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TMI Blog2011 (9) TMI 1169X X X X Extracts X X X X X X X X Extracts X X X X ..... shwari who shall collectively be referred to hereinafter as the Naras. There is No. other shareholder in this company and the Naras have 50 per cent shareholding each. This is an investment company whose main object is to invest in shares/debentures of other companies. The two Naras in their individual capacity are also promoters of the target company and they together hold 33.38 per cent of the voting rights/share capital in the target company. The remaining 15 promoters of the target company as shown in the statement filed with the stock exchanges hold 12.32 per cent of the voting rights in that company. Thus, the total holding of the promoter group in the target company comes to 45.70 per cent including that of the two Naras. The Appellant company acquired 9,161 shares of the target company on November 13, 2008 and Anr. 7,02,260 shares on November 17, 2008 which together constitute 6.17 per cent of the total equity capital of the target company. Since the two Naras in their individual capacity are promoters of the target company and they are also promoters of the Appellant company holding 100 per cent of its share capital, the Appellant company automatically becomes a part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued to it under Regulation 44 of the takeover code for violating Regulation 11(1). The Appellant filed its detailed reply dated December 30 2009 stating that it had not violated the provisions of Regulation 11(1) when it acquired 6.17 per cent equity shares of the target company without making a public announcement. It also disputed that the collective shareholding of the promoters of the target company increased from 45.7 per cent to 51.87 per cent in the financial year 2008-09 as alleged. The case of the Appellant is that the Board erroneously clubbed its shareholding of 6.17 per cent with the shareholding of the 'promoter group'. In para 10 of its reply this is what the Appellant pleaded: It appears that simply because our promoters/directors are also the promoters of Target Company and are holding around 33.38% shares in the Target Company, it has been concluded that our promoters/directors are acting in concert with the other persons in the "promoter group" of the Target company and further that the "promoters group" of the Target Company (including our promoters) were acting in concert with us when we acquired 6.17 % shares of the Target Company through the stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record including the replies filed by the Appellant and taking note of the facts which are not in dispute, the whole time member by his order dated November 9, 2010 held that the Appellant had violated Regulation 11(1) of the takeover code when it acquired 6.17 per cent shares of the target company without making a public announcement. He directed the Appellant to disinvest within a period of two months from the date of the order 1,34,905 shares constituting 1.17 per cent of the equity capital of the target company which was in excess of the 5 per cent limit. The Appellant was further directed to transfer the profits, if any, arising out of such disinvestment to the Investor Protection Fund(s) of the concerned stock exchanges. It is against this order that the present appeal has been filed. 4. We have heard the learned senior counsel for the Appellant and Dr. Mrs. Poornima Advani Advocate on behalf of the Board who have taken us through the record and the impugned order. The whole time member has clubbed the acquisition of the Appellant company (6.17 per cent) with the holding of the promoter group which was 45.70 per cent including that of the two Naras. It is on this basis that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s between the Appellant on the one hand and any of the promoters on the other. We have given our thoughtful consideration to the argument of the learned senior counsel and are unable to accept the same. It is true that 'person acting in concert' comprises two or more persons who share a common objective or purpose of substantial acquisition of shares or voting rights in a company. In other words, there has to be a meeting of their minds when the acquisition takes place and it is only then that it could be said that they acted in concert. In the present case it cannot even be suggested that the Appellant while acquiring 6.17 per cent shares of the target company did not act in concert with the two Naras who, as already observed, are promoters of the target company in their individual capacity and also hold 100 per cent shares of the Appellant company. The two Naras control the Appellant company and they are also its directing mind. No. investment decision on behalf of the Appellant company could be taken without their authority, knowledge, consent and approval. The Appellant being a body corporate is distinct from the two Naras. In this view of the matter, it is obvious that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to comply with the provision by making a public offer. The words "unless such acquirer makes a public announcement" appearing in Regulations 10 and 11(1) make these provisions mandatory and a public announcement has to be made. Similar words appear in Regulation 12 as well. These provisions make the acquisition conditional upon a public announcement being made. The primary object of the takeover code is to provide an exit route to the public shareholders when there is substantial acquisition of shares or a take over. This right to exit is an invaluable right and the shareholders cannot be deprived of this right lightly. It is only when larger interest of investor protection or that of the securities market demands that this right could be taken away. Therefore, as a normal rule, a direction to make a public announcement to acquire shares of the target company should issue to an acquirer who fails to do that. The Board need not give reasons as to why such a direction is being issued because that is the mandate of Regulations 10, 11 and 12. However, if the issuance of such a direction is not in the interest of the securities market or for the protection of interest of investors, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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