2021 (3) TMI 349 - AT - SEBI

Compensatory interest on increased offer price - valuation of the shares to be done in accordance with Regulation 8(2)(e) of the SAST Regulations - Application for payment of interest rejected - appellant has prayed for compensatory interest at the rate of 10% per annum on increased offer price to be paid from April 10, 2018 to October 9, 2018 and 18% compensatory interest from January 31, 2020 till date of payment - HELD THAT - Interest starts running from the date when respondent No. 2 entered into an agreement to acquire 100% ownership of FML which is April 10, 2018. The period of interest stops when respondent No. 2 submitted the draft letter of offer which was published on October 9, 2018. For this period, namely, April 10, 2018 to October 9, 2018 interest has been paid. After SEBI finalized the price of the shareholders on July 4, 2019 interest becomes payable and which has been paid in accordance with the provisions of the Regulations from August 21, 2019 to January 30, 2020 when the amount was eventually paid. Reason for not paying the interest by respondent No. 2 for the intervening period i.e. from the date when the draft letter of offer was published on October 9, 2018 till the date of finalizing the price by SEBI on July 4, 2019 is, that this period was not in the hands of the respondent No. 2. We are of the opinion that the respondent No. 2 cannot be saddled with payment of interest for the period when the price was required to be finalized by SEBI under Regulation 8(16) of the SAST Regulations. It would be unfair on the part of SEBI as well as on the part of the Tribunal to saddle payment of interest upon the acquirer respondent No. 2 for the period when the price was being determined by SEBI. The contention that the shareholders should not suffer due to long pending litigation initiated by the acquirer and, therefore, the acquirer should be directed to pay to the shareholders the interest is erroneous. When SEBI had directed the acquirer to raise the share price from ₹ 400/- to ₹ 608.46 on March 20, 2019, the appellant himself filed appeal No. 182 of 2019 and again filed appeal No. 359 of 2019 when SEBI passed a fresh order fixing the price on July 4, 2019. Thus, in our view no interest is payable from the date of filing of the publication of the draft letter of offer, i.e., from October 10, 2018 to July 4, 2019 when SEBI eventually fixed the price of the shares. We do not find any error in the order of SEBI rejecting the application for grant of interest.

Summary

Issues:
1. Rejection of application for payment of interest by the Whole Time Member (WTM) of Securities and Exchange Board of India (SEBI).
2. Determination of compensatory interest for the period from April 10, 2018, to the date of actual payment.

Analysis:
1. The appellant filed an appeal against the WTM's order rejecting the application for interest payment. The case involved the acquisition of a company triggering the requirement for a public announcement under the SAST Regulations. SEBI directed the acquirer to raise the share price, leading to various appeals and court interventions. The appellant sought compensatory interest from April 10, 2018, to the date of payment, alleging delays and mala fide intentions by the respondent.

2. The tribunal considered the SEBI Act and SAST Regulations, emphasizing investor protection and fair treatment of minority shareholders. The appellant argued for interest due to delays in payment, while SEBI and the respondent contended that interest had been paid as per regulations. The tribunal noted that interest had been paid for specific periods but disputed the necessity of interest for the period between the publication of the draft offer and SEBI's final price determination.

3. The tribunal ruled that interest was payable from the acquisition agreement date until the draft offer publication date and from SEBI's price finalization until the actual payment date. It held that the acquirer was not liable for interest during the period when SEBI was determining the price. The tribunal rejected the appellant's claim for interest during this period, citing legal precedents and the appellant's own litigious actions regarding the share price valuation.

4. Ultimately, the tribunal found no error in SEBI's decision to reject the interest application. The appeal was dismissed, and no costs were awarded. The judgment was delivered via video conference due to the Covid-19 pandemic, with directions for parties to act on the digitally signed copy of the order provided.