proviso to regulation 11(2), they believed they could acquire up to 5% additional shares in each financial year without making an open offer. They relied on SEBI Board’s note dated 27.10.2008. 3. Tribunal’s Analysis: - The language of the second proviso to regulation 11(2) does not suggest that more than 5% voting rights can be acquired in each financial year without an open offer. - The distinction between the language used in regulation 11(1) and 11(2) was highlighted, showing that the appellants' interpretation was not justified. - The SEBI Board’s note dated 27.10.2008 was not incorporated into the final regulation, thus it cannot override the clear language of the regulation. - The interpretative Circular dated 06.08.2009 clarified the provisions of the second proviso to regulation 11(2), confirming that only up to 5% voting rights could be acquired without an open offer. 4. Conclusion: The appellants in Appeal No. 265 of 2015 violated regulation 11(2) by acquiring more than 5% voting rights without an open offer. However, the tribunal directed SEBI to reconsider the directions against the appellants in light of a similar case (Madhusudan Jhunjhunwala & Ors.) where benefit of doubt was given for acquisitions prior to 06.08.2009. Second Issue: Definition and Implications of 'Bulk Deal' 1. Background: The WTM of SEBI held that acquisitions in excess of 0.5% shares in a single transaction during the day constituted a 'bulk deal', which disqualified the appellants from the exemption under the second proviso to regulation 11(2). 2. WTM’s Basis: The WTM relied on SEBI Circulars dated 14.01.2004 and 02.09.2005 to define 'bulk deal' as transactions exceeding 0.5% shares of the target company during the day. 3. Tribunal’s Analysis: - The term 'bulk deal' is not defined in the 1997 Regulations. - SEBI Circular dated 14.01.2004 aimed at transparency and disclosure does not define 'bulk deal' for the purposes of regulation 11(2). - SEBI Circular dated 02.09.2005 also does not generally define 'bulk deal' for all purposes. - The interpretative Circular dated 06.08.2009 clarified that additional shares up to 5% voting rights could be acquired in one or more tranches, indicating that single transactions up to 5% are permissible. - The interpretative Circular takes precedence over the earlier circulars which were issued in a different context. 4. Conclusion: The tribunal held that under the second proviso to regulation 11(2), additional shares up to 5% voting rights could be acquired in a single transaction without making an open offer. The decisions of the WTM based on the earlier SEBI Circulars were quashed. Final Order: 1. The tribunal upheld SEBI’s decision that under the second proviso to regulation 11(2), an acquirer could only acquire up to 5% voting rights without making an open offer. 2. The tribunal quashed the WTM’s decision that acquisitions exceeding 0.5% in a single transaction disqualified the appellants from the exemption. 3. The order in Appeal No. 265 of 2015 was set aside and remanded to SEBI for reconsideration in light of the Madhusudan Jhunjhunwala & Ors. case. 4. All other appeals were allowed, and the respective impugned decisions were quashed.
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