Board's Reference Date for Offer Price Calculation Challenged

The Board's direction to re-calculate the offer price by referencing the date of public announcement was challenged. The court held that the offer price should be based on the date the BoD authorized the preferential allotment, not the public announcement date. The appellants were instructed to re-calculate the offer price using the correct reference date and offer it to all shareholders. The appeal was resolved with no costs awarded.

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Issues Involved:
1. Method of determining the offer price.
2. Reference date for the determination of the offer price.
3. Validity of the Board's direction to re-calculate the offer price.

Summary:

Issue 1: Method of determining the offer price
The primary grievance of the appellants is that the Board was not justified in directing them to re-calculate the offer price by reckoning the date of public announcement as the reference date in terms of Regulation 20 of the takeover code. Their contention is that they calculated the offer price of Rs. 14.75 per share having regard to the date on which the BoD passed the resolution to convene the EGM u/s 81(1A) of the Companies Act for seeking approval of the shareholders for allotment of Part A convertible debentures to the appellants on a preferential basis. The Board argued that the offer price should be calculated with reference to the date of public announcement, which was 22-1-2008.

Issue 2: Reference date for the determination of the offer price
The question that requires consideration is as to what should be the reference date for the determination of the offer price which the appellants as acquirers are required to offer to the existing shareholders of the target company. Regulation 20 of the takeover code deals with the offer price. Explanation (ii) to Regulation 20(11) provides that where the public announcement is made pursuant to acquisition by way of firm allotment in a public issue or preferential allotment, then the offer price under Sub-regulation 4(c) is to be worked out with reference to twenty-six week period preceding the date of 'the board resolution which authorized the firm allotment or preferential allotment'. The BoD meeting of 21-7-2006 did not authorize the preferential allotment of shares carrying voting rights. The voting rights which triggered the takeover code were acquired by the appellants only on 26-1-2008 when the period of 18 months expired and the compulsorily convertible debentures got converted automatically and the BoD in their meeting on that day allotted equity shares to the appellants. It is on this date the BoD authorized the preferential allotment to the appellants within the meaning of Explanation (ii) to Regulation 20(11).

Issue 3: Validity of the Board's direction to re-calculate the offer price
The directions of the Board in para 5(a) of the impugned communication requiring the appellants to re-calculate the offer price with reference to the date of public announcement in terms of Regulation 20 cannot be sustained as it is contrary to the plain language of Explanation (ii) to Regulation 20(11) of the takeover code. The same is accordingly set aside. The appellants are directed to re-calculate the offer price by reckoning 26-1-2008 as the date in terms of Explanation (ii) as discussed hereinabove and offer the revised price to all the shareholders.

Conclusion:
The appeal is disposed of with no order as to costs. The appellants are directed to re-calculate the offer price by reckoning 26-1-2008 as the reference date in terms of Explanation (ii) to Regulation 20(11) of the takeover code.

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