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TMI Blog2013 (11) TMI 1808X X X X Extracts X X X X X X X X Extracts X X X X ..... . from March 13, 2012 to the date of payment to the shareholders who were holding shares in the target company on the date of said violation of the Takeover Regulations, 2011 and whose shares have been accepted in the open offer, after adjustment of dividends paid, if any. The facts of this case, in brief, are as follows: 2. A resolution was passed by the target company in its Annual General Meeting (AGM) held on June 10, 2010, by which 2,70,00,000 warrants were allotted to promoters i.e. P.B. Jain Investments Pvt. Ltd. and Nakoda Syntex Pvt. Ltd. i.e. appellant nos. 1 and 2 in the present appeal. 90,00,000 additional warrants were allotted to non-promoters. The allotment of these 3,60,00,000 warrants was made by the target company on June 23, 2010. Similarly, 20,00,000 Global Depository Receipts (GDRs) with 6,00,00,000 underlying shares were further allotted by the target company to non-promoters on November 26, 2010. 3. According to respondent, pursuant to the abovesaid allotment of warrants convertible into equity shares on December 19, 2011, the collective shareholding of the promoters increased from 26.38% to 44.03% and their collective voting rights in the target compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Sharad Doshi vs. The Adjudicating Officer and Ors. decided by this Tribunal on April 7, 1998 in Appeal no. 1 of 1998. Relying upon the said judgment of Sharad Doshi, it is submitted by the appellants that the time limit prescribed for public announcement to acquire shares is relatable to the finalization of the negotiations or entering into the agreement or memorandum of understanding to acquire shares. Date of registration of shares acquired in the Company's register is not the starting point. 7. The appellants, therefore, submit that even the finalization of negotiation to acquire shares should be the trigger point; the appellants herein had actually paid 25% money and subscribed to the warrants which were to be automatically converted in to the equity shares. Accordingly, the date of trigger or acquisition should be the date of subscription to the warrants, and not the date of their conversion into equity shares. 8. Relying upon para 4 of the said judgment in Sharad Doshi, wherein the appellants submitted that the purchase of shares of ATL was conditional one subject to compliance of the SEBI regulations and approval, that in the event of non compliance or SEBI r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of AGM authorising the allotment of GDRs and warrants. The appellants have further contended that as acknowledged in the SCN, the warrants were to be automatically converted, without any further application by them, on payment of 75% balance subscription money. According to the appellants, in terms of regulation 2(1)(b) of the Takeover Regulations, 1997 the term 'acquirer' includes a person who 'agrees to acquire' shares or voting rights of the target company. Since the warrants allotted to them had in-built features of the equity shares, and in effect, they were as good as partly paid-up shares, the appellants had agreed to acquire equity shares in the target company at the time of allotment of warrant on June 23, 2010 though the actual allotment of equity shares happened in the financial year 2010-11 i.e. on December 19, 2011. Accordingly, it was the Takeover Regulations, 1997 that was applicable on the acquisition of the two entities of the promoter group. 13. Before we deal with the contentions of the parties, it is appropriate to reproduce the relevant provisions of Takeover Regulations, 1997 as well as that of amended Takeover Regulations, 2011:- Tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional shares or voting rights in such target company entitling them to exercise more than five per cent of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations: Provided that such acquirer shall not be entitled to acquire or enter into any agreement to acquire shares or voting rights exceeding such number of shares as would take the aggregate shareholding pursuant to the acquisition above the maximum permissible non-public shareholding. Explanation. For purpose of determining the quantum of acquisition of additional voting rights under this sub-regulation, (i) gross acquisition alone shall be taken into account regardless of any intermittent fall in shareholding or voting rights whether owing to disposal of shares held or dilution of voting rights owing to fresh issue of shares by the target company. (ii) in the case of acquisition of shares by way of issue of new shares by the target company or where the target company has made an issue of new shares in any given financial year, the difference between the pre allotment and the post-allotment percentage vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 15. On an analysis of the abovesaid submissions made by the parties and the perusal of the pleadings, the main issue which emerges for consideration by this Tribunal is that whether the appellants have breached Regulation 3(2) of the Takeover Regulations, 2011 on account of conversion of shares and by acquiring additional voting rights during the financial year, 2011-12 on December 19, 2011. 16. At the outset, it may be noted that the issue involved in this appeal is no more res integra. This Tribunal has consistently held that it is only on conversion of warrants that the Takeover Code is triggered. In the case of Shri Ch. Kiron Margadarsi Financiers vs. Adjudicating Officer, SEBI [Appeal No. 21 of 2001 decided on August 28, 2001], this Tribunal has considered two imports of Regulation 10 of Takeover Regulations, 1997. In the light of definition of acquirer as infringed under Regulation 2(1)(b) of the Code and held that in terms of regulation 10 no acquirer shall acquire shares or voting rights which (taken together with shares or voting rights if any held by him or by persons acting in concert with him) entitle such acquirer to exercise ten percent (15% with effect from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be safely concluded that the requirements of public announcement/public offer arises only on allotment/conversion of shares and not on the allotment of warrants or debentures. 18. Further, while considering the case of convertible debentures, in the case of Eight Capital Master Fund Ltd. Ors. Vs. SEBI [Appeal No. 111 of 2008 decided on July 22, 2009], this Tribunal has categorically held that the BOD meeting of July 21, 2006 only authorized the preferential allotment of convertible debentures and not the voting rights. Therefore, the Takeover Code was attracted not on July 21, 2006 but on completion of a period of eighteen months i.e. on January 26, 2008 when the compulsorily convertible debentures got converted automatically and the BOD in its meeting on the same day allotted actual equity shares to the appellants. Therefore, it was January 26, 2008 which was held to be relevant for considering the trigger of Takeover Regulations of 1997 in that case. 19. Turning to the facts of the present case, we hold that the concept of principles of acquirer acquiring 5% voting rights has not changed in the Takeover Regulations of 2011 and remains the same as it was in Takeover Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts have submitted that instead of directing them to make combined public announcement, a suitable monetary penalty can be imposed. We have considered this contention and also gone through the judgment in the case of Sunil Khaitan (supra) and we note that in Khaitan, the acquisitions/incidents pertain to the year 2006-07 and the action was sought to be taken against them by way of show cause notice dated March 26, 2012 i.e. after lapse of five to six years by passing an impugned order on December 31, 2012. Therefore, keeping in view such an inordinate and unexplained delay by the respondent, it was considered by the Tribunal to impose a heavy monetary 'the direction regarding the making a combined public announcement to acquire shares was considered iniquitous in regard to the peculiarity of facts and circumstances of that case. The same is, therefore, not applicable in the present case where the proceedings have been promptly initiated and expeditiously completed by the respondent against the appellants. Moreover, there is no grievance raised by the present appellants as regards delay in concluding the proceedings in question against them. Therefore, the ratio of Sunil Khaitan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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