Takeover code liability turns on concert party holdings and non-retroactive application of later open-offer rules.

SEBI communications under regulation 18(2) of the 1997 takeover code were treated as appealable when they had binding effect, because a direction requiring amendments to the draft letter of offer could not escape appellate scrutiny by being labelled advisory. Regulation 10 had to be applied to the concert party as a unit, so past acquisitions by one member could not be isolated to fasten separate liability on that person alone. The later 2011 open-offer provision, which expressly broadened liability for persons acting in concert, was held not to apply retrospectively to acquisitions made in 2006 and 2007. The article notes that the appeal succeeded and the open offer could proceed.

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Issues: (i) whether the impugned communication under regulation 18(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 was appealable and binding in nature; (ii) whether regulation 10 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 could be invoked on the basis of past acquisitions by one member of a concert party by ignoring the collective holding of persons acting in concert; (iii) whether the later open-offer provision introduced in the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 could be applied to acquisitions made in 2006 and 2007.

Issue (i): whether the impugned communication under regulation 18(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 was appealable and binding in nature;

Analysis: The communication styled as comments or advice was held to be mandatory in effect because regulation 18(2) required the draft letter of offer to be amended in accordance with SEBI's suggestions. The Tribunal treated the expression "an order" in section 15T of the SEBI Act, 1992 broadly and held that a communication having binding legal effect cannot be insulated from appellate scrutiny merely by describing it as advisory. The absence of a separate show cause notice was not decisive because the real question was the legal character of the communication and its consequences.

Conclusion: The impugned communication was appealable and could be challenged before the Tribunal, and this issue was decided in favour of the Appellants.

Issue (ii): whether regulation 10 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 could be invoked on the basis of past acquisitions by one member of a concert party by ignoring the collective holding of persons acting in concert;

Analysis: Regulation 10 was read with the definition of "acquirer" and "persons acting in concert" to hold that the benchmark under the erstwhile code had to be applied to the concert party as a unit when the acquisition was made in concert. The Tribunal distinguished the later regime and held that, under the 1997 Regulations, there was no basis to fasten separate individual liability on one member of a concert party by isolating his personal holding from the group holding. The alleged past acquisitions in 2006 and 2007 therefore could not be used to compel revision of the open offer documents on the footing adopted by SEBI.

Conclusion: Regulation 10 could not be invoked against the Appellants on the basis of the impugned past allotments by treating Appellant No. 3 as separately liable, and this issue was decided in favour of the Appellants.

Issue (iii): whether the later open-offer provision introduced in the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 could be applied to acquisitions made in 2006 and 2007;

Analysis: The Tribunal held that the provision in regulation 3(3) of the 2011 Regulations, which expressly fastened liability even where an individual acted in concert with others, was not present in the 1997 regime and could not be applied retrospectively. The later regulation reflected a new and specific rule and therefore could not govern transactions that had already occurred years earlier under the earlier code.

Conclusion: The 2011 regulation could not be invoked retrospectively against the Appellants, and this issue was decided in their favour.

Final Conclusion: The appeal succeeded, the impugned directions relating to the past acquisitions were excluded, and the Appellants were permitted to proceed with the open offer in accordance with the Tribunal's ruling.

Ratio Decidendi: Under the 1997 takeover code, the threshold under regulation 10 had to be tested on the collective holding of persons acting in concert, and a later express individual-liability provision could not be applied retrospectively to earlier acquisitions.

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