Appeal Dismissed: Appellant Must Announce Share Acquisition Under SEBI Rules, Violated 5% Holding Regulation.

The appeal was dismissed, and the appellant was directed to make a public announcement for acquiring shares of the target company in accordance with the SEBI Takeover Code. The court found that the appellant acted in concert with the promoter group, thus violating Regulation 11(1) by not making a public announcement after acquiring shares that increased their collective holding beyond the 5% threshold. The order was stayed for four weeks to allow the appellant to appeal to the SC.

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Issues Involved:
1. Violation of Regulation 11(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
2. Whether the appellant acted in concert with the promoter group of the target company.
3. Appropriate directions for the appellant after finding a violation of Regulation 11(1).

Detailed Analysis:

1. Violation of Regulation 11(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997:
The core issue was whether Nirvana Holdings Pvt. Ltd. (the appellant) violated Regulation 11(1) of the SEBI Takeover Code by acquiring 6.17% of the equity capital of Heritage Foods (India) Limited (the target company) without making a public announcement. Regulation 11(1) stipulates that an acquirer who, along with persons acting in concert, holds 15% or more but less than 55% of the shares or voting rights in a company, must make a public announcement to acquire further shares if the acquisition exceeds 5% in any financial year. The appellant acquired shares that increased its collective shareholding with the promoters from 33.38% to 39.55%, thus triggering Regulation 11(1).

2. Whether the appellant acted in concert with the promoter group of the target company:
The appellant argued that its shareholding should not be clubbed with that of the promoter group of the target company. The appellant asserted that its acquisitions were independent and not in concert with the promoters of the target company. However, the judgment clarified that the appellant, being wholly owned by the two Naras (who were also promoters of the target company), automatically became part of the promoter group as per Regulation 2(h) of the takeover code. The judgment emphasized that the appellant acted in concert with the two Naras, who controlled the appellant company. Therefore, the acquisition of shares by the appellant was considered in concert with the promoters, triggering Regulation 11(1).

3. Appropriate directions for the appellant after finding a violation of Regulation 11(1):
The whole-time member initially directed the appellant to disinvest 1.17% of the shares (exceeding the 5% limit) and transfer the profits to the Investor Protection Fund(s). However, the judgment modified this direction, emphasizing that the primary objective of the takeover code is to provide an exit route to public shareholders. The judgment stated that a public announcement should be made unless it is against the interest of investor protection or the securities market, which was not justified in this case. Thus, the appellant was directed to make a public announcement to acquire shares of the target company in accordance with the takeover code. The appellant was given one week to approach the Board to comply with procedural requirements.

Conclusion:
The appeal was dismissed, and the appellant was directed to make a public announcement for acquiring shares of the target company as per the takeover code. The operation of the order was stayed for four weeks to allow the appellant to appeal to the Supreme Court.

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