2010 (7) TMI 289 - SC - Companies Law

Acquirer's Rs.113.62/share offer upheld; regulation 20(12) mandates better of parent and indirect-target announcement values and refines 'acting in concert' test

Daiichi Sankyo Co. Ltd. Versus Jayaram Chigurupati

The SC allowed the appeals, holding the acquirer's offer price of Rs.113.62 per share was fairly and lawfully calculated and setting aside the Appellate ... Acquisition of the shares - expression 'person acting in concert' - Whether the offer of rupees one hundred thirteen and paise sixty two only (Rs. 113.62) per share made by the appellant. M/s Daiichi Sankyo Company Ltd. in its public announcement dated 19-1-2009 for acquisition of the shares of Zenotech Laboratories Ltd. was fair and lawful or whether the offer price could not be less than rupees one hundred and sixty only (Rs. 160) per share? What is material is that the other person was acting in concert with the acquirer at the time of purchase of shares of the target company? HELD THAT:- As explained earlier sub-regulation (12) came to be introduced in regulation 20 as a consequence of extension of time for making public announcement for the secondary and indirectly targeted company by insertion of sub-regulation (4) in regulation 14. Sub-regulation (12) of regulation 20 obliges the acquirer to work out the best value for the shares of the indirectly targeted company as obtaining on the date of the public announcement for the parent target company as well as on the date of the public announcement for the concerned indirectly targeted company and then to offer the shareholders the better of the two values. This is for the simple reason that the extension allowed for making the public announcement for the indirectly targeted company should not cause any prejudice to its shareholders. Sub-regulation (12) does not in any way affect sub-regulation (4) which remains unamended and it certainly does not alter the meaning of 'persons acting in concert' as used in that sub-section. We are clearly of the view that for the application of regulation 20(4)(b) it is not relevant or material that the acquirer and the other person, who had acquired the shares of the target company on an earlier date, should be acting in concert at the time of the public announcement for the target company. What is material is that the other person was acting in concert with the acquirer at the time of purchase of shares of the target company. The true meaning of the idea of 'persons acting in concert', as explained above will also clear all the doubts sought to be created by Mr. Divan’s illustration as noted above. In that illustration, persons A, B and C earlier purchased shares of company A separately and as strangers. Those purchases were, therefore, naturally not by 'persons acting in concert'. But later on, all the three persons came together. They agreed to pool the benefits of their share with one another and to takeover company X, and they further agreed that they would vote together going forward. Thus, the earlier purchases were brought within the concept subsequently by an express agreement between the three persons even though at the time of purchase the purchasers were not acting in concert. Hence, the earlier purchases too would fully attract the regulatory provisions of the Takeover Code. Insofar as Zenotech is concerned Ranbaxy was not acting in concert with Daiichi either from the date of the SPSSA or even after becoming a subsidiary of Daiichi and the acquisition of Zenotech shares by Ranbaxy in the month of January 2008 did not come within the ambit of regulation 20(4)(b). The offer price in the public announcement for Zenotech shares made by the appellant was correctly worked out. It follows that the judgment of the Appellate Tribunal is unsustainable and it has to be set aside. In this case, it was quite apparent that the 1997 Takeover Code and the later amendments introduced in it were intended to give effect to the recommendations of the two Committees headed by Justice Bhagwati. We were, thus, in a position to refer to the relevant portions of the two reports that provided us with the raison d’etre for the amendment(s) or the introduction of a new provision and thus helped us in understanding the correct import of certain provisions. But this is not the case with many other regulations framed under different Acts. Regulations are brought in and later subjected to amendments without being preceded by any reports of any expert committees. Now that we have more and more of the regulatory regime where highly important and complex and specialised spheres of human activity are governed by regulatory mechanisms framed under delegated legislation it is high time to change the old practice and to add at the beginning the 'object and purpose' clause to the delegated legislations as in the case of the primary legislations. In the result, the appeals are allowed but with no order as to costs. Issues Involved:1. Whether the offer price of Rs. 113.62 per share made by the appellant for the shares of Zenotech Laboratories Ltd. was fair and lawful.2. Whether the offer price should have been at least Rs. 160 per share.3. Proper construction and understanding of the SEBI Takeover Regulations, 1997.Issue-wise Detailed Analysis:1. Fairness and Lawfulness of the Offer Price of Rs. 113.62 per Share:The primary question was whether the offer price of Rs. 113.62 per share made by Daiichi Sankyo Company Ltd. in its public announcement dated January 19, 2009, for the acquisition of shares of Zenotech Laboratories Ltd. was fair and lawful. This required a proper construction and understanding of the SEBI Takeover Regulations, 1997. The appellant contended that the offer price was determined based on the stock exchange prices of Zenotech shares and complied with regulation 20(4)(c) of the SEBI Takeover Regulations. The price of Rs. 113.62 was the highest among the prices calculated using different methods prescribed by the regulations.2. Requirement of Offer Price of Rs. 160 per Share:The respondents argued that the offer price should not be less than Rs. 160 per share, which was the price paid by Ranbaxy for Zenotech shares in January 2008. They contended that Daiichi and Ranbaxy were 'persons acting in concert' as per regulation 2(e) of the Takeover Code, and hence, the price paid by Ranbaxy within the twenty-six weeks prior to the public announcement for Ranbaxy shares (June 16, 2008) should be considered for determining the offer price. The Securities Appellate Tribunal upheld this contention, directing Daiichi to offer Rs. 160 per share.3. Proper Construction and Understanding of SEBI Takeover Regulations, 1997:The Supreme Court examined the relevant provisions of the SEBI Takeover Regulations, particularly regulations 2(b), 2(e), 10, 11, 14, and 20. The Court noted that the concept of 'persons acting in concert' under regulation 2(e)(1) is based on a target company and two or more persons coming together with a shared common objective or purpose of substantial acquisition of shares of the target company. The relationship of 'persons acting in concert' is not a fortuitous relationship but comes into being by design and shared common objective or purpose. The Court held that the mere relationship of a holding company and a subsidiary company does not automatically make them 'persons acting in concert' unless there is a shared common objective or purpose of substantial acquisition of shares of a target company.The Court also clarified that the deeming provision under regulation 2(e)(2) operates prospectively and not retrospectively. The presumption of 'persons acting in concert' arises only from the date two or more persons come together in one of the specified relationships and not from any earlier date. Therefore, Ranbaxy's purchase of Zenotech shares in January 2008 could not be considered as a purchase by a 'person acting in concert' with Daiichi.The Court concluded that the offer price of Rs. 113.62 per share was correctly worked out in compliance with regulation 20(4)(c) of the Takeover Code. The judgment of the Securities Appellate Tribunal was found to be unsustainable and was set aside.Conclusion:The appeals were allowed, and the offer price of Rs. 113.62 per share made by Daiichi was deemed fair and lawful. The judgment of the Securities Appellate Tribunal was set aside, and the Court emphasized the importance of proper construction and understanding of the SEBI Takeover Regulations. The Court also suggested the inclusion of an 'object and purpose' clause in delegated legislations to aid in their proper interpretation.