9911796707
TMI Blog2001 (8) TMI 1447X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of the said information, the SEBI decided to enquire into the matter, mainly with a view to ascertain the extent of compliance of the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the Regulations) by the appellant. 3. As per further details collected by the SEBI, it was noticed that as on 20-1-1997 the appellant acquired 3,87,540 shares by way of pledge from the borrower. 3,87,540 shares constitute 8.2 per cent of the paid up capital of APL. Subsequently on 14-5-1997 the appellant acquired 3,80,040 shares more, again by way of pledge. As a result thereof total holding of the appellant rose to 7,67,580 shares in APL (16.24 per cent of the paid up capital). In this context the SEBI prima facie felt that the said acquisition of shares attracted the provisions of regulation 10 and decided to appoint an Adjudicating Officer to enquire into the alleged contravention of the regulation read with section 15H of the Securities and Exchange Board of India Act, 1992 ('the Act') and impose monetary penalty if considered necessary. 4. The Adjudicating Officer so appointed, after enquiry viewed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e acquisition of shares for recovery of loan in the event of the borrower committing default. According to him acquisition of shares is therefore, contingent upon default and this contingency is entirely outside the control of the appellant. For an agreement to acquire shares to fall within the meaning of regulation 2(1)(b) it is necessary for the acquirer to have the unfettered right to acquire the shares and such right exercisable at his option. In a pledge, as in the instant case, the acquisition, if any, can only occur if the appellant chooses to exercise its option to acquire shares on the happening of default and takes necessary steps for such acquisition. In this context the learned representative cited the following cases: (1) Balkrishan Gupta v. Swadeshi Polytex Ltd. [1985] 58 Comp. Cas. 563 (SC), therein the Supreme Court had held that the pledgee cannot be treated as the holder of the shares pledged in his favour and the holder continues to be the member in respect of the shares and can exercise his voting rights. (2) A.K. Menon v. Fairgrowth Financial Services Ltd. [1994] 81 Comp. Cas. 508' (Spl. Court, Bom.), Shri Cidambi had also cited two Andhra Pradesh High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, the same being the substantive law governing pledge, no specific exemption is required to keep pledge of shares out of the purview of regulation 10 etc. He said in certain cases even in a pledge the shares held by the pledgee may be registered in its name if the agreement between the parties provides for the same and regulation 3(1)(f)(iv) is meant to take care of such extraordinary cases. 11. Referring to the respondent's version that the appellant had not filed any statement in terms of 187C of the Act, in respect of the shares held by it, Shri Cidambi submitted that the said section is applicable to benami holding and the appellant being not a benamidar there was no need to file any returns under the said section. 12. The learned representative submitted that the appellant has not violated the provisions of regulation 10 and that in any case imposition of penalty was not warranted in this case, as none of the factors referred to in section 15J existed, that the Adjudicating Officer had also endorsed the same as could be seen from his finding in the impugned order that 'Acquisition, by way of pledge of shares by the promoters of APL, would not have resulted in any l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and public financial institutions as pledgees, that this limited exclusion clearly confirms that acquisition of shares by way of pledge by persons other than banks and public financial institutions is to be considered as acquisition for the purpose of the regulation, that if transferor pledged shares, as a class was to be excluded or exempt from the purview of the regulations, no exemption would have been specifically carved out for banks and public financial institutions. According to him the limited exclusion in regulation 3(1)(f) therefore clearly confirms that acquisition of shares by way of pledge by persons other than banks and public financial institutions will come under the purview of the regulation. Shri Barua submitted that if the appellant's version that transfer of shares during the subsistence of pledge should not be treated as acquisition for the purpose of the regulation is accepted, the same would totally nullify the regulation and render it powerless as parties would subvert the regulation with impunity by resorting to the simple device of acquiring shares in the garb of pledge. In this context Shri Barua referred to the decision of the Supreme Court in Bhav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntum of penalty. 19. I find that the facts are not in dispute in this case. The appellant had received 7,67,580 shares of APL (16.24 per cent) by pledge against loan given by it to the directors of the said company. Out of the said shares, 3,32,540 (7.037 per cent) shares were transferred in the name of the appellant and the remaining 4,35,040 (9.207 per cent) shares though handed over to the appellant, continued to remain in the name of the borrowers on the register of members of APL. It is also seen that the entire shares so received as security against the loan were returned to the borrowers by 25-9-1998 on repayment of the loan amount. 20. In the context of the admitted fact that the acquisition was in the context of shares pledged with the appellant and that total shares involved constituted 16.24 per cent of the paid up capital of APL, the only question that is to be considered is that as to whether the shares so held by the appellant amounted to acquisition in terms of regulation 10, requiring to make a public offer. 21. Before we proceed further in the matter it is felt that the concept of pledge need be clearly understood as the parties herein have viewed the scope of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much significance to identify the acquirer. As has been held in the case of Joshi Jayantilal v. State of Gujarat AIR 1962 Guj, 297 and as per the Blacks Law Dictionary acquisition is the act of becoming the owner of certain property, the act by which one acquires or procures the property in any thing. In this context it is to be noted that the act of acquisition of shares or voting rights by itself will not attract the provisions of regulation 10, though the person who acquired the shares or voting rights may fall within the definition of the expression 'acquirer'. Each and every acquisition by an acquirer need not necessarily attract the provisions of regulation 10. What attracts the regulation is the acquisition of shares/voting rights which will entitle the person acquiring the shares to exercise voting rights beyond certain limits specifically provided in the regulation, say ten per cent in regulation 10. Thus it is clear that a plain acquisition even if it exceeds 10 per cent of the paid up capital of the company will not attract regulation 10, unless the acquisition entitle the acquirer to exercise ten per cent or more of the voting rights in the company. 24. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be on non-payment to have the shares sold after notice. Such sale can only take place after a notice to the pledger. This is one instance where, even though blank transfer forms have been handed over alongwith share certificates, there is still no transfer of ownership. Another instance may be where the shares alongwith blank transfer forms are kept as security towards repayment of a debt. If they are merely kept as security, then again by such deposit no right is created in favour of the creditor. It is only after the agreed time of repayment is over that the security can be enforced and it is only at that stage that the creditor gets a right to fill in his name in the transfer forms and get his name transposed in the records of the company. 27. In the instant case it is seen that 3,32,540 shares (7.04 per cent) were transferred in the name of the appellant and its name was entered in the members register maintained by APL, thereby entitling the appellant to exercise voting rights attached to those shares. For computing the entitlement for exercising voting rights in APL, for the purpose of regulations, the said holdings has to be taken into consideration in view of the legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove, the appellant had not become entitled to exercise voting rights in the company over and above the said limit for the reason that its holding of 4,35,040 shares was not registered in the company's register of members in its name. Therefore, the regulation cannot be said to attract in this case. The respondent's apprehension that if 'pledge' is not treated as acquisition, it would negate the purpose of the regulation is baseless as a 'mere pledge' as such does not affect the management or control of the company. It will not even affect the market quotation as the pledged shares are kept on hold and not traded in the market. Change in possession of share certificates by itself, without transferring attendant rights, will not affect the ownership or management control of a company. The moment those shares are registered in the company's register automatically the acquirer will become entitled to voting rights and depending on the quantum of shares involved and its attendant voting rights acquired regulation 10 also would attract. 30. Shri Barua had cited the case of Bhavesh D. Parish (supra) and VLS Finance Ltd. (supra). Bhavesh Parish's case (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
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