2017 (7) TMI 748 - SC - Companies Law

Court Upholds SEBI's Offer Price Revision Directive & Exemption Denial Under Regulation 10

Laurel Energetics Pvt. Ltd. Versus Securities And Exchange Board of India

The court upheld SEBI's directive requiring the appellant to revise the offer price and pay interest, as the 2014 acquisitions did not qualify for ... Interpretation of Regulation 10 of the SEBI Takeover Regulations of 2011 - upliftment of corporate veil - Held that:- For the purpose of the present case, the Target Company, therefore, means a company whose shares are listed on a Stock Exchange. This would mean, on the facts of the present case, the Rattan Company, whose shares are listed on the two Stock Exchanges as mentioned above. Coming back to Regulation 10, it is thus clear that persons named as promoters in the shareholding pattern filed by the Rattan Company in terms of the listing agreement between the two Stock Exchanges is what is to be looked at. And for this purpose persons must be promoters of the Rattan Company for not less than three years prior to the proposed acquisition in order that the exemption under paragraph 10 would apply. On the facts of this case, therefore, the information memorandum having been filed on 19th July, 2012 pursuant to which listing took place one day later, is the relevant date from which this period is computed. This being the case, three years had not elapsed on 9/10th July, 2014, which was the date on which the earlier purchase of shares had taken place. Holding companies and their subsidiaries are treated as one group subject to control over such companies being exclusively held by the same persons. This shows that it has been statutorily recognized in sub regulation (iii) that in a given situation viz holding subsidiary relationship, the corporate veil would be lifted. When we come to sub regulations (iv) and (v), it is clear that these two sub regulations follow the pattern contained in sub regulation (ii) in as much as when it comes to persons acting in concert, the period should be not less than three years prior to the proposed acquisition, and disclosed as such pursuant to filings under the listing agreement. Also, when it comes to shareholders of a target company who have been persons acting in concert for a period of not less than three years prior to the proposed acquisition and are disclosed as such pursuant to filings under the listing agreement, the corporate veil is not lifted. In the facts of the present case, the target company is clearly defined and “means” only Rattan Limited. To go behind Rattan Limited would not only be contrary to the clear language of Regulation 10(1)(a) but would also introduce a concept viz lifting the corporate veil by the Court contrary to the Regulation itself, which, as has been pointed out above, also contains sub regulation (iii) which, in the circumstances specified, lifts the corporate veil. Issues Involved:1. Interpretation of Regulation 10 of the SEBI Takeover Regulations of 2011.2. Applicability of exemption provisions under Regulation 10 to the 2014 acquisition.3. Validity of SEBI's directive to revise the offer price and pay interest.4. Analysis of the object and language of Regulation 10 in light of committee reports and judicial precedents.Detailed Analysis:1. Interpretation of Regulation 10 of the SEBI Takeover Regulations of 2011:The core issue in the appeals revolves around the interpretation of Regulation 10, specifically whether the acquisitions made by the appellant in 2014 qualify for exemption from open offer obligations under this regulation. Regulation 10 provides general exemptions for certain acquisitions, including inter se transfers among promoters who have been listed as such for at least three years prior to the acquisition.2. Applicability of Exemption Provisions under Regulation 10 to the 2014 Acquisition:The appellant argued that Regulation 10 should be interpreted in light of its object, emphasizing that the promoters of IBREL had remained unchanged since its inception. The appellant contended that this stability should exempt the 2014 acquisitions from the open offer obligations. However, the court noted that the relevant period for determining the three-year requirement should start from the listing date of the Target Company (Rattan India Infrastructure Ltd.), which was 20th July 2012. Consequently, the acquisitions in July 2014 did not meet the three-year requirement.3. Validity of SEBI's Directive to Revise the Offer Price and Pay Interest:SEBI's directive required the appellant to revise the offer price to Rs. 6.30 per share and pay a 10% simple interest per annum from the scheduled date of payment to the actual date of payment. This directive was based on the conclusion that the acquisitions in 2014 were not exempt from open offer obligations. The court upheld SEBI's directive, agreeing with the Appellate Tribunal's decision that the higher price of Rs. 6.30 per share was justified.4. Analysis of the Object and Language of Regulation 10 in Light of Committee Reports and Judicial Precedents:The appellant referred to the Bhagwati Committee Report and the Achuthan Committee Report to support their interpretation of Regulation 10. The Bhagwati Committee emphasized that inter se transfers among promoters should generally be exempt if control remains within the group. The Achuthan Committee recommended a three-year pre-existing relationship requirement to curb the abuse of introducing new entities as qualifying parties. Despite these reports, the court found that the plain language of Regulation 10 was clear and unambiguous, requiring a three-year period from the date of listing of the Target Company.The court also considered judicial precedents, including 'Madras Bangalore Transport Co. (West) Vs. Inder Singh And Others' and 'Sait Nagjee Purushotam & Co. Ltd. Vs. Vimalabai Prabhulal and Others,' which dealt with the concept of lifting the corporate veil. However, the court concluded that these precedents were not applicable to the present case, as the definition of the Target Company was specific and did not warrant lifting the corporate veil.In conclusion, the court dismissed the appeals, affirming the Appellate Tribunal's judgment and SEBI's directive. The court emphasized that the literal language of Regulation 10 was clear, and the object of the regulation could not override the explicit words used.