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TMI Blog2001 (11) TMI 947X X X X Extracts X X X X X X X X Extracts X X X X ..... acquirers to the shareholders of MRL, the target company. It held that every promoter cannot be said to be an acquirer or a person acting in concert with the acquirer, or deemed to be acting in concert with the acquirer, unless it is shown that he either acquires or agrees to acquire shares, or voting rights, or control over, the target company along with the acquirers. It is not in dispute that Modipon Ltd. is a shareholder and also a Promoter of the target company, MRL, and holds 4.53 per cent of the equity capital of the target company, viz., MRL. The Tribunal held that there was no hard and fast rule that a promoter can never be an acquirer, or a person acting in concert, but it cannot be characterized as an acquirer merely because it is a promoter of the target company, unless it is shown that it has acquired, or has agreed to acquire, the shares or voting rights, or gain control over, the target company. Thus, the question as to whether a promoter is also an acquirer or a person acting in concert would depend on the facts of each case. In the instant case, it was found that Modipon Ltd. (Respondent No. 2) was keen to disinvest its shares in MRL, rather than acquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prepared by Bansi S.Mehta Co., Bombay, after taking into consideration the valuation done by S.B. Billimoria Co. Units were to be given to each group along with assets and liabilities. The three companies which were to be split up were to have an independent Chairman. The common activities of the company relating to boards of directors of the three companies were to be coordinated by the independent Chairman assisted by managing directors. All matters which were to be dealt with by the companies, not related to individual units on day-to-day basis, were to be dealt by the Chairman assisted by managing directors. The valuation of the companies to be done by S.B. Billimoria Co. was to be included in the total valuation of Modi Group assets and liabilities to be shared by the two groups in the ratio of 60:40. The difference arrived at on the above basis was to be paid by one group to the other. The MoU was to be implemented in consultation with the financial institutions. All disputes, clarifications, etc., in respect of implementation of the MoU, were to be referred to the Chairman, IFCI, or his nominees whose decision was to be final and binding on both the groups. It is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arget company, MRL. It is worth noticing that in the public announcement, Modipon Ltd. is not shown either as a promoter, acquirer, or a person acting in concert, or deemed to be acting in concert, with the acquirers. It was, however, stated that the promoters of the target company, MRL, were V.K. Modi and his associates and Dr. B.K. Modi and his associates. It was also stated that the present management of MRL wished to consolidate its holding in the company, and no change in the management of the company was envisaged. 6. It appears from the record that in accordance with regulation 18(1) of the Regulations the acquirers through their merchant banker, viz., HSBC Securities Capital Markets (India) Ltd., submitted the draft letter of offer to the SEBI for its approval. In exercise of its power under regulation 18(2), the SEBI required certain changes to be made in the letter of offer, which are contained in its letter of 25-5-2001. It was suggested, inter alia , as follows: " Share Capital of Modi Rubber Limited - On page 17 of revised letter of offer, at the end of point (6) add "As per SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, Modipon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . had been challenged, and also subject to the decision of the Debt recovery Tribunal, Delhi, and that of the SEBI. The proceeds were not to be paid to Modipon Ltd. till the decision of all the pending applications. Pursuant to the order of the Delhi High Court, the board of directors of Modipon Ltd. in its meeting held on 1-7-2001, resolved to participate in the public offer, subject to the conditions that (1)Prior written consent of the banks and financial institutions shall be obtained; and (2)Such offer shall be subject to the outcome of the decision of the Bombay High Court, and subject to the decision of the Debt Recovery Tribunal and of SEBI, and also subject to the rights and claims of the parties in the Delhi High Court proceedings as stated in the order of the Delhi High Court dated 27-6-2001. The participation in the public offer was expressly made subject to these conditions and the two managing directors of the company were directed to ensure that participation in the offer was made only after compliance of these conditions. Mr. K.K. Modi (Appellant), however, recorded his dissent. It is not disputed before us that prior written consent of the banks and financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Secondly, it was urged that Modipon Ltd., being a promoter of the target company, MRL, could not participate in the open public offer. Relying upon the public announcement dated 30-3-2001, it was submitted that the acquirers held only 12.56 per cent of the share capital of the target company. They were, admittedly, promoters of the target company, and the offer was made in accordance with regulation 11(1). The said regulation was applicable to an acquirer who together with persons acting in concert held 15 per cent or more, but less than 75 per cent of the shares or voting rights in the company. The acquirers, together with persons acting in concert with them, including Modipon Ltd., had acquired 23.40 per cent of the equity capital of the target company. It, therefore, followed that the acquirers being part of the promoters group, together with persons deemed to be acting in concert with the promoters group, including Modipon Ltd., had acquired 23.40 per cent of the shares of the target company, and they constituted the present management of the target company. If the shares held by Modipon Ltd. were to be excluded, regulation 11(1) could not have any application to the acquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person acting in concert. Regulation 11 did not deal with a promoter, but dealt with an acquirer or person acting in concert with him. Similarly, regulation 8(2) made a distinction between a promoter and a person having control over a company. The declaration was to be made as a promoter. Similarly, regulation 2(1)( b ), which defines an acquirer , laid emphasis on the acquisition of shares. The very fact that Modipon Ltd. did not wish to acquire, but wanted to divest, militates against the conception that it was an acquirer. Similarly, under regulation 2(1)( e )(2), a promoter is not a person deemed to be acting in concert. The intendment of the regulation is quite clear, and, therefore, by some circuitous method, a promoter cannot be deemed to be acting in concert with the acquirers in all cases. If a promoter does not wish to acquire shares in the target company, and in fact, wishes to participate in the public offer, and to sell shares held by it in the target company, it cannot be said to be an acquirer, or even a person acting in concert with the acquirer, or deemed to be acting in concert with the acquirer. That is why in the letter of offer the acquirers did not mention M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) In these regulations, unless the context otherwise requires: ( a )****** ( b ) acquirer means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer;" Control has been given an inclusive meaning under regulation 2(1)( c ), which reads as under: "( c ) control shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner;" Under regulation 2(1)( e ), person acting in concert has been defined as follows: "( e ) person acting in concert comprises, (1)persons who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal or informal), directly or indirectly, co-operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive of the promoter within the meaning of section 6 of the Companies Act, 1956 (1 of 1956); and (3)in case of a corporate body, ( i )a subsidiary or holding company of that body, or ( ii )any company in which the promoter holds 10 per cent or more of the equity capital or which holds 10 per cent or more of the equity capital of the promoter, or ( iii )any corporate body in which a group of individuals or corporate bodies or combinations thereof who hold 20 per cent or more of the equity capital in that company also hold 90 per cent or more of the equity capital of the promoter ; and (4)in case of an individual, ( i )any company in which 10 per cent or more of the share capital is held by the promoter or a relative of the promoter or a firm or Hindu undivided family in which the promoter or his relative is a partner or coparcener or a combination thereof, ( ii )any company in which a company specified in ( i ) above, holds 10 per cent or more of the share capital, or ( iii )any Hindu undivided family or firm in which the aggregate share of the promoter and his relatives is equal to or more than 10 per cent of the total;" Regulation 2(1)( j ) defines publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquire shares in accordance with the regulations. (2) No acquirer who, together with persons acting in concert with him has acquired, in accordance with the provisions of law, 75 per cent of the shares or voting rights in a company, shall, acquire either by himself or through persons acting in concert with him, any additional shares or voting rights, unless such acquirer makes a public announcement to acquire shares in accordance with the regulations. Explanation. For the purposes of regulation 10 and regulation 11, acquisition shall mean and include, ( a )direct acquisition in a listed company to which the regulations apply; ( b )indirect acquisition by virtue of acquisition of holding companies, whether listed or unlisted, whether in India or abroad." Regulation 18 provides for submission of letter of offer to the Board, and also vests in the Board the power to prescribe changes in the letter of offer, which the acquirer is bound to carry out before dispatching the letter of offer to the shareholders. 17. At the threshold, we may observe that the Act and the Regulations have been framed with a view to protect the interests of investors in securities, and to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a person is a promoter does not make him an acquirer, unless it is shown that he either intends to acquire or is acting in concert with the acquirer for the acquisition of shares of the target company. Before he can be said to be acting in concert with the acquirer, it must be shown that he shares with the acquirer a common objective or purpose for substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding and directly or indirectly co-operates with the acquirer or agrees with him to acquire shares or voting rights in the target company or control over the target company. It is significant that the definition of acquirer does not include a promoter, but includes persons acting in concert with an acquirer. The question as to whether a person is acting in concert with the acquirer, is essentially a question of fact. A promoter may not act in concert with the acquirer, whereas a stranger might. As the Tribunal has rightly pointed out, there is no hard and fast rule that a promoter must always be deemed to be an acquirer or a person acting in concert with the acquirer. On the facts, it may be held that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ert for a common objective or purpose of substantial acquisition of shares in the company. In the instant case as well, Modipon Ltd. may be a promoter, inasmuch as it has co-operated in promoting the target company, MRL. However, when members of one group of promoters acting in concert with two others have made a public announcement to acquire 35 per cent shareholding of the company, Modipon Ltd. does not wish to act in concert with them, but, in fact, wishes to sell off its shares to meet its financial obligations. Obviously, there can be no common objective or purpose between an acquirer who wishes to acquire further shares in the company and a promoter who is interested in the disinvestment of his shares in that company. 21. It is true that the public offer is made under the regulations to enable the other shareholders of the company to take an informed decision as to whether they will continue as shareholders or whether they will offer their shares to the acquirers who have made the public offer to purchase them at a stipulated price. It may well be urged that by a clever device, by fraud or collusion, the benefit to which the other shareholders of the company are entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s will be reduced to less than 15 per cent, and regulation 11(1) would not apply. In our view, the submission has no force. Whether regulation 11(1) applies to the acquirers or not, is a question which has to be determined on facts. The mere fact that the acquirers have treated a promoter as a person acting in concert with them, even though such promoter does not share their common objective and purpose, will not make such a promoter a person acting in concert with the acquirers. The acquirers have no right to arbitrarily treat any person as a person acting in concert with them. That is a question which must be decided on the facts of each case. Moreover, the submission even factually has no force. He does not dispute that the acquirers, together with persons acting in concert, claim to have acquired 23.40 per cent of the equity capital of the target company. It is also not disputed that Modipon Ltd. hold only 4.53 per cent of the shareholding of MRL. Four acquirers named in the offer document claimed to hold 12.53 per cent shares in the target company, and together with Modipon Ltd. and those acting in concert with them, they claimed to hold 23.40 per cent of the equity capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to participate in the public offer made by the acquirers to the shareholders of the company. If Modipon Ltd. is neither an acquirer nor a person acting or deemed to be acting in concert with the acquirer, it must fall in the category of other shareholders of the target company, and its shareholding must be treated as public shareholding within the meaning of regulation 2(1)( j ). 28. Mr. Dwarkadas then contended that the appeal preferred before the Tribunal was not authorised by resolution of the board of directors of Modipon Ltd. or by its Chairman. The Tribunal has relied upon the resolution of the board of directors of Modipon Ltd. dated 24-3-1998. Mr. Dwarkadas contended that the resolution only authorised the persons named therein to act on behalf of Modipon Fibres Co., which was the Fibres Division of Modipon Ltd., and not on behalf of Modipon Ltd. itself. Mr. Chagla, on the other hand, submitted that it was not necessary to go into that question, because, admittedly, Modipon Ltd. moved this High Court by filing a writ petition challenging the communication of SEBI to Modipon Ltd. dated 29-5-2001, informing Modipon Ltd. that it was not eligible to participate in the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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