TaxTMI 
TaxTMI 
2004 (8) TMI 390
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....Exchange and National Stock Exchange. Appellant No. 1 (Clariant) in Civil Appeal No. 3183 of 2003 is a Swiss company being subsidiary of another Swiss company, Clariant AG. Hoechst is a German company whereas Ebito Chemiebeteiligungen AG (Ebito) is a Swiss company. In Ebito Clariant held 49 per cent and Hoechest 51 per cent shares. An agreement was entered into by and between Hoechst and Clariant pursuant whereto and in furtherance whereof German Specialty Chemicals business was transferred to the latter by transferring 583708 equity shares of Rs. 100 each of the target company. On or about 21-11-1997, with a view to give effect to the said agreement, Clariant sought for an exemption from compliance of the requirements of making open offer to the shareholders of the target company in terms of the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (for short, the Regulations). Such exemption, however, was not granted. Hoechst in the aforementioned situation decided to sell off the shares held by it in the target company to Ebito, a company which was floated on 19-5-2000 as a special purpose vehicle. Actual tra....
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....thereagainst by the acquirer wherein the primal question raised was the rate of interest for the delay involved in making payment to the shareholders who tendered the shares in the public offer required to be made in terms of the Regulations. 5. It is not in dispute that the value of the share as on 24-2-1998 was Rs. 220; on 22-10-2002 Rs. 213 and on the date of public announcement i.e. on 7-4-2003 the value of the share was Rs. 209, Rs. 233, Rs. 203 and Rs. 220, whereas the offer price was Rs. 318. 6. The submissions of the acquirer before the Tribunal were that (i) the rate of interest is on the higher side; (ii) the dividends having been paid in the meantime, the same should be set off from the amount of payable interest; and (iii) the interest is payable only to those shareholders who held shares on the triggering date, namely, 24-2-1998. Impugned Judgment: 7. The Tribunal by its impugned judgment while rejecting the first two contentions raised on behalf of the acquirer accepted the third, holding: "(i)Those persons who were holding shares of the target company on 24-2-1998 and continue to be shareholders on the closure day of public offer to be made in terms of....
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.... on 22-3-1998, by reason of a fiction created, a person must be deemed to be a shareholder as on that date and having regard to the fact that interest was being paid to the shareholders at the offer price from the said date till the actual payment is made, the amount received by the shareholders by way of dividend is liable to be adjusted from the amount to be paid by way of interest. Our attention has further been drawn to the fact that pursuant to the order of this Court dated 28-4-2003 a sum of Rs. 111.50 crores had been deposited and invested in a nationalized bank. 11. Mr. Kirit Rawal, learned Senior Counsel appearing on behalf of the Board, would, on the other hand, contend that while fixing the rate of interest, the Board, being an expert body, exercises a discretionary jurisdiction and, thus, the Tribunal and this Court should not interfere therewith. The learned counsel would argue that the rate of interest fixed at 15 per cent per annum cannot be said to be arbitrary and in support thereof reliance has been placed on DDA v. Surgical Cooperative Industrial Estate Ltd. [1993] Suppl. (4) SCC 20. Mr. Rawal would contend that from a bare perusal of Regulation 44(i) of the R....
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....taking and Repeal) Act, 2002. C.That the said Act provides for transfer and vesting of Undertaking (excluding Specified Undertaking) of Unit Trust of India to a Specified Company (being UTI Trustee Company Pvt. Ltd.) to be formed and registered under the Companies Act, 1956 as well as for transfer and vesting of Specified Undertaking of Unit Trust of India in the Administrator appointed by the Central Government in the terms of section 7 of Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002. D.That as per section 4(1)( b) of the said Act the Specified undertaking of the erstwhile Unit Trust of India being all business, assets, liabili- ties and properties set out in Schedule-I of the said Act stood transferred to the vested in the "Administrator of the Specified Undertaking of the Unit Trust of India" on and with effect from the appointed day, viz. 1-2-2003. That by virtue of section 4(1)(a) of the said Act, the Undertaking (excluding the Specified Undertaking) of the erstwhile Unit Trust of India being all business, assets, liabilities and properties set out in schedule - II of the said Act stood tranferred to and vested in the "UTI Trustee Company Pvt. Ltd."....
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....s fully and effectually as if instead of the Unit Trust of India, the specified company (UTI Trustee Company Pvt. Ltd.) or the Administrator (Administrator of the Specified Undertaking of the Unit Trust of India) had been named therein or had been a party thereto." The Relevant Statutory Provisions: 17. The Securities and Exchange Board of India Act, 1992 was enacted to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matter connected therewith or incidental thereto. Section 11 of the Act provides that, inter alia, the duty of the Board is to protect the interest of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit, which would include in regulation of substantial acquisition of shares and takeover of companies. Section 11B empowers the Board to issue directions, inter alia, in the interest of investors, or orderly development of securities market. Regulation 44 of the 1997 Regulations reads thus : "Directions by the Board.-The Board may, in the interests of the securi....
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....have been assigned to them under the Act or the Securities Contracts (Regulation) Act, 1956, or the Companies Act, 1956, or any statutory modification or re-enactment thereto, as the case may be. As 'shareholder' has not been defined, with a view to bring a 'shareholder' within the provisions of the said Regulations, we have no option but to refer to the relevant provisions of the Companies Act, 1956. Section 41 of the Companies Act defines 'member', sub-sections (1) and (2) whereof are as under :- "Definition of 'member'.-(1) The subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company, and on its registration, shall be entered as members in its register of members. (2) Every other person who agrees in writing to become a member of a company and whose name is entered in its register of members, shall be a member of the company." Rate of interest: 23. Section 11 of the Act provides that it shall be the duty of the Board to protect the interest of investors in securities. Regulation 44 of 1997, however, empowered the Board to issue directions only in the interest of the securities market. The expression "in the interest o....
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....review, and, thus, must also answer the test of reasonableness. 26. In Kruger v. Commonwealth of Australia 1997 (146) Australian LR 126, it is stated : "Moreover, when a discretionary power is statutorily conferred on a repository, the power must be exercised reasonably, for the legislature is taken to intend that the discretion be so exercised. Reasonableness can be determined only by reference to the community standards at the time of the exercise of the discretion and that must be taken to be the legislative intention...." The discretionary jurisdiction has to be exercised keeping in view the purpose for which it is conferred, the object sought to be achieved and the reasons for granting such wide discretion. (See Narendra Singh v. Chhotey Singh [1983] 4 SCC 131. 27. A discretionary jurisdiction, furthermore, must be exercised within the four-corners of the statute. [See Dr. Akshaibar Lal v. Vice-Chancellor, Banaras Hindu University [1961] 3 SCR 386 and also para 9-022 of De Smith, Woolf and Jowell's Judicial Review of Administrative Action, 5th Edition, page 445] 28. Interest can be awarded in terms of an agreement or statutory provisions. It can also be awarded ....
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....tute, the question as to whether a discretion has been judicially or properly exercised or not will have to be determined in the context of the facts of the particular case. [ See Irrigation Department v. G.C. Roy [1992] 1 SCC 508]. When a bench-mark is fixed or the court grants interest at the agreed rate, it may not be necessary to give reasons but where interest is granted at a higher or lessor rate, some reasons are required to be assigned. 33. By reason of Regulation 44, as substituted in 2002, the discretionary jurisdiction of the Board is curtailed. It in terms of Regulations 1997 could award interest by way of damages but by reason of Regulation 2002 its power is limited to grant interest to compensate the shareholders for the loss suffered by them arising out of the delay in making the public offer. The courts of law can take judicial notice of both inflation as also fall in bank rate of interest. The bank rate of interest both for commercial purpose and other purposes had been the subject-matter of statutory provisions as also the judge-made laws. Even in cases of victims of motor vehicles accidents, the courts have upon taking note of the fall in the rate of interest ....
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....er cent as directed by the Board has been affirmed by the Tribunal stating : "...Even on applying the said test, it does not appear to me that the 15 per cent interest directed to be paid to the shareholders as compensation for the delay involved in making the payment in the appellants' case is unjust. In this context it is to be noted that the payment was to be made, in case the offer had been made according to the provisions of the Takeover Regulations by 22-3-1998 and the amount to be so paid remains unpaid till date. Therefore, in my view the interest rate applicable should be that rate which was prevailing on 22-3-1998 and not the one prevailing on the date of the impugned order. According to the information furnished by the appellants the rate of interest payable on deposits for a period of 3 years and above by nationalized banks was around 12 per cent at that point of time. In this context one should not fail to note that the interest is directed to be paid to the shareholders to compensate the loss. Had the shareholder received the money on due date, in the normal course what return he would have received by effectively investing that money has to be taken into considera....
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....18 and not on Rs. 220 which was not the prevailing price in 1998, as a result whereof not only a shareholder would be getting a higher price but would also the getting interest thereupon. 42. So far as the contention regarding the applicability of dynamics of the market or its being a volatile one is concerned, the same, in our opinion, has nothing to do with rate of interest inasmuch both the Board and the Tribunal proceeded on the basis that the shareholders are to be compensated by way of interest for delayed payment. In that view of the matter, the relevance of rate of interest payable for the period it is payable and the persons who are entitled to be compensated were required to be determined. Rate of interest should be a reasonable one as the same became payable for the delay in making the payment, subject of course to the statutory provision contained in the Regulations. As noticed hereinbefore, the discretion of the Board vis-a-vis the Tribunal had been curtailed. There is a change even in relation to the nature of discretion of the Board. The Board and the Tribunal, thus, failed to apply the correct principles of law in determining the rate of interest payable in this ....
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....ive : unless they are both satisfied, the person in question has not acquired the status of member. Thus, an agreement to become a member alone does not create the status of membership, it is a condition precedent to the acquisition of such status that the shareholder's name should be entered on the register. Conversely, the company is not entitled to place a person's name on the register without his having agreed to become a member; a person improperly registered without his assent is not bound thereby and may have his name removed from the register." 47. In Howrah Trading Co. Ltd. v. CIT 1959 Sppl. (2) SCR 448, the law is stated thus : "The question that falls for consideration is whether the meaning given to the expression 'shareholder' used in section 18(5) of the Act by these cases is correct. No valid reason exists why 'shareholder' as used in section 18(5) should mean a person other than the one denoted by the same expression in the Indian Companies Act, 1913. In In re Wala Wynaad Indian Gold Mining Company Chitty, J., observed : 'I use now myself the term which is common in the courts, "a shareholder", that means the holder of the shares. It is the common term u....
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....hat the appellants pursuant to an order of this Court dated 28th April, 2003 have deposited a sum of Rs. 111.50 crores which has been calculated on the following basis : "1.Total paid-up capital of Colour-Chem Ltd. (By number of shares) 11,650,000 2.No. of shares to be acquired through open offer 2,330,000 3.Estimated number of shares available for offer having eligibility for interest as per SAT Order (as of 25-4-2003) 3,724,224 4.Ratio of acceptance as per Regulation 21(6) 40% 5.No. of shares likely to be acquired as per Regulation 21(6) from the lot eligible for Interest 1,489,690 6.Balance to be acquired from the lot of shares not eligible for interest 840,310 7.Total price consideration at the rate of Rs. 318 per share 740,940,000 8.Total interest payable in respect of shares at Sl. No. 5 above-As per the Open Offer - at the rate of 15 per cent per annum for the period 22-3-1998 to 21-6-2003 (1918 days) Rs. 250.65/share) Rs. 373,390,799 Total Amount to be deposited as per Supreme Court order of 28th April, 2003 Rs. 1,114,330,799 Rounded off to : Rs. 111.50 crores" The estimated number of shares available as per ord....
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.... the authority making the delegated legislation to follow the policy formulation broadly and substantially and in conformity thereof. [See Secretary, Ministry of Chemicals & Fertilizers, Government of India v. Cipla Ltd. [2003] 7 SCC 1^1- para 4.1] 57. The rate of interest fixed by the Board and the Tribunal, thus, in our opinion, was not correct. Effect of Board being an expert body : 58. The modern sociological condition as also the needs of the time have necessitated growth of administrative law and administrative Tribunal. Executive functions of the State calls for exercise of discretion. The executive also, thus, performs quasi-judicial and quasi-legislative functions and, in this view of the matter, the administrative adjudication has become an indispensable part of the modern state activity. 59. Administrative Tribunals may be called a specialized court of law, although it does not fulfil the criteria of a law court as is ordinarily understood inasmuch as it cannot like an ordinary court of law entertain suits on various matters, including the matter relating to the vires of legislation. However, such a Tribunal like ordinary law courts are bound by the rules of ....
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....tached 'Wednesbury' review. He went on to discuss the benefits of : '...having a Tribunal with a general responsibility for overseeing and enforcing the safeguards provided for the protection of the environment...The tribunal could be granted a wider discretion to determine its procedure so that it was able to bring to bear its specialist experience of environmental issues in the most effective way.' A key feature of this Tribunal would be flexibility. Possible innovations would be the involvement of expertise from other professions (architects, surveyors, etc.); 'multidisciplined adjudicating panels'; broad discretion over rights of appearance; power to instruct independent counsel on behalf of the Tribunal or members of the public; resources for direct investigation by the Tribunal itself; and incorporation into the Tribunal of the existing inspectorate to deal with 'cases of a lesser dimension.' 62. The Board is indisputably an expert body. But when it exercises its quasi-judicial functions; its decisions are subject to appeal. The Appellate Tribunal is also an expert Tribunal. Only such persons who have the requisite qualifications are to be appointed as members thereo....
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....y fettered by the statute and, thus, it exercises all the jurisdiction as that of the Board. It can exercise its discretionary jurisdiction in the same manner as the Board. 68. The SEBI Act confers a wide jurisdiction upon the Board. Its duties and functions thereunder, run counter to the doctrine of separation of powers. Integration of power by vesting legislative, executive and judicial powers in the same body, in future, may raise several public law concerns as the principle of control of one body over the other was the central theme underlying the doctrine of separation of powers. 69. Our Constitution although does not incorporate the doctrine of separation of powers in its full rigour but it does make horizontal division of powers between the Legislature, Executive and Judiciary. [See Rai Sahib Ram Jawaya Kapur v. State of Punjab AIR 1955 SC 549]. 70. The Board exercises its legislative power by making regulations, executive power by administering the regulations framed by it and taking action against any entity violating these regulations and judicial power by adjudicating disputes in the implementation thereof. The only check upon exercise of such wide ranging power....
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....l power in contrast to the reviewing power is stated thus : 'A judicial power, on the other hand, denotes a process in which ascertainable legal rules are applied and which, therefore, is subject to an objectively correct solution. But that, as will be seen, does not mean that the repository of such a power is under an enforceable duty to arrive at that solution. The legal rules applied are capable of various interpretations and the repository of power, using his own reasoning faculties, may deviate from that solution which the law regards as the objectively correct one.' 33. The regulatory bodies exercise wide jurisdiction. They lay down the law. They may prosecute. They may punish. Intrinsically, they act like an internal audit. They may fix the price, they may fix the area of operation and so on and so forth. While doing so, they may, as in the present case, interfere with the existing rights of the licensees." (p. 212) 72. In West Bengal Electricity Regulatory Commission v. CESC Ltd. [2002] 8 SCC 715 a Bench of this Court, (in which one of us Santosh Hegde, J. was a member), observed : ". . . From section 4 of the 1998 Act, we notice that the Central Electricity Reg....
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....ders did not have any right to get interest and in effect and substance they were only to be compensated for the loss of interest and nothing more. On the same analogy, if they had received some gains by holding the shares fairly for a long period of five years, the amount of dividend cannot be permitted to be retained by them. The amount of dividend should, thus, be adjusted towards the interest payable to them. Conclusion : 74. We, therefore, direct, having regard to the peculiar facts and circumstances of the case, that the interest of justice would be sub-served, if the rate of interest is directed to be paid at the rate of 10 per cent per annum from March 1998 till 2003. 75. The interest at the rate of 10 per cent per annum is directed instead and place of normal 9 per cent having regard to the fact that the Appellants themselves in their Memorandum of Appeal filed before the Tribunal had contended that the Board should have granted interest at the rate of 10 per cent per annum instead of 15 per cent. 76. If any dividend was paid during the said period, the same shall be adjusted with the amount of interest. 77. The appellants had deposited a total amount of 111....