Open-market acquisition under Takeover Regulations requires existing shareholding; privately negotiated unlisted-share transfers fall outside section 15H liability.

Regulation 10 of the 1994 Takeover Regulations was held to apply only where an existing shareholder acquires further shares from the open market beyond the prescribed threshold; it could not be extended to a person holding no shares when the regulations commenced. A privately negotiated acquisition supported by memoranda, allotment timing, transfer documents, and the unlisted status of the shares was treated as outside the open-market sweep of regulation 10 and within the exclusions for public-issue allotments and unlisted shares. On that basis, section 15H of the SEBI Act could not be invoked, and the penalty order was unsustainable.

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Issues: (i) Whether the acquisition of shares by the appellants fell within the scope of regulation 10 of the 1994 Takeover Regulations and attracted section 15H of the SEBI Act, 1992. (ii) Whether the transaction could be treated as a purchase from the open market or as an acquisition covered by the public-issue and unlisted-shares exclusions in the regulations.

Issue (i): Whether the acquisition of shares by the appellants fell within the scope of regulation 10 of the 1994 Takeover Regulations and attracted section 15H of the SEBI Act, 1992.

Analysis: Regulation 10(1) was read as applying to an acquirer who already holds shares and acquires further shares from the open market beyond the prescribed threshold. Regulation 10(2) was held inapplicable because the appellants held no shares in the target company when the regulations commenced. The wording of regulation 10(1), especially the references to existing shareholding and further shares, was treated as clear and unambiguous and not capable of being extended to a person holding nil shares. Since section 15H operates only where there is a contravention of disclosure or public announcement requirements under the Act or the regulations, it could not survive once regulation 10 was found inapplicable on the facts.

Conclusion: The acquisition did not attract regulation 10 and section 15H was not applicable.

Issue (ii): Whether the transaction could be treated as a purchase from the open market or as an acquisition covered by the public-issue and unlisted-shares exclusions in the regulations.

Analysis: The Memoranda of Understanding, the timing of allotment, delivery of share certificates and transfer forms, and the absence of listing on the date of acquisition showed that the shares were obtained through privately negotiated off-market arrangements and not through the open market. Regulation 3(a) excluded acquisition by allotment pursuant to a public issue, and regulation 3(d) excluded shares not listed on any stock exchange. The transaction was therefore treated as outside Chapter III of the Takeover Regulations. The attempt to recharacterise the arrangement as a mortgage or pledge was rejected on the wording of the documents and the conduct of the parties.

Conclusion: The transaction was outside the open-market sweep of regulation 10 and fell within the regulatory exclusions relied upon by the appellants.

Final Conclusion: The penalty order was unsustainable on the statutory scheme and the facts, and the appellants were entitled to relief.

Ratio Decidendi: Regulation 10 of the 1994 Takeover Regulations applies only to an existing shareholder acquiring further shares from the open market, and a privately negotiated acquisition of unlisted shares is outside its scope; in such a case section 15H of the SEBI Act, 1992 cannot be invoked.

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