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TMI Blog2018 (7) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... aw are raised. They are:- a) Whether the second proviso to regulation 11(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ("1997 Regulations" for short) permits an acquirer covered under regulation 11(2) of the 1997 Regulations to acquire additional shares without making public announcement of an open offer, entitling additional voting rights only up to 5% of the total voting rights of the target company. b) Whether the expression 'bulk deal' in the second proviso to regulation 11(2) of the 1997 Regulations disentitles the acquirer covered under regulation 11(2) from acquiring additional shares entitling up to 5% of voting rights without making open offer, if additional shares are acquired in excess of 0.5% shares of the target company by a single transaction executed during the day in the normal market segment. 2. First question of law framed above arises only in Appeal No. 265 of 2015, whereas, the second question of law arises in all appeals including Appeal No. 265 of 2015. To put it simply, in the order impugned in Appeal No. 265 of 2015, the WTM has held that the appellants therein have violated regulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment; or the increase in the shareholding or voting rights of the acquirer is pursuant to a buy back of shares by the target company; (ii) the post acquisition shareholding of the acquirer together with persons acting in concert with him shall not increase beyond seventy five per cent. (75%). 4. It is not in dispute that the appellants in all these appeals holding more than 55% shares but less than 75% shares of the respective target company had acquired additional shares of the respective target company without making public announcement of open offer on ground that the said acquisitions were within the permissible limits provided under the second proviso to regulation 11(2) of the 1997 Regulations. However, according to SEBI the said acquisitions were in violation of the regulations framed by SEBI. Accordingly, SEBI initiated proceedings and by the orders impugned in the respective appeals held that the appellants are guilty of violating regulation 11(2) of the 1997 Regulations and accordingly directed the appellants to make public announcement of open offer within the time stipulated in the respective orders. First question of law (raised only in Appeal No. 265 of 2015) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquired without making open offer in each financial year. On the contrary, the second proviso to regulation 11(2) specifically provides that additional shares entitling up to 5% voting rights of the target company could be acquired without making open offer. Fact that regulation 11(1) permitted the entities specified therein to acquire additional shares entitling them to exercise up to 5% voting rights in the target company in each financial year ending on 31 March could not be a ground to presume that even under the second proviso to regulation 11(2) additional shares entitling up to 5% voting rights in the target company could be acquired in each financial year. It is relevant to note that the language used in regulation 11(1) is that the entities specified therein shall not acquire additional shares entitling to exercise more than 5% voting rights of the target company in any financial year ending on 31st March without making open offer. Whereas, the language used in the second proviso to regulation 11(2) is that the entities specified therein may acquire additional shares entitling up to 5% voting rights in the target company subject to the conditions set out therein. Thus, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of regulation 11(2) relate to the period prior to 06.08.2009. Therefore, if by order dated 05.09.2014 benefit of doubt could be given to Madhusudan Jhunjhunwala & Ors. in respect of additional shares acquired in violation of regulation 11(2) prior to 06.08.2009, there is no reason as to why the same benefit of doubt ought not be extended to the appellants in Appeal No. 265 of 2015. 13. In the result, we answer the first question by holding that under the second proviso to regulation 11(2), additional shares entitling voting rights up to a maximum of 5% alone could be acquired without making open offer. Since the appellants in Appeal No. 265 of 2015 had acquired additional shares entitling more than 5% voting rights in the target company in violation of regulation 11(2), appellants were liable to make open offer. However, in view of the decision of WTM dated 04.09.2014 in case of Madhusudan Jhunjhunwala & Ors., we restore the issue for the limited purpose of considering the question as to whether the benefit of doubt extended to Madhusudan Jhunjhunwala & Ors. (Supra) in relation to acquisitions in violation of regulation 11(2) on or before 06.08.2009 could be extended to the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive limit of 0.5% is reached through one or more transactions executed during the day in the normal market segment. In our opinion, even the Circular dated 02.09.2005 does not define the expression 'bulk deal' to be applied generally for all purposes. 17. Assuming that acquisition of more than 0.5% shares during the day constitutes 'bulk deal' under the SEBI Circulars dated 14.01.2004 and 02.09.2005, since the interpretative Circular issued by SEBI on 06.08.2009 specifically provides that under the second proviso to regulation 11(2) additional shares up to a maximum of 5% voting rights in the target company could be acquired in one or more tranches, it becomes abundantly clear that under the second proviso to regulation 11(2), additional shares entitling up to a maximum 5% voting rights in the target company could be acquired even by a single transaction during the day. In view of the above interpretative Circular dated 06.08.2009, the WTM of SEBI was not justified in taking into consideration the SEBI Circulars dated 14.01.2004 and 02.09.2005 which are not comparable with the interpretative Circular of SEBI dated 06.08.2009. 18. It is not the case of SEBI that the interpretativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellants in the category of 'bulk deal' cannot be a ground to deny the benefit of the second proviso to regulation 11(2) especially in view of the interpretative Circular of SEBI dated 06.08.2009. 21. Accordingly, we answer the 2nd question by holding that as per the second proviso to regulation 11(2) of the 1997 Regulations read with the interpretative Circular issued by SEBI on 06.09.2009, an acquirer covered under regulation 11(2) could acquire additional shares entitling more than 0.5% voting rights in a single transaction up to a maximum of 5% voting rights without making an open offer. 22. In the result, we pass the following order:- a) Under the second proviso to regulation 11(2) of the 1997 Regulations, an acquirer covered under regulation 11(2) could, without making an open offer, acquire additional shares entitling only up to a maximum 5% voting rights of the target company. Decision of SEBI on this issue is accordingly upheld. b) Second proviso to regulation 11(2) of the 1997 Regulations read with the interpretative Circular issued by SEBI on 06.08.2009, make it clear that an acquirer covered under regulation 11(2) could acquire additional shares entitling up to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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