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2020 (2) TMI 104 - AT - SEBIValuation of the shares of 'Target Company arising out of open offer for acquisition of 25.02% - HELD THAT - Having heard all the parties and upon appreciating the ratio of Sultania 2007 (5) TMI 334 - SUPREME COURT and Cadbury 2014 (5) TMI 1189 - BOMBAY HIGH COURT according to us, after remand of the matter to the respondent SEBI had rightly obtained the response of the appellant. It has also examined the submission of the intervener i.e. present appellant Chandra Prakash Tripathi. It also sought response from Haribhakti and thereafter made the observation vide the impugned direction. The objection of the appellant that respondent SEBI has merely cut and paste the observation of Haribhakti after the hearing was concluded, though appears to be attractive, the same will have to be repelled for the reasons that Haribhakti has not given any fresh response, but had merely relied on its earlier report. In the case of Sultania as well and in Cadbury it had been observed that the valuation being not a precise science and though all the parameters are required to be considered, the weightage to be given to each of the parameters may depend upon the facts and circumstances of each of the case, we do not find any defect in the approach of SEBI. For the similar reason the objection of Mr. Chandra Prakash Tripathi and Bhavook Tripathi will have to be rejected. The control of Indian Company cannot be transferred without completion of the open offer process or without deposit of 100% funds required for the open offer in an escrow account. This issue is also beyond the scope of the present appeal. Appellant Bhavook Tripathi would be at liberty to raise the same issue before the respondent SEBI. If such an application is filed before SEBI, the same will be disposed off expeditiously in accordance with law. The acquirer had deposited 25% of the consideration under the open offer in terms of Regulation 17 of the SAST Regulations, 2011. Since the offer price has now increased to ₹ 608.46, the acquirer is required to make good the deficiency. However considering the fact that on account of dispute being raised by the acquirer and others, the consideration towards the offer price is still being enjoyed by the acquirer. Thus in the peculiar circumstances we direct the acquirer to deposit the total consideration towards the offer price in the escrow account under Regulation 17 read with 21 of the SAST Regulation within four weeks from today after adjusting the amount already deposited so as to complete the payment of consideration to shareholders who have tendered their shares in acceptance of the open offer.
Issues Involved:
1. Valuation of shares of Federal-Mogul Goetz (India) Ltd (FMGL). 2. Appointment of a third valuer by SEBI without giving an opportunity to the appellant. 3. Comparison of valuation methodologies and comparable companies. 4. Objections to the SEBI's acceptance of Haribhakti's valuation. 5. Allegations of systematic oppression of minority shareholders and mismanagement. 6. Compliance with Regulation 22 of the SAST Regulations regarding the escrow account. Issue-wise Detailed Analysis: 1. Valuation of Shares of FMGL: The central issue revolves around the valuation of shares of FMGL by Tenneco Inc. for an open offer acquisition of 25.02%. The shares of FMGL are infrequently traded, necessitating valuation as per sub-Regulation 8(2)(e) of the SAST Regulations, which includes parameters such as book value, comparable trading multiples, and customary valuation parameters. Tenneco appointed MSKA & Associates and J.D. Jhaveri & Associates, who valued the shares at ?372.10 and ?397.66 per share, respectively, rounding it to ?400 per share. SEBI, however, appointed Haribhakti & Company LLP, which valued the shares at ?600 per share, leading to SEBI directing Tenneco to revise the offer price to ?608.46. 2. Appointment of Third Valuer by SEBI: Tenneco contended that SEBI appointed Haribhakti without giving them an opportunity to present objections before accepting Haribhakti's valuation. The Tribunal previously held that SEBI should have provided the material basis for Haribhakti's valuation to Tenneco and allowed them to raise objections before revising the offer price. Consequently, the Tribunal remitted the case back to SEBI for reconsideration, allowing Tenneco and other appellants to make representations. 3. Comparison of Valuation Methodologies and Comparable Companies: The valuation dispute also involved the selection of comparable companies. Haribhakti included Bosch and WABCO India, which Tenneco argued were not comparable due to different revenue streams. The Tribunal considered the arguments and previous judgments, noting that valuation is subjective and dependent on individual circumstances. The Tribunal found no defect in SEBI’s approach, which included considering the peer set data of Bosch and WABCO. 4. Objections to SEBI's Acceptance of Haribhakti's Valuation: Tenneco argued that SEBI merely forwarded their objections to Haribhakti and copied Haribhakti's responses without independent consideration. However, the Tribunal rejected this argument, stating that Haribhakti had not provided a fresh response but relied on its earlier report. The Tribunal upheld SEBI’s decision, noting that the weightage given to each valuation parameter depends on the specific facts and circumstances of the case. 5. Allegations of Systematic Oppression and Mismanagement: Appellant Bhavook Tripathi raised issues of systematic oppression of minority shareholders and mismanagement of FMGL. The Tribunal deemed these issues beyond its scope and jurisdiction, advising Tripathi to raise these concerns with SEBI separately. 6. Compliance with Regulation 22 of the SAST Regulations: Bhavook Tripathi also claimed that Tenneco failed to deposit 100% of the open offer funds in an escrow account as required by Regulation 22 of the SAST Regulations. The Tribunal found this issue beyond the present appeal's scope, allowing Tripathi to raise it before SEBI for expeditious disposal. Conclusion: The Tribunal dismissed all appeals, including those of Tenneco and other appellants, upholding SEBI's direction to revise the offer price to ?608.46 per share. The Tribunal directed Tenneco to deposit the total consideration towards the offer price in the escrow account within four weeks, adjusting for the amount already deposited, to complete the payment to shareholders who accepted the open offer.
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