Concerted share acquisition under takeover law led to a public offer remedy instead of wholesale disinvestment.

Substantial share acquisitions through interlinked entities were treated as concerted action, attracting the takeover threshold under the 1994 Regulations. The pre-repeal regulatory proceedings were held saved by the 1997 Regulations' saving clause, so SEBI's inquiry and adjudicatory steps remained valid. On remedy, a wholesale disinvestment of the shares was found inconsistent with investor protection and the takeover code's purpose; the more appropriate corrective measure was a post facto public offer. The disinvestment direction was therefore modified, while the finding of regulatory breach and the direction to commence adjudication were maintained.

---

---

Issues: (i) Whether the acquisition of shares by the concerned entities, taken together, amounted to acquisition by persons acting in concert so as to attract the takeover provisions and the threshold requirements under the 1994 Regulations. (ii) Whether the repealed 1994 Regulations and the saving clause in the 1997 Regulations preserved SEBI's action and enabled directions to be issued for the pre-repeal acquisitions. (iii) Whether SEBI could validly direct disinvestment of the shares acquired, or whether the proper remedial direction was a public offer.

Issue (i): Whether the acquisition of shares by the concerned entities, taken together, amounted to acquisition by persons acting in concert so as to attract the takeover provisions and the threshold requirements under the 1994 Regulations.

Analysis: The acquisition pattern, the common funding structure, the small-capital investment companies, the subsequent takeover of those companies, and the interlinked control of the actors showed a concerted plan to acquire substantial shares of the target company. The definition of acquirer was read with the concept of persons acting in concert on a purposive construction, and the share acquisitions through IMFA, Mahameru and Shirish were treated as part of the same concerted strategy. The earlier 27.21% acquisition in 1993 was held to be an acquisition by KRC alone and not, on the evidence, a joint acquisition with MDC, but it remained relevant for the later threshold calculation once concerted action in the later acquisitions was established.

Conclusion: The later acquisitions were held to be by persons acting in concert and the threshold under Regulation 10(2) of the 1994 Regulations was attracted; the 27.21% pre-regulation acquisition was not treated as a joint acquisition with MDC.

Issue (ii): Whether the repealed 1994 Regulations and the saving clause in the 1997 Regulations preserved SEBI's action and enabled directions to be issued for the pre-repeal acquisitions.

Analysis: The saving clause preserved anything done, any enquiry or investigation commenced, and any show cause notice issued under the 1994 Regulations. SEBI's inquiry had commenced in 1995 and continued through the later notices, so the proceedings were not extinguished by repeal. The procedural safeguards under the regulatory framework were treated as available, and the Tribunal declined to interfere with SEBI's direction to initiate adjudication proceedings under the penalty provisions.

Conclusion: The proceedings were held to be saved by Regulation 47(2) of the 1997 Regulations, and the direction to initiate adjudication was left undisturbed.

Issue (iii): Whether SEBI could validly direct disinvestment of the shares acquired, or whether the proper remedial direction was a public offer.

Analysis: Although Regulation 39 of the 1994 Regulations and Regulation 44 of the 1997 Regulations empowered SEBI to direct sale of shares acquired in violation of the regulations, that power had to be exercised consistently with the objective of investor protection and orderly market development. A wholesale open-market disinvestment of about 38% of the target company's equity at face value was found to be commercially disruptive and not aligned with the remedial purpose of the takeover regime. The more appropriate course, consistent with the scheme of the regulations and SEBI's own past practice, was to require a post facto public offer so that the existing shareholders would receive the protective benefit intended by the takeover code. The fixation of sale price in the impugned disinvestment direction was also found to be unsupported by reasons.

Conclusion: The disinvestment direction was modified and replaced by a direction to make a public offer with interest on the delayed consideration; the direction to commence adjudication was maintained.

Final Conclusion: The appeal succeeded only in part. The disinvestment direction was set aside in substance and substituted by a public offer requirement, while the finding of regulatory breach and the consequential adjudicatory action were left intact.

Ratio Decidendi: Where a substantial acquisition of shares in breach of takeover regulations is established, the regulator must choose a remedial direction that best advances investor protection and the securities market, and a post facto public offer may be preferred over a punitive open-market disinvestment if the latter would frustrate that object.

---