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TMI Blog2004 (8) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of 10 per cent per annum from March 1998 till 2003. - CIVIL APPEAL NOS. 3183, 3701, 3872 OF 2003 AND D3952 OF 2004 - - - Dated:- 25-8-2004 - N. SANTOSH HEGDE, S.B. SINHA AND A.K. MATHUR, JJ. R.F. Nariman, Dushyant Dave, Kirit N. Rawal, Manu Krishnan, Rishi Agrawal, E.C. Agrawala, Mahesh Agarwal, Ms. Purnima Bhat, Shrish K. Misra Praveen K. Mehdiratta, Bhargava V. Desai, Pradeep Mathur, Sanjeev Kr. Singh, Dr. Indra Pratap Singh, Ms. Rachna Gupta, Jeevan Prakash and K.K. Rai for the Appearing Party. JUDGMENT S.B. Sinha, J. - These appeals under section 15Z of the Securities and Exchange Board of India Act, 1992 (for short, the said Act ) arise out of a judgment and order dated 21-2-2003 passed by the Securities Appellate Tribunal, Mumbai (for short, the Tribunal ) in Appeal No. 114 of 2002. Background Facts : 2. Colour Chem Ltd. is a target company. Its shares are listed on the Bombay Stock Exchange and National Stock Exchange. Appellant No. 1 (Clariant) in Civil Appeal No. 3183 of 2003 is a Swiss company being subsidiary of another Swiss company, Clariant AG. Hoechst is a German company whereas Ebito Chemiebeteiligungen AG (Ebito) is a Swiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons for completing the offer formalities in respect of an open offer, is 120 days from the date of public announcement. The public announcement in the instant case ought to have been made taking 21-11-1997 as a reference date and thus the entire offer process would have been completed latest by 21-3-1998. Since no public announcement for acquisition of shares of the Target company has been made, which has adversely affected interest of shareholders of Target Company, it would be just and equitable to direct the Acquirer to pay interest at the rate of 15 per cent per annum on the offer price, the Acquirer is hereby accordingly directed to pay interest at the rate of 15 per cent per annum to the shareholders for the loss of interest caused to the shareholders from 22-3-1998 till the date of actual payment of consideration for the shares to be tendered in the offer directed to be made by the Acquirer." 4. An appeal was preferred thereagainst by the acquirer wherein the primal question raised was the rate of interest for the delay involved in making payment to the shareholders who tendered the shares in the public offer required to be made in terms of the Regulations. 5. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that the investment was to be made for a long period, i.e., for about five years. In support of the said contention, the learned counsel placed reliance on Smt. Kaushnuma Begum v. New India Assurance Co. Ltd. [2001] 2 SCC 9, H.S. Ahammed Hussain v. Irfan Ahammed [2002] 6 SCC 52, United India Insurance Co. Ltd. v. Patricia Jean Mahajan [2002] 6 SCC 281 and DDA v. Joginder S. Monga [2004] 2 SCC 297. 10. It was further submitted that those shareholders who had purchased the shares later than the date fixed by the SEBI were not entitled to receive any compensation by way of interest as they were not the shareholders on the said date having regard to the fact that their names did not appear in the register of the company. As regard the findings of the Board that the amount of dividend paid to the shareholders would not be set off against the amount of interest, it was argued that having regard to the fact that actual date of transfer had been fixed on 22-3-1998, by reason of a fiction created, a person must be deemed to be a shareholder as on that date and having regard to the fact that interest was being paid to the shareholders at the offer price from the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, it may not be possible to identify the shareholders who as per direction of the Tribunal would be entitled to interest as the shares by such time might have changed many hands. Furthermore, the process being a complex one, Regulation 44 should be read in such a manner which may be effectually worked out. 16. Mr. Shrish Kr. Misra, learned counsel appearing on behalf of the Administrator of the Specified Undertaking of the Unit Trust of India in Civil Appeal No. D3952 of 2004 would submit that the appellants therein should be held to be entitled to grant of interest despite the fact that it was not a shareholder as on 11-3-1998 as would appear from the following: A.That the Unit Trust of India was a statutory corporation under the Unit Trust of India Act, 1963 and was/is the shareholders of the Target company and as on 24-2-1998 holding 1123800 shares. B.That Unit Trust of India Act, 1963 has been repealed by the Act of the Parliament, i.e., Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002. C.That the said Act provides for transfer and vesting of Undertaking (excluding Specified Undertaking) of Unit Trust of India to a Specified Company (being UTI Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es fund, special reserve fund, benevolent reserve fund, any other fund stock, investments, shares, bonds, debentures, securities, powers authorities privileges benefits of the erstwhile Unit Trust of India vest in "Administrator of the Specified Undertaking of the Unit Trust of India" and "UTI Trustee Company Pvt. Ltd." I.That as per section 5(2) of the said Act "All contracts, deeds bonds guarantees, power of attorney other instruments (including all units issued and unit schemes formulated by the Trust and working arrangements) subsisting immediately before the appointed day and affecting the Trust shall cease to have effect or to be enforceable against the Trust and shall be in full force and effect against or in favour of the specified company (UTI Trustee Company Pvt. Ltd.) or the Administrator (Administrator of the Specified Undertaking of the Unit Trust of India) as the case may be, in which the undertaking or specified undertaking has vested by virtue of the said Act and enforceable as fully and effectually as if instead of the Unit Trust of India, the specified company (UTI Trustee Company Pvt. Ltd.) or the Administrator (Administrator of the Specified Undertaking of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest at the rate not less than the applicable rate of interest payable by banks on fixed deposits." 19. As the impugned order of the Tribunal had been passed on 21-2-2003, it is not disputed that Regulation 44 as amended in 2002 shall be attracted in the instant case. 20. Shareholder has neither been defined in the Act nor in the Regulations; whereas shares has been defined to mean shares in the share capital of a company carrying voting rights and includes any security which would entitle the holder to receive shares with voting rights but shall not include preference shares. 21. In terms of sub-section (2) of section 2 of the said Act, the words and expressions used and not defined in the Act but defined in the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Depositors Act, 1996 (22 of 1996) shall have the meanings respectively assigned to them in that Act. 22. Clause (2) of Regulation 2 provides that all other expressions unless defined therein shall have the same meaning as have been assigned to them under the Act or the Securities Contracts (Regulation) Act, 1956, or the Companies Act, 1956, or any statutory modification or re-enactment ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a view to recompense the shareholders and not by way of penalty or damages. Such a direction, therefore, was for the purpose of protecting the interest of investors and not "in the interest of the securities market". The transactions in the market are not thereby affected one way or the other. The Board, as noticed hereinbefore, has a discretion in the matter and, thus, it may or may not issue such a direction. The shareholders do not have any say in the matter. As a necessary concomitant, they have no legal right. 25. The Board further having a discretionary jurisdiction must exercise the same strictly in accordance with law and judiciously. Such discretion must be a sound exercise in law. The discretionary jurisdiction, it is well-known, although may be of wide amplitude as the expression "as it deems fit" has been used but in view of the fact that civil consequence would ensue by reason thereof, the same must be exercised fairly and bona fide . The discretion so exercised is subject to appeal as also judicial review, and, thus, must also answer the test of reasonableness. 26. In Kruger v. Commonwealth of Australia 1997 (146) Australian LR 126, it is stated : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( i ) return or restoration of some specific thing to its rightful owner or status; ( ii ) compensation for benefits derived from a wrong done to another; and ( iii ) compensation or reparation for the loss caused to another ( See Black s Law Dictionary, 7th Edn., p. 1315). The Law of Contracts by John D. Calamari Joseph M Perillo has been quoted by Black to say that restitution is an ambiguous term, sometimes referring to the disgorging of something which has been taken and at times referring to compensation for injury done : Often, the result under either meaning of the term would be the same... Unjust impoverishment as well as unjust enrichment is a ground for restitution. If the defendant is guilty of a non-tortious misrepresentation, the measure of recovery is not rigid but, as in other cases of restitution, such factors as relative fault, the agreed-upon risks, and the fairness of alternative risk allocations not agreed upon and not attributable to the fault of either party need to be weighed ." (p. 662) 32. When a bench-mark is fixed by a statute, the question as to whether a discretion has been judicially or properly exercised or not will have to be determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clients if they would be willing to purchase the plots at 50 per cent of the price realised in the last auction. They conveyed their willingness to pay that price, i.e., 50 per cent of Rs. 10,756 per square metre. Mr. Arun Jaitley, the learned counsel for the Delhi Development Authority submitted that although he had no instructions from his clients in the matter his clients would abide by any just, reasonable and fair order that this Court would make in the facts and circumstances of the case...." (p. 23) The said decision, therefore, has no application to the fact of the present matter. 37. We also do not agree with the contention that the payment of interest for delay in making the public offer is a commercial transaction. 38. While determining the cases of commercial transaction also, fall in rate of interest has been taken note of by this Court in Citibank N.A. v. Standard Chartered Bank [2004] 1 SCC 12, 1 para 62 and Citibank N.A. v. Standard Chartered Bank [2004] 6 SCC 1, 2 para 54. 39. It is at this stage relevant to note that the rate of interest at the rate of 15 per cent as directed by the Board has been affirmed by the Tribunal stating : ".. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 997 31-10-1997 11% 4. 1-11-1997 21-12-1997 10% 5. 22-12-1997 14-1-1998 11% 6. 15-1-1998 21-1-1998 11.5% 7. 9-2-1998 11-10-1998 12% Sl. No. From To Percentage 8. 12-10-1998 14-3-1999 11.5% 9. 15-3-1999 4-4-1999 11.25% 10. 5-4-1999 30-4-1999 11% 11. 1-5-1999 22-8-1999 10.5% 12. 23-8-1999 11-11-1999 10.25% 13. 12-11-1999 9-4-2000 9.75% 14. 10-4-2000 31-8-2000 9% 15. 1-9-2000 15-10-2000 9.5% 16. 16-10-2000 31-12-2000 10% 17. 1-1-2001 11-2-2001 9.75% 18. 12-2-2001 14-3-2001 10% 19. 15-3-2001 9-7-2001 9.5% 20. 10-7-2001 14-9-2001 9.25% 21. 15-9-2001 15-12-2001 8.75% 22. 16-12-2001 20-1-2002 8.50% 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er price. In terms of clause (1) of Regulation 21, the public offer is required to be made by the acquirer to the shareholders of the target company to acquire from them an aggregate minimum 20 per cent of the voting capital of the company. 44. The Board arrived at an inference that the acquirer had acquired the control of the target company as the special vehicle company on 19-5-2000. The liability of the acquirer to pay interest should be judged in the aforementioned context. Shareholder : 45. To become a shareholder, a person has to fulfil two conditions, namely, he must agree in writing to become a member of a company and whose name should be entered in its register of members. The members holding equity share capital of company and whose names are entered as beneficial owner in the records of the depository shall be deemed to be the members of the concerned company. 46. In Palmer s Company Law, 23rd Edn. at page 154, para 12-07, it is stated: "12-07 Subscribers as members. The subscribers of the memorandum are deemed to have agreed to become members of the company, and on its registration shall be entered as members in its register of members [1948 Act, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4] 3 SCC 48 2 and Ashok Leyland Ltd. v. State of Tamil Nadu [2004] 3 SCC 1 3 . 50. Directions by the Board are required to be issued for the purpose of protecting the interest of the investors which would imply that such protection be extended to the persons who are entitled thereto and not any other shareholder who would get the same by windfall. The share holders contemplated under clause ( i ) of Regulation 44 must be those shareholders whose shares have been accepted upon public announce- ment of offer and who have suffered loss owing to blockage of amount by not being able to sell the shares held by them. The object of the said provision is to protect the interest of such shareholders who had suffered a loss for delay in making the public announcement and, thus, may have to be compensated. The very fact that the bench-mark as regard the rate of interest has been fixed is also a pointer to the fact that the interest is to be paid to such investors who had suffered some loss. 51. While compensating a person, the court should see that he is not unjustly enriched. Interest is directed to be paid on the default of the acquirer occasioning loss suffered by an investor o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Offer capital 23.30 lakhs shares Total consideration Rupees 7409.40 lakhs Interest Rate per annum Period 24-2-1998 Interest per Share (Rs.) to 20-6-2003 A B C 15% 5916.35 253.92 14% 5521.93 237.00 13% 5127.51 220.07 12% 4733.08 203.14 11% 4338.66 186.21 10% 3944.24 169.28 9% 3549.81 152.35 8% 3155.39 135.42 The difference of amount calculated on the basis of interest at the rate of 10 per cent and 15 per cent would be about Rs. 85 per equity share. If shareholders are to be compensated owing to the act of delay on the part of the acquirer in making the public announcement, in a case of this nature, an attempt should be made to strike a delicate balance. The bank rate of interest payable by the nationalized banks on a fixed deposit for the period from 1998 to 2003 was around 9 per cent. This fact has been accepted by the Tribunal. It has also been accepted by the Tribunal that the decisions of this Court relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, that a satisfactory formal classification is impossible." Reasons for creating special Tribunals, according to the learned author, are : ( i )Expert knowledge ( ii )Cheapness ( iii )Speed ( iv )Flexibility ( v )Informality At para 30-021 at page 692 of the said treatise, it is stated : "Appeals from tribunals A party to proceedings before most statutory tribunals, who is dissatisfied with the tribunal s decision on a point of law, may either appeal to the High Court or require the tribunal to state a case for the opinion of the High Court. Appeal lies by leave of the High Court or of the Court of Appeal to the Court of Appeal, and thence to the House of Lords (section 11)." 61. In Environmental Enforcement : The Need for a Specialist Court by Robert Carnwath published in (1992) Journal of Planning and Environment Law at page 799, the requirements of having an environment court in place of the ordinary courts were highlighted. The author had submitted a report known as "Enforcing Planning Control" and on referring thereto, it was noticed : "Most of the report s substantive recommendations for reform of the planning enforcement system were adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided that a member of the Board or any person holding a post at senior management level equivalent to Executive Director in the Board shall not be appointed as Presiding Officer or Member of a Securities Appellate Tribunal during his service or tenure as such with the Board or within two years from the date on which he ceases to hold office as such in the Board." 63. The conflict of jurisdiction between an expert Tribunal vis-a-vis the courts in the context of the doctrine of separation of powers poses a problem even in other countries. [For a detailed discussion see the Article Powers of the Takeovers Panel and their Effect upon ASIC and the Court by Barbara Mescher [2002 (76) Australian Law Journal, p. 119]. 64. In Australia, the takeover panel has also a function of identifying and notifying the third parties who are affected by a decision. Takeover panel created under the Corporate Law Economic Reform Programme Act, 1999, as amended by the Corporation Act, 2001, is also an expert panel. 65. Throughout the world, specialized adjudicators are performing numerous roles. There are diverse specialized Tribunals in America as also in the Commonwealth countries. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 14A of the Act. TDSAT itself is an expert body and its jurisdiction is wide having regard to sub-section (7) of section 14A thereof. Its jurisdiction extends to examining the legality, propriety or correctness of a direction/order or decision of the authority in terms of sub-section (2) of section 14 as also the dispute made in an application under sub-section (1) thereof. The approach of the learned TDSAT, being on the premise that its jurisdiction is limited or akin to the power of judicial review is, therefore, wholly unsustainable. The extent of jurisdiction of a Court or a Tribunal depends upon the relevant statute. TDSAT is a creature of a statute. Its jurisdiction is also conferred by a statute. The purpose of creation of TDSAT has expressly been stated by the Parliament in the Amending Act of 2000. TDSAT, thus, failed to take into consideration the amplitude of its jurisdiction and thus misdirected itself in law." (p. 211) The court noticed the celebrated book on Judicial Review of Administrative Law by H.W.R. Wade and C.F. Forsyth and held : "31. The rule as regard deference to expert bodies applies only in respect of a reviewing court and not to an expert tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power against an order of the State Commission under the 1998 Act should be conferred either on the Central Electricity Regulatory Commission or on a similar body. We notice that under the Telecom Regulatory Authority of India Act, 1997 in Chapter IV, a similar provision is made for an appeal to a Special Appellate Tribunal and thereafter a further appeal to the Supreme Court on questions of law only. We think a similar appellate provisions may be considered to make the relief of appeal more effective." (p. 763) The provisions of the 1992 Act and the Regulations framed thereunder squarely apply to the observations made by this Court in West Bengal Electricity Regulation Commission s case ( supra ). We may furthermore notice that in Part XI of the Electricity Act, 2003, an expert appellate Tribunal for electricity in the light of the observations made by this Court has been constituted. Dividend : Effect of 73. In view of our findings aforementioned, we are of the opinion that while calculating the amount of interest, the amount of dividend paid to the shareholders should be excluded. The shareholders who by reason of default on the part of the acquirer have been depr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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