2016 (5) TMI 883 - AT - Companies Law

Tribunal confirms open offer price, orders reinvestigation on control impact.

The Tribunal upheld SEBI's approval of the open offer price at Rs. 41.04 per share. However, it directed SEBI to reinvestigate the ZOCD agreement's impact ... Shares acquired in open offer - Whether SEBI by its communication was justified in permitting respondent no. 2 to 4 (‘acquirers’) to acquire shares of respondent no. 6 i.e. Network 18 Media & Investments Limited (‘target company’) at an open offer price of ₹ 41.04 per share as against the open offer price of ₹ 5,68,430.32 per share claimed by the appellants? - Held that:- Appellants while challenging the decision of SEBI dated 17.11.2014 have deemed it fit not to challenge the decision of SEBI dated 09.02.2015, wherein, various allegations made by the appellants against the acquirers (respondent no. 2 to 4) and respondent no. 5 have been rejected. Without challenging the decision of SEBI dated 09.02.2015 appellants are not justified in making grievances against the acquirers and respondent no. 5 which are covered under the decision of SEBI dated 09.02.2015. In these circumstances, we decline to consider grievances of the appellants against the acquirers and respondent no. 5 which are covered in the decision of SEBI dated 09.02.2015. Argument of the appellants that SEBI by its communication dated 17.11.2014 ought to have approved the open offer price at ₹ 5,68,430.32 per share of the target company instead of approving the open offer price at ₹ 41.04 per share of the target company is without any merit. Under SPA dated 29.05.2014 acquisition of 60,000 shares of the six holding companies by respondent no. 2 from the Bahl Group constituted acquisition of 100% shares of the six holding companies, because as on that date the six holding companies had not issued any equity shares under the ZOCD agreement on account of respondent no. 2 not exercising its option to seek conversion of ZOCDs into equity shares of the six holding companies. Since acquisition of 100% shares of the six holding companies amounted to the respondent no. 2 indirectly acquiring the shares of the target company from the Bahl Group (through the six holding companies) which entitled the respondent no. 2 to exercise voting rights in the target company in excess of twenty-five percent, obligation to make public announcement of an open offer under the Takeover Regulations, 2011 got triggered. In such a case, if the gross amount paid under the SPA dated 29.05.2014 for acquisition of the shares of the six holding companies and RBHPL and consequently acquiring shares of the target company and TV 18 from the Bahl Group (through six holding companies) is segregated, it is seen that the respondent no. 2, under the SPA dated 29.05.2014 has paid much less than ₹ 41.04 per share of the target company. Therefore, in the facts of present case, decision of SEBI in approving the open offer price at ₹ 41.04 per share, by taking into consideration the amount invested under the ZOCD agreement cannot be faulted. Decision of the acquirers to consider the amount invested under the ZOCD agreement while determining the open offer price, led us to consider the clauses contained in the ZOCD agreement. Perusal of various clauses contained in the ZOCD agreement as more particularly set out in para 16 above, led us to believe, prima facie, that by executing ZOCD agreement on 27.02.2012 the Bahl Group sought to divest its control over the six holding companies and consequently sought to divest control over the target company and TV 18 without receiving any consideration which is rather strange and unusual to say the least. In our opinion, divesting the control over the target company in the facts of present case, prima facie falls within the meaning of the word ‘control’ defined under regulation 2(1)(e) of the Takeover Regulations, 2011. In such a case, whether the obligation to make a public announcement of an open offer under the Takeover Regulations, 2011 has triggered or not is a question which needs consideration. Although SEBI claims to have considered that question in its communication dated 09.02.2015, there is nothing in the said communication to suggest that various clauses contained in the ZOCD agreement have been considered by SEBI. In any event, since SEBI has failed to give reasons as to why various clauses contained in the ZOCD agreement do not amount to divesting control over the target company from the Bahl Group to the respondent no. 2, we in public interest direct SEBI to reinvestigate the question as to whether the respondent no. 2 in the guise of executing ZOCD agreement, indirectly acquired control over the target company without following the procedure prescribed under the Takeover Regulations, 2011 and if so, take appropriate action against the concerned person or persons for violating the provisions contained in the Takeover Regulations, 2011 so that such violations are not committed again. SEBI is directed to complete the reinvestigation and submit the action taken report to this Tribunal within six months from today. Issues Involved:1. Whether SEBI was justified in permitting the acquirers to acquire shares of the target company at an open offer price of Rs. 41.04 per share instead of Rs. 5,68,430.32 per share as claimed by the appellants.2. Whether the ZOCD agreement dated 27.02.2012 triggered the open offer obligation.3. Whether the appellants' grievances against the acquirers and the lead manager were justified.4. Whether SEBI's investigation and decision were adequate and justified.Issue-wise Detailed Analysis:1. Justification of SEBI's Open Offer Price Approval:The principal question was whether SEBI's approval of the open offer price at Rs. 41.04 per share was justified. The appellants argued that the highest negotiated price per share under the Share Purchase Agreement (SPA) dated 29.05.2014 should be Rs. 5,68,430.32 per share. However, SEBI determined the open offer price at Rs. 41.04 per share, considering the total amount paid under the SPA and the ZOCD agreement. The Tribunal found that SEBI's decision to include the amount invested under the ZOCD agreement while determining the open offer price was justified. The acquisition of 60,000 shares of the six holding companies by respondent no. 2 from the Bahl Group constituted the acquisition of 100% shares of the six holding companies, as the six holding companies had not issued any equity shares under the ZOCD agreement.2. Triggering of Open Offer Obligation by ZOCD Agreement:The appellants contended that the open offer obligation got triggered on the execution of the ZOCD agreement dated 27.02.2012. SEBI, however, rejected this claim, stating that respondent no. 2 had not acquired any voting rights, shares, or control over the six holding companies by subscribing to the ZOCDs. The Tribunal noted that SEBI's communication dated 09.02.2015 did not address the unusual clauses in the ZOCD agreement, which prima facie indicated that respondent no. 2 exercised control over the six holding companies and the target company. Therefore, the Tribunal directed SEBI to reinvestigate the matter to determine if the ZOCD agreement triggered the open offer obligation.3. Grievances Against Acquirers and Lead Manager:The appellants alleged various violations by the acquirers and the lead manager, including non-compliance with the Takeover Regulations, 2011. However, SEBI, in its communication dated 09.02.2015, rejected these allegations. The Tribunal refrained from considering these issues as the appellants did not challenge SEBI's decision dated 09.02.2015. Without challenging this decision, the appellants could not justify their grievances against the acquirers and the lead manager.4. Adequacy and Justification of SEBI's Investigation and Decision:The Tribunal found that SEBI's decision dated 09.02.2015 did not adequately address the unusual clauses in the ZOCD agreement. These clauses indicated that the Bahl Group might have divested control over the six holding companies and the target company without receiving any consideration, which could trigger the open offer obligation. The Tribunal directed SEBI to reinvestigate whether respondent no. 2 indirectly acquired control over the target company through the ZOCD agreement without following the prescribed procedure under the Takeover Regulations, 2011. SEBI was instructed to complete the reinvestigation and submit an action taken report within six months.Conclusion:The Tribunal upheld SEBI's approval of the open offer price at Rs. 41.04 per share but directed SEBI to reinvestigate the ZOCD agreement's impact on control over the target company. The appeal was disposed of with no order as to costs.