2020 (2) TMI 386 - AT - SEBI

Investments made the appellants individually and collectively crossing the limit of 15% under Regulation 10 of the Takeover Regulations 1997 - obligation on the part of the appellants to make separate public announcements of open offer under Regulation 10 read with Regulation 14(1) for acquiring the shares of the Target Company within four working days from July 24, 2006 ignored - HELD THAT - Direction of compulsorily delisting was only consequential and contingent upon the happening of certain events as stated in the order of WTM. The contention that the delisting has been ordered since the register of members of the Target Company was compromised is baseless. As held earlier, there is no evidence of tampering with the register of members. The open offer was directed because the promoters were fraudulently trying to transfer shares in their names or its entities. Thus the contention raised by the appellants has no merit and is rejected. In the instant case, we are of the opinion that there is no bar under the SEBI Act and the Takeover Regulations 1997 in directing two different persons/entities to make an open offer at different moment of time. The promoters violated the listing regulations and were involved in fraudulent transfer of shares to itself. They were asked to make an open offer. The appellants, on the other hand, violated Regulation 10, 11 and 12 of the Takeover Regulations 1997 and were thus required to make a public announcement. We find that the direction to make an open offer was pursuant to violation of different provisions of law and violation at different point of time. No doubt Regulation 44 of the Takeover Regulation 1997 provides consequences of the breach and gives flexibility to the WTM to enforce Regulation 11 by way of several directions and, one such direction is, to make an open offer for acquiring the shares of the Target Company. The guiding principle for issuance of a direction under Regulation 44 is the interest of the investors and securities market. Had the appellants made the open offer within a period of 4 days from the date of acquisition in accordance with the Takeover Regulations 1997 and complied with the time line specified therein, the formalities could have been complied by October 2006, i.e. from the date of making the public announcement. But alas, the same has not been done till date. We are in agreement with the decision of the Tribunal in Nirvana'sHolding (P.) Ltd case 2011 (9) TMI 1169 - THE SECURITIES AND EXCHANGE BOARD OF INDIA and in the peculiar facts and circumstances of the case, we do not find any reason to interfere or modify the directions given by the WTM.

Summary

Issues Involved:
1. Obligation to make a public announcement under SEBI Takeover Regulations.
2. Alleged misrepresentation and fraud by the promoters.
3. Ignorance of SEBI laws by appellants.
4. Participation of appellants in the Board's meetings.
5. Impact of SEBI's previous orders on the Target Company.
6. Consequences of not making an open offer.
7. Appropriateness of the remedial measures/direction given by SEBI.

Detailed Analysis:

1. Obligation to make a public announcement under SEBI Takeover Regulations:
The appellants were required to make a public announcement to acquire shares of the Target Company in accordance with the provisions of Takeover Regulations 1997 within a period of 45 days from the date of the order. The appellants failed to make the open offer despite crossing the 15% threshold under Regulation 10 of the Takeover Regulations 1997, which triggered the obligation to make separate public announcements of open offer.

2. Alleged misrepresentation and fraud by the promoters:
The appellants contended that the promoters misrepresented them by stating that an exemption from making an open offer would be obtained from BSE, not SEBI. They claimed that due to this belief, they did not make the open offer. However, the Tribunal found this assertion untenable, noting that the appellants had legal advice from KPMG to make an open offer and were aware that the exemption application was to be made to SEBI, not BSE.

3. Ignorance of SEBI laws by appellants:
The appellants argued that being foreign investors, they were not acquainted with Indian laws and relied on the promoters for exemptions. The Tribunal rejected this argument, stating that the appellants, being professional investors with significant financial backgrounds, were expected to be aware of the regulatory requirements and could not claim ignorance.

4. Participation of appellants in the Board's meetings:
The Tribunal noted that the appellants actively participated in the Board's meetings of the Target Company and were fully aware of the dealings and strategies of the Target Company and its promoters. Hence, the claim that they were misled by the promoters was not credible.

5. Impact of SEBI's previous orders on the Target Company:
The appellants highlighted the fraudulent activities by the promoters, including the transfer of fake shares and non-compliance with SEBI's orders. SEBI had previously restrained the Target Company and its promoters from accessing the securities market for a period of one year and seven years, respectively. The Tribunal noted that SEBI had already factored in these fraudulent activities and had restrained the promoters from tendering their shares in the open offer directed by the WTM.

6. Consequences of not making an open offer:
The Tribunal emphasized that the primary objective of the Takeover Regulations is to provide an exit route to public shareholders during substantial acquisition of shares or takeover. The appellants' failure to make an open offer deprived the shareholders of this right. The Tribunal upheld the WTM's direction for the appellants to make an open offer, underscoring the mandatory nature of such announcements under Regulations 10, 11, and 12.

7. Appropriateness of the remedial measures/direction given by SEBI:
The appellants argued that the direction to make an open offer was harsh and inappropriate given that a similar direction had already been issued against the promoters. The Tribunal disagreed, stating that different violations at different times warranted separate remedial measures. The Tribunal found no reason to interfere with or modify the WTM's directions, concluding that the directions were in the interest of investor protection and the securities market.

Conclusion:
The appeals were dismissed, and the Tribunal upheld the WTM's order directing the appellants to make a public announcement to acquire shares of the Target Company, emphasizing the importance of compliance with the SEBI Takeover Regulations and the protection of shareholders' rights.