Appellant Violated SEBI Regulations in Buyback Transaction: Ordered to Make Fresh Public Announcement

The Tribunal and SEBI found that the Appellant violated SEBI Regulations by failing to disclose the buyback transaction and offering a lower price in the public announcement. The Appellant was directed to make a fresh public announcement offering Rs. 23.75 per share along with interest. The appeal was dismissed, upholding SEBI's order and emphasizing the importance of transparency and compliance with regulatory requirements to protect shareholders' interests.

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Issues Involved:
1. Validity of the buyback transaction between the Appellant and HSIDC.
2. Applicability of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
3. Requirement of disclosure in the public announcement.
4. Determination of the minimum offer price.
5. Impact of dishonoured post-dated cheques on the acquisition.

Issue-wise Detailed Analysis:

1. Validity of the Buyback Transaction:
The core issue revolves around the buyback agreement between the Appellant and HSIDC. Garg defaulted on his obligations, leading to an agreement with the Appellant for the sale of Garg's shareholding in the Target Company. The Appellant agreed to buy back HSIDC's shares, providing post-dated cheques as consideration. HSIDC accepted the Appellant as the new guarantor, and a tripartite agreement was formed. The Tribunal and SEBI concluded that the post-dated cheques were indeed consideration for the buyback, not mere security, as evidenced by communications from both the Appellant and HSIDC.

2. Applicability of SEBI Regulations:
The Appellant argued for exemption under Regulation 3(1)(i), which exempts transfers from state financial institutions to co-promoters from the requirements of Regulations 10, 11, and 12. However, the Tribunal and SEBI found that while the transaction with HSIDC did not trigger a public announcement requirement under Regulation 10, the subsequent acquisition of Garg's shareholding (28.09%) did. This acquisition exceeded the 15% threshold, thus necessitating compliance with Regulation 10.

3. Requirement of Disclosure in the Public Announcement:
Regulation 16 mandates disclosure of the highest price paid by the acquirer in the public announcement. The Appellant failed to disclose the buyback transaction with HSIDC in the public announcement dated 24.4.1999. The Tribunal and SEBI held that this non-disclosure violated Regulation 16(viii), which requires transparency to protect shareholders' interests. The Appellant's argument that the transaction was exempt under Regulation 3 was dismissed, as Regulation 3 does not exempt the transaction from other regulatory requirements, including disclosure.

4. Determination of the Minimum Offer Price:
Regulation 20(2)(b) requires that the highest price paid by the acquirer within 26 weeks prior to the public announcement be considered for determining the minimum offer price. The Tribunal found that the Appellant paid Rs. 23.75 per share to HSIDC, which was higher than the public offer price of Rs. 8.75. Despite the Appellant's contention that the acquisition had not been completed due to dishonoured cheques, the Tribunal held that the promise to pay via post-dated cheques constituted an acquisition, thus necessitating the higher price in the public offer.

5. Impact of Dishonoured Post-dated Cheques:
The Appellant argued that since the post-dated cheques were dishonoured, the acquisition was incomplete. However, the Tribunal and SEBI held that the issuance of post-dated cheques amounted to a promise to pay, thus constituting a sale of shares at the time of the public announcement. The dishonour of cheques did not negate the acquisition, as the agreement and intention to buy back the shares were clear. The legal maxim "commodum ex injuria sua non habere debet" (one should not benefit from their own wrong) was applied to prevent the Appellant from escaping liability due to the dishonoured cheques.

Conclusion:
The Tribunal and SEBI concluded that the Appellant violated the SEBI Regulations by failing to disclose the buyback transaction and by offering a lower price in the public announcement. The Appellant was directed to make a fresh public announcement offering Rs. 23.75 per share along with interest. The appeal was dismissed, upholding SEBI's order and emphasizing the importance of transparency and compliance with regulatory requirements to protect shareholders' interests.

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