SEBI's Jurisdiction Over Share Disinvestment Challenged by Tribunal

The Tribunal held that SEBI lacked jurisdiction to direct disinvestment of shares acquired before the 1994 Regulations. However, acquisitions made during the 1994 Regulations were found to be in violation, but SEBI's direction to disinvest at a specified price was deemed unfavorable. SEBI's procedural compliance was questioned, and its power to review orders was acknowledged. The Tribunal upheld SEBI's direction to initiate adjudication proceedings but modified the order, directing the appellants to make a public offer for shares at a specified price to compensate shareholders for the delay in payment.

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Issues Involved:
1. Acquisition of shares without compliance with the Listing Agreement and SEBI Regulations.
2. Jurisdiction and authority of SEBI to direct disinvestment of shares acquired before the 1994 Regulations.
3. Validity of SEBI's direction to disinvest shares acquired during the currency of the 1994 Regulations.
4. Applicability of the 1997 Regulations to acquisitions made during the 1994 Regulations.
5. Procedural compliance by SEBI in issuing the impugned order.
6. SEBI's power to review its own orders.
7. Validity of SEBI's direction to initiate adjudication proceedings under sections 15A and 15H of the SEBI Act.
8. SEBI's direction to disinvest shares at a specified price and its impact on shareholders and the securities market.

Issue-wise Detailed Analysis:

1. Acquisition of shares without compliance with the Listing Agreement and SEBI Regulations:
The Appellants acquired shares of the Target Company without making a public announcement as required under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994. The acquisition was structured to avoid triggering the 5% threshold limit prescribed in Clause 40A of the Listing Agreement. The acquisition of 27.21% shares by Galan subsidiaries on 14.12.1993, and subsequent acquisitions by IMFA, Mahameru, and Shirish during the currency of the 1994 Regulations, were alleged to be in violation of the Listing Agreement and SEBI Regulations.

2. Jurisdiction and authority of SEBI to direct disinvestment of shares acquired before the 1994 Regulations:
The acquisition of 27.21% shares by Galan subsidiaries was made before the notification of the 1994 Regulations. The Tribunal held that SEBI has no jurisdiction or authority to direct the Appellants to disinvest these shares as they were acquired before the 1994 Regulations came into force. The Listing Agreement's clauses 40A and 40B apply only to listed companies and not to other entities.

3. Validity of SEBI's direction to disinvest shares acquired during the currency of the 1994 Regulations:
The Tribunal found that the acquisition of shares by IMFA (10.91%), Mahameru (4.97%), and Shirish (3.83%) during the currency of the 1994 Regulations attracted the provisions of Regulation 10(2). The Appellants acted in concert in these acquisitions, and the acquisitions were in violation of the 1994 Regulations. However, the direction to disinvest these shares at a specified price was deemed not in the interest of the shareholders or the securities market.

4. Applicability of the 1997 Regulations to acquisitions made during the 1994 Regulations:
The 1997 Regulations repealed the 1994 Regulations but saved any action taken or purported to have been taken under the 1994 Regulations. The Tribunal held that the action initiated by SEBI under the 1994 Regulations was saved by Regulation 47(2) of the 1997 Regulations. The enquiry commenced by SEBI on 9.6.1995 was deemed to have been done under the corresponding provisions of the 1997 Regulations.

5. Procedural compliance by SEBI in issuing the impugned order:
The Tribunal found that SEBI did not appoint an investigating authority or follow the specific procedures set out in Chapter V of the 1994/1997 Regulations. However, SEBI issued show cause notices and provided the Appellants with an opportunity to be heard, thereby complying with the principles of natural justice.

6. SEBI's power to review its own orders:
The Tribunal held that SEBI's earlier decision requiring the Appellants to make a public offer was not a formal order and SEBI was entitled to vary its decision based on additional information. However, SEBI failed to explain the reasons for its change in stance from requiring a public offer to directing disinvestment.

7. Validity of SEBI's direction to initiate adjudication proceedings under sections 15A and 15H of the SEBI Act:
The Tribunal upheld SEBI's direction to initiate adjudication proceedings against the Appellants under sections 15A and 15H of the SEBI Act. The Appellants have a remedy by way of appeal if they feel aggrieved by the order of the adjudicating officer.

8. SEBI's direction to disinvest shares at a specified price and its impact on shareholders and the securities market:
The Tribunal found SEBI's direction to disinvest shares at a specified price to be arbitrary and not in the interest of the shareholders or the securities market. Offloading a large quantity of shares at a low price would adversely affect the share price and harm the existing shareholders. The Tribunal modified the impugned order, directing the Appellants to make a public offer to acquire shares of the Target Company in accordance with the regulations, with a referral date of 27.10.1994 for calculating the offer price and compensating shareholders with interest for the delay in payment.

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