2017 (7) TMI 748 - SC - Companies Law

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

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 (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 - exemption from open offer obligations for inter se transfers among qualifying promoters - requirement of promoters being named in the target company's filings for not less than three years - definition of 'target company' for computation of the three year period - lifting the corporate veil under specified sub regulations - use of legislative object and committee reports as an aid to construction where language is clearExemption from open offer obligations for inter se transfers among qualifying promoters - requirement of promoters being named in the target company's filings for not less than three years - definition of 'target company' for computation of the three year period - Whether acquisitions made in July-October 2014 by persons who were promoters of the pre demerger company fall within the Regulation 10 exemption as promoters of the listed Target Company and thereby exempt from open offer obligations. - HELD THAT: - Regulation 10(1)(a)(ii) must be read according to its plain language: the exemption applies to inter se transfers among persons 'named as promoters in the shareholding pattern filed by the target company' for not less than three years prior to the proposed acquisition. 'Target company' is defined as a company whose shares are listed on a stock exchange; accordingly, the relevant filings and the three year period are to be computed with reference to the listed Target Company (Rattan). The information memorandum filed on 19 July 2012 and listing on 20 July 2012 mark the relevant date from which the three year period runs; three years had not elapsed by the July 2014 acquisitions. The court rejected the contention that the court should look beyond the Target Company to the pre demerger promoter history of IBREL; where the regulation itself specifies circumstances in which the corporate veil may be lifted (see sub regulation (iii)), courts cannot lift the veil or rewrite the provision to extend the exemption. The Committee reports and background material may explain the regulatory policy but cannot control clear statutory language; extrinsic aids are permissible only where ambiguity exists. Precedents concerning identity of persons in other statutory contexts (e.g., Rent Acts) are distinguishable and do not justify ignoring the explicit statutory test in Regulation 10. For these reasons the Appellate Tribunal's conclusion that the 2014 acquisitions were not exempt under Regulation 10 is unimpeachable.The 2014 acquisitions do not qualify for the Regulation 10 exemption because the promoters must have been named as promoters of the listed Target Company for at least three years prior to the acquisitions; appeals dismissed.Final Conclusion: The Court upheld the Appellate Tribunal's conclusion that Regulation 10's exemption did not cover the 2014 acquisitions: the three year promoter naming requirement must be satisfied with reference to the listed Target Company and its filings, and the appeals are dismissed. 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.