9911796707
TMI Blog2002 (10) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... t No. 11) by Gujrat Ambuja Cement Ltd., and Ambuja Cement Holdings Ltd., (Respondent No. 4 and 5 respectively. ) 2. The Appellants are stated to be shareholders in Respondent No. 11. They claim to be aggrieved by the order made by SEBI on 19.7.2001 3. Respondent No. 1 (SEBI) is a statutory body established under the provisions of the Securities and Exchange Board of India Act, 1992 (the Act), 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. Respondent No. 2 is the administrative Ministry of Government of India, of the Respondent No. 1. Respondent No. 3 (IDBI) is a public financial institution and the lead financial institution of Respondent No. 11, representing other public financial institutions like General Insurance Corporation and its subsidiaries, Unit Trust of India etc. together having large equity stake in Respondent No. 11. Respondent No. 4 is a company incorporated under the provisions of the Companies Act, 1956 and engaged in the business of manufacture and sale of cement and Respondent No. 5 is a subsidiary of Respondent No. 4 (Ambujas). Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Court of Bombay stated to be in the interests of public shareholders of the target company who were alleged to have been deprived of the benefits of the provisions of the SEBI Act, 1992 and the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and sought investigation by SEBI. The said petition was then dismissed by the Hon'ble Bombay High Court vide its order dated 13th September, 2000 directing the petitioners to move SEBI for relief. Thereafter, the petitioners filed a Review Petition for review of the order dated 13.9.2000. The Hon'ble High Court vide its order dated 16th October, 2000 dismissed the Review petition directing the petitioners to press their points before SEBI in a proper proceeding. Pursuant to the said order of the Hon'ble High Court the complainant filed a complaint before SEBI inter alia, requesting SEBI to fix a hearing in respect of the complaint to hear the parties and investigate the matter and dispose of the same by passing a reasoned order. 5. The Appellants in the context stated above filed a written complaint before SEBI alleging violation of the provisions of regulations 10 and 12 by Ambujas. 6. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulations. Reg.12: Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company, unless such person makes a public announcement of acquired shares and acquires such shares in accordance with the regulations. 9. I have gone through the contentions of all the parties i.e. the complainant, the target company and the Ambujas. I now proceed to deal with their submissions in the light of the above provisions of the regulation as under: (I) Whether there is violation of regulation 10? The complainants have stated that about 10% of the equity shares in the target company which are held by Harshad Mehta Group stands frozen by the Special Court under the provisions of Special Court (Trial of Offences Relating to the Transactions of Securities) Act 1992 and, therefore, have to be excluded from the purview of the total available voting rights of the target company. It is further stated that by purchasing 2,46,70,000 equity shares of the target company, the Ambujas have acquired voting rights in the target company to more than 15% of the total voting rights exercisable as on the acquisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 111A of the Companies Act, 1956, in the matter of transfer of shares the CLB has been empowered to suspend voting rights under certain circumstances as an interim measure. Under sub-section (5) of section 111A of the Companies Act, 1956, it is specified that the provisions of section 111A shall not restrict the rights of the holder of the shares or debentures to transfer such shares or debentures and any person acquiring such shares or debentures shall be entitled to voting rights unless the voting rights have been suspended by an order of CLB. 13. I find that the Takeover Regulations deal with shares carrying voting rights . The shares which carry voting rights do not cease to be so merely because the same have been suspended or attached. I am of the view that even in the cases where the voting rights are suspended, or attached, it cannot be said that the said shares do not carry voting rights. It is merely suspension of exercise of voting rights and just because the exercise of voting right has been suspended it does not mean that the shares have ceased to carry voting rights. 14. Under the Companies (Amendment) Act, 2000, a new provision has been made for issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CL has shown ACC as their Group Company in the presentation made to the institutions. iv) Financial institution has expressed view that Ambujas are required to make an offer to purchase shares at the same price of Rs.370/- in view of Ambujas taking control over ACC. v) ACC in their declaration under regulation 8(2) , have stated Tatas as promoters. 17. The Ambujas and the target company and Seller or Tata Group on the other hand have denied that the Tatas were in control The submissions of the target company in this regard, in brief, are as under: (i) The Tata Group were never in control of the Target Company nor they interfered with the management of the target company. (ii) The target company was professionally managed company and continues to be a professionally managed company. (iii) The target company submitted the names of its managing directors, whole-time directors who have formed a core group of its management team from the year 1970 to 1996 in support of their submissions that target company has, always been a professionally managed company. (iv) No director represented the interests of Tatas nor were they from Tata administrative service as is the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strued that they were in control of the target company. Regulation 2(h) of the Takeover Regulations defines a promoter as: i) 'promoter' means a person or persons who are in control of the company, or ii) person or persons named in the offer document as promoters 21. From the definition, it is clear that under regulations even though a person is not in control of the company he can still be a promoter if he has promoted the company or is named in the offer document as a promoter. I find that under SEBI (Disclosure Investor Protection) Guidelines, 2000, persons who are instrumental in the formulation of a plan or programme of the company are included as promoter even though such person may not be in control of the company or have any substantial holding in the said company. Therefore, if a person is described as a 'promoter' in an offer document it will not ipso facto make such promoter as person in control for the purpose of the Takeover Regulations. For determining whether a promoter is in control, the requirement of regulation 2(c) needs to be fulfilled. 22. Under regulation 8(3) of the Takeover Regulations, every listed company has to disclose holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 1. Mr. N. A. Palkhivala Non-executive Chairman - Emeritus 2. Mr. Tarun Das Non-executive Chairman 3. Mr. N. S. Sekhsaria Non-executive Dy. Chairman 4. Mr. T. M. Nambiar Whole-time Director Managing Director 5. Mr. P.K. Mistry Non-executive 6. Mr. P. J. Jagus Non-executive 7. Mr. N. A. Soonawala Non-executive 8. Mr. O. P. Dubey Representative LIC 9. Mr. A. L. Kapur Non-executive 10. Mr. A. K. Chatterjee Whole-time Director 11. Mr. M. L. Narula Whole-time Director 12. Mr. P. K. Sinor Whole-time Director Company Secretary 13. Mr. J. N. Godbole Nominee Director of IDBI 14. Mr. Ambitabha Ghosh Nominee Director of UTI 15. Mr. B. Ramakrishna Special Director - St. of Andhra Pradesh (nominated) 16. Mr. K. Jayaabharat Reddy Special Director - St. of Andhra Pradesh (nominated) 26. Mr. Narottam Sekhsaria, Managing Director of GACL and President of ACL and Mr. A. L. Kapaur, who is whole-time Director of GACL were appointed as Directors at the meeting of the shareholders of AGM of ACC held on 19th July 2000. On 26th April 2000, Mr. P. S. Mistry resigned as Chairman and Director of ACL and Mr. Tarun Das was appointed as Additional Director a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany as contemplated by regulation 2(c). 31. I find that there has been an increase in the number of directors, two directors have been appointed from the Ambujas. Two more directors can also be appointed as aforesaid by the Ambujas in place of the nominees of Tatas. In the facts of the case, even though Mr. Sekhsaria and Mr. Kapur of Ambuja Group were inducted in the Board it does not mean that the Ambujas have acquired control of the target company. It is not unusual that a person with a large shareholding is invited to join a Board. Nonetheless these facts by themselves, and in view of the existing composition of the Board can not lead to the necessary inference that control is exercised by the Ambujas over the target company. It is also noticed that Mr. Sekhsaria or Mr. Kapur is not the Chief Executive of the Target Company or exercise executive powers. Besides they or the Ambujas do not hold controlling shares in the target company. There is also no evidence or material at present to show control of the management of the target company by Ambujas. Having regard to the existing situation regulation 12 is not attracted. 32. If as a result of further developments, which en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the transaction, that since SEBI's response was not to the satisfaction of the Appellants they approached the Hon'ble Bombay High Court by filing a Writ Petition. No. 1650/2000, that the Hon'ble High Court dismissed the said Writ Petition on 13.9.2000 with liberty to the petitioners to move SEBI, if so advised. The Appellants thereafter filed Review Petition before the Hon'ble Court, which was also dismissed on 16.10.2000 with the observation that we had dismissed the Writ Petition since we felt that the points being urged before us by the Petitioners could be preferred before SEBI in a proper proceedings and the SEBI may dispose of the same by a reasoned order. Thereafter, if the petitioners are still aggrieved, they may seek appropriate remedy....... Learned Counsel submitted that, consequently the Appellants filed a written complaint dated 15.11.2000 before SEBI, that the Chairman, SEBI after having heard the representatives of the parties involved in the transaction passed the order on 19. 7.2001. She read out extensively from the said order referring to various observations made therein. 38. Ms. Iyer, referring to SEBI Chairman's findings recorde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court may direct the Custodian to dispose of the property under attachment wherein all amounts due from the persons so notified can be paid to any bank or financial institutions or mutual fund. Consequently, a conjoint reading of section 3, sub-section (4) and section 11 represents a separate statutory scheme in which only a notified person's attached properties can be dealt with for discharging the liabilities as provided in section 11. 39. According to the learned Counsel the power of the court under section 11 is rather limited that its objective is to maximise the realisation of the assets and the scope of the order referred to in section 11(1) can not go beyond the said objective. She submitted that in any case the said section does not provide any power to give any direction regarding exercise of voting right in the shares attached under section 3(3). Ms. Iyer referred to the jurisdiction, power and authority of Special Court in civil matters as provided in section 9A in relation to 'any matter or claim' and submitted that it is only (i) relating to any property attached, (ii) arising out of transactions in securities entered during the specific period in whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion when the property is already mortgaged or pledged on the date of attachment to a bank or to any third party. This, however, is subject to the right of the Custodian under Section 4 to set aside the transaction of mortgage or pledge. Unless the Custodian exercises his power under Section 4, the right acquired by a third party in the attached property prior to attachment does not get extinguished nor does the property vest in the custodian whether free from encumbrances or otherwise. The ownership of the property remains as it was. 42. She submitted that the implication of the Hon'ble Supreme Court's observation in Harshad Mehta's case (supra) that the Attached property also does not vest in Custodian. In this regard the position of a Custodian is different from that of an Official Liquidator of a company in winding up. , is that when the property is attached it does not vest in the Custodian and the Custodian is also not taking physical custody of the property as is being done by an Official Liquidator in winding up of a company under the Companies Act, 1956. She further submitted that the actual implication of the attachment under the Special Court Act is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquisition 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 percent in regulation 10. Thus it is clear that a plain acquisition even if it exceeds 10% of the paid up capital of the company will not attract regulation 10, unless the acquisition entitle the acquirer to exercise ten percent or more of the voting rights in the company. In the instant case it is seen that 332540 shares (7.04%) were transferred in the name of the Appellant and its name was entered in the members register maintained by APL, thereby entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight having extinguished, it can not be exercised. According to the learned Counsel, the notified person has no right as the property belonging to him - i.e the right, title and interest therein - is under attachment, the custodian has also no right as the attached property also does not vest in the Custodian. She referred to para 15 of ACC's reply and submitted that their contention is not right as ACC has stated that under section 9A of the Special Court Act, the Special Court has power to issue directions relating to right, bonus, dividend etc. relating to the shares attached, for the reason that as per the scheme of the Special Court Act once the person is notified and the property, as a result thereof is attached, the Special Court can not permit the notified person to act further on the attached property. She reiterated that section 9A, as held by the Apex Court in Minoo Mehta (supra) is available only to deal with the civil liabilities of the notified person in relation to the property attached and is not available to allow voting rights of the notified person being exercised by him or the Custodian as contended by ACC. 48. Learned Counsel referred to the decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their share holding or in any other manner. She submitted that the definition is an inclusive definition, which enables SEBI to ascertain as to the nature of control, by enquiry. In this context she referred to the observation in the Bhagwati Committee report and the scope of the regulations, discussed in detail by this Tribunal in Rhodia SA V. SEBI (2001) 34 SCL 597 that: The core issue that need be considered in this appeal is the applicability of regulation 12. If it is found that regulation 12 is not attracted to the transaction, the requirement of making public offer etc, by the Appellant, does not t arise. I think in this context it will be useful to quickly go through the governing regulatory regime applicable to substantial acquisition of shares and takeovers having a bearing on the matter before the Tribunal. In terms of section 11(1)(h) of the Securities and Exchange Board of India Act 1992 ( the Act) one of the functions of the Respondent is regulating substantial acquisition of shares and take over of companies. For the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re are bound to be limitations on their freedom of action and on the manner in which the pursuit of their interests can be carried out during the offer period. ix. All parties to an offer to refrain from creating a false market in securities of the target company. x. No action to be taken by the target company to frustrate an offer without the approval of the shareholders. In the event of any ambiguity or doubt as to the interpretation of the regulations, the concerned authority shall pay adequate attention to and be guided by any one or more of the aforesaid general principles having a bearing on the matter . 51. In para 3.34 of the report under the heading Indirect acquisition it has been stated: The Committee had noted that there exists a lacuna in the existing regulations which would allow persons to acquire indirect control of listed company by acquiring the holding company or a set of investment companies which has block holding and which may be unlisted, because the scope of the Regulations apply only to acquisitions of shares in listed companies. The Committee thought it fit to clarify by way of an explanation that acquisition of an unlisted company would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the existing controllers of a company may be classified as follows: (1) Complete ownership of the share capital. Here no difficulty arises. (2) Majority (or voting ) control - control exercised by persons holding shares conferring the majority of the voting power normally exercisable at a general meeting of the company; as a result of various legal devices, such as non-voting, restricted or weighted voting equity shares, gearing of the capital structure or pyramiding of companies, the persons in a position to exercise the majority voting power may hold a minority or even a very small portion of the equity. (3) Minority (or effective ) control - control exercised through holding a block of shares which, having regard to the dispersion of the remaining shares among a large number of shareholders, enables control effectively to be maintained by a combination of the voting power conferred by the block of shares held and the position of strength conferred by control over the proxy-gathering machinery. (4) Management control - the mere control over the proxy-gathering machinery, having regard to the inertia of shareholders, enables the existing management to maintain c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the 1st limb of the definition in regulation 2 (h)read with the second limb of regulation 8(3) would be relevant for applying and enforcing regulation 12. She submitted that the definition of promoter under regulation 2(h) (1)( i) would show that what is contemplated under the second part of the regulation 8(3) is a disclosure declaration by the company as to the holding of the promoter having control or any other person having control over the company, that in the absence of control by anybody no reporting is required under regulation 8(3), that in the instant case the declaration filed by ACC under regulation 8(3) disclosed the holding of Tata Group as promoter as well as the person in control of the company, that since Tatas' holding being 6.3%, there was no need to report as regulation 8(1) does not attract, that it is evident that what was reported was in the context of control exercised by Tatas as promoters. Learned Counsel submitted that in spite of such clear evidence, borne out of a statutory declaration made by ACC, SEBI brushed aside the same and endorsed the Respondent's version that Tata group was not having control over the company. 59. Ms. Iy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily be the concern of SEBI. This is all the more necessary because under clause (h) or sub section (2) of Section 11 of SEBI Act, SEBI is empowered to regulate not only substantial acquisition of shares but also takeovers. This was also the overwhelming view of all professionals, intermediaries and financial journalists who made submissions before the Committee. The Committee also noted that though the existing Regulations did not include change in control as triggering of a public offer, SEBI has placed continued reliance on Clause 40A and B of the Listing Agreement in such cases where the acquisition of shares has been less than the threshold limit of 10%. The Committee recognised that the Regulations should, as far as possible, be comprehensive and self contained and SEBI should not have to rely on outside rules and regulations to implement its objects. On the above considerations and given on the one hand that it would be difficult, if not impossible, to attempt at a precise and comprehensive definition of takeover, and on the other hand that takeover does ultimately result in change in control of the company, howsoever such control may be exercised, the Committee felt that cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of Tata Group of companies. She submitted that though the Appellants had provided several indices regarding the change in control, but SEBI did not investigate. 62. Learned Counsel submitted that SEBI failed to take note of the public perception that ACC is a Tata group company. In this context she referred to ACC's own disclosure at its website that The House of Tatas' has been intimately associated with ACC, ever since its formation in 1936. Since then, the Tata group links have operated on a continuous basis, both at formal and informal levels. Recently the group sold 11.2 per cent of its share holding to Gujrat Ambuja Cements Ltd., (GACL) who are now the largest single share holder in ACC , that in the same document under the heading JOINT VENTURES, it has been stated Floatglass India Ltd. is a joint venture between the Asahi Glass Co. Ltd. of Japan with the Tata group consisting of ACC, TELCO and Tata Exports as the three Indian partners. She referred to the chart showing the composition of the Board of Directors of ACC annexed to the Memorandum of appeal and submitted that the changes which have been carried out in the composition of the Board of Directors of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovals, if any, as may be necessary and subject to such conditions and modifications as may be considered necessary by the Board of Directors........... or as may be prescribed in granting such consents and approvals and which may be agreed to by the Board and the present Promoter group namely (Tata Companies (mainly Tata sons Ltd., and other existing Tata shareholding companies) (hereinafter referred as the Promoter), the consent and approval of the company be and is hereby accorded to the Board to make a Preferential Issue of upto 90,00,000 Naked Warrants/Equity share s of Rs.10/- each....................................... (emphasis supplied) 63. She further stated that by way of addendum to the notice it was stated that The issue will neither result in any change in the constitution of the Board of Directors of the company nor in the control over the company Learned Counsel submitted that the fact that the notice dated 8.12.1998 was issued with the approval of the Board, indicates that at the Board level Tata group companies had control to get the resolution approved and the Financial Institutions could not stop the proposal at the Board level, that the resolution could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI findings in this regard (emphasis supplied). Learned Counsel submitted that SEBI was not unaware of the views expressed by an institution like IDBI, but still it did not feel it necessary to investigate to find out the actual position. 66. She also referred to the copy of the note relating to the Board meeting of GACL held on 29.12.1999 annexed to the Memorandum of Appeal. It has been stated therein The minutes of the earlier Board Meeting dated December 22, 1999 were confirmed. The other main item on the agenda was investment in the equity shares of Associated Cement companies (ACC) through the wholly owned subsidiary of Ambuja Cement Holdings Ltd. Shri Sekhsaria stated that Tatas who are holding 14% in ACC were ready to divest 50% of holding i.e. 7% at a price of Rs.370/- per share. He mentioned that ACC carries a very good brand name and vast distribution net work. Tatas were looking out for partners or divestment from cement. Shri Sekhsaria felt that it would be a good strategy to hold 7% shares in ACC. Discussions in this regard were already held with Tata Group and they had agreed to share the management with Ambuja Cements. She submitted that this note indicates the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies could lay claims to. Again in most cases, the concept of control is highly circumscribed by the covenants and conditions imposed by financial institutions in their loan agreements. Yet the ground reality is that one does effectively control a company, whether by influencing the constitution of the board or by formulating key policies, even with as low a shareholding as 10% or 15% even though the legal test of control would not be met. Not long ago, even the with less than 10% holding the Tatas were certainly in control of Tata Steel. This being the case, SEBI's self-satisfying conclusion GACL has not acquired control of ACC appears to be somewhat facile. Rather, SEBI ought to have taken due cognizance of the following facts. * GACL is amongst the top cement producers in the India and has been locked in intense jockeying with other leading players for leadership position in the industry. * The speed with which two senior directors of GACL were inducted into the ACC board. While one of them is a promoter and Managing Director of GACL, the other is a wholetime director and was, it is pertinent to note, the Director (Finance) and later a wholetime director i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as promoters held over ACC was acquired by Ambujas indirectly under the terms of the MoU dated 22.12.1999 and the action of Ambujas as acquirers required compliance of the requirements under regulation 12, that an indirect takeover designed and acted upon in such a manner to circumvent the provisions of regulation 12 with an ulterior motive to deny the statute recognised equal treatment and opportunity to the investor under the Regulations has been not only condoned but justified by SEBI. She submitted that even as on the date of the proceedings, the Chairman SEBI confined to the position as obtained during December, 1999 namely acquisition of 7.5% of shares and appointment of directors only ignoring the actual decision of the contracting parties as manifested in the said MoU and the implications thereof regarding control exercisable on ACC by Ambujas. 70. Ms. Iyer referred to the MoU, a copy of which was provided to the Appellants during the course of the argument by Shri Chagla, and stated that the MoU is a share purchase agreement. She referred to para 6.4 wherein it has been stated that in case the Purchaser(GACL) decides to merge a company, belonging to the purchasers gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Kumar Desai submitted that the voting rights attached to the shares are not done away with an attachment. He referred to section 3(3) of Special Court Act and submitted that it is a non obstante provision for attachment of any property belonging to a notified person simultaneously with the issue of notification under section 3(2). Learned Counsel submitted that the expression attached in this context has to be understood in its true sense. In this context he referred to Order 21 Rule 46 (Civil Procedure Code) and submitted that the attachment in question is share in the capital of a corporation referred in Rule 46(1)(b). In terms of R 46(1)(ii) the attachment only prohibits in the case of the share, the person in whose name the share may be standing from transferring the same or receiving any dividend thereon . Shri Kumar Desai submitted that a company's share has a bundle of rights which includes right to vote. He submitted that when the share is attached, the right to vote or right to attend meeting of the company is not attached, that it is not capable of being attached. He submitted that in this regard, the principles of civil law need be accepted. 73. Shri K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Supreme Court observed: A person who is a share holder of a company has many rights under the Act. Some of them, with which we are concerned in this appeal principally are : (i) the right to vote at all meetings (Section 87) (ii) the right to requisition an extra ordinary general meeting of the company or to be a joint requisitionist (section 169)(iii) the right to receive a notice of a general meeting (section 172) (iv)the right to appoint proxy and inspect proxy registers (Section 176),(v) in the case of a body corporate which is a member, the right to appoint a representative to attend a general meeting on its behalf (section 187) and (vi) the right to require the company to circulate its resolutions (section 188). The question for consideration is: When does a share holder cease to be entitled to exercise any of these rights? . The Hon'ble Court observed - The privileges of a member can be exercised by only that person whose name is entered in the Register of Members. A Receiver whose name is not entered in the Register of Members can not exercise any of these rights unless in a proceeding to which the company concerned is a party and an order is made therein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limited by shares, to any voting rights in respect of the moneys so paid by him until the same would, but for such payment, become presently payable . He submitted that under section 111A of the Companies Act, the Company Law Board while considering appeal against an order refusing to effect the transfer of shares of a company, is empowered to suspend the voting rights of the transferee, pending the appeal, that thus it is clear that wherever the exercise of voting right is considered to be stalled, the law specifically provides for the same. Shri Desai submitted that SEBI has rightly computed the percentage holding of Ambujas in ACC and the holding being less than the 15%, regulation 10 is not attracted. 78. With reference to the Appellants' challenge on SEBI's decision that regulation 12 is not attracted to the transaction, Shri Desai submitted that SEBI has rightly taken the view in the light of the provisions of regulation 12 read with regulation 2(1)( c ). Learned Counsel submitted that the triggering point in regulation 12 is acquisition of control over a company. He referred to the definition of the expression 'control' in regulation 2(c) and submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts by themselves, and in view of the existing composition of the Board can not lead to the necessary inference that the control is exercised by the Ambujas over the target company. It is also noticed that Mr. Sekhsaria or Mr. Kapur is not the Chief Executive Director of the target company or exercise executive powers. Besides they or the Ambujas do not hold controlling shares in the target company. There is also no evidence or material at present to show control of the management of the target company by Ambujas. Having regard to the existing situation regulation 12 is not attracted. 79. Shri Desai submitted that the Chairman has clearly explained the factual position in his observation cited above. 80. Shri Desai with reference to the Appellants' reliance on the declaration filed by ACC under regulation 8(3), referred to the definition of the expression promoter appearing in regulation 2(h) and compliance of the requirement under regulation 8(3) and submitted that in terms of regulation 2(h)(1) promoter means (i) the person or persons who are in control of the company; or (ii) person or persons named in any offer document as promoters. He referred to regulation 8 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issuing naked warrants/equity shares on preferential basis to Tatas, that only the General Body of the company is empowered to pass the Resolution, that the resolution was not put forth in the Extra Ordinary General Meeting of the shareholders of ACC because of the resistance of FIs/Govt. itself is indicative of the fact that Tatas were not in control of the company, that they had withdrawn the resolution as it was not likely to get through. 84. Learned Counsel submitted that working directors are the core management and in ACC the working directors are not the nominees of Tatas, that they are on the Board of non Tata companies also. He submitted that two directors of Ambujas with two directors of Tatas can not influence the decision making process by a Board consisting of 15 directors. He reiterated that nominee directors are part of the policy making set up and they can not be excluded to show that effective strength of the Board in number was small and Ambujas and Tata nominees had a sizeable place therein. 85. Shri Desai referring to the submission of the Appellants that the public perception in the matter is reflected in the news paper reports submitted that SEBI can not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified person in that property. If in the property belonging to a notified person, another person has a share of interest, that share or interest is not extinguished. Of course if the interest of the notified person in the property is not a severable interest, the entire property maybe attached. But the proceeds from which distribution will be made under section 11(2) can only be the proceeds in relation to the right, title and interest of the notified person in that property. The interest of a third party in the attached property cannot be sold or distributed to discharge the liabilities of the notified person. This would also be the position when the property is already mortgaged or pledged on the date of attached to a bank or to any third party. This however, is subject to the right of the custodian under section 4 to set aside the transaction of mortgage or pledge; unless the custodian exercises his power under section 4, the right acquired by a third party in the attached property prior to attachment does not get extinguished nor does the property vest in the custodian whether free from encumbrance or otherwise. The ownership of the property remains as it was. He submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eous attachment of property is to preserve and protect property from being alienated, so as to be available to meet the claims of the persons to whom money is due from the notified persons. He further submitted that yet another situation could be that the acquisition of attached shares which would otherwise attract regulation 10 or 11 would remain out of the purview of the 1997 Regulations on the ground that acquisition of shares which belonged to the notified person would not have any effect on the voting strength of the acquirer in the company. Learned Counsel submitted that the submission to exclude attached shares from the total of the company's voting share capital, would be against the object of the Special Court Act and SEBI Act. 91. Shri Chagla referred to sub sections (3) and (4) of section 3 of the Special Court Act,. and submitted that attachment under sub section (3) is an attachment by law. Sub-section (4) provides for disposal of the property so attached. In this context he submitted that it is to be noted that the Special Court had directed the Custodian to subscribe t o the right share offered by companies including ACC, that it is viewed that if the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany, in which the shares held by it was under attachment. In that context the court was considering whether by the attachment of the shares under section 149 of the Land Revenue Act, the Cotton Mills Company suffered any diminution or curtailment in its right as a shareholder in respect of the shares so attached. The Apex court held therein that when once a person becomes a member, he is entitled to exercise all the rights of a member until he ceases to be a member in accordance with the provisions of the Act. (Companies Act). The voting rights of a member of a company are governed by section 87 of the Act. Section 87 of the Act says that subject to the provisions of section 89 and sub section (2) of section 92 of the Act every member of a company limited by shares and holding any equity share capital therein shall have a right to vote, in respect of such capital, on every resolution placed before the company and his voting right on a poll shall be in proportion to his share of the paid up capital of the company. Mere appointment of a Receiver in respect of certain shares of a company without more cannot, therefore, deprive the holder of the shares whose name is entered in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such shares may be sold in public auction under Rule 77 thereof. On such sale either under Rule 76 or under Rule 77, the purchaser acquires title. Until such sale is effected, all other rights of the judgement-debtor remain unaffected even if the shares may have been seized by the Officer of the court under Rule 43 of Order 21 of the Code of Civil Procedure 1908 for the purpose of effecting the attachment, or through a Receiver or through an order in terms of Rule 46 of Order 21 of the Code of Civil Procedure may have been served on the judgement-debtor or on the company concerned. An order of attachment cannot, therefore, have the effect of depriving the holder of the shares of his title to the shares. We are of the view that the attachment of the shares in the Polytex Company held by the Cotton Mills company had not deprived the Cotton Mills Company of its right to vote at the meeting or to issue the notice under section 169 of the Act. 93. Learned Senior Counsel submitted that attachment under Special Court Act is also governed by the same principles as set out in Balkrishan Gupta that the property attached is ultimately for sale and the sale is not minus any of the right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sting in the official receiver or official assignee. He is also not in a position of an official liquidator under the Companies Act in whom not only the property vests but who is also in control thereof. This being so there is considerable force in the contention of the counsel for the appellants that, except for the power exercisable under Section 4, the position of the Custodian is the same as that of the notified person himself. 95. Learned senior Counsel submitted that the court has in the cited paras distinguished the position of Custodian vis- -vis Receiver and Official Liquidator, but does not say that the voting rights of the equity shares under attachment extinguished and is not exercisable. He reiterated his submission that in the absence of any statutory prohibition on the notified persons right to exercising voting, it can not be taken away being a right to property. Learned senior Counsel referred to the decision of this Tribunal in Margadarsi relied on by the Appellants and submitted that, the said decision is not on extinguishing the voting rights. In this context he referred to para 30 of the Appellants' complaint and submitted that the Appellants had stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of control at once and not at a later date or in future, that there should be an actual change in control, and therefore what is to be seen in the instant case is as to whether there is material to show that Ambujas acquired control over ACC. He submitted that policies pursued by the acquirer and the target company may be common for several reasons, but that does not mean that one is controlled by the other, that if the two nominee directors of Ambujas on the Board of ACC persuade the ACC management to choose a better strategy, it can not be said to be an act of exercise of control over ACC by Ambujas. 99. He submitted that Regulation 12 triggers, on acquisition of control, that the prohibition is on acquisition of control without making a public offer. According to the learned senior Counsel the Appellants have to show that Tatas had control over ACC and with the acquisition of the shareholding of Tatas in ACC, Ambujas acquired control, that it is not the Appellant's case that Ambujas acquired control independently. In this context he referred to the definition of the expression 'control' in regulation 2(c ) and submitted that though it is an inclusive definition, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in clause 6.3, all that the Sellers had agreed to is that they would support the appointment of Ambujas nominees on the Board of ACC. He submitted that the MoU is not to replace the Tata Directors. He submitted that the power to appoint Directors is vested in the shareholders in a general body meeting and that the Board of Directors is empowered to appoint only additional directors for a short period. He further submitted that ACC is not a party to the MoU, and therefore right of any one to appoint directors created by the MoU is not binding on ACC. 101. He submitted that ACC has a Board with 16 directors consisting nominee directors of Financial Institutions, Government., Executive Directors and several independent Directors that no particular group has any majority in the Board of the company. In this context he referred to the factual position stated by ACC in its reply before SEBI: This tradition of professional management continued over the times. A true reflection of the professional face of ACC Ltd., would be evident from the history of its Managing Directors as well as those persons who formed a core part of its management team over the years as also on dates mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 Mr. T. M.M. Nambiar MD Has been with ACC from 1976. Prior to this he was a Wholetime Director. None of the above persons represented the interests of the Tatas, nor were they drawn from the Tata Administrative Services (as is the case with various Tata owned companies). It is therefore submitted that the allegation that ACC Ltd., was always under the control of the Tatas is incorrect. It is submitted that though some Directors on the ACC Board were then, as they are today, the Directors on the Board of some Tata companies and this really is of no consequence as they are small in number as compared to the total strength of the Board. This was not by design but rather a natural fall out of the Tatas being one of the four industrial houses who brought the cement business together under the name ACC Ltd., in the thirties. This did not at any point of time manifest itself into any form of control over the functioning and management of ACC by the Tatas. Several other Directors on the Board of ACC were and are today Directors on the Board of other companies. Some are nominated by financial institutions and State Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Court subject to certain conditions had permitted Shri Harshad Mehta to apply for the right issues of ACC. Learned Counsel submitted that whether ACC is/was a Tata Group company is not a matter to be decided by the public perception, but on facts. He submitted that Tata Group never controlled ACC nor did they interfere with the management of the company which was, and continues to be a professionally managed company. Referring to the management structure of ACC he submitted that there was no one in the management of ACC representing the interests of Tatas, nor were they drawn from the Tata Administrative Services (as is the case with various Tata owned companies). He submitted that not only currently, but historically also ACC was not controlled by Tatas, as could be seen even when the company was having a Managing Agency. He submitted that, though some Directors on the ACC Board were then, as they are today the Directors on the Board of some Tata Companies, this is of no consequence as they are small in number as compared to the total strength on the Board. 105. Learned Counsel referred to the addendum to the notice dated 8.12.1998, of the Extra Ordinary Genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h participated in the Joint Venture as the Tata group was only for the purpose of convenience. I repeat and reiterate that the Tatas did not have legal control over the affairs of the company. 107. With reference to the declaration made by the company in terms of regulation 8(3) relied on by the Appellants, learned Counsel explained the requirement of regulation 8, and that it is incumbent on the part of the company to notify the changes in the share holding of the promoter annually. In this context he referred to the definition of the expression 'promoter' in regulation 2(h) and submitted that it is not that only those who control the company are to be considered as promoters, that even those without exercising any control over the company could be a promoter like Tatas in ACC. He stated that since Tatas being the promoters and the change in their holding as a result of the sale of shares effected by them, had to be notified to the concerned stock exchange and the declaration was made in that context and it had nothing to do with any control over the company. He further submitted that the MoU is between the seller and purchaser of shares and ACC is not a party to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant to an MoU entered into between Ambujas and Tata group companies on 21.12.1999. It is noticed that on 27.12.1999 Shri Narottam Sekhsaria , Managing Director of Ambujas, and Shri A. L. Kapur Wholetime Director of Ambujas, were appointed as Additional Directors in the Board of Directors of ACC. Shri Sekhsaria was appointed as Deputy Chairman of ACC on 19.1.2000. The Annual General Body Meeting of the shareholders of ACC held on 19.7.2000 confirmed the appointment of Shri Sekhsaria and Shri A. L. Kapur as directors by a unanimous resolution. This factual matrix remains undisputed. The dispute is on the effect of the acquisition of 14.4% shares by Ambujas vis- -vis the provisions of regulations 10 and 12 of the 1997 Regulation. The Appellants in their complaint before SEBI had alleged that the said acquisition attracted the provisions of regulations 10 and 12 requiring Ambujas to make public announcement to acquire not less than 20% of ACC's shares from the other shareholders in accordance with the regulations. But Ambujas, Tatas and ACC did not subscribe to the said view. The Chairman, SEBI after hearing the complainants (the Appellants herein) and the representatives of Ambuja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all not be deemed to be a change in control so long as the control given is equal to or less than the control exercised by person(s) presently having control over the property. 114. The expression acquirer referred to in regulations 10 and 12 has been defined in regulation 2(1)(b) as follows: Acquirer means any person who directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer. 'Person acting in concert' has been defined in regulation 2(1)(e) as follows: (e) person acting on concert comprises .- (1) persons who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal or informal), directly or indirectly co-operate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company, (2) without prejudice to the generality of this definition, the following persons will be deemed to be persons acting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreement or in any other manner. Target company as per regulation 2(1)(o) means, a listed company whose shares or voting rights or control is directly or indirectly acquired or is being acquired 115. The 1997 regulations, I am told, is drafted on the basis of the recommendations of an expert committee (Justice Bhagwati Committee). Therefore, while interpreting the provisions of the Regulations, the observations, caution and guidance provided by the said committee need be considered. Both parties had extensively cited the Committee's observation to canvas their point of view: The Committee was of the view 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. It is in this context SEBI's role as a regulator comes into. The Act mandates SEBI to protect the interests of investors in securities. The Regulations framed under the Act is for the same purpose. Therefore, in terms of the Regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and some one acts on the property as purchaser. According to the learned Counsel as a result of attachment of shares belonging to Shri Harshad Mehta, those shares cannot be considered as being held by Shri Harshad Mehta or the Custodian, that in other words, there is no holder of these shares to exercise voting rights. She had submitted that in the instant case though it can not be said that the shares attached have ceased to carry voting rights, there are no holders for these shares to exercise any voting rights, that the Special Court can not, under section 9A or 11 of the Special Court Act, issue any direction regarding voting rights in the shares attached. She had also relied on the Hon'ble Supreme Court in Harshad Mehta (supra)) that The attached property also does not vest in the Custodian. In this regard the position of a custodian is different from that of an official liquidator The words belong to have a reference only to the right, title and interest of the notified person in that property. If in the property belonging to a notified person, another person has a share or interest, that share or interest is not extinguished. I have very carefully gone through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in Ch. Kiron (Margadarsi) in support of her contention, that shares belonging to Shri Harshad Mehta under attachment need be excluded for the purpose of working out the percentage of voting rights exercisable by the Ambujas in the company . On a perusal of the Tribunal's said order it is evident that her reliance is misplaced. The following paragraphs explain the legal position explained therein: On a perusal of regulation 2(1)(b) it is clear that a person is an acquirer who acquires or agrees to acquire shares or voting rights/control in the target company. The mode of acquisition of shares or the purpose of acquisition is of not much significance to identify the acquirer. As has been held in the case of Joshi Jayantilal v. State of Gujarat (AIR 1962 Gujarat 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the records of the company. However, in all cases where blank transfer forms alongwith share certificates are handed over to the transferee, the same position will not apply. Thus for example if a pledger hands over to the pledgee share certificates alongwith blank transfer forms as and by way of pledge, the transaction still remains a transaction of pledge. Mere receipt of share certificates alongwith blank transfer forms will not give to the pledgee any right, title or interest in the shares. The right, title and interest and ownership of the shares will continue in the pledger. The only right which the pledgee will have will 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce pledge has been specifically excluded from the scope of the regulation in the case of banks and financial institutions and not in other cases and therefore the instant case is covered by the Regulation is not acceptable. If the acquisition entitles an acquirer to exercise ten percent or more of the voting rights in a company, then only the regulation would be attracted. It is not the manner in which the shares are acquired. It is the effect that triggers action. If the acquisition has no impact on the voting rights, regulation is not attracted. In the light of the factual position discussed above, 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 435040 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 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lict between the provisions of the Companies Act and the provisions of the Special Court Act, as regards the voting right attached to equity share is concerned and, therefore, the overriding effect of the Special Court in view of the non obstante clause therein canvassed by the learned Counsel is of little help. Therefore, the observation made by the Hon'ble Court in Solidaire India (supra) cited by Ms. Iyer is of no application to the matter under consideration. 126. The observation of the Hon'ble Supreme Court in Balkrishna Gupta (supra) that Mere appointment of a Receiver in respect of certain shares of a company without more cannot, therefore, deprive the holder of the shares whose name is entered in the Register of Members of the company the right to vote at the meetings of the company or to issue a notice under section 169 of the Act. has to be noted in this context. The Court had further observed that an order of attachment can not therefore, have the effect of depriving the holder of the shares of his title to the shares. 127. It is to be noted that as a result of attachment effected in terms of section 3(3) of the Special Court Act, the generic characteri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c offer as required under regulation 12 and they wanted SEBI's intervention to ensure Ambujas make an open offer under the 1997 Regulations at an offer price of Rs.370/- per share i.e. the price at which Ambujas purchased the shares from Tata group companies. 130. The Appellants' contention is that Tatas have always been in control of the management of ACC by virtue of their shareholding that public perception is that ACC is a company managed by Tatas, which is based on several factors including various disclosures made by ACC showing Tatas as their promoter and also describing ACC as one of the Tata group companies. 131. The Appellants have detailed in their complaint the basis of their charges, a gist of which has been stated in the impugned order. According to the Appellants Tata group companies wanted to divest their entire shareholding (14.4%) in ACC for various reasons, that they thereafter entered into negotiations with prospective purchasers and that on 21.12.1999 Ambujas entered into an MoU with Tata group companies for acquisition of Tata group's holding of 14.45% at a price of Rs.370/-, that 7.2% shareholding of Tatas were acquired on 27.12.1999 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressed in the Press with regard to non-compliance of the provisions of the Take Over Code by Ambujas in matter connected with the acquisition of shares and control of ACC and it appeared from the newspaper report dated 22.4.2000 that the SEBI had rendered a judgment concluding that the acquisition of shares by Ambujas from Tatas in ACC did not necessitate a public offer nor it amounted to a take over under the Take Over Code in as much as the two criteria, viz., neither the triggering acquisition of 15% nor taking control of the company had occurred. The Board was also of the view that Ambujas were not in a position to appoint maximum number of Directors and therefore they had no control and SEBI sought the opinion of Attorney General of India on the matter and the Attorney General of India has given such an opinion. That after the aforesaid judgement of the board concluding that there was no violation of Take Over Code, there was a reshuffle of Board of Directors of ACC wherein the Chairman and the Exe. Vice Chairman of ACC associated with Tatas resigned from the Board of ACC and a new Chairman was appointed. It could be seen, the position of executive vice Chairman was not fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies belonging to Tatas, Khataus, F.F. Dinshaw and Killick Nixon group. Tatas have since inception, contributed to the growth of the company through representation on the Board of the company, the erstwhile Managing Agency Board and the various Executive Committees of the company. Some of the members of the Board are also Directors on other Tata companies. The present promoter group of Tata Companies as on may 29,1999, hold 14.14% of the total equity capital of the company, making it the single larger share-holding group in the company after the Financial Institution. The Company having stated the above, also furnished the details of the share-holding in ACC of each of the Tata group companies and have also given further details of the share-holding pattern and details of Directors of the Tata Sons Ltd being the controlling company of the Tata Group. * ACC, in its communication dated 28 April 2000 to the stock exchanges, while making the statutory declaration under Regulation 8(3) of the Take Over Code, while disclosing the holding of the present promoter group, informed that the five Tata companies aforesaid held 6.28% of the paid-up capital of ACC and described the said fiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Tatas appointed by Tatas as Directors of this company. The others are nominee Directors of Financial Institutions and Government. That the above would categorically show that Tatas have always been in control of the management of ACC by virtue of their share-holding - whether it was a single figure or in double digit, and as per their own representation and the representation of the Company viz., ACC, the public at large invested to become share-holders of ACC on these terms alone and it is therefore, that the share-holders such as the complainants herein have sought an exit option as guaranteed under the Take Over Code when Tatas relinquished their position as promoters of ACC and handed over their control on ACC to Ambujas. * It is the reliable understanding of the complainants that the Industrial Development Bank of India, who, along with other leading financial institutions having the largest share-holding in ACC and who expressed their view point in the matter connected with the applicability of Take Over code on the acquisition of 14.45% shares of ACC by Ambujas from Tatas and Ambujas taking control of ACC, had the issue examined internally and arrived at a view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of ACC. * It is also the reliable understanding of the complainants that in the said minutes, as regards the appointment of Mr. Narotam Sekhsaria the Managing Director of Gujarat Ambuja Cements Ltd as Director of ACC, it has been recorded as hereunder:- At this stage the chairman intervened and stated that in view of the stake acquired by Gujarat Ambuja Cements, he proposed that Mr. Narotam Sekhsaria, Managing Director of that company be invited to join the Board. The Board fully endorsed this proposal. * It is also the reliable understanding of the complainants that in the meeting of the Board of ACC held on 27 December, 1999, the appointment of Mr. Sekhsaria and Mr. A L Kapur, the Managing Director and the whole-time Director of Gujarat Ambuja Cements Ltd (Directors of a competitor company of ACC) as Directors of ACC was proposed by Mr. Pallonji S Mistry, the chairman of ACC and seconded by Mr. N S Soonawala, both Directors belonging to Tata group. * It is the submission of the complainants that the appointment of two Directors representing Ambuja Cements on the Board of ACC within 5 days of acquiring of 7.2% of ACC shares from Tatas would itself show that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of the Take Over Code, whereunder the Ambujas are having statutory obligation to make a public offer under the provisions of the Take Over Code for purchase of shares of other share-holders at the same price, viz., Rs.370/- per share, which was paid by Ambujas to Tatas. In this connection the complainants also submit that views/ opinions expressed by the leading financial analysts and academicians of premier management institute on the issue are the same as that being held by the complainants. * It is the belief and expectation of the complainant that this Board with all its sweeping and exclusive powers under the SEBI Act and the Take Over Code were to conduct a deep and detailed investigation on the issue with TATAs, Ambujas, ACC, participating Financial Institutions, the Financial Advisors to the deal, Bank of America, Registrar of Companies, Mumbai, Stock Exchanges with which ACC has listing arrangements and others connected to the deal much more facts and details can be ascertained in support of the view being held by the complainant. * As reported in the press, Mr. Nimesh Kampani, Chairman of J.M. Morgan and Stanley acted as advisors to the deal between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pe of the expression promoter . 135. According to regulation 2(h) promoter means (1) (i) the person or persons who are in control of the company or (ii)person or persons named in any offer document as promoters. In the SEBI (Disclosure and Investor Protection) Guidelines, 2000 referred to in the order it has been stated that the term 'promoter' shall include - (a) the person or persons who are in overall control of the company (b) the person or persons who are instrumental in the formulation of a plan or programme pursuant to which the securities are offered to the public (c) the person or persons named in the prospectus as promoters. 136. It is noticed that clause (b)is not an open ended one as SEBI has stated. It is restricted. It is not available to all those who are instrumental in the formulation of any policy or any programme -but only to those who are instrumental in the formulation of a plan or programme pursuant to which securities are offered come under this category. 137. SEBI has also accepted the fact that Tata group has been shown as promoter group in the offer document etc. It is to be noted that an entity can be shown as a promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21 days from the financial year ending 31st March, make yearly disclosures to the company, in respect of his holdings as on 31st March. (2)A promoter or every person having control over a company shall, within 21 days from the financial year ending March 31, as well as the record date of the company for the purpose of declaration of dividend disclosure the number and percentage of shares or voting rights held by him and by persons acting in concert with him, in that company to the company (3) Every company whose shares are listed on a stock exchange shall within 30 days from the financial year ending March 31, as well as the record date of the company for the purposes of declaration of dividend, make yearly disclosures at all the stock exchanges on which the shares of the company are listed, the changes, if any, in respect of the holdings of the persons referred to under sub regulation (1) and also holdings of promoters or persons having control over the company as on 31st March (emphasis supplied) (4) ********** 139. According to learned Counsel for the Appellants the reporting required under second limb of regulation 8(3) - reporting of the holding of promoters or per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and the fact that a resolution for a preferential issue of 90,00,000 naked warrants/equity shares of the target company to Tata companies, could not be put in the AGM because of the opposition thereto from the Financial Institutions and therefore the Tata Group, in whose shoes the Ambujas have stepped in, did not have control to get the said resolution passed . This is what the other Respondents had also stated. According to the Appellants the agenda for the General Meeting was issued with the approval of the Board of Directors and that because of the dominance of Tata group therein, the Board approved inclusion of the said resolution in the agenda for the EGM, and that since the resolution was to be a special resolution, Tatas were apprehensive of the same being defeated in the EGM and hence withdrew the resolution. The fact remains that the proposal to move such a resolution to issue naked warrants/equity on preferential basis to Tata group of companies to secure the stability and position of the management was approved by the Board of ACC can not be ignored because that resolution had to be withdrawn from the EGM due to opposition thereto by FIs. In this context it is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test of control is the right to appoint majority of the directors, that there is no provision in the Articles of Association of the company entitling Tata group companies to appoint even one director, that at the time of transaction the directors representing the interest of Tata group were clearly in minority, that ACC's four wholetime directors are professional Directors. In the order it has been emphatically stated that in these facts and circumstances it could not be said that Tata group exercised any control in the target company . With reference to induction of Shri Sekhsaria and Shri Kapur of Ambujas, it has been observed that their appointment does not mean that Ambujas have acquired control over the target company, that it is not unusual that a person with a large shareholding is invited to join the Board, that Shri Sekhsaria or Shri Kapur is not the Chief Executive of ACC or they exercise executive powers. But then it is not clear as to why a person like Dr. S. Ganguly who has been the Executive Vice Chairman and Managing Director of ACC from 1987-1999 resigned from the position of Executive Vice Chairman of ACC when Shri N. S. Sekhsaria, Managing Director of GACL wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and the Regulations are being complied with - According to regulation 39.-(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 maybe. 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 company, the merchant banker, against whom the investigation is being carried out shall be bound to discharge his obligation as provided in regulation 40. The obligations of the persons referred in sub regulation (3) of regulation 39 are as under: 40. Obligation on investigation by the Board.-(1) It shall be the duty of the acquirer, the seller, the target company, the merchant banker whose affairs are being investigated and of every director, officer and employee thereof, to produce to the investigating officer such books, securities, accounts, records and other docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceeding and the SEBI may dispose of the same by a reasoned order. (emphasis supplied) 146. The proper proceedings in which a complaint from an investor can be disposed of by SEBI is the investigation procedure provided under chapter V of the 1997 Regulations. There is hardly anything before the Tribunal to show that SEBI had carried out any investigation, following the procedures provided in Chapter V into the complaint. In my view a proper investigation of the concerned parties' records etc. would have enabled SEBI to dispose of the complaint in a more appropriate manner. 147. SEBI seems to have overlooked yet another important aspect.- the Ambujas submission, with reference to its presentation before the Financial Institutions -that ACC and Ambujas have entered into a strategic alliance . SEBI has left the issue of strategic alliance to be dealt with under the provisions of MRTP Act or Companies Act, as the same will not amount to control as defined under the Takeover Regulations. It is true that strategic alliance need not necessarily be one affecting the control if any over a company. But in my view, a further probe into the matter should have been done. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Directors of the Company. 149. In this context it is to be noted that, there is no provision in the Articles of Association of ACC entitling Tata group companies even to appoint one director. FIs and the public among themselves are holding 85.6% shares and still how Tata group companies could get their 4 nominee directors in the Board of ACC and how they are in a position to support the Ambujas, to get their 4 nominees appointed to the Board of ACC. Normally nobody would extend such a support if he is not in a position to do so. It is true that what they have promised is only support and not any commitment. But the question remains that such covenant could not have been put in the MoU if it was of no relevance or use. An investigation to find out as to how the proposed condition could be satisfied by Tatas would have been useful. 150. Another indicator is the covenant in para 6.4 wherein it has been put that In case, the Purchaser decides to merge a company belonging to the Purchaser group of Companies with the company, the Sellers shall agree to support such a proposal. It looks strange to require Tata group companies who were to exit from ACC to agree to support the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or (v) in any other manner. The scope and reach of the expression need be viewed in the light of the following observation made by the Bhagwati Committee, based on whose recommendation the definition has been couched. common sense dictates that take over of a company should result in change in control of the company. It thus became a matter of debate for the committee whether the terms takeover and control which are the very quintessence of the Regulations, need to be precisely defined. For reasons explained in para 6.3 of the Report, the committee had initially taken the view not to define 'control' and decided to leave it to SEBI to determine whether there was a takeover or not in a given situation. Upon publication of the draft report, there was an overwhelming body of public opinion stressing the need to define or at least evolve the contours of what constitutes control though there was no concrete suggestion on how to define the term. In response, the committee even while recognising the difficulties in precisely defining control agreed to adopt an inclusive definition (para 2.2 ) 6.3 The Committee agreed that attempting a precise definition of takeove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ude. The control by its very nature is not amenable to any precise standard definition of general application. It varies from case to case. The power of control though intangible, the area over which it is exercised can be identified within certain limitations. Having regard to the object and scheme of the Act and the Regulations, in my view, the expression control in regulation 12 must mean effective control. In other words control must be taken to mean de facto control also and not de jure control alone. The observation made by Prof. Gower in his treatise on Company Law that control is a matter of degree ranging from complete legal control for all purposes over a wholly owned subsidiary to de facto control .... Normally exercisable by the existing management even though they may hold few or none of the shares. It may be difficult to detect, but it is becoming to be recognised as a separate item of property, the value of which will depend upon the degree of its completeness. The statutory definition is undoubtedly right to place the emphasis which it does on the power to control the Board, for as we have seen the Board is the company's head and brain. But de facto control ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under section 3(3) of the Special Court Act, need not be excluded for the purpose of calculating the percentage of voting rights exercisable by Ambujas for the reasons discussed in this order. Regulation 10 is not attracted. 158. But as far as SEBI's finding that section 12 is not attracted, I am of the view that SEBI jumped to the conclusion without properly investigating all the relevant aspects to ascertain as to whether Ambujas are in a position to effectively exercise control over ACC. SEBI has come to the conclusion based solely on the basis of the submission made on behalf the complainants, Ambujas, ACC and Tata group companies. In fact in the order it has been stated that opportunity was given to all the parties for them to produce all materials and submissions to enable SEBI to come to a proper finding . This procedure in my view has severe limitation, as the complainant has no access to the records of ACC to bring out material information. It is also futile to expect Ambujas or Tata group of companies or ACC to voluntarily furnish any material which would not support their contention. The proper course for SEBI would have been to investigate the matter independ ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
