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TMI Blog2004 (8) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... cretion in the matter and, thus, the adjudication proceeding is a mere formality. Imposition of penalty upon the Appellant would, thus, be a foregone conclusion. Only in the criminal proceedings initiated against the Appellants, existence of mens rea on the part of the Appellants will come up for consideration. - CIVIL APPEAL NO. 2361 OF 2003 - - - Dated:- 25-8-2004 - N. SANTOSH HEGDE, S.B. SINHA AND A.K. MATHUR, JJ. F.S. Nariman, Rahul P. Dave, Robin R. David, Himanshu Narain, Anuj, Dinesh Banth, Atul Sud and Mrs. Shiraz Contractor Patodia for the Appellant. Kirit N. Raval, Bhargava V. Desai, Sanjeev Kumar Singh, Pradeep Kumar Malik, E.C. Agrawala, K.K. Rai and Shrish Kumar Misra for the Respondent. JUDGMENT S.B. Sinha, J. Background facts: 1. Wimco Limited (Wimco) is a target company. Its shares are listed on the stock exchanges at Mumbai, Delhi, Calcutta, Kanpur as also on the National Stock Exchange. It is engaged in the business of manufacture and sale of a broad range of safety matches. 2. The Appellant No. 1 herein (Swedish Match) is incorporated in Sweden. It is a holding company of the appellant No. 2(SMS) holding its entire pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Companies Act, 1956 whereupon the shareholding in Wimco came to as under : Haravon - 46.18 per cent, AVP - 6.03 per cent, Plash - 18.08 per cent. As no preferential shares were allotted to Seed, its shareholding was diluted to 5.93 per cent. Swedish Match Group, thus, held 52.11 per cent and Jatia Group held 24.11 per cent of the total shares in Wimco. The aggregate shareholding of both the Groups came to 76.22 per cent. The Government of India by an order dated 5th July, 1999 permitted increase in foreign equity participation in the target company from 38.61 per cent to 52.11 per cent. S.M.S. thereafter acquired from Jatia Group (as the latter was desirous of existing from the joint control over Wimco) the following extent of share: AVP - 5.47, Plash - 16.42 per cent at a price well above the market price. Pursuant to or in furtherance of the letter of the Government of India dated 19th May, 2000 increasing foreign collaboration to the extent of 74.00438 per cent; the Swedish Match Group acquired 74 per cent shareholding and Jatia Group was left with 2.22 per cent in Wimco. It is also not in dispute that although the market value of each acquired share of the target ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1992, should not be initiated against you for violation specified above." The Appellants herein filed a show cause before the Board. Order of SEBI 7. The Chairman, SEBI upon hearing the Appellants by an order dated 4th June, 2002 observed that Regulation 12 has no application. 8. It was, however, held : "In view of the above, the submission of the Acquirers that Regulation 11(1) should exclude a transaction involving a transfer of shares as part of cessation of participation in joint control, particularly where such persons in joint control acquired shares as persons acting in concert is not tenable. Therefore, if an Acquirer triggers either of the Regulations, i.e., Regulation 10, 11 or 12, he has to make a public announcement unless the acquisition is specifically exempt in terms of the Regulations. Therefore, each of the Regulations 10, 11 12 has to be complied with independently by the Acquirers. The acquisition falling under proviso to Regulation 12 is not automatically exempt from the applicability of Regulations 10 11." Consequent upon the said findings, the following directions were issued: In view of the above the exercise of the powers conferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy stated in this order regulations, 10, 11 and 12 are put in position to meet different situations. Which one of these regulations is attracted to an acquisition, would depend on the specific facts. In my opinion in the light of the facts, as the Respondent has held, the acquisition in question attracts the provisions of regulation 11(1)." This appeal has been filed by the appellants herein before this Court in terms of section 15Z of the Securities and Exchange Board of India Act, 1992 (for short "the Act"). Submissions 10. Mr. F.S. Nariman, learned senior counsel appearing on behalf of the Appellants would contend that although each one of the Regulations 10, 11 and 12 of the Regulations require making of public announcement, but the same are mutually exclusive and independent of one another as they address different types of acquisitions (as found by SEBI) and should necessarily, thus, be limited to the context of the situation with which it deals and should not be projected into the other. 11. The learned counsel would point out that Regulation 10 applies to initial acquisition of shares or voting rights by an acquirer whereas Regulation 11 having been captioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwise requires the making of a public announcement) by a resolution passed by the shareholders in the General Meeting, but the necessity of making a public offer under Regulation 11 cannot be condoned by the shareholders because a right to have the shares offered under the public offer is conferred upon the remaining shareholders as even a majority of them cannot barter away the right of a minority. The position, however, would be different in a case where change in control of the target company is approved by the majority of the shareholders in a general meeting, as therein the question as regard protection of the interest of the shareholders would fall for consideration. 13. Regulations 10, 11 and 12 having been intended for the benefit of the shareholders of the target company, the learned counsel would argue, only a letter of offer is required to be sent to all the shareholders of the target company in terms of Regulation 22(3) for the purpose of allowing and enabling the existing shareholders to avail of the opportunity to offer their shares for purchase to the acquirers at a price specified in the public announcement and the letter of offer. Requirement of change from joi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Workingmen s Social Club Institute Ltd. 1969 (1) All ER 130, Seksaria Cotton Mills Ltd. v. State of Bombay 1953 SCR 825 and State of Bihar v. Bhagirath Sharma [1973] 2 SCC 257. 16. Mr. Kirit N. Raval, learned senior counsel appearing on behalf of the Respondent, on the other hand, would contend that the language in Regulations 10, 11 and 12 of the Regulations being clear and unambiguous, this Court should apply the principles of literal interpretation. He would urge that having regard to Explanation 1 appended to Regulation 12, the question of application of Regulation 12 would not arise inasmuch as by reason thereof a transfer of control from joint owners (Swedish Match A.B. and Jatia Group) to a single sole owner (Swedish Match Group) stands excluded from the concept of Change in Control". Mr. Raval would submit that although the Board has accepted the position that there was no violation of Regulation 12, relying on or on the basis of proviso appended thereto, the Tribunal has clearly held that there has been no change in control in terms of the Regulations and in that view of the matter the opinion of the Tribunal shall prevail over that of the Board. Relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , a transaction may trigger both Regulations 11 and 12, in which event, an appropriate combined notice of public announcement of offer may be issued. 19. Drawing our attention to Regulation 44, the learned counsel would contend that in terms thereof the Board is not obliged to issue any direction only in terms of Clauses ( a ) to ( d ) thereof as the words "give such directions as it deems fit including" must be held to be of wide amplitude. Clauses ( a ) to ( d ) are only illustrative and not exhaustive and in that view of the matter, the Board was within its jurisdiction to issue the impugned directions. 20. It was contended that the penal provisions contained in section 15H are not the subject-matter of the present proceedings. Further, an order which may be passed under section 15H of the Act would be separate and distinct. Issue for determination 21. The core issue which falls for our determination is the interpretation of Regulations 10, 11 and 12. Statutory provisions 22. The Securities and Exchange Board of India Act, 1992 was enacted to provide for the establishment of a board to protect the interests of investors in securities and to promote the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5% of the voting rights, in any period of 12 months, unless such acquirer makes a public announcement to acquire shares in accordance with the Regulations. (2)****** 12. Acquisition of control over a company - Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company, unless such person makes a public announcement to acquire shares and acquires such shares in accordance with the Regulations : Provided that nothing contained herein shall apply to any change in control which takes place in pursuance to a resolution passed by the shareholders in a general meeting. Explanation : ( i ) For the purposes of this Regulation where there are two or more persons in control over the target company, the cessor of any one such person from such control shall not be deemed to be a change in control of management nor shall any change in the nature and quantum of control amongst them constitute change in control of management : Provided however ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )****** ( f )directing the person concerned to make public offer to the shareholders of the target company to acquire such number of shares at such offer price as determined by the Board; ( g ) ( h )****** ( i )directing the person concerned, who has failed to make a public offer or delayed the making of a public offer in terms of these Regulations, to pay to the shareholders, whose shares have been accepted in the public offer made, after the delay, the consideration amount along with interest at the rate not less than the applicable rate of interest payable by banks on fixed deposits." Analysis 28. Establishment of independent regulatory agencies and need for expert regulations were long felt primarily as a response to the growing complexity in human affairs and trade and business in particular. It was felt that a regulator who was aware of the realities of that field should be ready to regulate that field. Demand for regulators who were not mere Government officials but people who are experts in the field came up. Regulations framed by an expert body like SEBI was felt to be an effective substitute for Government regulation. The evolution in respect whereof can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court has been called upon to interpret the scope and ambit of Regulations 10, 11 and 12. Before we advert to the said question, we must bear in mind that the said Regulations seek to protect the interests of the shareholders. Public announcement of offer is one of the modes of protecting the interests of the shareholders. Interpretation - Principles of 32. It is a well-settled principle of law that where wordings of a statute are absolutely clear and unambiguous recourse to different principles of interpretations may not be resorted to but where the words of a statute are not so clear and unambiguous, the other principles of interpretation should be resorted to. 33. SEBI was an expert body. It made regulations which were meant to sub-serve the interests of investors as also promote and regulate the securities market. 34. Regulations 10, 11 and 12 ex facie operate in three different fields. They seek to control creeping acquisition which may lead to substantial acquisition and ultimately total control of the company. There may, however, be a case where control of the company is sought to be taken over by transfer of share only i.e., by a single transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 postulates that where there are two or more persons in control over the target company (here Swedish Match Group and Jatia Group), the cessor of any one such person (Jatia Group) from such control shall not be deemed to be a change in control of management nor shall any change in the nature and quantum of control amongst them constitute change in control of management. By reason of the said Explanation , a legal fiction has been created pursuant whereto or in furtherance whereof applicability of Regulation 12 is excluded. Change of control contemplated under Regulation 12 calls for a public announcement when the same is sought to be achieved by acquiring shares or voting rights. A change of control in terms of Regulation 12 may also take place pursuant to a resolution passed by the shareholders in a general meeting. Only in the later case the proviso which carves out an exception would be attracted. The effect and purport of the first proviso may also be construed having regard to the second proviso appended thereto. The second proviso appended to Regulation 12 takes within its fold a case where the joint control to sole control is through sale at less than the market value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases where to some extent Regulations 11 and 12 may overlap. But Regulations 14, 15 and 16 clearly postulate that public announcement is required to be made in relation to transfer of shares attracting Regulation 10 or 11 not later than four working days of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein and in case of acquisition of control in terms of Regulation 12; not later than four working days after any such change or changes are decided to be made as would result in the acquisition of control over the target company by the acquirer. 42. In a given situation, a public announcement can be made upon compliance of both Regulations 11 and 12. It is also not a case where Regulation 3 will have any application. Admittedly, the Appellants did not claim any exemption in terms of Regulation 3 nor were they eligible therefor. It is also not a case where change in control had taken place by reason of inheritance or succession but by reason of conscious act of transfer of shares by one acquirer from another. 43. In a case of this nature, thus, Regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the main provision but such an exception must be strictly construed and confined to the intent of the Legislature. [ See also Ali M.K. v. State of Kerala [2003] 11 SCC 632 and Union of India v. Sanjay Kumar Jain JT 2004 (6) SC 318]. 48. In Dipak Chandra Ruhidas v. Chandan Kumar Sarkar [2003] 7 SCC 66 it was held that in a case where a legal fiction created in the Explanation was construed to be validly made as thereby main provision was made absolutely clear and explicit, the legal fiction so created must also be given its full effect. 49. It is true that Regulation 12 could have been better worded but the application of Regulations 11 and 12 in a case of this nature is free from doubt. This is not a case where having regard to the explanations in the provisos and reading the provision in the manner we have done, it stands obscure. The Explanations ( i ) and ( ii ) are not Explanations to the provisos but the main part thereof. 50. It would, therefore, be not correct to contend that where there is a mere cessor of control by one out of two persons already in control or where any person or persons are given joint control and the combined degree of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained 74 per cent of shares whereas shares i.e., Haravon - 46.18 per cent, Seed - 5.93 per cent and SMS - 21.89 per cent. Thus, the extent of shares of Jatia Group came down to 2.22 per cent. Jatia Group sold their shares to public as a result whereof shares of public became 23.78 per cent. S.M.S. is a subsidiary of the Singapore Match Group. The Swedish Match is the holding company being the owner of the 100 per cent shares of SMS. It stands categorically admitted by the Appellants herein that acquisition of shares from Jatia Group in favour of SMS was done by the Swedish company as a group and not as an individual company. Factually, therefore it is not correct to contend, although in its notice dated 28-1-2002. SEBI had given indication thereof, that SMS had acquired 21.89 per cent shares of its own. Even if SMS had done so, Regulation 10 would apply as no public announcement was made therefor. S.M.S. was a part of the Swedish Match Group and they acquired 21.89 per cent shares from Jatia Group. On or about 25th August, 1999, indisputably, Swedish Group and Jatia Group acted in concert with each other. By reason of acquisition made in September, 2000, Swedish Group, as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Regulations 14, 15 and 16. We may, however, hasten to add that there may be a situation where Regulations 11 and 12 may overlap with each other, in which event, it would be open to the acquirer to issue a combined notice fulfilling the requirement of both Regulations 11 and 12. 56. Indisputably, the purport and object of which a regulation is made must be duly fulfilled. Public announcement is at the base of Regulations 10, 11 and 12. Except in a situation which would bring the case within one or the other exception clause , the requirement of complying with the mandatory requirements to make public announcement cannot be dispensed with. 57. Admittedly in this case no public announcement has been made. 58. It may be true that the Board in its impugned order dated 4th June, 2002 proceeded on a wrong premise that having regard to the proviso appended to Regulation 12, Regulation 12 would be attracted. But the SAT, in our opinion, rightly construed the provisions of Regulation 11 and 12 in arriving at a finding that Regulation 11 would be attracted and Regulation 12 would not be. The Tribunal was entitled to take a different view of the matter from that of the Board w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Handicrafts Emporium v. Union of India [2003] 7 SCC 589 this Court referred to various decisions including Peerless General Finance Investment Co. Ltd. case ( supra ) whereupon the Appellate Tribunal as also Mr. Raval placed strong reliance expounding the theories of purposive construction. See also Ramesh Mehta v. Sanwal Chand Singhvi JT 2004 (Suppl 1) SC 274. 64. Regulations 10, 11 and 12 were amended in the year, 1997 having regard to the fact that the 1994 Regulations contained many loopholes, and, thus, the mischief rule should be resorted to so as to suppress the mischief which would have surfaced had the literal rule been allowed to cover the field. [ See Reema Aggarwal v. Anupam [2004] 3 SCC 199]. Is strict construction of the regulation called for? 65. A penal statute indisputably is required to be strictly construed. But a different situation may arise if the penalty is sought to be levied as a result of failure on the part of the person statutorily obliged to comply with the statutory provisions which are imperative in nature. 66. There may not be any doubt or dispute as regard the proposition that when words employed in a penal stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comply the same may lead to a penalty. This aspect of the matter has been considered by this Court in Indian Handicrafts Emporium s case ( supra ). Proceeding on the basis that there existed a dichotomy, the Court ultimately held that the resolution will have to be reached by reading the entire statute as a whole. See also Reema Aggarwal s case ( supra ). 68. In Balram Kumawat v. Union of India [2003] 7 SCC 628 this Court held: "The Courts will therefore reject that construction which will defeat the plain intention of the Legislature even though there may be some inexactitude in the language used. See Salmon v. Duncombe [1886] 11 AC 627 at 634. Reducing the legislation futility shall be avoided and in a case where the intention of the Legislature cannot be given effect to, the Courts would accept the bolder construction for the purpose of bringing about an effective result. The Courts when rule of purposive construction is gaining momentum, should be very reluctant to hold that the Parliament has achieved nothing by the language it used when it is tolerably plain what it seeks to achieve. See BBC Enterprises v. Hi-Tech Xtravision Ltd. [1990] 2 All ER 118 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the savage sentences which the learned Magistrate imposed. In the High Court also we feel a nominal fine would have met the ends of justice even on the view the learned Judges took of the law." In the aforementioned backdrop only, it was held: "In a penal statute of this kind it is our duty to interpret words of ambiguous meaning in a broad and liberal sense so that they will not become traps for honest, unlearned (in the law) and unwary men. If there is honest and substantial compliance with an array of puzzling directions, that should be enough even if on some hypercritical view of the law other ingenious meanings can be devised." This is a case of non-compliance of mandatory statutory provisions and not of substantial compliance. It is also not a case involving unlearned or unwary men. 71. In Bhagirath Sharma s case ( supra ), the question which fell for consideration was whether tube is included within the expression tyre . Keeping in view the provisions of the Essential Commodities - Prices and Stocks (Display and Control) Order, 1967, this Court applied the rule of strict construction. 72. Regulations being regulatory in nature, the intent and object soug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . ( See Example 149.5 of Francis Bennion s Statutory Interpretation, Fourth Edition, page 371). In the aforementioned backdrop, this Court thought it fit to consider as to whether in exercise of its jurisdiction under Article 142 of the Constitution of India a direction should be issued directing the Board to forbear from proceeding under section 15H of the Act against the Appellant. 79. It is accepted that once a public offer is made the investors would be entitled to elect to transfer their shares at a higher price which may be offered by the acquirer with a view to acquire control over the target company. The investors would also be entitled to interest at such rate as the Board may determine. The provisions of section 15H of the Act mandates that a penalty of rupees twenty-five crore may be imposed. The Board does not have any discretion in the matter and, thus, the adjudication proceeding is a mere formality. Imposition of penalty upon the Appellant would, thus, be a foregone conclusion. Only in the criminal proceedings initiated against the Appellants, existence of mens rea on the part of the Appellants will come up for consideration. 80. We, therefore, are of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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