2019 (5) TMI 1173 - AT - SEBI

Revision of offer price for acquiring 26 percent of the shares of the target Company - SEBI resorted to the provisions of Regulation 8(16) of the SAST Regulations and appointed M/s. Haribhakti and Company LLP (referred to hereinafter as Haribhakti ) as Chartered Accountant for computation of fair price of the target company - HELD THAT - Considering the report of the two valuers submitted by the appellant Tenneco Inc. alongwith the draft letter, respondent SEBI took the course of appointing an independent Chartered Accountant Haribhakti. On the basis of this third valuation report in its direction/observation has revised the offer price to ₹ 608.46/-. The record of SEBI as produced before us would show that after communicating these observations the appellant sought the material from respondent SEBI on the basis of which Haribhakti had arrived at the said conclusion. Though elaborate procedure of hearing the acquirer before appointing independent Chartered Accountant by respondent SEBI is not required, the respondent SEBI ought to have given an opportunity to the appellant before revising the offer price by providing material on the basis of which Haribhakti had arrived at different valuation. Then respondent SEBI should have taken decision by recording brief reasons upon consideration of the objections, if any, received from the appellant to the valuation arrived at by Haribhakti. In the circumstance, in view of the above fact there is no need to consider the plea of Mr. Mohan Krishnaswamy, the appellant and counter submissions of the appellant. The case is remitted back to the respondent SEBI. Since the appellant has now received the valuation report of Haribhakti and other documents during the pendency of the appeal it would be at liberty to raise objections to the report before the respondent SEBI, within a period of three weeks from the date of this order.

Issues:
1. Challenge to the direction by SEBI to revise the offer price for acquiring shares of the target company.
2. Appointment of an independent Chartered Accountant by SEBI for valuation.
3. Lack of opportunity given to the appellant before revising the offer price.
4. Consideration of fair value and peer group comparison.
5. Submission by a minority shareholder regarding the fair value determination.
6. Comparison of valuation methods and peer group analysis.
7. Compliance with SAST Regulations and principles of natural justice.

Issue 1: Challenge to SEBI's direction on offer price revision
The appellant challenged SEBI's direction to revise the offer price for acquiring shares of the target company. SEBI directed the revision to ?608.46 per share from the proposed ?400 per share based on valuation reports and regulatory requirements.

Issue 2: Appointment of an independent Chartered Accountant
SEBI appointed Haribhakti as an independent Chartered Accountant for the valuation of the target company's shares. This appointment was made under Regulation 8(16) of the SAST Regulations to ensure fair valuation.

Issue 3: Lack of opportunity for the appellant
The appellant argued that SEBI did not provide an opportunity to present their case before accepting Haribhakti's valuation report. The appellant claimed that the revision in offer price had significant financial implications and required a fair hearing.

Issue 4: Fair value and peer group comparison
SEBI justified the revision based on the varying valuation methods used by different valuers and the need for an independent assessment. The valuation by Haribhakti was considered appropriate, taking into account parameters like book value, market value, and comparable trading multiples.

Issue 5: Submission by a minority shareholder
A minority shareholder raised concerns about the fair value determination, specifically regarding the potential monetization of land owned by the target company. The shareholder argued that this factor was not adequately considered in the valuation process.

Issue 6: Valuation methods and peer group analysis
The appellant in another appeal challenged the offer price, suggesting a comparison with a peer company acquired at a higher price. The comparison with WABCO India Ltd. was presented as a basis for reconsidering the offer price.

Issue 7: Compliance with regulations and natural justice
The Tribunal remitted the matter back to SEBI, emphasizing compliance with Regulation 8 of the SAST Regulations. It highlighted the importance of providing the appellant with an opportunity to review and object to the valuation report before any decision on offer price revision. The Tribunal stressed the need for procedural fairness and adherence to regulatory requirements in such matters.

This detailed analysis covers the various issues raised in the legal judgment, including challenges to SEBI's direction, the appointment of an independent valuer, considerations of fair value, and compliance with regulatory procedures and principles of natural justice.

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