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TMI Blog2005 (5) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... Shekhar, Mrs. Gauri Rasgotra, Pradip Kumar Khaitan, O.P. Gaggar, Sudhir Kumar Gupta, Bhargava V. Desai, Sanjeev Kr. Singh and Pradeep Kr. Malik for the Respondent. JUDGMENT Ruma Pal, J. - There are five main protagonists in these appeals, the appellant, Technip, a company incorporated in France, Coflexip, also incorporated in France, the Institut Francais du Petrol (referred to as IFP) which through its subsidiary ISIS, a company incorporated in France, was a shareholder in Technip and Coflexip, South East Asia Marine Engineering and Construction Ltd. (referred to as SEAMEC), a company incorporated and registered in India and finally the respondents who are the shareholders of SEAMEC. SEAMEC is a subsidiary of Coflexip in the sense that Coflexip through a chain of wholly owned subsidiaries controls the majority shareholding in SEAMEC. 2. The question which arises for consideration in these appeals is whether Technip acquired control of SEAMEC through Coflexip in April, 2000, or in July, 2001? There is no dispute that if Technip controls Coflexip then it also controls SEAMEC and if there has been a change of control of SEAMEC then Technip would be bound to offer to purchase the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , was Indian Law. The Tribunal affirmed SEBI's conclusion that the Regulations had been violated by Technip by its failure to make a public announcement but decided that the relevant date on which the control of SEAMEC was taken over by Technip was April, 2000. The Tribunal accordingly directed Technip to treat the relevant date for calculating the offer price as 12th April, 2000 and to pay SEAMEC shareholders the difference between the price of the shares between 3-7-2001 and 12th April, 2000 together with the interest on such difference at the rate of 15%. One of the grounds on which the Tribunal came to the conclusion that Technip had taken over Coflexip in April, 2000 was based on the fact that both the companies had been promoted by IFP and that IFP through ISIS acting in concert with Technip had brought about the takeover of Coflexip by Technip. 6. According to Technip, since Technip and Coflexip are both registered in France and the takeover of Coflexip by Technip also took place in France, the applicable law is French. In terms of French Law, according to Technip, there was no control of Coflexip by Technip in April, 2000 and as such there was no change in control of SEAME ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over by Technip in April, 2000. The respondents also claim that Technip had in fact applied to SEBI to exempt them from the operation of the Regulations. The application had been rejected. This issue according to the respondent could not, therefore be reopened. It is said that SEAMEC was very much in the contemplation of Technip when it decided to take over Coflexip. It is asserted that therefore Regulations 10, 11 and 12 applied in full measure. Technip had not only acted in concert with ISIS, another shareholder of Coflexip, but even by itself was in a position to exercise and in fact exercised control over Coflexip and, therefore, SEAMEC in April 2000. 9. The shareholders of SEAMEC may be classified into three groups: (a)Those, who were shareholders of SEAMEC in April, 2000 and contin-ued as such; (b)Those, who were not shareholders in April, 2000 but were sharehold-ers during the public offer having purchased the shares of SEAMEC before July, 2001. (c)Those shareholders, who were shareholders on the date of the public offer holding shares purchased in April, 2000 and more shares after April, 2000 but before July, 2001. 10. The respondents who belong to group (b) have said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquisition and takeovers of companies in India". But then it came to the conclusion that even the question "whether Technip acquired control over Coflexip on 12-4-2000 and consequently over SEAMEC need be tested in the light of 2(c) definition". In other words Indian law would apply to determine whether the control of Coflexip was taken over by Technip. According to SAT any view to the contrary would "lead to absurd consequences even defeating the very objective of the Takeover Regulations". 13. SAT's conclusion as to the applicable law is questioned by the appellant and that cannot be considered as a question of fact. As held in Dalmia Dairy Industries Ltd. v. National Bank of Pakistan1, the role of the appellate Court in such cases is : "...to examine the evidence of foreign law which was before the justices and to decide for ourselves whether that evidence justifies the conclusion to which they came2." 14. The respondent's preliminary objection to the maintainability of the appeal is accordingly rejected. 15. The jurisdiction of SEBI or SAT or indeed this Court to apply foreign law has not been questioned at any stage. What is referred to as "private international law" by s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights by a corporation in another country whether such obligation is imposed by or right arises under statute or contract which is governed by the law of such other country. 18. The distinction is brought out in the case of National Bank of Greece and Athens S.A. and Metliss 58 AC 509. A Greek Bank had issued mortgage bonds to persons in U.K. in pounds sterling. The bonds were guaranteed by another bank. Both the issuing bank and the guaranteeing bank were incorporated under Greek Law. The guaranteeing bank was subsequently amalgamated with a third Greek company and a new company was formed. A bond holder sued the new company seeking to enforce the guarantee. Under the Greek law there was a moratorium imposed on payments by the new bank. It was held by the House of Lords that the status of the new bank would be decided according to the law of the domicile of the original guarantor company and the new company which was Greek law. It was found that according to Greek law the new company succeeded to the assets and liabilities of the guarantor company. The question then was whether the English Courts would recognize the moratorium as debarring the bond holder from enforcing his rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles. 22. As far back as in 1918, Cardozo J. speaking for the Bench in Fannie F. Loucks et at., as Administrators of the Estate of Everett A. Loucks v. Standard Oil Co. of New York 224 N.Y. 99; said : "The courts are not free to refuse to enforce a foreign right at the pleasure of the judges, to suit the individual notion of expediency or fairness. They do not close their doors unless help would violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal." [Emphasis supplied] 23. Similarly the House of Lords in Kuwait Airways Corpn.'s case (supra): "....Exceptionally and rarely, a provision of foreign law will be disregarded when it would lead to a result wholly alien to fundamental requirements of justice as administered by an English court". 24. In other words the power to disregard a provision in the foreign law must be exercises exceptionally and with the greatest circumspection "when to do otherwise would affront basic principles of justice and fairness which the courts seek to apply in the administration of justice in this country. Gross infringements of human rights are one instance, and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws of the other country may have adopted solutions, or even basic principles, rejected by the law of the forum country. These differences do not in themselves furnish reasons why the forum court should decline to apply the foreign law. On the contrary, the existence of differences is the very reason why it may be appropriate for the forum court to have recourse to the foreign law. If the laws of all countries were uniform there would be no 'conflict' of laws". [Emphasis supplied] 29. The Bhagwati Committee Report on Takeovers (1997) which was prepared after examining the principles and practices and the regulatory framework governing takeovers in as many as fourteen countries noted that while the practice and procedures vary from country to country, the principles and the concerns - cardinal among which are equality of opportunity to all shareholders, protection of minority interest, transpar-ency and fairness - have remained more or less common. The aim of French Law like Indian Law is to ensure that all parties to a public tender offer respect the principles of shareholder equality, market transparency and integrity, fair trading and fair competition. All this is culled from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral meetings of the "controlled company". The entire article was incorporated in the French Commercial Code as article L 233-3 in 2002. 34. The second relevant article is article 356-1. Roughly translated it provided :- "Any individual or legal entity, acting alone or in concert, that becomes the owner of a number of shares representing more than one twentieth, one tenth, one fifth, one third, one half or two thirds of the capital or the voting rights of a company having its registered office in France and whose shares are admitted for trading on a regulated market or are traded on the over-the-counter market as stated in article 34 of law No. 96-597 dated July 2nd, 1996 relating to the modernization of financial activities, shall inform such company in a period of 15 days as of the crossing upwards of the threshold of the total number of shares that such person holds. The owner also informs the Conceil de Marches Financiers (CMF) within a period of 5 trading days as of the day of crossing upwards of the threshold when the shares are listed on a regulated market. The CMF makes public such information. The notifications referred to in the two preceding paragraphs are also to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights in the target company, and again of 20% of share capital or voting rights in the target company, the purchaser is required to file with the Stock Exchange Authorities, with copy to the target company, a Statement of Intent, specifying (i) whether the purchaser acts alone or in concert with third parties, (ii) whether the purchaser intends to continue acquiring shares in the target company, (iii) whether the purchaser intends to acquire control of the target company and (iv), whether the purchaser intends to seek representation on the Board of Directors of the target. 36. The section has been re-enacted as L233-7 of the 2002, French Commercial Code. Therefore, French Law at the relevant time provided that a company holds control over another (the Target Company) in the following cases: (i)the Company holds, directly or indirectly, title to a number of shares granting to such holder a majority of voting rights in the general meetings of shareholders of the Target. (ii)the Company holds the majority of voting rights in the Target pursuant to an agreement with a third party or as a result of acting in concert with such third party. (iii)the Company in effect determines, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with the Regulations. 11(1) No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, not less than 15% not more than 75% of the shares or voting rights in a company, shall acquire either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 2% 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) No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise more than 51% of the voting rights in a company, unless such acquirer makes a public announcement to acquire share of such company 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rench Law since the extended meaning of 'controlled company' was introduced by amendment to article 355-1 only in May, 2001. The submission ignores article 356-1. The concept of a takeover by acting in concert was there in 2000. In fact article 355-1 of the French Companies Act merely sets out factors determining when a company could be said to hold control over another. It does not as article 356.1 does, speak of the method for acquiring such control. 42. At this stage and before we apply the law to the facts we may note one aspect that has been lost sight of by SAT and that is that irrespective of the status of Coflexip and Technip to each other, in order to trigger Regula-tions 10 to 12, it would have to be established that the purchase of the 29.68% shares by Technip in Coflexip was with the object of taking control of SEAMEC. That is what the relevant Regulations provide and also what is alleged in the show-cause notice issued to Technip by SEBI. The allegation in the show-cause notice was that Technip, the acquirer and ISIS as a shareholder of Coflexip acted in concert to acquire control over Coflexip and therefore SEAMEC treating SEAMEC as the target company. The emphasis i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is referred to as the "chain principle" in the Report which enunciates that an offer should be made to the shareholders of such a target company if : (a)the shareholding in the second company constitutes a substantial part of the assets of the first company; or (b)one of the main purposes of acquiring control of the first company was to secure control of the second company. 46. This is evident also reading the definitions of 'acquirer' 'control' 'acting in concert' and 'target company' in Regulations 2(b)( c)(e) and (o) together. 47. A similar position obtains in England where Note 7 to Rule 9.1 of the City Code on Takeovers and Mergers likewise provides:- "Occasionally, a person or group of persons requiring statutory control of a company (which need not be a company to which the Code applies) will thereby acquire or consolidate control, as defined in the Code, of a second company because the first company itself holds a controlling block of shares in the second company, or holds shares which, when aggregated with those already held by the person or group, secure or consolidate control of the second company. The Panel will not normally require an offer to be made under this R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wide terms. It covers an understanding as well as an agreement, and an informal as well as a formal arrangement, which leads to co-operation to purchase shares to acquire control of a company. This is necessary, as such arrangements are often informal, and the understanding may arise from a hint. The understanding may be tacit, and the definition covers situations where the parties act on the basis of a 'nod or a wink"...Unless persons declare this agreement or understanding, there is rarely direct evidence of action in concert, and the panel must draw on its experience and commonsense to determine whether those involved in any dealings have some form of understanding and are acting in co-operation with each other7". 51. According to the Dictionaire Permanent du Droit des Affairs French law does not make proof of the concerted action dependent upon the existence of a written document. "However, given the serious consequences linked to the existence of a concerted action, only serious presumptions drawn from factual date can lead to a qualification of a concerted action. The mere observation of similarity of behaviours cannot constitute such a proof. Even the common position of ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter to Stena renouncing its preemptive rights under the shareholders agreement in favour of Technip. There is no binding that it would have been financially possible for ISIS to have exercised its preemptive rights given the financial implications particularly the necessity to make a further public offer to purchase the balance shares of Coflexip as it would have crossed the threshold as prescribed under French Law. On the same date Elf also renounced its preemptive rights under the shareholders agreement in favour of Technip. An agreement was then entered into between Technip and Stena for the acquisition of Stena's 29.68% shares in Coflexip at the rate of Euros 119 per share. Statements of intent were filed by Technip with Stock Exchange Authorities and with Coflexip. Coflexip in turn wrote a letter to Technip on the same date agreeing not to acquire equity shares in a competing company without prior written consent of Technip. 62 The declaration required by French law was made to the CMF by Technip on 28th April, 2000 that Technip : (a)did not directly or indirectly hold any other shares in Coflexip; (b)it was not acting in concert with any other and had no plans for any s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these appointments were made even before payment of the purchase price of the shares by Technip to Stena. The purchase of shares between Stena and Technip was completed on 19th April, 2000, on which date and Stena's 29.68% shares in Coflexip was registered in favour of Technip. 66. Technip has argued that the effect of the purchase of the Stena's shares was merely a strategic alliance between Coflexip and Technip and Technip did not control Coflexip. On the other hand there was evidence of a possible acquisition of Technip by Coflexip. This position continued till January, 2001 when IFP agreed to sell its entire interest in ISIS to Technip. According to Technip and IFP this was the first time IFP had come into the picture. 67. In February, 2001 the Chairman of Coflexip expressed his reservation about the proposed sale of ISIS's shares in Coflexip to Technip. Coflexip continued to act independently of Technip with regard to various policy decisions. Technip offered to purchase the balance shares of Coflexip at a premium of 25% on 3rd July, 2001. The price offered by Technip was not immediately acceptable to the Board of Coflexip. A Special Committee was set up to consider whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... event there is no evidence that Technip acquired Coflexip if it at all did so in April 2000, so as to gain control of SEAMEC. Yet that is the aspect with which we are concerned. SEBI said that on the material before it, it was difficult to hold that IFP along with ISIS was acting in concert with Technip for the purpose of acquiring shares/voting rights/control of Coflexip so as to indirectly acquire control over SEAMEC in April 2000. But in view of the admitted takeover of Coflexip by Technip in July 2001 directed the publication of an offer to SEAMEC's taking that as the effective date. 72. In reversing this judgment, SAT held that ISIS and Technip had acted in concert to gain control over Coflexip in April, 2000. We are of the opinion that the approach of the SAT was entirely wrong. For the purposes of determining Technip's obligations under the Regulation it should have addressed itself as SEBI had done to the question whether ISIS and Technip were acting in concert to obtain control over the target company, namely, SEAMEC. In other words, did the shareholding of Coflexip in SEAMEC constitute a substantial part of the assets of Coflexip, or was the main purpose of acquiring co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ix)"ISIS objecting to the setting up of a committee to revise the offer price, is but natural as an increase in offer price was to its advantage and by doing so it was not in any way acting against its objective of helping Technip to acquire control over Coflexip. Adding a little more financial burden on Technip by asking for higher offer price cannot be viewed as a hostile action from ISIS or as evidence of non- co-operation." (x)"Technip possibly wanted to strengthen its position de jure as well with 99% and they acquired shares to that level through the public offer in July, 2001. In my view the acquisition raising the shareholding to 99% in Coflexip was the final act whereas the process started on 12-4-2000." (xi)...in my view Technip had decided to take over control of Coflexip and to achieve the said objective, acquired 29.68% shares of Coflexip on 12-4-2000, the evidence before me leads to the conclusion that ISIS had acted in concert for the said purpose." 74. We need not go into the reasons separately although we must say that we disapprove of the introduction of the concept of a joint family into corporate law when the statutory provisions, particularly Regulation 2(e) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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