Persons acting in concert and creeping acquisition limits under takeover rules led to penalty instead of open offer.

Persons acting in concert under the 1997 takeover regime were required to be assessed as a single unit for regulation 10, so the group's collective holding was the relevant benchmark and no violation of the public announcement threshold was made out. The same promoter group, however, crossed the 5% creeping acquisition limit under regulation 11(1) through warrant conversions on the same day, constituting a technical breach. In view of prior disclosure, continued promoter control, shareholder approval, and delay in proceedings, an open-offer direction was found unnecessary and was replaced by a monetary penalty.

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Issues: (i) whether the appellants, as persons acting in concert, were to be treated as a single unit for the purpose of regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997; and (ii) whether the acquisition on 12 March 2007 breached the creeping acquisition limit under regulation 11(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and what consequence should follow.

Issue (i): whether the appellants, as persons acting in concert, were to be treated as a single unit for the purpose of regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997

Analysis: Regulation 10 applies where an acquirer, together with persons acting in concert, crosses the prescribed threshold for making a public announcement. The appellants had always acted as a promoter group and in concert for the acquisition in question. The collective holding of the group, rather than the individual holding of one constituent member, was the relevant benchmark under the 1997 Regulations. The later 2011 regime specifically introduced an express individual-shareholding trigger, which was absent in the 1997 Regulations.

Conclusion: The appellants were to be treated as a single unit for this purpose and no violation of regulation 10 was made out.

Issue (ii): whether the acquisition on 12 March 2007 breached the creeping acquisition limit under regulation 11(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and what consequence should follow

Analysis: Regulation 11(1) permits consolidation within the stipulated range but prohibits additional acquisition beyond 5% in a financial year without an open offer. On the facts, the promoter group's shareholding rose by more than 5% on 12 March 2007 through two distinct conversions of warrants on the same date, which amounted to a technical breach of the creeping acquisition limit. However, the circumstances showed prior disclosure, promoter control throughout, shareholder approval for the preferential issues, and an inordinate delay in initiating proceedings. In these facts, directing a belated open offer was considered unnecessary and inequitable.

Conclusion: There was a violation of regulation 11(1), but the open-offer direction was modified and substituted by a monetary penalty.

Final Conclusion: The appeal succeeded in part: the finding of violation of regulation 10 was set aside, the breach of regulation 11(1) was sustained, and the open-offer direction was replaced by a penalty of Rs. 25 lakh.

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