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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 ..... estments Private Limited (Haravon) and Seed Trading Private Limited (Seed). These four companies hereinafter would be called and referred to as the Swedish Match Group. It had acquired in the target company 52.11 per cent shares, i.e., 46.18 per cent by Haravon and 5.93 per cent by Seed. AVP Trading Private Limited (AVP) and Plash Floods P. Ltd. (Plash) were Indian promoters of the target company. They belong to one Jatia Group of Companies holding 24.11 per cent of the share capital of the target company, i.e., AVP holding 6.03 per cent and Plash holding 18.08 per cent. 3. The Swedish Match entered into an agreement with the Jatia Group to acquire majority shareholding in Haravon and Seed and to make a public announcement of offer to acquire 20 per cent shares in Wimco. The obligation to make a public announcement of offer arose in view of indirect acquisition of more than 10 per cent shares in Wimco (in view of the law as prevailing thence) attracting the provisions of Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter called and referred to for the sake of brevity as "the Regulations"). 4. On or about 17th December, 1997, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch Group was Rs. 35 per equity share. Pursuant to or in furtherance of the said arrangement, the Directors belonging to Jatia Group resigned as a result whereof, there joint control with Swedish Match Group ceased leading to sole control of the latter. Allegedly, the cessation of joint control was approved in a general meeting of the shareholders of Wimco held on 27th September, 2000. S.M.S. thereupon by a letter dated 27th September, 2000 in terms of Regulation 7 of the Regulations disclosed to Wimco its holding of more than 5 per cent of the equity share capital. The said transaction was also brought to the notice of the SEBI (the Board) by a letter dated 28th September, 2000. It also agreed to adhere to the 'lock-in' restrictions applicable to the locked in shares forming part of 21.89 per cent shares purchased from AVP and Plash (Jatia Group of Companies). Upon receipt of the said information, SEBI by a letter dated 17th October, 2000 made a query as to whether the said transaction took place in accordance with Regulation 20 (pricing guidelines) Regulation 7 (mandatory disclosures) and Regulation 12 (change in control) of the Regulations, in response whereto, Swedish Match by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act) read with Regulations 44 and 45 of the regulations, I hereby direct the Acquirers to make public announcement in terms of Chapter III of the Regulations in terms of sub-Regulation (1) of Regulation 11 taking 27-9-2000 as the reference date for calculation of offer price within 45 days of passing of this order." The Tribunal 9. Aggrieved by and dissatisfied with the said order, an appeal was filed by the Appellants herein before the Securities Appellate Tribunal (Tribunal). The Tribunal took notice of the Appellant's letter dated 28-9-2000 contending "We wish to inform you that we have through our wholly owned subsidiary Swedish Match Singapore Pte. Ltd. and pursuant to the requisite approvals acquired an additional 11382800 equity shares from the aforesaid Indian companies such that we are not in sole control of Wimco Ltd." [Emphasis supplied] and held : "Sequence has been mentioned correctly thus that they acquired additional shares and thereby acquired sole control of WIMCO Ltd. As the control is relatable to the shareholding in the instant case and to nothing else and cessation of control was due to divesting of the said ownership of shares in the absence of any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., such acquisition must be by way of combined shareholding of acquirer and persons who previously acted in concert with him resulting in increase of more than 5 per cent and in case of Regulation 11(1), by acquisition of any additional shares. 12. Regulation 11, Mr. Nariman would submit, does not cover purchase of shares by the acquirer from the persons who have previously acquired shares in concert with him as in such a case there is no acquisition of additional shares as the aggregate shareholding of the parties does not increase at all and far less by 5 per cent. Elaborating his submission, Mr. Nariman would argue that as both Swedish Match Group and Jatia Group had 76.22 per cent which was reduced to 74 per cent there had been no acquisition of additional shares and in that view of the matter the purported admission by the Appellants in its letter dated 28-9-2000 should be ignored. Proviso appended to Regulation 12, according to Mr. Nariman, is squarely attracted in the instant case, in view of the fact that the shareholders in a general meeting approved the change in control in favour of the Swedish Match Group from the joint control of Swedish Match Group and Jatia Group an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Nariman, as by reason of such a resolution, the transfer from joint control to the sole control would be offered which would amount to an election not to exit from the company and to remain therein under the management of the sole controller. 14. It was urged that Explanations (i) and (ii) are explanations to the proviso appended to Regulation 12 and not to the main part thereof, which had been inserted only for the purpose of clarifying the phrase "change in control" occurring therein. 15. The learned senior counsel would submit 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 control is not greater than being presently exercised a resolution in a general meeting is not necessary since there is no change in control and thus, the question of any acquisition of control within the meaning of the main part of Regulation 12 would not arise. Proviso to Explanation ( i) i.e., cessor of control by one or more persons already in control, according to Mr. Nariman imposes a further restriction if the transfer of joint to sole control is through sale of shares at le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 cannot be excluded by bringing the transaction in question as having been made under Regulation 12 in terms whereof an additional liability was required to be incurred by the Appellants. It was pointed out that no disclosure has ever been made by the Appellants that in fact they had intended to purchase the shares belonging to the Jatia Group at a price of Rs. 35 as against the then prevailing market price of Rs. 9.55 per equity share. In fact the stand of the Appellants had all along been that they would not sell the shares below the market price and, thus, indicating that the shares would be sold at the prevailing market price. 18. Mr. Raval would urge that the Appellants withheld a very valuable information from the shareholders i.e., the actual price of share being paid to Jatia Group which would have otherwise become known to them if a public announcement of offer was made. If it is to be held that even in a case of this nature no public announcement is to be made, the intent and purport of the Legislature in bringing Regulations 10, 11 and 12 to the statute book with a view to protect the interest of the investors shall be frustrated. The learned counsel would further s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of persons specified in Clauses (b) and (ba). Section 11A provides for the matters which are to be disclosed by the companies. Section 11B empowers the Board to issue directions as specified therein. 24. Chapter VIA of the Act deals with penalties and adjudication whereas section 15A provides for penalty for failure to furnish information, return etc., section 15H provides for penalty for non-disclosure of acquisition of shares and takeovers which include a case where public announcement to acquire shares at a minimum price is not made as required under the Act or the rules or the regulations. Section 15H of the Act provides for a penalty of twenty-five crores or three times the amount of profits made out of such failure, which is higher. Section 15-I confers power upon the Board to adjudicate in the event a penalty proceeding is directed to be initiated. Section 15T deals with appeal to the Securities Appellate Tribunal. Section 15Z, which has been brought in the statute book by Act 59 of 2002, provides for an appeal to this Court from any decision or order of the Tribunal on any question of law arising thereunder. 25. Regulation 2(e ) of the Regulations defines "person acting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of offer or by block-transfer to the existing shareholders in control in accordance with the decision passed by a special resolution. Market value in such cases shall be determined in accordance with Regulation 20. (ii) where any person or persons are given joint control, such control shall not be deemed to be a change in control so long as the control given is equal to or less than the control exercised by person(s) presently having control over the company." 26. Regulation 14 provides for the timing of public announcement of offer to the effect that the same shall be made 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 percentages specified therein. Clause (3) of Regulation 14 provides for public announcement referred to in Regulation 12 to be made 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. Regulation 14 provides for the mode and manner of the public announcement to be made under Regulations 10, 11 or 12 whereas Regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ket after the Securities Scam in 1992. 29. The statement of Objects and Reasons of the Act are as under: "Securities and Exchange Board of India (SEBI) was established in 1988 through a Government resolution to promote orderly and healthy growth of the securities market and for investors' protection. SEBI has been monitoring the activities of stock exchanges, mutual funds, merchant banks, etc., to achieve these goals. The capital market has witnessed tremendous growth in recent times, characterized particularly by the increasing participation of the public. Investors' confidence in the capital market can be sustained largely by ensuring investors' protection. With this end in view, Government decided to vest SEBI immediately with statutory powers required to deal effectively with all matters relating to capital market. As Parliament was not in session, and there was an urgent need to instill a sense of confidence in public in the growth and stability of the market, the President promulgated the Securities and Exchange Board of India Ordinance, 1992 (Ord. 5 of 1992) on 30th January, 1992. The Bill seeks to replace the aforesaid Ordinance". 30. Section 30 of the 1992 Act empowers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir shares in favour of Swedish Group. Applicability of Regulations 11 and 12 36. With a view to arrive at an answer to the question, we may begin with Regulation 12. The said Regulation like Regulations 10 and 11 also speaks of public announcement. Such public announcement is required to be made irrespective of whether or not there has been any acquisition of shares or voting rights in a company. In either of the case, the acquirer is statutorily required to make public announcement of acquisition of shares and control of the target company in accordance with the regulations. The proviso appended to Regulation 12 curves out an exception as regard necessity of making public announcement. Explanation appended to Regulation 12, however, states that it would have no application where a change in control takes place pursuant to a resolution passed by the shareholders in a general meeting. As would be noticed shortly hereinafter, the proviso to Regulation 12 cannot be said to have any application in the instant case as by reason of the Explanation appended thereto. Regulation 12 would have no application. Result in change in control over the target company in terms of Regulation 12 wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through sale at a price which is higher than the market value of the shares leading to change in control over the target company, which cannot be done pursuant to a resolution passed by the shareholders in a general meeting in terms of the first proviso. In other words in the event, the change in control is sought to be achieved by sale of shares at a price higher than the market value of the share. Regulation 12 will clearly be attracted making public announcement imperative. Such public announcement evidently is required to be made having regard to the fact that the interest of investors is required to be protected; pursuant where to and in furtherance whereof the shareholder would be informed of the value of the share at which the transfer of control would take place so as to enable him to exercise his option to sell his shares at the price offered by the acquirer or continue to keep the same. 40. A general meeting of the shareholders of the target company had taken place but the same does not sub-serve the requirements of law inasmuch as, it would bear repetition to state, when transfer of control over the target company takes place by reason of acquisition of shares at a pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) it may entirely change the very concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable; (3) it may be so embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and (4) it may be used merely to act as an optional addenda to the enactment with the sole object of explaining the real intendment of the statutory provision." 45. Proviso to Regulation 12 exempts only a part of the main enactment. It does not take within its umbrage both the situations contemplated under Regulation 12. 46. As regard functions of an Explanation, it was opined: "52. (a) to explain the meaning and intendment of the Act itself, (b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve, (c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful, (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion from public announcement has been carved out by reason of the proviso appended to Regulation 12 as in terms of the Explanation, Regulation 12 would have no application. 51. The purported resolution dated 27-9-2000 reads as under: "Resolved that the cession of their participation in the joint control of the company by the Jatia Group as of the date hereof such that Swedish Match AB and its subsidiary are in sole control of the company be and is hereby approved." The said resolution is of no avail in the fact of the matter as neither the proviso nor the second explanation appended to Regulation 12 is attracted. Furthermore only because Regulation 12 also speaks of public announcement, the same by itself would not exempt the acquirer from making a public announcement in terms of clause (1) of Regulation 11. Was there any requirement to comply with Regulation 11? 52. With a view to advert to the question, the admitted facts may be noticed. 53. Swedish Match Singapore agreed to acquire majority shareholding in Haravon and Seed subsequent to 17th December, 1997 wherefor the public offer was made. S.M.S. comprising of Haravon and Seed had 28.28 per cent and 10.33 per cent wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the effect that the acquirer (in this case Swedish Match Group) must make a public announcement to acquire shares in accordance with the Regulation comes into operation. 54. The words "additional shares" are not terms of art. It speaks of acquisition of shares in addition to what it had got. Such acquisition of additional shares may be either from public or from a person with whom at one point of time the acquirer had acted in concert. If such a meaning is not assigned, the disjunctive clauses contained in the expressions "either by himself or through or with person acting in concert with him", may not carry a true and effective meaning. 55. The pre-conditions attracting Regulation 11 are: (i) that an acquirer had acquired shares in concert with another; (ii) such acquisition was more than 15 per cent but less than 50 per cent of the shares or voting rights in a company; (iii) in the event, the acquirer intends to acquire such additional shares or voting rights which would allow him to exercise more than 5 per cent of the voting rights within a period of 12 months, public announcement is required to be made therefor; (iv) such acquisition of additional shares contemplates thre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we do not find any difficulty in construing the provisions of Regulations 11 and 12 but assuming Regulations 11 and 12 are not clear, the rule of purposive construction should be taken recourse to. 60. It is now trite that when an expression is capable of more than one meaning, the Court would attempt to resolve that ambiguity in a manner consistent with the purpose of the provisions and with regard to the consequences of the alternative constructions. (See Clark & Tokeley Ltd. v. Oakes 1998 (4) All ER 353. 61. In Anwar Hasan Khan v. Mohd. Shafi [2001] 8 SCC 540, this Court held: "8. ...It is a cardinal principle of construction of a statute that effort should be made in construing its provisions by avoiding a conflict and adopting a harmonious construction. The statute or rules made thereunder should be read as a whole and one provision should be construed with reference to the other provision to make the provision consistent with the object sought to be achieved..." 62. In Inland Revenue Commissioners v. Trustees of Sir John Aird's Settlement [1984] Ch. 382, it is stated: "...Two methods of statutory interpretation have at times been adopted by the court. One, sometimes cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (but still correspond to) the literal meaning, or may depart from the literal meaning in favour of a strained meaning. The court, where it considers (or prefers to say) that the literal meaning is unambiguous, will tend to decide in favour of what it regards as the unglossed literal meaning and reject other versions." Referring to Trustees of Sir John Aird's Settlement's case (supra ), the learned Author at pages 368 & 369 states: "Sub-section (2) where the enactment is grammatically ambiguous, the opposing constructions put forward are likely to be alternative meanings each of which is grammatically possible. Where on the other hand the enactment is grammatically capable of one meaning only, the opposing constructions are likely to contrast an emphasized version of the literal meaning with a strained construction. In the latter case the court will tend to prefer the literal meaning, wishing to reject the idea that there is any doubt. Example 149.2- In a tax avoidance case concerning capital transfer tax, the Court of Appeal were called on to construe the Finance Act, 1975 Sch. 5 para 6(7) as originally enacted. Counsel for the Inland Revenue put forward several alternative arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (or, as in this case, would be) complied with or not. There is no evident reason for interpreting the conditions otherwise than according to their natural meaning. Indeed, there is this point to be borne in mind in favour of a literal construction. If the conditions are not complied with, the club officials who allow the club premises to be used for the gaming are guilty of criminal offences. The Act would be setting a trap for them, if by some artificial construction of the provisions an apparently innocent financial agreement (such as accepting from the owner of the machines a guarantee of the club's takings) were held to involve or lead to a breach of the conditions. The said decision, thus, runs counter to the submissions of Mr. Nariman. In this case also conditions are imposed in the matter of acquisition of shares. If the conditions have not been complied with, the Act having set up a trap for them, the logical consequences would ensue. 70. In the Seksaria Cotton Mills Ltd.'s case (supra), the Court was dealing with the activities of a welfare agent vis-a-vis the meaning of 'possession' in the relevant Act. The Court found: "The facts are truly and accurately given accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 24 of the Act, issue directions in terms of section 11B and regulation 44 as also take recourse to penal provisions as contained in section 24 and Chapter VI-A of the Act. Its decision is final subject to the decision of the Tribunal. But the sequences of events, as noticed hereinbefore, clearly go to show that even the Board was not sure of the legal position. It in no uncertain terms held: "As the said change from joint to sole control took place in pursuance to a resolution passed by the shareholders in general meeting, the same would not trigger regulation 12, same being covered under proviso to Regulation 12." 75. The Board even did not think it fit to apply the Explanation appended to Regulation 12 in its proper perspective. 76. It is only the Tribunal at a later stage came to a clear finding that proviso appended to Regulation 12 will have no application and Explana-tion would. Before us also the Counsel read the regulations in question over and over again. Focus on certain words was placed differently at different times. It is only after considering the matter from different angles, we have been able to arrive at a definite conclusion. 77. In Trustees of S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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