Promoter transfers trigger open offer obligations under SAST Regulations

The tribunal ruled that inter-se promoter transfers were not exempt from open offer obligations under Regulation 10(1)(a)(ii) of SAST Regulations, 2011. It held that informal guidance from SEBI was not legally binding and could not supersede statutory provisions. The appellants were instructed to proceed with the open offer at a revised price and pay shareholders the mandated interest. Additionally, the tribunal directed the appellants to deposit a specified amount with SEBI within four weeks to stay enforcement pending potential appeal to the Apex Court.

---

---

Issues Involved:
1. Eligibility of inter-se promoter transfers for exemption from open offer obligations under Regulation 10(1)(a)(ii) of SAST Regulations, 2011.
2. Legal status and binding nature of informal guidance issued by SEBI under the SEBI (Informal Guidance) Scheme, 2003.
3. Implementation of open offer price and interest payment to shareholders.

Detailed Analysis:

1. Eligibility of Inter-se Promoter Transfers for Exemption from Open Offer Obligations:

The primary issue in these appeals was whether the inter-se promoter transfers made prior to the completion of three years of listing the target company were eligible for general exemption from open offer obligations under Regulation 10(1)(a)(ii) of SAST Regulations, 2011. The appellants argued that since the promoters of both the parent company and the target company remained unchanged for more than three years, they should qualify for the exemption. They relied on the interpretation of both Regulation 3(1)(e)(iii) of SAST Regulations, 1997, and Regulation 10(1)(a)(ii) of SAST Regulations, 2011, and the intention behind the amendments made to the regulations.

The respondents, SEBI, contended that the regulation clearly stated that the shareholding pattern filed by the target company in terms of the listing agreement must be available for at least three years post-listing. Since the target company was listed on July 30, 2012, and the inter-se transfers occurred between July and October 2014, the required three-year period had not been met. The tribunal agreed with SEBI's interpretation, stating that the plain reading of Regulation 10(1)(a)(ii) required a minimum of three years post-listing for the exemption to apply. The tribunal concluded that the inter-se promoter transfers were not eligible for exemption from the open offer obligations.

2. Legal Status and Binding Nature of Informal Guidance Issued by SEBI:

The appellants also argued that they relied on informal guidance issued by SEBI to another entity (Weizmann Forex Ltd.) in 2012, which they believed to be applicable to their case. They contended that informal guidance should be binding on SEBI and cited various judgments to support their argument.

SEBI countered that informal guidance issued under the SEBI (Informal Guidance) Scheme, 2003, was not legally binding and could not override the clear provisions of the statute. The tribunal agreed with SEBI, emphasizing that informal guidance constituted the view of a department and was not binding on the board. The tribunal cited its earlier decision in Deepak Mehra vs. SEBI, which held that informal guidance could not be construed as law and was not appealable. The tribunal further noted that the Weizmann Guidance was not a correct interpretation of the law and could not be used to shelter against the correct interpretation of SAST Regulations, 2011.

3. Implementation of Open Offer Price and Interest Payment to Shareholders:

The tribunal directed the appellants to proceed with implementing the open offer at the revised price of Rs. 6.30 per share, as directed by SEBI. Additionally, the appellants were ordered to pay a simple interest of 10% per annum from the trigger dates to the shareholders who held shares on the date of the inter-se promoter transfers and whose shares were accepted in the open offer.

The tribunal also addressed the miscellaneous applications filed by some shareholders seeking to secure their interest in the open offer. The appellants had already secured an amount of Rs. 115 crore to enable the open offer at Rs. 3.20 per share. The tribunal directed the appellants to deposit this amount with SEBI, along with interest, within four weeks. Subject to this payment, SEBI was directed not to enforce the impugned order for a period of four weeks to allow the appellants to move the Apex Court.

Conclusion:

The tribunal upheld SEBI's decision, stating that the inter-se promoter transfers were not exempt from open offer obligations under Regulation 10(1)(a)(ii) of SAST Regulations, 2011. The tribunal also clarified that informal guidance issued by SEBI was not legally binding and could not override statutory provisions. The appellants were directed to implement the open offer at the revised price and pay the required interest to shareholders.

---