9911796707
TMI Blog2001 (7) TMI 1161X X X X Extracts X X X X X X X X Extracts X X X X ..... keting of cigarettes and of exporting tobacco. According to the petitioner, the VST is in healthy financial condition and has been making good profits and also owns several properties in Hyderabad and other places in India. Its shares are listed at National Stock Exchange as well as at the Stock Exchanges of various states in India. While so, the third respondent made a public announcement on 15-2-2001 informing the shareholders of the VST that it had already acquired 14.97 per cent of the paid-up equity share capital of VST and for acquisition of further 20 per cent of equity share capital of VST at a price of Rs. 112 per share. Subsequently, the respondent No. 4 also made a public announcement on 6-3-2001 in respect of a counter offer for acquisition of 20 per cent of the share capital of VST at a price of Rs. 115 per share. Subsequent to the said announcement, respondents 3 and 4 issued letters of offer to all the shareholders of VST on 11-5-2001 and 23-4-2001. It is further stated by the petitioners that both the letters of offer are misleading and have been issued in violation of provisions of the SEBI Act and Takeover Regulations. The said announcement and proposed acquisitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o sale of VST assets including land and once it manages to control over VST it will destroy the corporate structure of VST to the detriment of the shareholders like the petitioners. The Damanis after acquisition will resort to asset stripping of VST. Such intention of the respondent No. 3 and the Damanis have not been disclosed in the public announcement or letter of offer. In view of the same, the proposed acquisition of R-3 is not in the interest of the shareholders of VST. The SEBI though under an obligation to investigate and check such acquisition by the respondent No. 3 Damanis have failed to perform their statutory duties and obligations. Similarly, the purported counter offer of respondent No. 4 also does not duly disclose the identity of the acquirers and/or promoters of the acquirers in terms of Regulation 16( v ) of the Takeover Regulations. Companies belonging to the British American Tobacco, PLC UK (BAT) group of companies hold approximately 32.16 per cent shares of VST. BAT had applied for to the Government of India for permission to further increase its stake in VST and the same was refused by the Government of India. The said BAT group of companies also hold substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities and suspension of trading rights of G.S. Damani for a period of three months in 1994 were made. As desired by the SEBI, the said disclosures also appeared in the public announcement made by the respondent No. 3 on 21-5-2001. It is further stated that on going investigations by the SEBI are against the two associates of the acquirer and persons acting in concert with the acquirer and not against the acquirer itself. The respondent No. 3 who had already acquired 14.97 per cent of shares/voting rights of VST as on the date of public announcement made on 15-2-2001. The public announcement and letter of offer clearly state that the object of the offer is to increase the shareholding of R-3 in shares/voting rights in VST. The letter of offer dated 11-5-2001 states that it has no plans beyond the purpose of increasing its holding. In the absence of any information to the contrary, it would not be appropriate to presume that the said acquisition is for acquiring control over VST or substantial powers of management in VST. There are disclosures in the letter of offer to enable the investors/shareholders of VST to take an informed decision which are in conformity with regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it petition filed in Kolkatta High Court, another writ petition was filed in Delhi High Court in WP No. 3471 of 2001 and obtained interim orders on 28-5-2001. On filing LPA No. 298 of 2001, the interim order granted by the learned Single Judge on 28-5-2001 was vacated on 1-6-2001 by the Division Bench of Delhi High Court observing inter alia that the course of action adopted by the writ petition amounts to forum hunting. Even though the offer made by the respondent No. 3 opened on 5-5-2001 and the respondent No. 4 on 30-4-2001, the petitioners have filed the present writ petition on 8-6-2001 which is just 5 days before closure of the offer, which will jeopardise the interest of the shareholders who have responded to the letter of offer. 5. The third respondent filed a counter along with the vacate stay petition, inter alia, stating that the Merchant Banker of the third respondent made a public announcement in four newspapers on 15-2-2001 about their intention to acquire 20 per cent equity shares in VST Industries Ltd. as required under Regulations 15 and 16 if the Takeover Regulations. On 6-3-2001 the Merchant Banker of the fourth respondent also made a public announcement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed along with the counter affidavit. As against the holding of the third respondent as on the date of letter of offer, the petitioners collectively holding not more than 1,000 equity shares of VST having the aggregate value of Rs. 1,51,000, which will clearly demonstrate that the third respondent never do any act, deed, matter or thing whereby the value of the shares of VST held by the third respondent would deflate. Any such act on the part of the third respondent would jeopardize the substantial interest of the third respondent. Entire grounds on which writ petition has been based/founded have been duly and adequately disclosed by the third respondent in its letter of offer addressed to all the shareholders of VST. If the shareholders desirous of tendering their shares as also those who are not desirous of tendering their shares in response to the public offer made by the third respondent, have received complete information regarding the terms of the offer and background of the third respondent and the basis on which such public offer has been made. The writ petition is filed with mala fide intention to obstruct the third respondent in acquiring the shares of the minority sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The fourth respondent in its counter stated that the petitioners without complaining any violations to the second respondent, cannot complaint that the second respondent failed to act in accordance with the Takeover Regulations promptly. With regard to the various allegations levelled in para 6 of the affidavit of the petitioners, it is stated that the fourth respondent is only the acquirer insofar as its public offer is concerned. ITC Ltd., the holding company of the fourth respondent is not acquiring any share of the VST. The offer of the fourth respondent is nothing to do with BAT Group of Companies. Common shareholding of any BAT Group Company in ITC Ltd. is immaterial, inter alia, as ITC Ltd. is a widely held professionally managed company in which there are about 1.75 shareholders. ITC Ltd. is by no means of a BAT Group Company as insinuated nor is BAT a promoter of ITC Ltd. Public financial institutions are the largest shareholders in ITC Ltd. holding approximately 35 per cent of its share capital while subsidiaries of BAT hold about 32 per cent and the balance is widely held. It is also stated that proper disclosures have been made in the letter of offer of the four ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he letters of offer dated 23-4-2001 and 11-5-2001 issued by the respondents 4 and 3 respectively, which are annexed to the material papers, will substantially establish about the violation of the provisions of Takeover Regulations. The SEBI is under an obligation to prevent manipulations under section 11B of the SEBI Act. The dates mentioned in the letter of offer, namely, posting of letter of offer to the shareholders, date of opening of the offer and date of closure are in violation of rules 22(3) and 22(4) of the Takeover Regulations which mandates that letter of offer should reach within 45 days from the date of public announcement and the date of opening of offer shall be not later than the sixtieth day from the date of public announcement. Regulation 16 specifies the contents of public announcement of offer. Regulation 16( ii )( v )( ix ) gives a protection to the shareholders and also obligation on the part of the acquirer to spell out what is the purpose of acquisition. It is also contended that Mr. Radha Kishan S. Damani and Gopi Kishan S. Damani are the persons acting in concert with Bright Star who are being investigated by the SEBI with regard to the alleged market man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per para 3.2.8. When a Joint Parliamentary Committee investigation is still in progress, the SEBI is under an obligation to prevent manipulations and prayed for allowing of the writ petition. 10. Shri B. Adinarayana Rao, the learned counsel appearing for the third respondent while refuting the contentions advanced by the learned counsel for the petitioners contended that apart from the facts disclosed in the letter of offer, no other facts or irregularities are pointed out by the writ petitioners to substantiate their allegations. Respondent No. 3 company has not suppressed any facts which entails the petitioners to invoke the extraordinary jurisdiction of this court under article 226 of the Constitution. All the disclosures were made as per the directions issued by the SEBI in its letter dated 8-5-2001 wherein SEBI directed to incorporate about the investigations being carried out by SEBI against Damani Shares Stock Brokers Private Limited, Maheswari Equity Brokers (P.) Ltd., R.S. Damani and G.S. Damani in regard to the alleged market manipulations. In obedience to the SEBI s letter dated 8-5-2001 all the necessary particulars were disclosed to the shareholders who want to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is issued, it will not foreclose the enquiry by the SEBI and same can even be agitated after closure of the offer under regulation 45. Regulation 38( b )( c ), on which the learned counsel for the petitioner relied, is only with regard to breach of regulations but not otherwise. Regulations 44 and 45 sufficiently safeguard the interests of the shareholders who want to sell their shares. Unless specific case is made out, it is not desirable for this court to have judicial review at this stage and to substantiate the said allegation, he placed reliance on the following judgments : 7.R.K. Garg v. Union of India AIR 1981 SC 2138 8.Peerless General Finance Investment Co. Ltd. v. Reserve Bank of India AIR 1992 SC 1033 9.Attorney General of India v. Amratlal Prajivandas AIR 1994 SC 2179. 11. Lastly, he contended that unless the petitioners able to establish the prejudice cause to the shareholders where their rights are violated and the SEBI failed to perform its statutory obligations, and mandamus cannot be issued by placing reliance on the following judgment : 10.Saraswati Industrial Syndicate Ltd. v. Union of India AIR 1975 SC 460 11.State of Haryana v. Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offer on 6-3-2001 at Rs. 115. R-3 revised its offer to Rs. 118 on 11-5-2001 and R-4 revised its offer on 22-5-2001 at Rs. 120. At that time, PIL writ petition was filed before the Calcutta High Court in W.P. No. 7496 of 2001 against R-4 herein without impleading R-3 and the petitioners therein could not security any stay from the Calcutta High Court. Thereafter, another Writ petition No. 3471 of 2001 was filed before the Delhi High Court on 28-5-2001 and obtained stay. On appeal, by the fourth respondent, a Division Bench of the Delhi High Court in LPA No. 298 of 2001 vacated the stay granted by the learned Single Judge on 1-6-2001. R-4 revised its offer to Rs. 125 on 31-5-2001, whereas R-3 revised its offer to Rs. 151 on 3-6-2001. Filing of the writ petition is nothing but a forum hunting as rightly held by the Delhi High Court. He further contended that fourth respondent is the only acquirer in respect of its public offer and ITC Ltd., the holding company of the fourth respondent is not acquiring any shares in the fifth respondent and the offer of the fourth respondent is nothing to do with the BAT group of companies. The petitioners have not disclosed any material particulars ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to appoint a merchant banker in category-I holding a certificate of registration granted by the Board who is not associate of or group of the acquirer or the target company before making any public announcement of offer referred to in Regulations 10, 11 and 12. Regulation 14 specifies the timing of the public announcement of offer. Regulation 15 deals with public announcement of offer. Regulation 16( ii )( v ) deals with information which should be published in the public announcement of offer, namely, the total number and percentage of shares proposed to be acquired from the public, identity of the acquirer and in case the acquirer is a company or companies, the identity of the promoters and the persons having control over such company. Regulation 16( ix ) mandates the acquirer to specify its object and purpose of the acquisition of shares and future plans, if any, of the acquirer for the target company including the disclosures whether the acquirer proposes to dispose of or otherwise encumber any assets of the target company in the succeeding two years except in the ordinary course of business of the target company. Regulation 18 mandates the acquirer to submit draft letter o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by the Board necessary information, as desired by the second respondent, was incorporated in the letters of offer sent to the shareholders. Except the information furnished in the letters of offer by the third and fourth respondents, the petitioners have not furnished any information with regard to the bona fides of the third and fourth respondents. It is curious to note that no other specific allegation was made against third and fourth respondent which disentitles them from acquiring shares of the target company i.e., VST. Except making a vague allegation that the acquirers have not spelt out their intention to acquire shares of the VST and the second respondent is under an obligation to investigate into the affairs of the third and fourth respondents, the petitioners have not placed any substantial evidence to support their contention. The main complaint of the petitioners appears to be that if the third and fourth respondents are permitted to acquire the shares of VST, they will have the majority shareholding in the VST. It is also stated that the third respondent could not deposit the required 25 per cent of the total consideration amount for the public offer in ESCR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s nothing to do with the BAT group of companies. No substantial evidence has been produced by the petitioners to come to a definite conclusion that it is the BAT group of companies promoted the fourth respondent to acquire the shares in the fifth respondent. In the absence of the same, it cannot be said that the letter of offer issued by the fourth respondent is in contravention of the Takeover Regulations. 17. The Apex Court in the case or R.K. Garg ( supra ) held that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. 18. The Apex Court in the case of Peerless General Finance Investment Co. Ltd. ( supra ) held as follows : "32. The functions of the Court is to see that lawful authority is not abused but not to attain itself the task entrusted to that authority. It is well settled that a public body invested with statutory powers must take care not to exceed or abuse its power. It must keep within the limits of the authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. The next contention of the learned counsel for the petitioners is that the Takeover Regulations are mandatory in nature and not strictly adhering to the time schedule specified therein will invalidate the letters of offer issued by the respondents 3 and 4. In opposition of the same, the learned counsel for 3rd respondent contended that the said regulations are directory in nature and they cannot be termed as mandatory and any departure from the time schedule will not invalidate the letter of offer. 23. The Apex Court in the case of Babu Ram Upadhya ( supra ) held as follows : " 29. The relevant rules of interpretation may be briefly stated thus: When a statute uses the word shall , prima facie, it is mandatory, but the Court may ascertain the real intention of the Legislature by carefully attending to the whole scope of the statute. For ascertaining the real intention of the Legislature the Court may consider, inter alia, the nature and the design of the statute, and the consequences which would follow from construing it the one way or the other, the impact of other provisions whereby the necessity of complying with the provisions in question is avoided, the ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a particular manner and also lays down that failure to comply with the said requirement leads to a specific consequence, the same is mandatory in nature and if it is not specified the consequences it will only be a directory in nature. 28. The learned counsel for the petitioners buttressed the said argument stating that regulation 22(4) is mandatory in nature which mandates the offer shall be not later than the sixtieth day from the day of the public announcement, i.e., 15-2-2001. As the offer of the third respondent opened on 15-5-2001, it is a clear violation of the Takeover Regulations. Further regulation 22(3) mandates the acquirer to send the letter of offer to all the shareholders so as to reach them within 45 days from the date of public announcement, which is not adhered to. Hence, the third respondent cannot be proceeded with the letter of offer. 29. In fact in the present case, public announcement was made on 15-2-2001 and the draft letter of offer was forwarded to the second respondent-SEBI by the Merchant Banker of the third respondent on 27-2-2001. But the second respondent through their letter dated 21-3-2001 advised the Merchant Banker of the third respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re mentioned in the letter of offer nor pleaded that R-3 and R-4 are not entitled to acquire the shares in the target company. In spite of statutory prohibition prohibiting them to do so, the SEBI failed to discharge its statutory obligations and permitted R-3 and R-4 to acquire shares of the target company, i.e., VST. Unless the element of public interest and violation of statutory regulations are demonstrated mandamus cannot be issued against the SEBI to act immediately as a matter of course. The petitioners without demonstrating such requirement invoked the juris-diction of this Court by filing the present writ petition is nothing but a forum hunting. 32. For the aforementioned discussion, I do not find any merit in the contentions advanced by the learned counsel for the petitioners. Therefore, the writ petition is liable to be dismissed. 33. Then remains the sole question whether the time schedule as fixed in the letter of offer deserves to be extended or not. This Court by order dated 8-6-2001 only granted stay of acquisition of shares by the respondents. It means, acceptance/rejection of offer alone is stayed but not neither opening of the offer nor closure of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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