High Court upholds SEBI's directions, orders petitioners to pay shareholders, awards litigation expenses.

The High Court dismissed the writ petition, upholding SEBI's directions and the Central Government's decision. The petitioners were directed to pay Rs. 221 per share plus 15% interest from 2-7-1998 to the shareholders of INDAL who had tendered their shares. SEBI was awarded litigation expenses and costs for carrying out the Court's orders.

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Issues Involved:

1. Applicability of SEBI Guidelines to OCPS.
2. Legality and validity of the Rs. 221 per share offer.
3. Approval of shareholders for OCPS allotment.
4. Withdrawal of the offer due to the special resolution's rejection.
5. Fulfillment of obligations under Regulation 22.
6. SEBI's authority to issue directions.

Issue-wise Detailed Analysis:

1. Applicability of SEBI Guidelines to OCPS:
The Central Government upheld SEBI's contention that the Guidelines were applicable to the OCPS proposed by the petitioners, as the allotment was on a preferential basis meant for a select group of persons. The petitioners' argument that the offer was open to all equity shareholders of INDAL was rejected.

2. Legality and Validity of the Rs. 221 per Share Offer:
The Central Government affirmed that the final offer made by the petitioners on 25-5-1998 was legally and validly made. This included the revised offer price of Rs. 221 per share, which was to be partly paid in cash and partly through OCPS.

3. Approval of Shareholders for OCPS Allotment:
The Central Government concluded that the resolutions dated 9-12-1994 and 12-6-1998 did not provide adequate authority for the issue of OCPS. The 1994 resolution was invalid due to the three-month limitation stipulated by the Guidelines. The 1998 resolution did not specifically address the issue of OCPS and lacked the necessary auditor's certificate required by the Guidelines.

4. Withdrawal of the Offer Due to the Special Resolution's Rejection:
The Central Government held that the rejection of the special resolution on 25-7-1998 by the shareholders did not constitute a refusal of statutory approval under Regulation 27(1)(a) of the Takeover Regulations. The petitioners' inability to secure this internal approval amounted to a wilful default or neglect, preventing them from withdrawing the offer under Regulation 27.

5. Fulfillment of Obligations Under Regulation 22:
The Central Government found that the petitioners failed to meet their obligations under Regulation 22. They did not ensure compliance with the Guidelines before making the offer on 25-5-1998 and did not take reasonable precautions to secure the necessary approvals. This failure was deemed a wilful default under Regulation 22(13).

6. SEBI's Authority to Issue Directions:
The Central Government upheld SEBI's authority to issue the directions it did, including directing the petitioners to acquire the shares of INDAL at Rs. 221 per share with interest. SEBI's powers under Regulation 44 and Section 11B of the SEBI Act were deemed appropriate and justified in the circumstances.

Conclusion:
The High Court dismissed the writ petition, upholding SEBI's directions and the Central Government's decision. The petitioners were directed to pay Rs. 221 per share plus 15% interest from 2-7-1998 to the shareholders of INDAL who had tendered their shares. SEBI was awarded litigation expenses and costs for carrying out the Court's orders.

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