2007 (11) TMI 411 - HC - Companies Law

Court Upholds SEBI Decision on Indirect Acquisition: No Breach of Listing Agreement

Harinarayan G. Bajaj Versus Union of India

The court upheld SEBI's and the Appellate Authority's decisions, ruling that the SEBI Takeover Regulations, 1994 did not apply to the indirect acquisition ... Repeal and savings, Applicability of regulation Issues Involved:1. Applicability of SEBI Takeover Regulations, 1994 to indirect acquisition.2. Compliance with Clauses 40-A and 40-B of the Listing Agreement.3. Petitioner's locus standi and maintainability of the petition.4. Interpretation of statutory provisions and the impact of subsequent regulations (1997 Regulations) on the 1994 Regulations.Detailed Analysis:1. Applicability of SEBI Takeover Regulations, 1994 to Indirect Acquisition:The primary issue was whether the indirect acquisition of SESA Goa by MITSUI through the acquisition of FINSIDER triggered the SEBI Takeover Regulations, 1994. The petitioner argued that the acquisition of FINSIDER, which held 51% of SESA Goa's shares, should be considered an indirect acquisition of SESA Goa, thereby invoking Regulation 9(1) and 9(3) of the 1994 Regulations. SEBI and the Appellate Authority rejected this contention, stating that the 1994 Regulations did not cover indirect acquisitions. They emphasized that no shares of SESA Goa were directly acquired by MITSUI, EARLY GUARD, or FINSIDER after the regulations were notified. The Appellate Authority upheld SEBI's decision, noting that the 1994 Regulations lacked provisions for indirect acquisitions, which were only introduced in the 1997 Regulations.2. Compliance with Clauses 40-A and 40-B of the Listing Agreement:The petitioner contended that the acquisition violated Clauses 40-A and 40-B of the Listing Agreement, which pertain to takeovers. SEBI and the Appellate Authority found that these clauses were not violated as there was no change in the control or management of SESA Goa that would trigger these provisions. The Appellate Authority noted that FINSIDER already held 51% of SESA Goa's shares, and its acquisition by MITSUI did not alter this control. They concluded that the provisions of the Listing Agreement did not apply to the transaction in question.3. Petitioner's Locus Standi and Maintainability of the Petition:Respondent No. 5 argued that the petitioner lacked locus standi as he no longer held shares in SESA Goa. The petitioner countered that he held substantial shares at the time of the acquisition and the filing of the petition. The court noted that the petition's validity must be judged based on the facts at the time of its presentation. The petitioner relied on the Supreme Court's decision in Rajahmundry Electric Supply Corpn. Ltd. v. A. Nageshwara Rao, which held that a petition remains maintainable despite subsequent changes in shareholding. The court found that the petitioner had the standing to pursue the petition, but ultimately dismissed the petition on other grounds.4. Interpretation of Statutory Provisions and Impact of Subsequent Regulations:The petitioner argued for a purposive interpretation of the 1994 Regulations, suggesting that the principles of indirect acquisition introduced in the 1997 Regulations should apply retrospectively. The court, however, adhered to the literal rule of interpretation, emphasizing that the 1994 Regulations did not explicitly cover indirect acquisitions. They referred to the Bhagwati Committee Report, which highlighted the deficiencies in the 1994 Regulations and led to the introduction of the 1997 Regulations. The court concluded that the 1997 Regulations, which explicitly addressed indirect acquisitions, could not be applied retrospectively to the 1994 Regulations.Conclusion:The court upheld the decisions of SEBI and the Appellate Authority, concluding that the 1994 Regulations did not cover indirect acquisitions and that there was no violation of the Listing Agreement. The petition was dismissed, with the court emphasizing the need for a literal interpretation of the regulations and the non-retrospective application of the 1997 Regulations. The petitioner's lack of current shareholding did not affect the maintainability of the petition, but the substantive issues were decided against him.