2019 (5) TMI 937 - AT - SEBI

Violation of the Takeover Regulation - inter se transfer between promoters made in the open market - appellant s holding in the Target Company increased from 24.74 percent to 25.04 percent - shares were purchased for a price exceeding the exempted limit, in view of Regulation 3(1) read with Regulation 3(3) of the Takeover Regulations the acquisition has allegedly triggered an open offer - HELD THAT - Considering all the aspects of the case that violation of the Takeover Regulation is only to the extent of 0.04 percent and that too due to transfer of shares between the promoters via open market, the direction of the WTM to make public announcement to acquire shares would be disproportionate. The directions as provided by Rule 32(1)(b) of the Takeover Regulations as cited supra would meet the ends of justice. The appellant can be directed to transfer 0.04 percent shares i.e. 2000 shares through open market and to direct to deposit an amount of ₹ 3,60,300/- (2000 shares x ₹ 180.15 purchase price) in the Investor Protection and Education Fund would meet the ends of justice. Order 1. The appeal is hereby partly allowed. The order of the WTM directing the appellant to make public announcement to acquire shares of the target company and to pay interest at the rate of 10 percent as detailed in the order is hereby set aside. 2. Instead it is hereby directed that the appellant shall transfer 2000 shares in open market within a period of 4 weeks and shall deposit an amount of ₹ 3,60,300 in the Investor Protection and Education Fund established by SEBI within a period of six weeks from the date of this order. 3. In default, the amount shall carry interest at the rate of 12 percent p.a. from the date of this order till the date of deposit.

Summary

Issues:
1. Interpretation of Takeover Regulations regarding triggering of open offer obligation.
2. Applicability of making a public announcement to acquire shares in accordance with the regulations.
3. Consideration of directing divestment of shares acquired in violation of regulations.
4. Comparison with previous cases and relevant legal precedents.

Issue 1: Interpretation of Takeover Regulations regarding triggering of open offer obligation
The appellant challenged the order directing a public announcement to acquire shares of the target company due to an inter se transfer of shares between promoters. The appellant argued that as the total promoter holding remained the same, the open offer obligation should not apply. However, the Whole Time Member (WTM) concluded that the acquisition triggered an open offer as the acquisition price exceeded the exempted limit under the Takeover Regulations.

Issue 2: Applicability of making a public announcement to acquire shares in accordance with the regulations
The WTM relied on a previous Tribunal decision to direct the appellant to make a public announcement to acquire shares within 45 days. The appellant contended that the WTM should have directed the deposit of a specific amount to the Investor Protection and Education Fund instead of making a public announcement. The WTM's decision was based on the principle that in cases of violation of Takeover Regulations, the normal rule is to direct the entity to make a public offer.

Issue 3: Consideration of directing divestment of shares acquired in violation of regulations
The Tribunal analyzed Rule 32 of the Takeover Regulations, which provides the power to issue directions for divestment of shares acquired in violation of regulations and transfer of proceeds to the Investor Protection and Education Fund. The Tribunal found that in cases of minor acquisitions above the permitted limit, especially between promoters, directing divestment through sale in small lots and transferring proceeds to the Fund could be a suitable alternative to making a public announcement.

Issue 4: Comparison with previous cases and relevant legal precedents
The Tribunal compared the present case with previous judgments, including Nirvana Holdings Pvt. Ltd. vs. SEBI and SEBI vs. Kishore R. Ajmera. It noted that in cases of minor violations and acquisitions between promoters, directing divestment and transferring proceeds to the Fund could align with the interest of investors and the securities market. The Tribunal ultimately allowed the appeal partly, setting aside the order for a public announcement and directing the appellant to transfer shares and deposit a specific amount to the Fund instead.

This detailed analysis of the legal judgment covers the interpretation of Takeover Regulations, the applicability of making a public announcement, the consideration of divestment of shares, and the comparison with relevant legal precedents to provide a comprehensive understanding of the issues involved in the case.