Tribunal clarifies limits on share acquisitions without open offer under SEBI regulations.

The tribunal held that under the second proviso to regulation 11(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, an acquirer could only acquire up to 5% voting rights without making an open offer. The tribunal quashed the decision that acquisitions exceeding 0.5% in a single transaction disqualified the appellants from the exemption. The order in Appeal No. 265 of 2015 was remanded to SEBI for reconsideration, while all other appeals were allowed, and their respective decisions were quashed.

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Issues Involved:
1. Interpretation of the second proviso to regulation 11(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
2. Definition and implications of 'bulk deal' under the second proviso to regulation 11(2).

Detailed Analysis:

First Issue: Interpretation of the Second Proviso to Regulation 11(2)
1. Background: The appellants in Appeal No. 265 of 2015 acquired additional shares without making a public announcement of an open offer, arguing that their acquisitions were within the permissible limits of the second proviso to regulation 11(2) of the 1997 Regulations.
2. Appellants’ Argument: The appellants contended that due to the lack of clarity in the second proviso to regulation 11(2), they believed they could acquire up to 5% additional shares in each financial year without making an open offer. They relied on SEBI Board’s note dated 27.10.2008.
3. Tribunal’s Analysis:
- The language of the second proviso to regulation 11(2) does not suggest that more than 5% voting rights can be acquired in each financial year without an open offer.
- The distinction between the language used in regulation 11(1) and 11(2) was highlighted, showing that the appellants' interpretation was not justified.
- The SEBI Board’s note dated 27.10.2008 was not incorporated into the final regulation, thus it cannot override the clear language of the regulation.
- The interpretative Circular dated 06.08.2009 clarified the provisions of the second proviso to regulation 11(2), confirming that only up to 5% voting rights could be acquired without an open offer.
4. Conclusion: The appellants in Appeal No. 265 of 2015 violated regulation 11(2) by acquiring more than 5% voting rights without an open offer. However, the tribunal directed SEBI to reconsider the directions against the appellants in light of a similar case (Madhusudan Jhunjhunwala & Ors.) where benefit of doubt was given for acquisitions prior to 06.08.2009.

Second Issue: Definition and Implications of 'Bulk Deal'
1. Background: The WTM of SEBI held that acquisitions in excess of 0.5% shares in a single transaction during the day constituted a 'bulk deal', which disqualified the appellants from the exemption under the second proviso to regulation 11(2).
2. WTM’s Basis: The WTM relied on SEBI Circulars dated 14.01.2004 and 02.09.2005 to define 'bulk deal' as transactions exceeding 0.5% shares of the target company during the day.
3. Tribunal’s Analysis:
- The term 'bulk deal' is not defined in the 1997 Regulations.
- SEBI Circular dated 14.01.2004 aimed at transparency and disclosure does not define 'bulk deal' for the purposes of regulation 11(2).
- SEBI Circular dated 02.09.2005 also does not generally define 'bulk deal' for all purposes.
- The interpretative Circular dated 06.08.2009 clarified that additional shares up to 5% voting rights could be acquired in one or more tranches, indicating that single transactions up to 5% are permissible.
- The interpretative Circular takes precedence over the earlier circulars which were issued in a different context.
4. Conclusion: The tribunal held that under the second proviso to regulation 11(2), additional shares up to 5% voting rights could be acquired in a single transaction without making an open offer. The decisions of the WTM based on the earlier SEBI Circulars were quashed.

Final Order:
1. The tribunal upheld SEBI’s decision that under the second proviso to regulation 11(2), an acquirer could only acquire up to 5% voting rights without making an open offer.
2. The tribunal quashed the WTM’s decision that acquisitions exceeding 0.5% in a single transaction disqualified the appellants from the exemption.
3. The order in Appeal No. 265 of 2015 was set aside and remanded to SEBI for reconsideration in light of the Madhusudan Jhunjhunwala & Ors. case.
4. All other appeals were allowed, and the respective impugned decisions were quashed.

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