TaxTMI 
TaxTMI 
2005 (5) TMI 329
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....Coflexip, South East Asia Marine Engineering and Construction Ltd. (referred to as SEAMEC), a company incorporated and registered in India and finally the respondents who are the shareholders of SEAMEC. SEAMEC is a subsidiary of Coflexip in the sense that Coflexip through a chain of wholly owned subsidiaries controls the majority shareholding in SEAMEC. 2. The question which arises for consideration in these appeals is whether Technip acquired control of SEAMEC through Coflexip in April, 2000, or in July, 2001? There is no dispute that if Technip controls Coflexip then it also controls SEAMEC and if there has been a change of control of SEAMEC then Technip would be bound to offer to purchase the shares of the minority shareholders in SEAMEC in accordance with the provisions of the Securities And Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (hereinafter referred to as the Regulations). The importance of the date of control/acquisition is because of the price of the shares payable on such public offer. In this case the price of SEAMEC shares in April 2000 was Rs. 238 per share which was much higher than the price of Rs. 43.12 per share i....
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.... 2000 together with the interest on such difference at the rate of 15%. One of the grounds on which the Tribunal came to the conclusion that Technip had taken over Coflexip in April, 2000 was based on the fact that both the companies had been promoted by IFP and that IFP through ISIS acting in concert with Technip had brought about the takeover of Coflexip by Technip. 6. According to Technip, since Technip and Coflexip are both registered in France and the takeover of Coflexip by Technip also took place in France, the applicable law is French. In terms of French Law, according to Technip, there was no control of Coflexip by Technip in April, 2000 and as such there was no change in control of SEAMEC on that date but in July 2001. It is further submitted that in any event Regulation 12 did not apply to the takeover because SEAMEC was not the target company and that while taking over Coflexip, Technip neither had the common objective nor was there any agreement between Technip and Coflexip with regard to SEAMEC. The rate of interest has also been challenged. It is said that although there was no challenge to the rate which was fixed by SEBI, if the Tribunal's order is upheld, then th....
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....h ISIS, another shareholder of Coflexip, but even by itself was in a position to exercise and in fact exercised control over Coflexip and, therefore, SEAMEC in April 2000. 9. The shareholders of SEAMEC may be classified into three groups: (a)Those, who were shareholders of SEAMEC in April, 2000 and contin-ued as such; (b)Those, who were not shareholders in April, 2000 but were sharehold-ers during the public offer having purchased the shares of SEAMEC before July, 2001. (c)Those shareholders, who were shareholders on the date of the public offer holding shares purchased in April, 2000 and more shares after April, 2000 but before July, 2001. 10. The respondents who belong to group (b) have said that the public offer made by Technip after SEBI's order was unconditional. It was made to the shareholders who were shareholders as on the date of the public offer. On the question of interest it is said that it was not open to Technip to question either its liability to pay interest or the rate of interest and that Technip had already paid interest to the present shareholders without protest. Finally it is said that the finding of fact by the Tribunal should not be interfered with unle....
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....ns". 13. SAT's conclusion as to the applicable law is questioned by the appellant and that cannot be considered as a question of fact. As held in Dalmia Dairy Industries Ltd. v. National Bank of Pakistan1, the role of the appellate Court in such cases is : "...to examine the evidence of foreign law which was before the justices and to decide for ourselves whether that evidence justifies the conclusion to which they came2." 14. The respondent's preliminary objection to the maintainability of the appeal is accordingly rejected. 15. The jurisdiction of SEBI or SAT or indeed this Court to apply foreign law has not been questioned at any stage. What is referred to as "private international law" by some authorities3 is referred to as conflict of laws by others4. Whatever the nomenclature, it is based on the 'just disposal of proceedings have a foreign element'. To quote from Kuwait Airways Corpn. v. Iraqi Airways Co. [2002] UKHL 19. "The jurisprudence is founded on the recognition that in proceedings having connections with more than one country an issue brought before a court in one country may be more appropriately decided by reference to the laws of another country even though th....
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.... The guaranteeing bank was subsequently amalgamated with a third Greek company and a new company was formed. A bond holder sued the new company seeking to enforce the guarantee. Under the Greek law there was a moratorium imposed on payments by the new bank. It was held by the House of Lords that the status of the new bank would be decided according to the law of the domicile of the original guarantor company and the new company which was Greek law. It was found that according to Greek law the new company succeeded to the assets and liabilities of the guarantor company. The question then was whether the English Courts would recognize the moratorium as debarring the bond holder from enforcing his rights under the bond. It was not in dispute that the bond was governed by English law. It was held that the evidence of the effect of the Greek moratorium in Greece was therefore irrelevant. "This was an English debt and the obligation to pay it, its quantum and the date of payment, are all governed by English law which will not give effect to the Greek Moratorium." (p. 529) The claim of the bond holder was accordingly allowed. 19. Consequent upon the decision of the House of Lords a new....
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....ls, some deep-rooted tradition of the common weal." [Emphasis supplied] 23. Similarly the House of Lords in Kuwait Airways Corpn.'s case (supra): "....Exceptionally and rarely, a provision of foreign law will be disregarded when it would lead to a result wholly alien to fundamental requirements of justice as administered by an English court". 24. In other words the power to disregard a provision in the foreign law must be exercises exceptionally and with the greatest circumspection "when to do otherwise would affront basic principles of justice and fairness which the courts seek to apply in the administration of justice in this country. Gross infringements of human rights are one instance, and an important instance, of such provision". (ibid) 25. The issue in the latter case arose out of an Iraqi law which confiscated Kuwaiti aeroplanes and vested them in the Iraqi Airlines Corporation. The Court refused to recognize the Iraqi law because : "a legislative act by a foreign state which is an flagrant breach of clearly established rules of international law ought not to be recognized by the courts of this country as forming part of the lex situs of that state". 26. This Court in....
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....The Bhagwati Committee Report on Takeovers (1997) which was prepared after examining the principles and practices and the regulatory framework governing takeovers in as many as fourteen countries noted that while the practice and procedures vary from country to country, the principles and the concerns - cardinal among which are equality of opportunity to all shareholders, protection of minority interest, transpar-ency and fairness - have remained more or less common. The aim of French Law like Indian Law is to ensure that all parties to a public tender offer respect the principles of shareholder equality, market transparency and integrity, fair trading and fair competition. All this is culled from the opinions of the experts relied upon by all the parties. Under section 45 of the Evidence Act, 1972, the Court can take the admitted position into consideration in order to form an opinion as to the text of the relevant French law. [See : De Beeche v. South American Stores (Gath and Chaves Ltd. and the Chilian Stores Gath and Chaves Ltd.) 1934 LR A.C. 148] 30. Undisputedly, in April, 2000, the relevant law in force in France was article 355-1 of the French Companies Act, 1966 (LOI No.....
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....d office in France and whose shares are admitted for trading on a regulated market or are traded on the over-the-counter market as stated in article 34 of law No. 96-597 dated July 2nd, 1996 relating to the modernization of financial activities, shall inform such company in a period of 15 days as of the crossing upwards of the threshold of the total number of shares that such person holds. The owner also informs the Conceil de Marches Financiers (CMF) within a period of 5 trading days as of the day of crossing upwards of the threshold when the shares are listed on a regulated market. The CMF makes public such information. The notifications referred to in the two preceding paragraphs are also to be provided in the same period when the equity interest falls below the thresholds provided in the first paragraph. The owner who is required to disclose the information in accordance with the first paragraph above specifies the number of securities that it possesses giving access to the capital of the company as well as the voting rights attached thereto. The by-laws of the company can provide for additional disclosure obligations relating to holdings of fractions of the capital or voti....
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....er the purchaser intends to seek representation on the Board of Directors of the target. 36. The section has been re-enacted as L233-7 of the 2002, French Commercial Code. Therefore, French Law at the relevant time provided that a company holds control over another (the Target Company) in the following cases: (i)the Company holds, directly or indirectly, title to a number of shares granting to such holder a majority of voting rights in the general meetings of shareholders of the Target. (ii)the Company holds the majority of voting rights in the Target pursuant to an agreement with a third party or as a result of acting in concert with such third party. (iii)the Company in effect determines, through the votes it holds, the decisions taken in the general meetings of shareholders of the Target (what is known as 'de facto' control). 37. The Stock Exchange authorities in France are the Counceil des Marches Financiers or the French Financial Markets Authority (referred to as the 'CMF') and the Commission des Operations de Bourse viz., the French Stock Exchange Authority (referred to as the 'COB'). They are regulatory bodies with powers of inspection, supervision and disciplinary ac....
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....nouncement to acquire shares in accordance with the Regulations. (2) No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise more than 51% of the voting rights in a company, unless such acquirer makes a public announcement to acquire share of such company in accordance with the Regulations. Explanation : For the purposes of Regulation 10 and Regulation 11, acquisition shall mean and include: (a )direct acquisition in a listed company to which the Regulations apply; (b)indirect acquisition by virtue of acquisition of holding companies, whether listed or unlisted, whether in India or abroad. 12. Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company, unless such person makes a public announcement to acquire shares and acquires such shares in accordance with the Regulations. Explanation Where any person or persons has given joint control, such control shall not be deemed to be a change in control so long as the control given is equal....
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....ly the law to the facts we may note one aspect that has been lost sight of by SAT and that is that irrespective of the status of Coflexip and Technip to each other, in order to trigger Regula-tions 10 to 12, it would have to be established that the purchase of the 29.68% shares by Technip in Coflexip was with the object of taking control of SEAMEC. That is what the relevant Regulations provide and also what is alleged in the show-cause notice issued to Technip by SEBI. The allegation in the show-cause notice was that Technip, the acquirer and ISIS as a shareholder of Coflexip acted in concert to acquire control over Coflexip and therefore SEAMEC treating SEAMEC as the target company. The emphasis is on the target company whether the case is of direct or indirect acquisition under the Regulations. Thus Regulation 2(b) of the Regulations defines 'acquirer' as meaning any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company and 'acquirer' also means a person who acquire or agrees to acquire control over the target company either by himself or with any person acting in concert with the acquirer. 43. The word 'control' has been....
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.... in Regulations 2(b)( c)(e) and (o) together. 47. A similar position obtains in England where Note 7 to Rule 9.1 of the City Code on Takeovers and Mergers likewise provides:- "Occasionally, a person or group of persons requiring statutory control of a company (which need not be a company to which the Code applies) will thereby acquire or consolidate control, as defined in the Code, of a second company because the first company itself holds a controlling block of shares in the second company, or holds shares which, when aggregated with those already held by the person or group, secure or consolidate control of the second company. The Panel will not normally require an offer to be made under this Rule in these circumstances unless either : (a )the shareholding in the second company constitutes a substantial part of the assets of the first company; or (b)one of the main purposes of acquiring control of the first company was to secure control of the second company". 48. The "second company" both under the 'chain principle' referred to in the Bhagwati Committee Report as well as in the City Code on Takeovers and Mergers is the target company and the first company is the medium or v....
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....rely direct evidence of action in concert, and the panel must draw on its experience and commonsense to determine whether those involved in any dealings have some form of understanding and are acting in co-operation with each other7". 51. According to the Dictionaire Permanent du Droit des Affairs French law does not make proof of the concerted action dependent upon the existence of a written document. "However, given the serious consequences linked to the existence of a concerted action, only serious presumptions drawn from factual date can lead to a qualification of a concerted action. The mere observation of similarity of behaviours cannot constitute such a proof. Even the common position of certain shareholders is not necessarily indicative of the existence of a concerted action. Such shareholders may have adopted legitimately a similar position, independently, because of their own strategic interest". (Extract from the 1989 French Securities and Exchange Commission Report). 52. In this background of the law, we may consider briefly the relevant facts. 53. IFP had promoted Technip and Coflexip in 1958 and 1971 respectively. In 1975 IFP promoted ISIS as a wholly owned subsidi....
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....areholders agreement in favour of Technip. An agreement was then entered into between Technip and Stena for the acquisition of Stena's 29.68% shares in Coflexip at the rate of Euros 119 per share. Statements of intent were filed by Technip with Stock Exchange Authorities and with Coflexip. Coflexip in turn wrote a letter to Technip on the same date agreeing not to acquire equity shares in a competing company without prior written consent of Technip. 62 The declaration required by French law was made to the CMF by Technip on 28th April, 2000 that Technip : (a)did not directly or indirectly hold any other shares in Coflexip; (b)it was not acting in concert with any other and had no plans for any such action; (c)it had no intention to increase its equity stake within 12 months after acquisition; (d)undertaking not to acquire new equity shares in other companies involved in Coflexip's scope of activities except with the prior written approval of Coflexip; (e)agreeing that violation of any of the aforesaid stipulation would entitle Coflexip to claim damages. 63. This was published by CMF on 4th May, 2000. A similar declaration or statement of intent was given to COB. Both the aut....
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....of a possible acquisition of Technip by Coflexip. This position continued till January, 2001 when IFP agreed to sell its entire interest in ISIS to Technip. According to Technip and IFP this was the first time IFP had come into the picture. 67. In February, 2001 the Chairman of Coflexip expressed his reservation about the proposed sale of ISIS's shares in Coflexip to Technip. Coflexip continued to act independently of Technip with regard to various policy decisions. Technip offered to purchase the balance shares of Coflexip at a premium of 25% on 3rd July, 2001. The price offered by Technip was not immediately acceptable to the Board of Coflexip. A Special Committee was set up to consider whether the price was adequate. ISIS voted in favour of setting up of the committee. As it happened, the Special Committee recommended a higher price, so that the Technip had to improve its offer to purchase Coflexip's share. These facts according to Technip showed that ISIS was not acting in concert with Technip. 68. Technip has said that the purchase of 100% shareholding was duly approved by Regulatory Authorities of USA, Finland and Netherlands and on 11th October, 2001 Technip acquired contr....
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....chnip in July 2001 directed the publication of an offer to SEAMEC's taking that as the effective date. 72. In reversing this judgment, SAT held that ISIS and Technip had acted in concert to gain control over Coflexip in April, 2000. We are of the opinion that the approach of the SAT was entirely wrong. For the purposes of determining Technip's obligations under the Regulation it should have addressed itself as SEBI had done to the question whether ISIS and Technip were acting in concert to obtain control over the target company, namely, SEAMEC. In other words, did the shareholding of Coflexip in SEAMEC constitute a substantial part of the assets of Coflexip, or was the main purpose of acquiring control of Coflexip the acquisition of control over SEAMEC? 73. According to the SAT, the reasons which established that ISIS and Technip were acting in concert in April 2000 were as follows: (i)"...there was shareholders agreement dated 2-11-1994 between Stena group on one side and ISIS and others on the other to control Coflexip........It is also noted that ISIS group had not exercised its preemptive right to block Technip's entry." (ii)"...(it was clear) from the shareholding pattern ....
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....re as well with 99% and they acquired shares to that level through the public offer in July, 2001. In my view the acquisition raising the shareholding to 99% in Coflexip was the final act whereas the process started on 12-4-2000." (xi)...in my view Technip had decided to take over control of Coflexip and to achieve the said objective, acquired 29.68% shares of Coflexip on 12-4-2000, the evidence before me leads to the conclusion that ISIS had acted in concert for the said purpose." 74. We need not go into the reasons separately although we must say that we disapprove of the introduction of the concept of a joint family into corporate law when the statutory provisions, particularly Regulation 2(e) exhaustively defines what would amount to 'acting in concert'. More particularly when Regulation 3(1)(e)( i) provides that :- (1) "Applicability of the regulation.-(1) Nothing contained in regulations 10, 11 and 12 of these Regulations shall apply to : (e) Inter se transfer of shares amongst :- (i)group companies, coming within the definition of group as defined in the Monopolies and Restrictive Trade Practices Act, 1969 (25 of 1969)". 75. The 'IFP family' if any would be nothing mor....