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TMI Blog2008 (6) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... ach having nominal value of ₹ 1.35 lacs each to the appellants herein namely, Nirma Industries Limited, Ahmedabad and Nirma Chemical Works Limited Ahmedabad, which are also group companies. These premium notes were issued by way of subscription agreements and a total of 4894 premium notes had been issued to the appellants. The issuer companies agreed to pledge equity shares of the target company in favour of the appellants in order to secure the redemption of the premium notes. The agreements were executed on March 22, 2002 and a total of 1,42,88,700 shares of the target company were pledged with the appellants. The pledge was recorded in the records of the respective depositories in accordance with law. The subscription agreements contained the customary enforcement provisions that entitled the appellants to accelerate payment on the premium notes and to invoke the pledge upon the occurrence of any default. In terms of the enforcement provisions, the appellants by their respective notices dated June 10, 2005 called upon each of the issuer companies to redeem the outstanding premium notes within a period of 30 days from the date of the notice, failing which the appellants wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Regulation 27 of the SEBI (Substantial Acquisition of Shares Takeovers) Regulations, 1997. The fact that the market price of the target company is far below the offer price cannot be a reason for seeking withdrawal of the offer. Regulation 27(1) of the Takeover code is the only regulation permitting withdrawal of public offers and the same is reproduced below: ... It appears that after some correspondence between the appellants and the merchant banker, the latter addressed a detailed communication dated September 22, 2006 to the Board with a request to allow the appellants to withdraw the offer. Special circumstances, which according to the merchant banker, came to the notice of the appellants much after the public announcement were mentioned in the communication on the basis of which the withdrawal of the offer was sought. It is pertinent to mention that the special circumstances mentioned by the merchant banker were the same which the appellants had mentioned in their letter of May 4, 2006. The request made by the merchant banker on behalf of the appellants was considered by the deputy general manager exercising the delegated authority of the Board and by h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omain as the appellants could not be expected to play the role of a detective. Reference was also made to some events subsequent to the public announcement which revealed that the target company had lost its substratum and that there was large scale embezzlement in that company. It was contended that the Board ought to have taken note of the aforesaid facts and that it was not justified in observing that there was lack of due diligence on the part of the appellants. According to the learned senior counsel for the appellants the special facts mentioned hereinabove and also in the communications addressed to the Board seeking withdrawal of the public offer were sufficient for it (Board) to allow withdrawal of the offer. Regulation 27(1) of the takeover code was referred to and it was pointed out that Clause (d) thereof which provides for such circumstances as in the opinion of the board merit withdrawal gave wide powers to the Board to allow withdrawal particularly when the facts which came to light subsequently were such as could not be discovered by the appellants despite the exercise of due diligence. The learned senior counsel strenuously contended that such circumstances' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was right in refusing to allow the appellants to withdraw the public offer under Regulation 27(1)(d) of the takeover code and whether this provision is to be construed strictly in the context of the takeover code. 6. Takeover of public listed companies and substantial acquisition of shares in such companies are governed by the takeover code. It is aimed at providing an orderly framework within which the process of substantial acquisition of shares and/or control can be conducted. It provides that if an acquirer acquires more than five per cent shares or voting rights in a company, he has to disclose at every stage the aggregate of his holding to that company and also to the stock exchange(s) where the shares are listed as per the takeover code. Again, if he were to acquire 15 per cent or more of the voting rights, he has to make a public announcement to acquire further shares of that company at a market related price in terms of the takeover code. In the case of creeping acquisition, the acquirer has to make a public announcement every time he acquires additional shares entitling him to exercise more than five per cent of the voting rights. The takeover code then prescribes the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the sole acquirer who is a natural person is yet another circumstance which may entail the withdrawal of the public offer in terms of Clause (c). Here again, death has made it impossible for him to complete the public offer. Then we have Clause (d) which refers to such circumstances as in the opinion of the Board merit withdrawal . This is a residuary clause containing general words. The specific circumstances under which the public offer could be withdrawn are mentioned in Clause (b) and (c) followed by the general words in Clause (d). In such a situation the rule of ejusdem generis gets attracted and the general words in Clause (d) have to be construed as limited to things or circumstances of the same kind as those specified in the preceding clauses. To put it differently, the general words such circumstances in Clause (d) must draw their colour from the circumstances referred to in Clauses (b) and (c). In Amar Chandra v. Collector of Excise, Tripura, the Supreme Court held that the rule of ejusdem generis applies when (i) the statute contains an enumeration of specific words; (ii) the subjects of enumeration constitute a class or category; (iii) that class or category is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have no hesitation in holding that such circumstances referred to in Clause (d) of Regulation 27(1) have to be limited to the kind of circumstances mentioned in the preceding Clauses (b) and (c) which would make it impossible for the acquirer to go through with the public offer. 7. We may now deal with the special circumstances pointed out by the appellants and their merchant banker on the basis of which they sought to withdraw from the public offer. It was pointed out that the appellants came to know many months after the public announcement that the target company had lost its substratum. It is stated that the erstwhile directors of the target company who resigned in December 2005 had embezzled large sums of that company which was discovered only after the new board of directors of the target company had got the matter enquired from independent chartered accountants. It is also alleged that the appellants came to know that the Asset Reconstruction Company (India) Ltd. had given notice to the target company under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 to make payment of an amount of ₹ 260.32 crores. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, noticed from the record that even at the time of the public announcement, the appellants were in possession of certain facts that clearly showed the poor financial health of the target company. A few instances of such facts are mentioned below: (i) The fact that Gujarat High Court had admitted a petition by the UTI Bank and Karnataka Bank Ltd. for winding up the target company and that the latter had filed appeals against this order was known to the appellants before making the public announcement. (ii) The appellants were aware that in September, 2004, the Board had issued directions under Section 11B and 11(4) of the Securities and Exchange Board of India Act, 1992 read with Regulation 11 of the FUTP Regulations, 2003 against the target company and its Directors Sree Rama Polysynth Pvt. Ltd. and its Directors and East-West Polyart Ltd. and its Directors, among others, restraining them from accessing the securities market and buying, selling or dealing in securities directly or indirectly for a period of five years in the case of the target company and its Directors and three years for others. The persons so penalized included those whose shares had been pledged with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants in the circumstances of this case. Having acquired the shares of the target company which breached the threshold limit prescribed by the takeover code, the appellants were required to make a public offer to acquire further shares of that company for which a public announcement was made. The normal rule being that the public offer once made could not be withdrawn, it was only in the exceptional circumstances referred to in the earlier part of our order that such an offer could be withdrawn. The appellants were invoking those exceptional circumstances and the Board having considered the matter took a decision. It is not that they had no opportunity to place their point of view before the Board. In these circumstances, it was not necessary for them to be given a personal hearing. In this view of the matter, it is not necessary for us to deal with the several judgments cited by the learned senior counsel in support of his plea. However, it is necessary to refer to Union of India and another v. Jesus Sales Corporation wherein the learned judges have clearly held that the principles of natural justice do not require a personal hearing to be granted in every case when a quasi judici ..... X X X X Extracts X X X X X X X X Extracts X X X X
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