9911796707
TMI Blog2003 (8) TMI 565X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to:- Disinvest shares in the Target Company acquired in violation of the Listing Agreement and the 1994 Regulations (i.e. beyond the then existing threshold limit of 10%) through an offer for sale to public in terms of an offer document, subject to the following: a that for the purpose the Appellants appoint a registered merchant banker b that the offer price shall be at the face value of the shares as on the date of the impugned order or the lowest price at which these shares were acquired, whichever is lower c that the offer for sale shall be for a minimum number of shares so as to reduce the shareholding of KRC and MDC and persons acted in concert with them in the Target Company, to less than 10% d that the offer document for the purpose shall be filed with SEBI within 3 months from the date of the impugned order. Ordered to initiate adjudication against KRC and MDC and persons acted in concert with them, under section 15A and 15H of the SEBI Act. 2. The acquisition of shares by the Appellants and persons stated to have acted in concert with them covered by the impugned order can be broadly grouped in relation to the period of acquisition as follows: 1 acqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the currency of the 1997 Regulations. These three lots of shares purchased are not specifically stated in the show cause notice. As per the impugned order approximately 47.48% of the paid up capital of the Target Company were acquired by the Appellants during the period 1993-1997. The said 47.48% shares consisted of 27.21% acquired prior to the notification of the 1994 Regulations, 19.71% during the currency of the 1994 Regulations and 0.56% during the currency of the 1997 Regulations. Acquisition of 1.31% by Beethoven Traders and 0.27% by Darrel Traders seem to be not included in the total acquisition of shares, worked out by SEBI. 6. The 1994 Regulations was notified on 7.11.1994. The 1997 Regulations was notified on 20.2.1997. It repealed the 1994 Regulations. The acquisition of shares of the Target Company (excluding acquisition of shares made prior to the notification of the 1994 Regulations) was subject matter of a suit (Suit No.3910 of 1997- M. Sreenivasulu Reddy V Kishore R. Chhabria) in the Hon'ble Bombay High Court. In the said suit few shareholders of the Target Company (the Plaintiffs) had challenged the substantial acquisition of the Company's shares by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er should be construed as expression of our opinion on the question as to whether, the defendants should be permitted to make a post facto public offer or not." SEBI adjudicated the show cause notice and passed the impugned order inter alia directing the Appellants and the persons acted in concert with them to disinvest the shares held by them in the Target Company acquired allegedly in violation of the provisions of the Listing Agreement/the provisions of the 1994 Regulations, at the price specified in the order. 7. The appeals were agrued at length by the Senior Counsel appearing for the parties. They have also filed written submissions The submissions having a bearing on the issues involved are summarised as follows: Submissions on behalf of KRC Shri Kapil Sibal, learned Senior Counsel appearing for KRC briefly stated the factual matrix of the case, and made the submissions as follows: On 14.12.93 six subsidiary companies of Galan Finvest Pvt. Ltd. (Galan) purchased shares aggregating to 26% in the capital of the Target Company from the companies owned and controlled by Shri Mallya, that in addition, one of the Galan subsidiaries also purchased 75,000 Fully Convertible D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 4.13 crores from his proprietary concern Royal Wines. It has been suggested by SEBI that inasmuch as MDC is the uncle of KRC, was a director of some of the Galan subsidiaries, and further, inasmuch as MDC can be deemed to have acted in concert with IMFA or its directors in the acquisition of the said 10.91% shares, such acquisition was hit by the provisions of the 1994 Regulations as even the acquisition of a single share would have required a public announcement to be made under the said Regulations. The third lot of acquisition was made by Mahameru of 4.97% of the Target Company's equity shares from the market between 14.11.95 and 10.8.96. Again, the challenge by SEBI to such acquisition is on two grounds. First, that such acquisition could not have been made as the holding of the KRC/MDC combined by then exceeded 38% (and, thereby, well above the threshold limit). Second, that MDC actually funded such acquisition and in so doing, such acquisition was violative of the provisions of the 1994 Regulations as MDC acting in concert with IMFA had already crossed the threshold limit contemplated in the said Regulations. The fourth lot of shares, the acquisitions whereof has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a magistrate in terms of the criminal process prescribed under the SCRA, that for the first time on 25.1.95, Section 23(2) prescribed such penalty, that the Listing Agreement itself was referred to in the SCRA for the first time, by an amendment to Section 21 made on 25.1.95. The acquisitions by the Galan subsidiaries made on 14.12.93 are not and cannot be covered by such amendments, which came into force much later i.e. on 25.1.95 Even after the aforesaid amendments, the Listing Agreement has not been made legally binding on any person other than the listed company, that Clauses 40A and 40B would apply to an acquirer if such acquirer was itself a listed company, not otherwise. Therefore, at the time of acquisition there was no law prescribing any penalty of the nature inflicted by SEBI in the impugned order. SEBI cannot invoke the general provisions of section 11 and 11 B of the SEBI Act since any breach of Listing Agreement could be actionable only under the SCRA and not under the SEBI Act. The Securities Contract Regulation Rules which has statutory force, having been prescribed under the SCRA does not contain any provisions akin to clause 40A and 40B of the Listing Agreement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime of acquisition. A post acquisition "acting in concert" for holding shares and lending support to another holder cannot render the acquisition bad, that as a matter of fact, even "acting in concert" is permissible provided the provisions of Regulation 10 are complied with. The deeming provision contained in the inclusive definition of "person acting in concert" may raise a rebut table presumption that by virtue of the position of one or more person vis-a-vis the acquirer (such person or persons were acting in concert with the acquirer). Even assuming that MDC funded the acquisition of the said 10.91% shares by IMFA , only MDC alone can be said to have acted in concert with IMFA or its directors or vice versa and no more. If persons who are said to have acted in concert with the acquirer do not fall within the inclusive definition of Regulation 2(d), it has to be established that such person acted in concert with the acquirer i.e. acquired shares for a common objective. Mere conjecture and surmise cannot replace the legal requirement of proof. In respect of the acquisition of the 10.91% shares by IMFA, there is no charge in the Show Cause Notice, far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pearing on behalf of the Respondent-Plaintiffs and that they are not findings by the Court. In any view of the matter, it was improper on the part of SEBI to have relied on an allegation of fact appearing in the reported judgment without such charge being either investigated or made part of the Show Cause Notice. On the basis of a factually incorrect allegation of MDC allegedly holding 20% shares in Galan even at the time of Galan acquiring the 27.21% shares in the Target Company it has been insinuated that such holding shows some link between Galan and the IMFA's acquisition of these shares. At the time of Galan's acquisition of the 26% shares and 75,000 debentures, MDC was not a shareholder of Galan. The Show Cause Notice of 8.1.1999 alleged in paragraph 1 thereof that at the time of acquisition of the 27.21% shares by Galan, MDC held 20% of the paid up capital of the Galan, that such erroneous fact was refuted by MDC in his reply to the Show Cause Notice and also by KRC. In the impugned order, it has been recorded that at the time of acquisition of the Target Company's shares by Galan, MDC did not hold any share in Galan. Notwithstanding such factual assertion and wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted creeping acquisitions upto 2% during any continuous period of 12 months in terms of Regulation 11 of the 1997 Regulations. The IMFA creeping acquisition of 0.56% was made between 27.2.97 and 1.8.97. The Beethoven purchase of 1.31% by way of creeping acquisition was made between 10.8.98 and 16.12.98. The Darrel purchase of 0.27% was made on 16.12.98. It is thus evident from the aforesaid dates that during no continuous period of 12 months did the creeping acquisition exceeded the then permissible limit of 2%, that the only requirement for a creeping acquisition to be permissible was the making of a declaration in terms of the 1997 Regulations, that once the declarations were made as aforesaid pursuant to the 1997 Regulations, the creeping acquisition could not be challenged. In fact, there is no challenge to the creeping acquisitions in the Show Cause Notice. However, inasmuch as the impugned order has directed KRC/MDC and all companies under their control to reduce their combined shareholding to 10%, the share acquired under the creeping acquisitions also get affected, although there is no legal or factual basis for making any order in respect of such acquisitions. 12. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maximum penalty permissible for breach of the SEBI takeover Regulations is a sum of ₹ 5 lakh as provided in section 15H of the SEBI Act, 1992. It was submitted that by way of an order under a subordinate legislation (the takeover Regulations) a punitive measure of greater pecuniary value cannot be imposed. 13. It was submitted that the jurisdictional pre-condition for making an order under Regulation 44 of the 1997 Regulations was not complied with. The sustainability of an order under Regulation 44 would depend on whether such order is in the interest of the Securities market. In the instant case, the direction is clearly not in the interest of the Securities market, as such direction would really result in the market capitalization of the Target Company being reduced, the value of the shares in the hands of small investors dwindling, and only entrenched management in the Target Company benefiting. Primarily the takeover Regulations are aimed at protecting the rights of the small investors and to ensure that due declarations are made to the target company so that the management is not taken by surprise and, further, to ensure that in the course of substantial acquisition, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company, could not challenge the acquisitions, having despite initial reservations registered the 10.91% shares of IMFA and even the 4.97% shares acquired by Mahameru. The defendants alleged that the Plaintiffs had no locus standi to maintain the suit inter alia as the Plaintiffs were not interested in any of the impugned shares as transferors or transferees thereof. 15. Though the suit was filed in 1997 and the initial Interlocutory application moved therein contemporaneously, the Plaintiffs really pressed for interim orders upon a notice being issued on behalf of some of the defendants for removal of directors of the Board of Companies and for the appointment of directors supported by such defendants. Such interlocutory application was disposed off by the Court by directing the voting rights in respect of Imfa, Mahameru, Shrirish, Beethoven and Darrel shares to remain frozen, pending disposal of the suit. The prayer regarding the freezing of voting rights in respect of the 3,75,000 shares which had been allotted upon the conversion of the debentures purchased by the Galan subsidiaries was, however, rejected on the ground that such acquisition had been made on 14.12.93, prior to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of 1994, it may not be proper to us to suggest what orders it may pass. We leave it to the SEBI to pass such orders as it may deem fit and proper, and nothing said in this order should be construed as expression of our opinion on the question as to whether, the defendants should be permitted to make a post-facto public offer or not.(emphasis supplied) 17. The Appellant submitted that the directions contained in the impugned order must only be sustained by the reasons contained in the impugned order itself. The reply by SEBI in the present proceedings to justify the impugned order or the directions contained therein which are contrary to the reasons set out in the order cannot be taken into account. Cited Mohinder Singh Gill V Chief Election Commissioner (AIR 1978 SC 851) for the proposition that quasi judicial orders have only to be supported by the reasons contained therein and the reasons cannot be subsequently introduced or added. The Appellant relied on the decisions of this Tribunal in Sterlite Industries V SEBI (2001 (34) SCL 485) and Mega Resources Ltd. V SEBI (2002 (36) SCL 569) for the propositions that Section 11B does not provide for any penalties and submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid contention, the following three Supreme Court decisions were cited: (i) Assistant Transport Commissioner, Lucknow V Nand Singh (1979 (4) SCC 19) Para 2 at Pg 20 ".... The order must be communicated either directly or constructively in the sense of making it known, which may make it possible for the Authority to say that the party affected must be deemed to have known the order. In a given case, the date of putting the order in communication under certain circumstances may be taken to be the date of the communication of the order or the date of the order but ordinarily and generally speaking, the order would be effective against the person affected by it only when it comes to his knowledge either directly or constructively, otherwise not." (ii) Collector of Central Excise, Madras V M. M. Rubber and Co. (1992 (1) SCC 471) Para 12 at Pg 477 "...... The date of such order or decision is a date on which the order or decisions was passed or made; that is to say when he ceased to have any authority to tear it off and draft a different order and when he ceased to have any locus patentee. Normally that happens when the order or decision is made public or notified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said to be made when pronounced ... ... ... The knowledge of the party affected by the award, either actual or constructive, being an essential requirement of fair play and natural justice, the expression "the date of the award" used for the proviso must mean the date when the award is either communicated to the party or is known to him either actually or constructively." 20. It was submitted that all the above citations/decisions were brushed aside by the Counsel of SEBI on the ground that all the said decisions pertain to the question of limitation and that the decision set out at item (iii) above pertains to an award which is only an offer, that whether or not these cases relate to limitation is not relevant for the instant case, that these authorities indeed support the case of the Appellant that the SEBI Chairman had not only passed his order but had also communicated the same to MDC's representative. 21. On the concept of person acting in concert it was submitted that: According to (Clause 2 (d) of 1994 Regulations) Persons Acting in Concert comprises persons who pursuant to an agreement or understanding acquire (shares) OR agree to acquire shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, a person as a shareholder or a person as a director may not be deemed to be in concert unless an active co-operation between that person and another is shown or established. 24. This aspect of co-operation was noticed by the Bhagwati Committee prior to the 1997 Regulations. The inclusive definition in 2(d) of the 1994 regulations was altered in the 1997 Regulations. A sub-clause was introduced to indicate which persons would be deemed to have acted in concert. 25. The cooperation that is necessary to be established to satisfy the expression "agreement or understanding" has to be a co-operation in course or in aid of the substantial acquisition, that a subsequent getting together or a subsequent co-operation for some further acquisition would not be material for the previous acquisition, if the previous acquisition is impugned. 26. The position of each of the entities viz. IMFA, Mahameru and Shirish in terms of the aforesaid definition, was submitted as follows: In the case of IMFA, Shri Ram Raheja and others were the directors and shareholders at the time of acquisition. IMFA did not have any holding company or subsidiary company at the time of acquisition of 10.91 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of the Galan subsidiaries does not make him a person acting in concert in the matter relating to IMFA acquiring substantial shares in Herbertsons. Similar is the case with MDC. 27. In respect of Mahameru it was submittesd that Mahameru did not have either any holding company or any subsidiary. The directors and shareholders of Mahameru at the time of acquisition of 4.97% were either Mr. H.S.R. Sharma and Mrs. Sophia Sawant (upto December 5, 1995) or Mr. R. M. Sanghvi and Mr. Abid Ali (upto September 4, 1996). Thereafter the directors and shareholders in the ratio of 50 : 50 were Mrs. A. A. Kakade and Mr. S. Masand. It was only on February 13, 1997, that Sevenstar took over the entire capital of Mahameru and MDC became a director on the board. Therefore, until this date neither KRC nor MDC can be said to have been a person deemed to have been acting in concert with Mahameru. Neither MRC nor MDC are relatives of any of the directors of Mahameru within the meaning of the Companies Act, 1956. Neither KRC nor MDC held any shares in Mahameru for any of them to be considered to be persons deemed to be acting in concert with Mahameru. 28. In respect of Shirish it was submitted that Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. This reported case was in connection with Section 23(A)(1) of the Income Tax Act 1922. The expression "acting in concert" was not used in the said section or in that Act. The expression "acting in concert" was used by the Supreme Court as an English expression. In the instant case "persons acting in concert" is a defined term in the Regulations and there is no scope for relying on the expression as it is ordinarily used in ordinary parlance. 3. Delhi Development Authority V Skipper Construction Co. P. Ltd. (AIR 1996 SC 2005) Proposition: Lifting of corporate veil ; Court's power to remedy wrongs. The question of lifting of corporate veil is irrelevant in this case as no person has ever hidden behind any corporate veil. KRC has come forward (by letter dated 9.1.1996) to own up the shares that he controlled; MDC has volunteered information (by his note dated 22.7.1997) of the shares over which he exercises control. The principle of lifting of corporate veil arises to see human faces lurking beyond the corporate façade. This principle is irrelevant in this case. As far the power of Courts to remedy wrongs, the reported case can not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tarted by the 9.6.1995 letter, there indeed was some "thing" done as required by clause 47(2) of the 1997 Regulations, such enquiry related only to 38% shares (Galan 27.21% + Imfa 10.91%) In respect of the other acquisitions nothing was done or any action taken. In any view of the matter "the enquiry" was completed upon the Target Company replied to the letter dated 9.6.1995. It may also be borne in mind that even the show cause notice issued to Shri Ram Raheja has been "rightly" dropped by SEBI. 7. Public Prosecutor V R. Raju (AIR 1972 SC 2504): Proposition: "Anything done" includes "omission" The expression "anything done or any action taken" in the present case is to be read in the light of the repeal and the savings provisions contained in Regulation 47 of the 1997 Regulations. In the reported judgement, the Hon'ble Supreme Court was not dealing with any repeal or savings provisions. The Court judgement on "anything done" is as the expression appeared in the then existing version of Section 40(2) of the Central Excise and Salt Act. Section 40 of the said Act, as was then being considered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommitted, that the Court held there was no contempt.On facts, these cases are distinguishable. In the instant case the order that was noted in the file was a quasi-judicial order passed by the SEBI Chairman that such a quasi-judicial order, assumes finality when it is made and recorded and leaves the hands of the quasi-judicial authority. 10. U. P. State Electricity Board V City Board, Mussoorie (1985 (2) SCC 16); Surinder Singh V Central Government (1986 (4) SCC 667): Proposition : When Regulations not framed, the act is applicable. In both the cases, Regulations under the relevant Acts had not been framed, therefore, the provisions of the Act were resorted to. There is no quarrel with the proposition. It is however, irrelevant in the facts of the instant case. The cases have been cited in the context that prior to the 1994 Regulations action could have been taken directly under the Act despite there being no Takeover Regulations. However, the allegation is that in acquiring 27.21% by the Galan subsidiaries, the Listing Agreement had been breached. The Listing agreement being a subject matter of the Securities Contract (Regulations) Act and SEBI having only been delegated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re SEBI as well as SEBI Appellate Tribunal. A confidential letter dated 29.1.98 from "the eminent jurist" to the Executive Director (Legal)of SEBI forwarding a note in regard to Herberstons matter for the perusal and requesting her to go through it very carefully so that it will give her an idea of the issues involved was sent. In the said note it was also recorded that "the eminent jurist" will contact her on the following day. 32. Bachubhai Munim & Co., vide letter dated 10.2.98 to the Chairman SEBI forwarded a copy of the written opinion of "the eminent jurist" dated 10.2.1998 SEBI forwarded MDC's letter dated 20.1.1998 as Investor's complaint to Herbertsons Ltd.. Hariani & Co. Solicitors for Herbertsons Ltd. sent a letter to SEBI in reply to SEBI's letter 3.2.1998 requesting for copies of correspondence exchanged with regard to letter dated 20.1.1998 and requested SEBI not to direct MDC to take any steps for making public offer. MDC was not forwarded a copy of this letter either by Herbertstons Ltd or SEBI. 33. Hariani & Co. Solicitors for Herbertsons Ltd. sent letter dated 29.2.98 to SEBI in furtherance to their letter dated 16.2.199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lations. It is also clear more so from the inclusive acts set out in the Regulation 47(2) of the 1997 Regulations itself that anything done or any action taken pertains to anything done and action taken only by SEBI. It is the case of SEBI that an enquiry had commenced prior to the repeal of the 1994 Regulations. SEBI's contention is baseless and untenable since the 1994 Regulations ( also the 1997 Regulations) do not provide for the conduct of any enquiry (as distinguished from an investigation) and therefore it is impossible for SEBI to have held any enquiry under the 1994 regulations. The said word 'enquiry' has crept in only because the language used in Regulation 47(2)(a) is picked up form a standard repeal clause from other legislations. The only "anything" done or action taken by SEBI in the instant case prior to the repeal of 1994 Regulations was issuance of a show cause notice u/s 24 of the SEBI Act to Ram Raheja on 9.10.1996. SEBI has in the last sentence of paragraph 15 of its affidavit in reply to MDC's appeal stated that SEBI rightly did not pursue the same. 41. The actions taken by SBEI after the repeal of the 1994 Regulations are therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the Appellants as envisaged by Regulation 47(2) of the 1997 Regulations. 45. In any event it is not disputed that the letter dated 9.6.1995 from SEBI to the Target Company seeking comments on a newspaper report pertain to only 38% shares which included the 27.21% shares of the Galan Group of companies and the 10.91% share of IMFA. It is an admitted fact that no enquiry of any nature whatsoever had commenced prior to the repeal of the 1994 Regulations pertaining to acquisition of 4.97% shares by Mahameru and 3.83% shares by Shirish, which acquisitions had all been done before 20.2.1997, the date on which the 1994 Regulations were repealed. 46. According to the Appellant the impugned order is erroneous both on facts and in law, exposes non application of mind, is without jurisdiction, unsustainable and traverses well beyond the scope of the authority conferred on the Respondent under the Act and the Regulations, that the directions contained in the impugned order will result in an absurd situation which was neither concerned by the Regulations nor intended to be brought about under the SEBI Act, that the order is severely biased and is contrary to the principles of na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continue as shareholders under the new dispensation. 50. If a person seeks to acquire substantial shares by subterfuge or in a clandestine manner, it results in the management of the Target Company being taken by surprise, and therefore, it is necessary that the management of the Target Company is made aware of any person acquiring substantial shares in such Target Company. In the instant case, the shares aggregating to 27.21% of the Target Company's paid up capital were acquired by Galan subsidiaries from Vijay Mallya's Companies i.e. the party in control and management of the Target Company, which was, therefore, fully aware of the acquisition of such shares. The 10.91% shares acquired by IMFA, which according to SEBI was allegedly part of the same group, were registered by the Target Company on 31.5.1996, to the knowledge of the Target Company and its management, despite reservations expressed earlier by the Target Company that such acquisitions were in breach of the 1994 Regulations. Even the 4.97% shares lodged by Mahameru for registration, were registered. Neither the management nor any party in control ever made any complaint of not being aware of such acquisition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SEBI. 53. SEBI's mandate to act as a market regulator is primarily to ensure that the small investors are not prejudicially affected. The Takeover Regulations are therefore required to be implemented with this purpose in mind in a manner to right any wrong or prejudice, and to remedy any breach. Apart from the penalties under SEBI Act (Sec.15H and Sec. 24), as has been specifically conferred by legislature, SEBI has no authority to impose penalties, but only to direct remedial and regulatory measures so as to prevent/correct a breach or to prevent or stop a distortion of the market. SEBI's own understanding of its powers and duties has always been not to straightaway penalize a person for acting in breach of the Takeover Regulations but to seek to correct or remedy the situation. The consistent practice of SEBI has been to direct remedial measures to be taken (like post facto public offers) rather than directing disinvestment of the acquired shares or such other measures. In fact even as on 06.08.2002, in the case of acquisition of shares in Ray Ban Sun Optics (formerly Bausch and Lomb, India) SEBI has directed a post facto public offer to be made, despite having come to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case, it is not SEBI's case that there was either distortion of the market or price manipulation or of the management being taken by surprise or the working of the Target Company being affected. Therefore, beginning with the procedure of investigation provided at Regulation 33 in Chapter V of the 1994 Regulations, the process culminates either with a measure for "due compliance" being directed under Regulation 37(2) of the 1994 Regulations (or Regulation 42(2) of the 1997 Regulations) or by taking recourse to Regulation 39 of the 1994 Regulations (or Regulation 44 of the 1997 Regulations), which would only be taken for the purpose of regulation or remedy. The two courses of action are mutually exclusive, i.e., if the "due compliance" direction under Regulation 37(2) is issued, then ipso facto directions under Regulation 39 would not be necessary. Again, the precondition to exercise of powers under Regulation 39 is that such exercise has to be in the interest of the securities market and has also to be demonstrably in such interest. 56. Although Regulation 44 of the 1997 Regulations does not expressly require the investigation culminating in a report to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being remedial as has in fact been directed by SEBI in every single case other than the instant one. Acting in concert is only qua acquisition. A post-acquisition arrangement between several persons or several acquirers would not attract the definition of acting in concert nor amount to an acquisition requiring procedural safeguards as for example, public announcement being complied with. The definition of "persons acting in concert" is only relevant at the time of acquisition or at the time immediately prior to the acquisition. 60. In the instant case, the allegation that the Appellant acted in concert is primarily based on the post-acquisition declaration of 17.4.1997. It would appear from such declaration made under Regulation 6(3) and 8(2) of the 1997 Regulations, that MDC was supporting KRC in being vice-chairman of the Target Company with his control over the 47.48% shares, which could not have been made the basis of the SEBI proceedings. In both, the show cause notice dated 8.1.1999 and the Impugned Order, the IMFA acquisition of 10.91% is attacked on the basis of such acquisition being in addition to the shareholding aggregating to 27.21% shares already held by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court judgment against which Special Leave has now been granted by the Supreme Court on 5.8.2002, that a different interpretation has been given to the said Regulation 10. 63. In respect of the shares of Mahameru and Shirish, the charge again, is that since the Appellant funded such acquisitions there is action in concert. At the highest, if this inference is correct, again, it is only the Appellant who could be alleged to have acted in concert in Mahameru and Shirish. However, such charge in respect of Mahameru and Shirish is irrelevant as nothing was done nor any action taken in respect of the acquisitions by Mahameru and Shirish, within the meaning of Regulation 47(2) of the 1997 Regulations. That is to say even if the Mahameru and Shirish acquisitions were in violation of the 1994 Regulations, by virtue of the repeal provision, such violation ceased to be actionable. Further, such acquisition which had been declared to SEBI by the Appellant's note dated 22.7.1997 were dealt with together with the acquisitions by IMFA and the directions dated 21.1.1998 took into account such acquisitions, amongst others. 64. On the question as to whether Chapter V of the 1994 Regulations w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been acquired by KRC was pending pursuant to the 9.6.1995 letter issued by SEBI to the Target Company, and that therefore all subsequent acts by SEBI leading upto the impugned order were "saved" by the saving provisions of Regulation 47(2). This is totally erroneous. The "enquiry" contemplated under Regulation 47(2) had to be an enquiry under the 1994 Regulations, that the word "enquiry" appears to have been mechanically included in Regulation 47(2) of the 1997 Regulations and has no meaning since a study of the 1994 Regulations would not disclose any form of enquiry or any reference to an enquiry contemplated therein. This aspect was not placed before or considered by the Hon'ble High Court and in fact the Court made it clear that matters relating to SEBI's jurisdiction and power ought to be decided by SEBI and cannot be decided in the absence of SEBI. 67. Regulation 47(2) is a standard savings clause incorporated in the 1997 Regulations without realizing that no enquiry was contemplated under the 1994 Regulations. However, assuming that an enquiry had been initiated by the letter dated 9.6.1995 by SEBI to the Target Company, such enqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of 21.1.1998 and while so, the earlier order directing the Appellant to make an open offer cannot merely be given a go by and a contrary subsequent order passed. When there are two contrary orders passed by the same authority and the earlier order is not set aside, the earlier order would prevail and the latter order would be without jurisdiction, since the Authority would be functus officio. The judgment relied upon by SEBI to the effect that internal notings cannot be looked into or proceeded against, were in respect of administrative notings and not quasi-judicial notings. In any event, they were with regard to issues of contract being concluded where communication was of the essence; and of contempt of court as to whether a noting in a file disagreeing with a court order would amount to contempt. 71. The extraneous factors as stated in the submissions made for KRC came into play upon the Chairman passing the order of 21.1.1998 and directing the Appellant to make a public offer. The letter of the Appellant dated 20.1.1998 confirming his without prejudice agreement to make a public announcement was forwarded to the management of the Target Company under cover of SEBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by SEBI. It is only in the Bombay High Court order in Shirish that a divergent view has been expressed as regards interpretation of Regulation 10 of the 1994 Regulations. However, special leave to appeal against this High Court order has been granted by the Hon'ble Supreme Court on 5.08.2002 and the question is now before the Hon'ble Supreme Court. 74. An illustrative list of various SEBI orders was handed over to the Tribunal in course of arguments, reflecting the consistent practice of SEBI in dealing with cases of contravention of the Takeover Regulations, to show that prior to the impugned order and even subsequent thereto, post facto public offers have been directed. In fact post facto public offers had been directed on the same day as the Impugned Order was passed, that for reasons beyond comprehension an exception was made in the case of the Appellant. 75. On the question whether the Creeping Acquisitions can be set aside as is the consequences of the impugned order the Appellant has submitted: Neither the show cause notice dated 8.1.1999 nor the impugned order in any manner alleged or found any violation of the 1997 Regulations in respect of the Creeping Acquis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on various legal issues, are binding not only on the parties to the said proceedings but also on SEBI and the Tribunal. 78. The facts before this Tribunal are the same as before SEBI and before the Hon'ble Bombay High Court. In spite of the fact that all parties were at liberty to lead evidence both oral and documentary at the inquiry proceedings, and before the Tribunal, no party has produced any further documents or additional facts before SEBI and the Tribunal, that the facts and documents that were before the Hon'ble Bombay High Court were the same facts and documents which were relied upon in the proceedings in the Tribunal. Therefore, even the findings of facts rendered by the Hon'ble High Court with respect of the said High Court Proceedings can be relied upon by SEBI and the Tribunal. 79. In terms of section 11(1) of the SEBI Act, subject to the provisions of the Act the Respondent is mandated to protect the interests of investors in securities and to promote the development of and to regulate the securities market by such measures as it thinks fit, that the provisions of section 11(1) are not restricted. Further, under section 11(2)(h) SEBI is required to tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95, that further, KRC having acquired shares of a listed company is a person associated with the securities market . 83. On the question as to when the enquiry commenced, the following submissions were made: There is no procedure provided for the commencement of the inquiry. The moment some evidence/ information comes to the notice of SEBI which may give rise to some suspicion that the SEBI Act or regulations made thereunder have been violated, and it proceeds further on the basis of such evidence to collect material from the parties such enquiry must be deemed to have commenced. SEBI had commenced inquiry when it issued the letter dated 9.6.95 to the Target Company seeking certain details. The inquiry was within the knowledge of KRC. Vide their letter dated 9.1.96 Advocates of KRC stated that "Our client has come to know of an enquiry being made by you to HL relating to the shareholding of our client in HL by certain of his companies.......". Admittedly, "In order to facilitate" the said inquiry further submissions were made in the said letter. As no strict procedure is prescribed for inquiry under the SEBI Act or the Regulations in respect of substantial acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in a company for a common objective or purpose of substantial acquisition of shares and includes: (i)a company, its holding company, or subsidiaries of such companies or companies under the same management either individually or all with each other;(ii)a company with any of its directors, or any persons entrusted with the management of the funds of the company;(iii)directors of companies, referred to in clause (i) and his associates; and (iv)mutual fund, financial institution, merchant banker, portfolio manager and any investment company in which any person has an interest as director, fund manager, trustee, or as a shareholder having not less than 2% of the paid-up capital of that company. 88. For the purposes of this clause meaning of the expression "associate" has been explained to mean (A)Any relative of that person within the meaning of section 6 of the Companies Act, 1956;(1 of 1956) (B)The director or his relative whether individually or in aggregate holding more than 2% of the paid-up equity capital of such company." 89. First part of the definition appears to be an "exclusive definition" but the 2nd part i.e. after the word "includes" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring for both the Appellants have not disputed the facts and in fact have proceeded on the basis that facts relating to acquisition of shares to the tune of 27.21% of the Target Company by KRC, 10.91% by IMFA, 4.97% of by Mahameru and 3.83% Shirish and the Creeping Acquisitions are not in dispute. 91. On the question of acquisition of 27.21% it has been submitted that on 14.12.1993, on the basis of negotiations between KRC and Shri Vijay Mallya, KRC through six companies owned and or controlled by him namely (i) Veneer Investments and Finance Pvt. Ltd, (ii) Algid Investment and Finance Pvt. Ltd (iii) Airedale Investment & Trading Pvt. Ltd. (iv) Beethoven Traders Pvt. Ltd, (v) Darrel Traders Pvt. Ltd and (vi) Stingray Traders Pvt. Ltd purchased 22,15,800 equity shares of HL representing 26% of the total equity share capital from four companies owned and controlled by Shri Vijay Mallya namely (i) M/s Enterprise Investment Ltd. (ii) M/s Endeavour investment Ltd, (iii) M/s United Breweries Ltd, (iv) M/s Vittal Investment Ltd. Airedale Investment and Trading Pvt. Ltd had also purchased 75,000 Fully Convertible Debentures from Vittal Investment Ltd, which were converted into 3,75,000 eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Meeting of the Target Company held on 16.12.1995. In the Board meeting held on 16.12.1995, the transfer of said shares was kept pending as the quantity of shares lodged for transfer was voluminous. Later on in the Board meeting held on 3.1.1996 the said shares were not registered in view of the fact that the Board of Directors of the Target Company felt that the same were purchased in breach of SEBI Regulations and Listing Agreement, besides regulatory provisions of other laws. However thereafter the Board decided to register the said shares in the name of IMFA. IMFA by its letter dated 7.12.95 had also sought clarifications from SEBI as to whether its purchases were in violation of SEBI Regulations. On 21.5.1996, SEBI had intimated IMFA that IMFA had breached the Regulations and had called upon them to comply with the said Regulations. There were internal deliberations between IMFA and the Target Company relating to the reply that was to be given to SEBI's said letter dated 21..5.1996. Finally by letter dated 19.8.1996 IMFA replied to SEBI's aforesaid letter dated 21.5.1996 whereby IMFA had contended that 1994 Regulations did not apply to the said acquisition of shares by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of funds provided by KRC and MDC through companies under their control. Since the loans advanced could not be repaid, Shri Ram Raheja sold his entire share holding in IMFA to MDC and MDC therefore obtained control to the said 10.91% shares of the Target Company purchased by IMFA. It is therefore clear that KRC and MDC were acting in concert with each other and it devised the aforesaid Scheme for purchase of shares of the Target Company. 93. With reference to purchase of 4.97% shares of the Target Company by Mahameru it was submitted that between 14.11.1995 and 28.10.1996 Mahameru purchased through the open market 4,73,100 shares of the Target Company. Funds for the aforesaid purchase were made available by MDC from his proprietary firm of M/s. Royal Wines. The said loans were supposed to be secured by issue of zero rated Fully Convertible Debentures. The said debentures were in fact never issued. The Appellants had claimed that the said loans were advanced on the evaluation of the capacity of the directors to repay the said loan and not on the basis of share capital or net worth of Mahameru. Promissory notes were also executed to secure the said loans. Though shares of the Tar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of shares through Shirish through loans advanced by firm owned by MDC and subsequent take over of Shirish by MDC through his investment company Seven Star Trading Company was only a device under which the said shares were in fact purchased by MDC acting in concert with KRC pursuant to the common objective of effecting substantial purchase of shares of the Target Company. 95. The transactions between MDC, IMFA, Mahameru and Shirish were not merely loan transactions or investment decisions. In all the cases the three companies had invested mainly in sizable amount in the Target Company's shares with the aid of the funds provided by KRC/MDC through their concerns and companies. The alleged FCDs were never issued and even the promissory notes were cancelled and returned after the takeover of IMFA, Mahameru and Shirish. 96. On Creeping Acquisitions the Respondent has submitted that certain further acquisitions of shares of the Target Company were made by KRC and MDC in concert with each other through their investment companies under the guise that these were Creeping Acquisitions permitted under the provisions of the Companies Act and SEBI Regulations and was therefore valid an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances available on record clearly show that MDC and KRC had been acting in concert in respect of the impugned acquisitions. It is submitted that proof of acting in concert can be inferred from surrounding circumstances and also be proved by circumstantial evidence. In Moti Chand Vs. Ikram Ullah (AIR 1916 P C 59) the Privy Council held that policy of law is not to be defeated by device and arrangement or agreement and all such device and agreements which are in contravention of policy of law are illegal. In Commissioner Vs. E.C. Commercial Co (AIR 1967 S.C. 768), the Hon'ble Supreme Court has inter-alia held that it is sufficient after having regard to the relation, conduct and common intention to infer that persons must be acting together. Evidence of actual concerted acting is normally difficult to obtain and is not insisted upon. In M/s McDowell & Co. V/s Commercial Tax Officer (AIR 1986 S.C. 649) the Hon'ble Supreme Court has inter alia, held that the proper way to construe a statute while considering a device is not to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith a Show Cause Notice and enquiry, as held by the Hon'ble Bombay High Court (D B) in Shirish would include enquiries made with any person in relation to information received from any person or source relating to violation or breach of clauses 40A and 40B of the Listing Agreement and 1994 Regulation and 1997 Regulations. The Hon'ble High Court has also inter alia, held that there is no merit in the submission that in view of the repeal of 1994 Regulations, the present proceedings do not lie. In the circumstances SEBI is entitled to carry on with the enquiry commenced under the 1994 Regulation and complete the same and pass an order under the 1997 Regulation. 102. On the contention that SEBI could not have exercised powers under Regulation 44 of the 1997 Regulations without complying with the provisions of Regulations 33 to 37 of the 1994 Regulations, the Respondent submitted that since the facts relating to acquisition were not disputed either by KRC or MDC the question of SEBI initiating investigation under regulations 33 and 34 and then acting on the basis of any such investigation report under Regulation 35 to 37 does not arise. 103. The Tribunal has in Rhodia's c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudice to his earlier stand, he was now prepared to make a public offer and was going ahead with appointment of a merchant banker who will contact SEBI. Nothing further however appears to have been done pursuant to the said letter. MDC by his letter dated 16.3.1998 recorded the meeting held with the Chairman on 31.12.1997 and stated that he had taken necessary steps to go ahead with the public offer including selection of merchant banker and was only awaiting confirmatory letter from SEBI.. If as alleged by KRC and MDC that decision had been taken by SEBI on 31st December 1997 and noted in the files on 21.1.1998, and since the said decision had been communicated by KRC to MDC who was present at the said meeting there was no need to seek any confirmation from SEBI. This itself clearly shows that at the relevant time, neither KRC nor MDC considered the discussions held with Chairman on 31.12.1997 by KRC on behalf of MDC. In the meantime, SEBI by its letter dated 24.3.1998 had called upon MDC to furnish various details as set out therein. MDC by its letter dated 2.4.1998 referred to its earlier letter dated 20.1.1998 and 16.3.1998 and complained that inspite of having agreed to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to wait for any direction. At every stage the Appellants had been offering to make public announcement but had not been doing so. Vide letter 23.12.98 enclosing an opinion dated 22.11.98 it was suggested by and on behalf of the Appellants that they could withdraw their unilateral offer to make public announcement. Vide para 172 of the Single Judge order in Sreenivasulu Reddy (supra) it is found that "what is further interesting to note is that after the decision of SEBI's Appellate Tribunal in case of Fascinating Leasing Company (decided on July16, 1998), MDC withdrew his offer to make public announcement, which is what he ultimately wrote to SEBI on 22.11.98. Thus, the unilateral offer made by him on 20.01.98 was withdrawn by him on 22.11.98, alleged on the basis of non-confirmation by SEBI......". MDC was required to comply with the provisions of the Regulations which do not require SEBI to give any alleged confirmation. The notation was not an order of SEBI. In any event, without prejudice to the aforesaid, "notation" on the file is not an order. In State of Bihar V/s Kripula Shankar ( 1987 (3) S.C.C 34) the Hon'ble Supreme Court inter alia, held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the Appellant wherein certain SEBI orders directing making of public announcement are mentioned contains almost all cases where exemption from applicability of Regulations 10,11 and 12 of the 1997 Regulations (i.e. exemption from making open offer) were applied for and applications for exemption having been rejected the Applicants had been directed to comply with the provisions of the Regulations and make the open offer. The other cases relate to cases where there had been a change in control and non compliance with the Regulations i.e. obligations to make an open offer or the cases which involved restructuring of the companies at international level. In these cases the facts are different. The Appellants' case is not that of change in control or international restructuring or non applicability of exemption provisions. Further, the orders in all the cases are based on the facts and circumstances of individual cases and directions suitable to the facts of each case are passed. In certain cases, of violations of 1997 Regulations, the Respondent has ruled that the open offer was not in the public interest e.g. Bharat Gears Ltd. and Shakti Sugars Ltd. In these cases none ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch disinvestment will be less than 10% of the paid up capital of the Target Company. According to the Respondent KRC and MDC have acquired a total of 47.48% shares in the paid up capital of the Target Company during the period 1993 to 1997. The issued and paid up capital of the Target Company is ₹ 9,52,23,230/- divided into 95,22,323 equity shares of ₹ 10/- each. The impugned order therefore requires the Appellants to unload in one go about 37.48 per cent (about 35.69 lakh shares)of the Target Company's shares ( that is after retaining maximum upto 10% of the shares acquired). Therefore, about 35.69 lakh shares of the Target Company at the rate of ten rupees per share are required to be sold in the open market in one go. The Respondent has also directed to initiate adjudication proceedings against the Appellants under section 15A of the SEBI Act for violation of regulation 6 and 8 of the 1997 Regulations and also under section 15H for violation of regulation 10 of the 1994 Regulations. 111. The quantum of shares acquired, and the period in which the acquisitions were made are not under dispute. These acquisitions can be safely grouped broadly under three heads, wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 4,73,100 shares representing 4.97% of the paid up capital of the Target Company during the period 14.11.1995 to 28.10.1996. iii Shirish purchased 3,64,750 shares representing 3.83% of the paid up capital of the Target Company during the period 27.8.1996 to 13.2.1997. Acquisition after the repeal of the 1994 Regulations and during the currency of the 1997 Regulations: The 1997 Regulations came into operation with effect from 20.2.1997. i IMFA purchased 54,000 shares representing 0.56% of the paid up capital of the Target Company. ii Beethoven Traders P. Ltd. purchased 1,25,000 shares representing 1.31% of the paid up capital of the Target Company between 10.9.98 and 19.9.98. iii Darrel Traders P. Ltd. purchased 25,800 shares representing 0.27% of the paid up capital of the Target Company on 16.12.1998. 113. Thus it is noticed that 27.21% shares were acquired prior to the notification of the 1994 Regulations, 19.71% shares during the currency of the 1994 Regulations and 2.14% shares during the currency of the 1997 Regulations. 114. As stated earlier acquisition of subject shares made during the currency of the 1994 Regulations and the 1997 Regulations was challenged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quirements shall be fulfilled. (2) A public announcement of a take-over offer shall be made both by the offeror company and the offeree company when - a any person in his own name or in the name of any other person acquires, whether by a series of transactions over a period of time or otherwise, securities which, when aggregated with securities already held or acquired by such person, shall carry 10% or more of the total voting rights of the offeree company, or b secure the control of management of a company, by acquiring or agreeing to acquire, irrespective of the percentage of the voting capital, the securities of the directors or other members who, by virtue of their shareholdings together with the shareholding of their relatives, nominees, family interest and group, control or manage the company, or (3) If the offer is made by a person other than the ultimate offeror, the identity of such other person shall be disclosed at the outset in the public announcement as also in the notification to the stock exchange. (4) The offer shall be placed, in the first instance, before the board of directors of the offeree company and shall contain the following particulars, namely:-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire his full holding upto 100 securities of the face value of ₹ 10 each or upto 10 securities if the face value is ₹ 100. (11) When the directors of an offeree company sell securities to a purchaser as a result of which the purchaser is required to make an offer, the directors shall ensure that as a condition of sale, the purchaser undertakes to fulfill his obligations. (12) The board of directors of the offeree company shall not, without the approval of the shareholders in general meeting: a issue any authorised but unissued securities, b issue any securities carrying rights of conversion into or subscription for securities, or c sell, dispose of or acquire or agree to sell, dispose of or acquire, assets of a substantial amount. (13) Notwithstanding anything contained in clause 40A and clause 40B above, nothing shall apply to acquisition of securities in the company by - 1 Unit Trust of India 2 SBI Capital Market Ltd. 3 Canbank Financial Services Ltd., 4 LIC mutual funds 5 Such other agencies or mutual funds as may be specified by SEBI from time to time. 6 In pursuance to orders of amalgamations, mergers and acquisitions passed by the court under sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to in section 12, or associated with the securities market, or b to any company in respect of matters specified in section 11A as may be appropriate in the interests of investors in securities and the securities market." Section 11B was incorporated in the Act with effect from 25.1.1995 vide "Securities (Laws) Amendment Act, 1995". 119. Chapter VIA of the SEBI Act provides for penalties and adjudications. SEBI has invoked Section 15A and 15H for the purpose of imposing monetary penalty. The Text of these two sections are as follows: "15A. If any person, who is required under this Act, or any rules or regulations made thereunder,-- a to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty not exceeding one lakh and fifty thousand rupees for each such failure b to file any return or furnish any information, books or other documents, within the time specified therefore in the regulations, fails to file return or furnish the same within the time specified therefore in the regulations, he shall be liable to a penalty not exceeding five thousand rupees for every day during which such failure continues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and unambiguous and also protecting the interest of investors and of all parties concerned in the acquisition process". The committee viewed that the Regulations for substantial acquisition of shares and takeovers should "operate principally to ensure fair and equal treatment of all shareholders in relation to substantial acquisition of shares and takeovers". The committee also recognised that the process of takeover is complex and is inter-related to the dynamics of the market place and felt that it would be impracticable to devise regulations in such detail as to cover the entire range of situations, which could arise in the process of substantial acquisition of shares and takeovers. The committee viewed that instead there should be a set of General Principles which should guide the interpretation and operation of the Regulations especially in circumstances which are not explicitly covered by the Regulations. "Equality of treatment and opportunity to all the shareholders" and "Protection of interests of shareholders" are two such principles amongst others set out by the committee. According to the committee "in the event of any ambiguity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of this clause "associate" means (A)any relative of that person within the meaning of section 6 of the Companies, 1956 (I of 1956) (B) the director or his relative whether individually or in aggregate holding more than 2% of the paid up equity capital of such company. Regulation 2(1)(i) "Shares" means share in the share capital of a company carrying voting rights and includes any securities which would entitle the holder to receive shares with voting rights." Regulation 9. Acquisition of 10% or more of the shares of any company through negotiation.-(1) Any acquirer who holds shares carrying ten per cent or less of voting rights in the capital of the company shall not through negotiations acquire any further shares, which, when taken together with his existing shareholdings would carry more than ten per cent of the voting rights, unless, the acquirer makes a public announcement to acquire shares at a minimum offer price from the other shareholders of the company in accordance with these regulations, or (2) Any acquirer who on the date of commencement of these regulations, holds shares in a company which carry more than ten per cent of the voting righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaking any investigation under regulation 33 the Board shall give a reasonable notice to the person concerned for that purpose. (2) Notwithstanding anything contained in sub-regulation (1), where the Board is satisfied that in the interest of the investors or in public interest no such notice should be given, it may by an order in writing direct that the investigation be taken up without such notice. (3) On being empowered by the Board, the investigating authority shall undertake the investigation and the person against whom an investigation is being carried out shall be bound to discharge his obligations as provided under regulation 35. Regulation 36. Submission of report to the Board - The investigating authority shall, as soon as may be possible submit an investigation report to the Board. Regulation 37. Communication of findings, etc - (1) The Board shall after consideration of the investigation report communicate the findings to the person concerned to give him an opportunity of being heard before any action is taken by the Board on the findings of the investigating authority. (2) On receipt of the explanation, if any, from the person concerned, the Board may call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns as investigating officer to undertake investigation for any of the following purposes, namely:- a to investigate into the complaints received from the investors, the intermediaries or any other person on any matter having a bearing on the allegations of substantial acquisition of shares and takeovers; b to investigate suo motu upon its own knowledge or information, in the interest of the securities market or investors' interest, for any breach of the regulations; c to ascertain whether the provisions of the Act and the regulations are being complied with for any breach of the regulations. Regulations 39. Notice before investigation: (1) Before ordering an investigation under regulation 38, the Board shall give not less than 10 days notice to the acquirer, the seller, the target company, the merchant banker, as the case may be. (2) Notwithstanding anything contained in sub-regulation (1), where the Board is satisfied that in the interest of the investors no such notice should be given, it may, by an order in writing direct that such investigation be taken up without such notice. (3) During the course of an investigation, the acquirer, the seller, the target compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the regulations by an intermediary, initiate action for suspension or cancellation of registration of an intermediary holding a certificate of registration under section 12 of the Act: Provided that no such certificate of registration shall be suspended or cancelled unless the procedure specified in the regulations applicable to such intermediary is complied with. (5)For any misstatement to the shareholders or for concealment of material information required to be disclosed to the shareholders, the acquirers or the directors where the acquirer is a body corporate, the directors of the target company, the merchant banker to the public offer and the merchant banker engaged by the target company for independent advice would be liable for action in terms of the regulations and the Act. (6)The penalties referred to in sub-regulations (1) to (5) may include:- (a) criminal prosecution under section 24 of the Act; (b) monetary penalties under section 15H of the Act; (c) directions under the provisions of section 11B of the Act. Regulation 47. Repeal and saving : (1) The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructured with a view to defeat the requirements of clause 40A and 40B of the Listing Agreement. The Respondent has countered the submission of the Appellants that on 14.12.1993 Galan was wholly owned and controlled by KRC only, and MDC had nothing to do with Galan and the version that it was mistakenly stated in the Appellants' letter dated 2.4.98 to SEBI and in their affidavit before the Hon'ble High Court that KRC, that his wife and daughter held 80% and MDC and his wife held 20% in the capital of Galan. According to the Respondent having so stated the factual position, the Appellants can not be allowed to take a different version now. It was also pointed out that even if it is assumed that in December 1993, KRC owned and controlled Galan, MDC and Shri Ram Raheja both related to KRC, along with KRC were directors of Galan in December 1993 and at all relevant times and thus KRC and MDC were aware that the purchase of shares and debentures made by Galan would trigger the requirement of clauses 40A and 40B of the Listing Agreement. 130. Countering the Appellants' contention that SEBI has no authority to issue any such direction under the Act or the Regulations to the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KRC, nor Galan and its subsidiaries was party to the Listing Agreement of which violation is complained of, that the terms of such agreement can not bind persons who are not parties to the Agreement, that for violation of any provisions of the Listing Agreement only the provisions of SCRA would be applicable, that section 23(2) of the said Act prescribed penalty for violation of the Listing Agreement, that the said section was put in SCRA on 25.1.1995, that as per the SCRA even today the Listing Agreement is not legally binding on any other person than the listed company, that clauses 40A and 40B would apply to an acquirer only , if such acquirer itself is also a listed company. According to them there was no law prescribing any penalty of the nature inflicted by SEBI vide the impugned order, that SEBI cannot purport to invoke the general provisions of section 11 and 11B of the SEBI Act since any breach of Listing Agreement could be actionable only under SCRA and not under SEBI Act, that there is no quarrel on the proposition that when Regulations are not framed, the Act is applicable, that the said proposition relying on the decision in 1985 (2) SCC 16 and 1986 (4) SCC is not rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rket places" providing trading facilities to securities. It is in the said context the Listing Agreement with stock exchange becomes relevant. Listing Agreement is to enable the companies to avail of the facility for trading securities provided by stock exchanges. Listing Agreement as such appears to be one sided. It is not signed by the concerned stock exchange. Only the company seeking listing signs the agreement. Strictly speaking it is an undertaking by the company to comply with certain conditions so as to continue the facility for trading its securities provided by stock exchange. In this context it is to be noted that SCRA regulates trading in securities in the stock exchanges. According to the preamble of the said Act, it is an act "to prevent undesirable transactions in securities by regulating the business of dealing therein by providing for certain other matters connected therewith." SEBI Act has no overriding effect on the SCRA, as is clear from section 32 of the SEBI Act. Section 32 makes it clear that the provisions of the Act are in addition to and not in derogation of, the provisions of any other law. Till January 25, 1995 the SCRA did not contain any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d conditions of the Listing Agreement, by a company, the consequence would be that of delisting the company, by the concerned stock exchange. The provisions of Listing Agreement are binding on the company. It is enforceable against the company. Listing Agreement as it is drafted, can not fasten any binding obligation on a person who is not privy to that agreement. Even if any obligation is put in the agreement on a third party, he cannot be forced to fulfill those obligations and there is no consequences provided to meet such default. Shri Kapadia's proposition that not only listed company but other persons acquiring shares are also required to make a public offer., is untenable as no course of action lies against such a person who fails to fulfill the obligation. Because "any person" other than listed companies is out of reach for the purpose of enforcing the requirement of the clauses. It is in the said context the scope and reach of clauses 40A and 40B need be interpreted. On a purposive interpretation of the said clauses, it is difficult to subscribe to the Respondent's version that the clauses are applicable not only to listed companies but also to other pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the said cases that "where a statute confers powers on an authority to do certain acts or exercise of power in respect of matters, subject to rules, the exercise of power conferred by the statute expressly provides for the same. Framing of the rules is not a condition precedent to the exercise of the power expressly and unconditionally conferred by the statute" Hon'ble Court had in the said order, relied on its earlier decision in U.P. State Electricity Board. It is noted that under section 30 of the Act SEBI is empowered to make regulations for the purposes of the SEBI Act. SEBI Act does not provide for making regulations for the purpose of SCRA. Section 12(h) is therefore, not available to any action for a matter coming under the purview of SCRA. The allegation is that in acquiring 27.21% Galan subsidiaries breached the Listing Agreement. Listing Agreement is in the domain of SCRA, for breach of the same, applicable provisions of SCRA are to be resorted to and not the provisions of SEBI Act. It is also noted that section 11B was brought on the Statute Book only with effect from 25.1.1995. It has no retrospective application. It is seen that the 1994 Regulation was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in acquiring Target Company's shares it cannot be inferred that in 1993 he had acted in concert with KRC. Whether there was any concerted action by them subsequently will be examined at the appropriate stage in this order. Based on the material available before me, I am inclined to hold that 27.21% shares of the Target Company was acquired by KRC through the companies controlled by him. There is no material to hold that it was joint acquisition by KRC and MDC acting in concert with each other. Whether the quantum of the 27.21% shares also should be added for the purpose of working out the threshold limit under regulation 10 and 11 with reference to the subsequent acquisition referred to in the order has been discussed at the appropriate place in this order. 137. In the light of the factual and legal position as discussed above I am of the view that the Respondent has no jurisdiction or authority to direct the Appellants to disinvest 27.21% shares of the Target Company acquired by KRC in December, 1993. 138. SEBI's order is not confined only to the acquisition of 27.21% shares by Galan subsidiaries. In the impugned order it has been alleged that the Appellants through IMF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord indicating that the fully secured debentures were ever issued. MDC acquired the entire shareholding of IMFA through Seven Star Investments & Trading P. Ltd., (Seven Star) on 29.7.1996 and thereby he also got control over 10.91% shareholding of the Target Company. IMFA was taken over by MDC on the ground that the erstwhile owners of IMFA were unable to repay the loans. 139. With regard to acquisition of 4,73,100 shares (4.97%) of the Target Company by Mahameru, it is noted that the acquisition was during 14.11.1995 and 10.8.1996. The paid up capital of Mahameru was just two hundred rupees. In this case also interest free loan without any security and without any stipulated period of repayment was advanced by MDC through his proprietary concern (Royal Wines) to the tune of ₹ 1.12 crores. Mrs. A. M. Kakade and Shri Sanjay Masand became directors of Mahameru on 2.9.96 Mrs. Kakade is the wife of M. G. Kakade, who was director of Darrel and Stingray, the subsidiaries of Galan. Since Mahameru was stated to be not in a position to repay the loan, its entire share capital with its holding of 4,73,100 shares of the Target Company were sold to Seven Star on 13.2.1997. In this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should have been sold when the market was favourable, but that was not done and instead MDC took over the three investment companies along with the shares of the Target company, that the medium of unlisted companies was employed deliberately with a view to avoid the requirement of making a public announcement. The Respondent had submitted that even if it is assumed that KRC had acquired shares of the Target Company to the extent of 27.21% before the coming into force of the 1994 Regulations, the moment it is found that he was acting in concert with MDC, it must he held that the concerted action was of an acquirer holding more than 10 per cent shares in the capital of the Target Company that in the facts of this case regulation 10(2) of the 1994 Regulations was attracted, and as regards acquisition of 4,73,100 (4.97%) shares through Mahameru which was made during 14.11.1995 to 28.10.1996 and 3,64,750 (3.83%) shares through Shirish during 27.8.1996 to 13.2.1997 was clearly in violation of regulation 10(2) of the 1994 Regulations. 143. Details of ownership and control of Galan companies through which KRC acquired 27.21% shares of the Target company on 14.12.1993 have already been st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that any interpretation of the provisions of the SEBI Act and the Regulation which would require addition or omission of words or introduction of new concepts whereby a person would be attached with the penal provision which he otherwise would not, should not be resorted to. In this connection I would like to refer to the observation made by Hon'ble Supreme Court in Reserve Bank of India V Peerless General Finance & Investment Co. Ltd., (AIR 1987 SC 1023) that "Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the listed company, that it also makes it imperative that apart from the acquirer the person acting in concert must also acquire shares and, therefore, unless the alleged acquirer and the person(s) alleged to have acted in concert both acquire shares of the same Target Company, no allegation of acting in concert could be sustained, that further the word "with" occurring in Regulation 2(1)(b) is significant as the definition refers to any person who acquires or agrees to acquire shares either by himself or with any person acting in concert with him, that a case of 'acting in concert' has to be made out by person alleging it, in every one of its particulars, especially in view of the penal consequences involved. It was also urged that regulation 10(1) and 10(2) would be applicable only to an existing shareholder of the target company and that in support of the said proposition, this Tribunal's decision in Fascinating Leasing Finance Private Ltd. V SEBI [(1998) 17 SCL 204)] was cited. An argument was advanced that in terms of regulation 3(d) acquisition of shares "in companies whose shares are not listed on any stock exchange" did not attract the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a contextual and purposive interpretation, and having regard to the object sought to be achieved by the Act and the Regulations, the words "who hold shares" must be given a construction so as to include a person who holds shares with a right to get his name registered as a member, but whose name has not actually been entered in the register of members. If such a meaning is not given to those words, the consequence will be that while a person who holds shares will be required to comply with the regulation 9 and 10, but one whose name does not appear on the register of members will not be required to comply with those regulations 9 and 10, It would thus be possible for a stranger to defeat the provisions of the regulation though that would not be possible for an acquirer if he happens to be an existing shareholder. There appears to be no reason to create this distinction between an acquirer who is a shareholder and one who is not. The object of the Regulations is to bring about transparency in the dealing of securities and also to enable the existing shareholders to take informed decision to accept or not to accept the public offer that may be made by a person who seeks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Target Company and as such regulation 10 was not applicable, is untenable in the light of the facts of the case and the interpretation of the expression "holder of shares" given by the Hon'ble Bombay High Court in Shirish (supra) 152. The Appellants had contended that the acquisition of shareholding of IMFA, Mahameru, Shirish by Seven Star and MDC did not violate regulation 10 as these acquisitions are exempted in terms of regulation 3(d). According to regulation 3(d) nothing contained in Chapter III of the regulations would apply to an acquisition of shares in companies whose shares are not listed on any stock exchange. 153. Chapter III referred to in regulation 3 is the core chapter relating to "Takeovers". It is seen that the Appellants had raised more or less similar contentions in this regard as raised before the Tribunal, before the Hon'ble Bombay High Court (DB) also. The following views taken by the Hon'ble Court, in the same set of facts, therefore is in equal force are applicable to the instant case. 154. It is felt that for a better understanding of the decision of the Hon'ble Court in this regard the arguments advanced by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Herbertsons Ltd., the acquisition of these unlisted companies by the defendant No.11, at a later stage, would not help the defendants because the initial acquisition by the aforesaid three unlisted companies would itself be an acquisition of shares by an acquirer in breach of the prohibition contained in regulation 10. 75 So far as the judgment of the SEBI and the appellate authority in Sesa Goa is concerned, the facts of that case are distinguishable. The acquisition of Sesa Goa Co. Ltd., by Mitsui & Co., Japan through Finsider International Co. Ltd., was alleged to be in violation of the SEBI Regulations, and in violation of the provisions of clauses 40A and 40B of the listing agreement. In that case, it was found that after the regulations came into force, no acquisition of shares in Sesa Goa took place. It was in this context that the following observations were made in the order:- "Assuming that what the petitioners have contended is correct and Mistui, Early Guard and Finco are persons acting in concert under the Regulations, the fact remains that no shares of Sesa Goa have been acquired either by Finco, Mitsui, or Early Guard. Sesa Goa is the company which is sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be understood on their own, and in fact he went to the extent of submitting that the aid of a subsequent law cannot be taken for interpretating an earlier law. He, therefore, submitted that one need not look at the 1997 Regulations. Even without the aid of the 1997 Regulations, it must be held that under the 1994 Regulations, an acquirer need not be a registered shareholder, and a holder of shares on the basis of blank transfer with a right to get his name registered was included in that term. On the question of indirect acquisition and control, he submitted that in the facts and circumstances of this case that was not relevant in view of the fact that the defendants were acting in concert with each other, and therefore, on a purposive interpretation whether acquisition was direct or indirect is immaterial. 158. We are inclined to agree with Mr. Nariman. We have already recorded our conclusions earlier. As far as indirect acquisition is concerned, in the facts and circumstances of this case, if it is held that the Defendants were acting in concert with each other, each one of them must be deemed to be an acquirer, and the question of direct or indirect acquisition doest not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in concert with each other in the acquisition of the shares of the Target company. The Appellants' contention that the acquisition is saved under regulation 3(d) in my view, is untenable. 162. The Appellants' contention that in terms of regulation 2(1)(b) apart from the acquirer, the person acting in concert must also acquire shares and therefore unless the alleged acquirer and the persons alleged to have acted in concert both acquire shares of the same target company, no allegation of acting in concert can be sustained was considered by the Hon'ble High Court in Shirish. Hon'ble Court after considering the relevant aspects(in Shirish) viewed as under: "86. The submission urged by Mr. Chidambaram that the use of the words "with" in regulation 2(1)(b) means that the acquirer must acquire the shares with the person acting in concert with him, does not impress us. It is not necessary that if two persons act in concert with the common objective to pruchase shares in a company, they can not be said to have acted in concert with each other unless the shares are acquired in their joint names or by each of them during the period in question. Such an intepre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the proceeding before SEBI. Both the statements are made by the same persons and SEBI cannot accept the one ignoring the other, without proper verification. It is not the "toss" of the coin that decides a disputed fact. Knowledge of acquisition of shares by itself is not sufficient to hold that the person was acting in concert. His involvement is the indicator. The fact that MDC was on the Board of Galan and that he had the knowledge of the acquisition by itself is not a ground to consider that MDC also be considered as an acquirer. Shareholding pattern of Galan could have been easily verified from the Register of Members of the company or from the records of the Registrar of Companies. There is nothing on record to show that MDC had funded the said acquisition wholly or partly. On the contrary, by the Respondent's own version the acquisition of shares by Galan subsidiaries was funded by KRC. The subsequent changes in the ownership pattern of Galan, and based on that change it is not possible to make any inference and hold MDC an acquirer or as a person acted in concert with KRC with reference to acquisition of 27.21% shares of the Target Company on 14.12.1993. Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son that matters in the context. In this connection it is also considered relevant to have a look at the structure of Galan's six subsidiaries in whose name the shares were purchased. They are Airedale, Algid, Beethoven, Darrel, Stingray and Veneer. It is noted that Galan has three subsidiary companies namely Mozzarat Traders P. Ltd. Yadeer Traders P. Ltd., and Cocomistle Finlease and Investment P. Ltd. Each of these subsidiaries had a paid up capital of two hundred rupees comprising two equity shares of rupees hundred each. Each of the said three subsidiaries in turn had two subsidiaries and the paid up capital of each one of them was also two hundred rupees comprising two equity shares of hundred each.. Veneer and Algid are subsidiaries of Mozzarat, Airdale and Beethoven are subsidiaries of Yadeer and Darrel and Stingrary are subsidiaries of Cocmistle. Veneer has two shareholders viz. Mozzarat and Algid holding one share each, Beethoven has two shareholders viz. Yadeer and Airdale holding one share each, Algid has two shareholders viz. Mozzarat and Veneer holding one share each and Airdale has two shareholders viz. Yadeer and Beethoven holding one share each. It all Appears t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores of rupees. Huge advance of such amounts to such a company, without any security itself in my view can not be considered as a normal transaction of investment. IMFA was taken over by Seven Star, a company belonging to MDC on 29.7.1996 along with its investment of 10.91% shareholding in the Target Company. This takeover was in a year of the purchase of the shares of the Target Company by IMFA. IMFA's takeover has been attributed to the failure of IMFA to repay the money advanced to it by the Appellants. Appellants have not produced any evidence to show that they had taken any steps to recover the money from the said company before deciding to acquire its shares. But strangely enough, though KRC and MDC had reportedly advanced money and repayment to both of them were defaulted, the shares of IMFA was purchased by MDC through his company Seven Star and nothing is on record as to the fate of the sum of ₹ 1.31 crore stated to have been advanced by KRC. The possible inference in that context is that it did not matter for KRC, as MDC his uncle was the acquirer and their interest was common. In my view, IMFA was only a front company, a name lender, that the real acquirer wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Beethoven Shri S. J. Chhabria's proximity to KRC and MDC is thus clear. 169. In this case also MDC advanced a sum of ₹ 1.35 crores to Shirish through one of its companies as interest free loan and without any securities. It is noted that even on 13.2.1997 MDC through one of his companies had advanced a further sum of ₹ 5 lakhs. Again, as in the case of IMFA and Mahameru the said Shirish was taken over by acquiring its capital along with its investments in the Target Company on 18.2.1997 i.e. immediately after 5 days of advancing ₹ 5 lakhs - on the ground that Shirish was not in a position to repay the money received by it from MDC. Shrirish's shares were transferred to MDC and his wife. In this case also though it was claimed by the Appellants that Shrirish had issued zero rated unsecured convertible debentures, there is no evidence to show that such debentures were ever issued. 170. In the light of the facts and circumstances, there is every reason to believe that IMFA, Mahameru and Shirish were only front companies put up by the Appellants to acquire shares of the Target Company, perhaps hoping that acquisition of shares separately by these three c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the definition "person acting in concert" appearing in regulation 2(d) of the 1994 Regulations. According to the said regulation: " 'person acting in concert' comprises persons who, pursuant to an agreement or understanding acquires or agrees to acquire shares in a company for a common objective or purpose of substantial acquisition of shares and includes: (i) a company, its holding company, or subsidiary or such company or company under the same management either individually or together with each other; (ii)a company with any of its directors, or any person entrusted with the management of the funds of the company; (iii)directors of companies referred to in sub-clause (i) of clause and his associates; and (iv)mutual fund, financial institution, merchant banker, portfolio manager and any investment company in which any person has in interest as director, fund manager, trustee or as a shareholder having not less tha 2% of the paid up capital of the company. Explanation: For the purposes of this clause "associate", means,-- A any relative of that person within the meaning of section 6 of the Companies Act, B the director or his relative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable by a company controlled by M.D. Chhabria, the defendant No.11. Mr. Nariman then submitted that the nature of transaction entered into with Imfa Holdings P. Ltd., does not appear to be a purely business transaction by way of investment, as submitted by Mr. Chidambaram, on the advice given by a professionally qualified Chartered Accountant Mr. Ashok Kukerja. Though the loans were said to be secured by issue of zero rated debentures, as would appear from the report of the Directors for the years 1995, 1996 and 1997 of Imfa Holdings P. Ltd., the debentures were never issued. Moreover, the only quoted investment of Imfa Holdings P. Ltd., as shown in the balance sheet were the shares held by Imfa Holdings P.L ltd in Herbertsons Ltd. Though the advice of Mr. Ashok Kurkerja was obtained, it appears that Mr. Kurkeja was a close associate of the defendant No.1, being a director in three of the companies controlled by the defendant No.1, including the defendant Nos. 8 and 9 companies. Later, a sum of ₹ 4.13 crores was made available to Imfa Holdings P. Ltd by M.D. Chhabria, the defendant No.11 through his proprietary concern, Royal Wines, and the said amount was utilised for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvancing of funds to the defendant Nos. 3, 4 and 5 cannot be said to be by way of investment because the facts disclose that the amounts were advanced free of interest and without any security, and for acquiring the shares of Herbertsons Ltd., the defendant Nos. 3, 4 and 5 were also managed by persons known to the defendant Nos. 1 an 11 and associated with them in their various companies. It is not necessary that person acting in concert must be related to each other within the meaning of section 6. Even two strangers can act in concert, provided they act pursuant to a common plan and to achieve a common objective. Even if we assumed that the defendant No.1 had acquired shares of Herbertsons Ltd., to the extent of about 27 per cent, before the coming into force of the 1994 Regulations, the moment it is found that he was acting in concert with the defendant No.11, it must be held that the concerted action was of an acquirer holding more than 10 per cent shares in the capital of the target company. Mr. Nariman is, therefore, right submitting that in the facts of this case, regulation 10(2) was attracted. The course adopted by the defendant Nos. 1 and 11 leaves no room for doubt that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo years. The experts expected that the FCDs issued be taken over after two years at a premium of 45 to 50 per cent before conversion, which will give an earning of 25 per cent per annum. Based on anticipation of professional experts, it was sought to be argued before us that M.D. Chhabria, the defendant No.11, was assured a return of 25 per cent on his investment. All that can be stated is that on the basis of calculation made by the qualified Chartered Accountants, and on the anticipation that the value of the shares will rise, it was expected that he would get a return of 25 per cent per annum on his investment. The plaintiffs are therefore, not wrong in contending that the amounts advanced carried no interest. 176. Commenting on the conduct of M.D. Chhabria, the defendant No.11, Mr. Chidambaram, submitted that he acted on the advice of professionally qualified Chartered Accountants. Each transaction provided adequate safeguards to him, and all the transactions were duly recorded in the books of account and the balance sheets of the respective companies. As advised by the experts, the funds had been secured by execution of promissory notes and FCDs. If the three companies, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd., with the parties acting in concert".(emphasis supplied) 178. It is true that the Hon'ble Bombay High Court had also made it clear in Shirish that : 102."On the basis of the facts on record as at present the conclusion appears to be inescapable that defendant No.1 (i.e. KRC) and 11 (MDC) were acting in concert with the companies under their control viz. Defendant Nos. 2 to 10 (i.e. Airdale, IMFA, Mahameru, Shirish, Algid, Beethoven, Darrel, Stringray and Veneer) in the matter of substantial acquisition of shares of Herbertsons Ltd. the defendant No.12. We may hasten to add that this is only a prima facie view based on the material on record as they appear. The defendants are yet to file their written statement, and the parties had yet to lead evidence in support of their respective cases. A final finding of fact can be recorded only after evidence is brought on record by the parties. The conclusion reached by us is only prima facie and only for the purpose of disposal of the Notices of Motion. The material on record does establish a prima facie case of defendant Nos. 1 to 11 having acted in concert with each other in the acquisition of substantial shares of H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Code are so vague and ambiguous and at the same time so wide and encompassing and in view of the fact that I enjoy the position of Executive Vice chairman of Herbertsons Ltd., inter alia due to the support of Mr. M. D. Chhabria who owns/controls 47.48% of the shareholding of the Herbertsons Ltd., This admission of allegiance to MDC by KRC clearly indicates their association and relationship and vis-à-vis the action of acquisition of shares in the Target Company. 180. It is true that the views expressed by the Hon'ble Bombay High Court in its order cited earlier, was only a prima facie view made on the basis of the facts on record before it. But in the absence of sufficient evidence it is not possible for this Tribunal to reach at a materially different conclusion. I have very carefully perused whatever material brought on record by the parties in the appellate proceedings and considered the same. The parties have not produced adequate evidence before the Tribunal to take a different view. In fact I do not have before me such material based on which I can take a view different from what the Hon'ble High Court had taken. Based on the facts and circumstances of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was nothing to the effect that the acquisition of the 27.21 per cent shares was illegal. As per regulation 11(1) as it then existed, no acquirer who together with persons acting in concert with him has acquired in accordance with the provisions of law not less than 10 per cent but not more than 51 per cent 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's rights entitling him to exercise more than 2 per cent 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. It is not the contention of the Respondent that the shares acquired by the said three companies were in excess of the prescribed limit. The charge is that the preceding acquisitions were illegal, and therefore, the benefit of creeping acquisition is not available to the Appellants. Even though it could be held that the acquisition of shares by IMFA, Mahameru and Shirish under the regime of the 1994 Regulations was not in accordance with the Regulation, still the acquisition of 27.21% shares being not hit by an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n into consideration the "comments of the Bombay High Court enunciated in the said order", that the order is not based on the prima facie findings of the court. I do not find anything wrong on the part of SEBI relying on the observation of the Hon'ble High Court in the parallel set of facts and circumstances. SEBI or for that even this Tribunal can not take a view at variance from the Hon'ble High Court's view, in the absence of adequate additional material brought out in the proceedings before them; warranting to take a different view. To negate the prima facie views expressed by the Hon'ble High Court, the Appellants should have produced such material having a hearing in the matter which was not before the Hon'ble High Court while considering the matter. 186. The Appellants had seriously canvassed that the impugned order was passed and that the Respondent's direction to make disinvestment of the shares held by the Appellants is intended to protect the management control of Shri vijay Mallya in the Target Company. In this context learned Counsel for the Appellants had referred to certain developments and action by SEBI, allegedly contrary to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.98." (ii) Having come to know of such order/direction of SEBI, Vijay Mallya, through the letter of the Advocates of the Balaji/Reddy Group dated 27.1.1998 addressed to the Chairman SEBI inter alia requested SEBI not to reach any final conclusion in the matter on the ground that the Balaji/Reddy Group is about to forward an opinion of an emend jurist in the matter. (iii)The said eminent jurist in the first instance wrote a personal letter dated 29.1.1998 (See Page 715, Volume - III of the MDC Comilation) to the Executive Director (Law) SEBI along with a "note" pertaining to the acquisition of the said shares, requesting the said Executive Director to go through the note very carefully so that it would give her an idea of the issues involved. By the said personal "note" the said eminent jurist also informed the said SEBI official that he would contact her on the following day. (iv) The officers of SEBI forwarded a copy of MDC's letter dated 20.1.1998 under a covering letter of SEBI dated 3.2.1998 to the Target Company by treating the same as a purported investor grievance, and called upon the Target Company to answer the same. MDC had complained of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter as a complaint warranting redressal by the Target Company. This action looks strange. However, in the context, I would like to state that in the present appeals we are considering the validity of the impugned order. If the said order is found sustainable, the order has to be upheld. Otherwise the order has to be set aside. For the purpose of deciding the present appeals, I do not consider it necessary to find out as to whether the impugned order was meant to protect someone else's interest. What is primarily required to be addressed is whether the order is to be sustained on fact and law. Extraneous matters are of little relevance in the process. I have already discussed the factual and legal position with reference to the impugned order. However, I find from the material on record that, SEBI based on the material available before it on 20.1.1998, had come to the conclusion that in the light of the facts and circumstances of the case the Appellants acquisition of shares was in violation of the governing requirements under the Regulations and warranted public offer to be made in terms of regulation 10(2). But then SEBI suddenly took an about turn, and started enquiries an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether SEBI had passed any such order in that sense. In the light of the facts of the case, I am not inclined to accept the Appellants' version that it was an order as contented passed in the matter not subject to review or variation by SEBI. At the best what the Chairman recorded on file on 21.1.1998 could be considered as a clarification which the Appellant was seeking from SEBI with reference to the acquisition of shares. Appellants had claimed that they had constructive notice of the said order. If it is so, what prevented them from making public announcement, making public offer etc. as required by regulation 10(2) It is not a precondition of regulation 10(2) that the public offer required to be made therein should precede an order from SEBI. SEBI had pointed out that earlier also it had asked the Appellants in the context of acquisition of shares by IMFA, to comply with the requirements of regulation 10(2). Since it was not a formal order as such, SEBI's right to vary the same in the light of information/material subsequently obtained is unquestionable. But then SEBI cannot escape its obligation to explain reason for having taken a different view, as the earlier stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o have been done or taken including approval of letter of offer, exemption granted, fees collected, any adjudication, enquiry or investigation commenced or show cause notice issued under the said regulations shall be deemed to have been done or taken under the corresponding provisions of these regulations; b An application made to the Board under the said regulations and pending before it shall be deemed to have been made under the corresponding provisions of these regulations; c Any appeals preferred to the Central government under the said regulations and pending before it shall be deemed to have been preferred under the corresponding provisions of these regulations." 192. Scope of Regulation 47, is unambiguous. It saves any action taken or purported to have been taken under the 1994 Regulations and expressly includes any enquiry or investigation commenced or show cause notice issued under the said Regulations. By a fiction it was deemed that such action was taken, or anything done was deemed to have been done, or taken under the corresponding provisions of the 1997 Regulations. 193. It is an admitted fact that in the wake of an article published in one of the newspapers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... izance of the acquisition of shares by KRC on 14.12.1993, and had made enquiries by writing to the Target Company on 9.6.1995 and the said enquiry was pursued and in the process show cause notice was issued to Shri Ram Raheja/IMFA Managing Director and to the Appellants. The expression enquiry has not been defined in the Act or in the 1994 Regulations or in the 1997 Regulations. Therefore, the expression has to be understood in its generic sense. The word enquiry does not always mean judicial enquiry. Enquiry as it is generally understood is the process of gathering information. In the absence of any specific procedure prescribed for the purpose it is open to the person enquiring into the matter to adopt proper procedure to elicit the requisite information. However, if the enquiry result is likely to adversely affect the rights and obligations of any person, such person should be told of the finding of the enquiry and the basis on which such finding was arrived before taking any action based on such finding, so as to enable him to put forth his case in his defense. In the instant case it is seen that the Respondent collected information pertaining to the acquisition of shares by in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the instant case, on the basis of material on record, we find that the earliest communication was addressed to Herbertsons Ltd., by SEBI on 9.6.1995." and also viewed that "we find that there is material to support the submission of Mr. Nariman". (i.e. the enquiry commenced under the 1994 Regulation). However, it was also stated by the Hon'ble Court that "we express this view on the basis of the material on record and it may be possible for the parties to adduce further evidence on the subject at the trial of the suit." 196. The parties have not produced any additional evidence in the appeal proceedings requiring the Tribunal to take a decision that the action taken by the Respondents was not saved in terms of regulation 47(2) of the 1997 Regulations. 197. The Appellants had stated that SEBI had not followed the requirements as set out in Chapter V of the 1994/1997 Regulations prior to issuance of the show cause notice. According to the Appellants investigating authority has not been appointed, no order appointing investigating authority was made , no notice was given to the Appellants, since no investigating authority was appointed, no report coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent since the Appellants had not disputed the facts relating to the acquisitions, the question of initiating investigation under regulation 33 and 34, preceding action under regulations 35 to 37 did not arise. It was also submitted citing this Tribunal in Rhodia that exercise of powers under regulation 44 is not relatable or confined to evidence of any investigation under the Regulations. According to the Respondent it is empowered to exercise powers under Regulation 44 read with section 11B of the Act to pass the impugned direction. It was also submitted that the Appellants' case is not one covered by regulation 42(2) of the 1997 Regulations, as the regulation 42 (2) would apply in case of investigation under regulation 38 of the 1997 Regulations, that in the instant case the action has been taken under section 11 read with 11 B of the SEBI Act and regulation 39 f the 1994 Regulations read with Regulation 44 and 45(6) read with regulation 47 of the 1997 Regulations. 200. As I could understand the main objection for invoking regulation 44 of the 1997 Regulations is that the said regulation does not provide the protection available to the concerned person as provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the impugned order it is issued under "Sections 11, 11Bof the & SEBI Act and Regulation 39 of the 1994 Regulations and corresponding provisions of regulation 44 and regulation 45 of the 1997 Regulations. In this context it is considered necessary to look at the said three regulations. 202. Regulation 39 of the 1994 Regulations-- Directions by the Board. - On receipt of the report under regulation 36, the Board may without prejudice to its right to initiate criminal prosecution under section 24 of the Act give such directions as it deems fit for all or any of the purposes namely:- (a) directing the person concerned not to further deal in securities; (b) prohibiting the person concerned from disposing of any of the securities acquired in violation of these regulations. (c) directing the person concerned to sell the shares acquired in violation of the provisions of these regulations; (d) taking action against the person concerned who is an intermediary holding a certificate of registration under section 12 of the Act 203. Regulation 44 of the 1997 Regulations--Directions by the Board -- The Board may, in the interest of the securities market, without prejudice to its r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares acquired by the Appellant, had also directed to initiate 207. (ii)Adjudication proceedings against KRC and MDC and persons acted in concert with them under section 15A of the Act for violation of the provisions of Regulation 6 and 8 of the Regulations, 1997 and also initiate adjudication proceedings against the said persons under section 15H of the Act for violation of the 1994 Regulations. 208. Chapter VI A on "Penalties and Adjudication" was inserted in the SEBI Act with effect from 25.1.1995, by the Securities Laws (Amendment) Act. In sections 15A to 15H, several offences have been indentified which would attract monetary penalty. Section 15I empowers SEBI for the purpose of adjudging under sections 15A, 15B, 15C, 15D, 15E, 15F, 15G and 15H to appoint an adjudicating officer for holding enquiry for the purpose of imposing penalty. In terms of section 15T of the SEBI Act any person aggrieved by an order of the Adjudicating officer is entitled to prefer an appeal to the Securities Appellate Tribunal, and the Appellate Tribunal is empowered to pass such orders thereon as it thinks fit. In the light of the legal position stated above, it is clear that SEBI is empow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uirements of regulation 10, the acquisitions made by them are not legally valid. SEBI, based on the said perception issued the impugned direction. It has not given any other reason. However, the learned Counsel appearing for SEBI had submitted that though failure to comply with the regulation renders purchase of shares beyond the stipulated limit illegal and void, since it was impractical to restore the shares to the original sellers and obtain the consideration paid to them back, SEBI directed the Appellants to disinvest the shares through a public offer. The learned Counsel had cited Hon'ble Supreme Court's decision in Delhi Development Authority V Skipper Corporation (supra), particularly, the observation that when the corporate personality is being blatantly used as a cloak for fraud or improper conduct, the corporate veil need be discarded. He had also referred to the observation in the said order that "where the protection of public interest is of paramount importance or where the company has been formed to evade obligations of law, the court will disregard the corporate veil". Learned Counsel for SEBI had denied the Appellants' charge that the Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o make a public offer. It was also submitted that the impugned order is neither in the interest of shareholders nor in the interest of the securities market. 213. I do not find Skipper's case any support to SEBI's decision directing disinvestment of shares, as the facts and circumstances based on which the Hon'ble Supreme Court decided Skipper case are entirely different from the facts and circumstances of the present case. The charge against the Appellants is that they acquired shares without making public announcement as required under the regulations. There is no charge of fraud etc. as was in Skipper. SEBI has not explained how the impugned order would protect the public interest. In fact the only reason given in the order justifying the decision to direct disinvestment of the shares is that the transactions are void. But SEBI has recognised that even if the transaction is void, viewed from the practical angle the Appellants' title to the shares acquired by them has to be recognised. If the Appellants' title to the shares is not recognised direction to disinvest the shares in the open market can not operate. 214. In the earlier part of this order I have al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned direction is issued in terms of regulation 39/44 as it specifically provides for issuing directions to the person concerned to sell the shares acquired in violation of the provisions of the Regulations. The text of these regulations has been furnished in the earlier part of this order. The Appellants' contention that SEBI has no power to fix the sales price is unfounded. Fixing the sales price is incidental to the direction to sell the shares. But the sale price can not be fixed whimsically or arbitrarily. SEBI is required to disclose the basis on which such price is fixed. SEBI has not done it in the instant case. 217. In terms of section 11 "the duty of SEBI is to protect the interest of the investors in securities and to promote the development of, and to regulate the securities market by such measures as it thinks fit." This is in tune with the objective of the SEBI Act as evidenced in the preamble to the Act that "it is an Act to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transacts his business whether as trader or as investor of selling or buying the required scrip. 218. The Hon'ble Bombay High Court (DB) in Shirish after referring to certain authorities had observed that - "it will be found that the legislative intent was to prohibit acquisition of shares in breach of the Regulations. For the violation of the relevant Regulations, an acquirer could be prosecuted and sentenced to a term of imprisonment. He was also liable to pay a penalty, apart from prosecution. The whole purpose of the Act is to protect the right of investors in securities and to promote the development of, and to regulate the securities market. The Regulations were framed with a view to bring about transparecny in transactions relating to securities and to safeguard the interest of the investors. The regulatory measures were designed to achieve these objectives. If the regulations relating to acquisition of shares in certain cases, are not treated as mandatory, and an acquirer is permitted to acquire substantial shares in any way he likes, and in breach of the Regulations, the entire scheme of the Act and the regulations will be defeated. The Board will be faced wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordinary grammatical meaning of the words of the enactment as affording the best guide, but to winch up the legislative intent, it is permissible for courts to take into account of the ostensible purpose and object of the real legislative intent otherwise, a bare mechanical interpretation of the words and application of the legislative intent to devoid of concept of purpose and object will render the legislature inane. .........Authorities a few of which we have referred to above show that in given circumstances it is permissible for courts to have functional approach and look into the legislative intention and some times it may be even necessary to go behind the words and enactment and take other factors into consideration to give effect to the legislative intention and to the purpose and spirit of the enactment so that no absurdity practical inconvenience may result and the legislative exercise and its scope and object may not become futile." 220. In another case the Hon'ble Supreme Court had held that - "To be literal in meaning is to see the skin and miss the soul of the Regulation" [(Board of Mining Examination and Chief Inspector of Mines V Ramjee (1977 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vantages or disadvantages of takeover." (emphasis supplied) 224. The Committee had also viewed that "Equality of treatment and opportunity to all shareholders" and "protection of interests of shareholders" should guide the interpretation and operation of the Regulations. 225. It appears that it is in the context of the objective of the SEBI Act and the Regulations and the functional/practical difficulties involved in restoring the shares acquired by the Appellants to their original owners and obtaining back the consideration paid for the purchase of shares, the Hon'ble Court having viewed that acquisition of shares without complying with the requirements of regulation is void, still held in its order in Shirish that "Since SEBI has issued notice for breach of SEBI Regulations, 1994, it may not be proper for us to suggest what orders it may pass. We leave it to the SEBI to pass such orders as it may deem fit and proper, and nothing said in this order should be construed as expression of our opinion on the question as to whether the Defendants should be permitted to make a post-facto public offer or not."(emphasis) "Whether the Defendants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares held by the Appellants is effected, about 38% of the equity shares of the Target Company will have to be offloaded in the market for sale at the rate of ₹ 10/- per share. Target Company's paid up capital consists of 95,22,323 shares -- 38% of the same means about 36 lakh shares. One need not be a stock market expert or financial wizard to gauge the adverse consequences of offloading such a huge quantity of shares in one go at such a price for sale in the open market. SEBI has not explained in its order as to in what way offloading of such huge quantity of shares would benefit the securities market or the shareholders of the Target Company. SEBI has also not stated as to why SEBI passed such an unprecedented order which is inconsistent with its past practice of directing acquirers to make post facto public announcements. It is also noted that except in the case of acquirers of shares of the Target Company, SEBI had never issued such a direction to any other acquirer of shares of any other company to disinvest the shares acquired by them though acquisition was found in violation of the regulations relating to substantial acquisition of shares and takeovers. Obviousl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Target Company and also to compensate the shareholders for the loss they have sustained. I do not think at this point of time remanding the matter to SEBI for the purpose, will be of any use but cause only further delay in providing the benefit to the shareholders for which they are entitled. The Tribunal is empowered to modify the impugned order. Accordingly it is felt that the impugned direction need be modified to be in tune with the objective of SEBI Act and Regulations regulating substantial acquisition of shares and Takeovers. 227. For the reasons stated above, the Appellants are directed to make a public offer to acquire shares of the Target Company in terms of the regulations. The referral date for the purpose of fixing the price in the public offer would be 27.10.1994 i.e. the date on which the first lot of additional shares, over and above the 27.21% held by KRC, were acquired in the name of IMFA. 27.10.1994 is to be treated as the date on which regulation 10(2) triggered. 120 days available to the Appellants for the completion of the offer process in that case would have been over by 24.2.1995.The due date for making payment to the eligible participants in the offer wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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