TaxTMI 
TaxTMI 
2007 (11) TMI 411
X X X X Extracts X X X X
X X X X Extracts X X X X
....ough Finsider International Co. Ltd. It was the case of the petitioner that the said acquisition was in violation of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 (hereinafter referred to as "the Regulations of 1994") and in violation of the provisions of Clauses 40A and B of the Listing Agreement of the Stock Exchange. 3. In a nutshell, the facts of the case are that respondent No. 4, Finsider International Company (FINCO), held 51 per cent shareholding in respondent No. 3, which is called "M/s. SESA Goa Limited" (SESA Goa). Respondent No. 4 is a 100 per cent subsidiary of EARLY GUARD, which, in turn, is a 100 per cent subsidiary of respondent No. 5, Mitsui & Company (MITSUI). Before respondent No. 4 became a 100 per cent subsidiary of EARLY GUARD, it was a 100 per cent subsidiary of LIVA, which was owned by a consortium of companies held by RIVA Group. In the course of time, the shareholding of respondent No. 4 changed hands from LIVA to EARLY GUARD. The control and management of respondent No. 3, therefore, passed on from RIVA Group to the MITSUI Group, and, therefore, the MITSUI Group now controls respondent No. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acquires any share which would give him more than 10 per cent voting rights in the target company, then the obligation to make the public announcement/offer is triggered. Therefore, even if MITSUI through EARLY GUARD acquired shares of FINSIDER whereby it acquired 51 per cent voting rights in the target company, provisions of Regulation 9(1) of the Regulations of 1994 would be attracted. It is the contention of the petitioner that SEBI in its impugned order failed to appreciate that the provisions of Regulation 9(1) would be triggered by way of acquisition of shares of anybody corporate if, as a result of such acquisition, the acquirer acquires more than 10 per cent voting rights in the target company, and, therefore, SEBI erred in holding that merely because no shares of target company were acquired, the said Regulation would not be attracted. 5. Another contention of the petitioner is that Regulation 9(3) is triggered when an acquirer acquires securities which would entitle him to more than 10 per cent of the voting rights of the target company, i.e., SESA Goa. It is his contention that the term 'securities' as defined in section 2(h )( i) of the Securities Contract and Regulati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in concert or colluded with MITSUI in violating the provisions of the Listing Agreement; and that the transaction was nothing but in violation of the Regulations of 1994 and clauses 40-A and 40-B of the Listing Agreement, as it was binding upon a raider, and it cannot be said that mainly because the raider is located outside India and/or he acquires securities of a body corporate outside India so as to, in effect, takeover an Indian company. 8. It is contended by the petitioner that the authorities have failed to take into consideration that there is, in substance, a takeover of a listed Indian company, i.e., SESA Goa, by MITSUI, in total violation of the Regulations of 1994 and the Listing Agreement, and the authorities, by not taking action against the target company and the raider company, have failed to protect the interests of the investors, which is the whole object created by the Regulations of 1994 read with Clauses 40-A and 40-B of the Listing Agreement, and, therefore, the impugned order is illegal and void, and deserves to be quashed and set aside. 9. The respondents submitted that respondent No. 4 is a holding company of respondent No. 3, and respondent No. 4 holds 51....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is not tenable. 10. It is the case of respondent No. 3 that there has been no contravention of clauses 40-A and 40-B of the Listing Agreement signed by respondent No. 3 with the Stock Exchange. It is their contention that the Listing Agreement is required for listing of securities by the listed company, and the recital provides that it is the requirement of the Stock Exchange that the company should enter into this Agreement to qualify for the admission and continuance of its securities to be listed on the Stock Exchange; and insofar as clause 40-A is concerned, it shall not be applicable to an acquisition by a person who has announced his firm intention to make an offer to the company and also notified the Stock Exchange. Further, the expression 'securities' or 'voting capital' in clause 40-B(2) can only refer to the same being of the listed company. Hence, clause 40-B(2) has no application to this case, and these expressions cannot refer to shares/securities in other companies than the listed company concerned, much less to body corporates situated outside and not listed in India. 11. It is submitted that the Securities Contract Regulation Act under which the Stock Exchanges ho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ty shareholders, the clear and unambiguous language of the Takeover Regulations, 1994 and clauses 40-A and 40-B of the Listing Agreement should be disregarded, is untenable in law. 12. It is the contention of the respondents that the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as "1997 Takeover Regulations") are a completely new set of Regulations, and repeal the earlier 1994 Takeover Regulations. These are not merely clarifications in nature nor do they explain the 1994 Takeover Regulations as contended by the petitioner or otherwise. It is their case that the petitioner based his case on a completely erroneous and ill-founded premise and has erroneously invoked the provisions of the 1994 and 1997 Takeover Regulations, both of which have no application to the facts of the transaction in question. Both the SEBI and the Appellate Authority have, vide detailed speaking orders, replied the case of the petitioner. 13. It is the case of the respondents that the Takeover Regulations of 1997 were brought into effect on 20-2-1997, and the transaction in question took place some time in October, 1995, and it is their contention that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....16. The key issue which arises in the matter for decision is : Whether an indirect takeover of the company, by acquiring control of the corporate body, which holds a large percentage of the shares of the target company, attracts the provisions of SEBI Takeover Regulations, 1994 and the Listing Agreement and makes it mandatory for the acquirer company to make public announcement/offer ? 17. The complaint made by the petitioner to the Securities and Exchange Board of India (SEBI) came to be turned down by the impugned order dated 6-3-1997 by SEBI primarily, on the ground that the provisions of the Takeover Regulations are not applicable and in the instant case, they have not been violated; and secondly, the provisions of Clauses 40-A and 40-B of the Listing Agreement are not applicable, and in the instant case, they have not been violated; and that the Regulations are applicable if an acquirer has acquired or agreed to acquire more than 10 per cent shares as per the provisions of Regulations 9 and 10. The Regulations prohibit any acquirer who holds less than 10 per cent of the voting rights to acquire more than 10 per cent of the voting rights, unless the public announcement to acqu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns that no shares of SESA Goa have been acquired either by FINCO, MITSUI or EARLY GUARD. SESA Goa is the company which is said to have been taken over. However, this change in control, if at all, has taken place without acquiring any shares. Even if interpretation of the petitioner is accepted, the provisions of the Regulations (dealing with substantial acquisition of shares) would not be applicable in the facts and circumstances of this case. It was observed that the Regulations do not have any concept of change in the control of management requiring public offer. Therefore, the question of violation of Regulations does not arise. 21. It may be mentioned that these Regulations have now been repealed by SEBI and new Regulations have been notified on 20-2-1997. Only in the new Regulations, the concept of control, triggering off public offer, has been introduced. On the aspect relating to applicability of the Listing Agreement, they gave a finding that as in the instant case, FINCO already holds more than 51 per cent of the voting rights of SESA Goa, and has not acquired any share after the Regulations were notified, the question of exceeding the 10 per cent limit mentioned in Claus....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Therefore, reliance cannot be placed on these two cases in the facts and circumstances of the present case; and, therefore, they concluded that the provisions of Clauses 40-A and 40-B will not be applicable to MITSUI and EARLY GUARD, as there is no change in position regarding the control of FINCO vis-a-vis SESA Goa, which resulted in dismissal of the complaint. 25. Before the Appellate Authority, the contention of the petitioner was that the acquisition of SESA Goa Ltd. by MITSUI & Co., Japan, through FINCO was in violation of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 and in violation of the provisions of Clauses 40-A and 40-B of the Listing Agreement of the Stock Exchanges on the ground that the provisions of section 9(1) of the Takeover Regulations are triggered if the acquirer himself or in concert with other persons acquired or agreed to acquire shares whereby he would be entitled to more than 10 per cent of the voting rights of the target company; and that there is no pre-requisite for acquiring the shares in the target company for attraction of Regulation 9(1). It is, therefore, wrong for SEBI to conclude that merely because no shares of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... SESA Goa and no change in the shareholding of SESA Goa is alleged to have taken place. The acquisition of FINCO by MITSUI from the RIVA Group has not altered the control of FINCO or SESA Goa. It found that insofar as Indian shareholders in SESA Goa are concerned, no change in control of the company has taken place. The provisions of the Old Takeover Code, thus, do not seem to be attracted in the present case, and the Appellate Authority found no reasons to disagree with the findings of SEBI, and dismissed the appeal. 28. In our view, to decide the controversy, it would be proper to refer to some excerpts from the report of the committee on substantial acquisition of shares and takeovers under the chairmanship of justice P.N. Bhagwati, which led to the repeal of the 1994 Takeover Regulations by the 1997 Takeover Regulations :- "The SEBI Act enacted in 1992, empowered SEBI to regulate substantial acquisition of shares and takeovers, and made substantial acquisition of shares and takeovers a regulated activity for the first time. The SEBI Regulations for Substantial Acquisition of Shares and Takeovers were notified by SEBI in November 1994. Clause 40(A&B) of the listing agreement a....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., and the consequent revision of offers to take place for the first time in the Indian market; nonetheless, these offers demonstrated with certain degree of acuity, the deficiencies in the existing provisions. These needed to be specifically addressed in the extant regulations to make the regulatory framework more comprehensive and equitable. A committee was therefore set up by SEBI in November 1995, under the chairmanship of Justice P.N. Bhagwati, former Chief Justice of India, to review the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1994. The terms of reference of the Committee were : to examine the areas of deficiencies in the existing regulations; and to suggest amendments in the regulations with a view to strengthening the regulations and making them more fair, transparent and unambiguous and also protecting the interest of investors and of all parties concerned in the acquisition process." 29. The committee submitted its report in two parts. The first part contains the recommendations of the committee based on which the new regulations have been framed, and the newly framed regulations are given in the second part.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gulations apply; (b) indirect acquisition by virtue of acquisition of holding companies, whether listed or unlisted, whether in India or abroad. Regulation 12 Not there. Regulation 12 Acquisition of control over a company : "Irrespective of whether or not there has been any acquisi-tion of shares or vot- [[[[ 1994 1997 Regulation No. Takeover Regulation Regulation No. Takeover Regulation ing 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 : Provided that nothing contained herein shall apply to any change in control which takes place pursuant to a special resolution passed by the shareholders in a general meeting." Explanation: ( i) For the purpose of this regulation, where there are two or more persons in control over the target company, the cessor of any one such person from such control shall not be deemed to be a change in control of management not shall any change in the nature and quantum of control amongst them constitut....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e purview of the regulations in clause (k) of sub-regulation (1) of regulation 3." Therefore, apart from the submissions made before us by the learned counsel for the parties, which we propose to deal with in the latter part of our judgment, at least one thing is crystal clear that there existed a lacuna in the existing regulations, i.e., the 1994 Takeover Regulations, which would allow persons to acquire indirect control of a listed company by acquiring the holding company or a set of investment companies, which has block-holding and which may be unlisted, because the scope of the regulations applies only to acquisition of shares in listed companies, and for that, the committee recommended that the concept of indirect acquisition be brought in. This has been done in the definition of 'acquirer' in clause (b) of sub-regulation (1) of regulation 2; in the definition of "persons acting in concert" in sub-clause (1) of clause (e) of sub-regulation (1) of regulation 2; further while excluding unlisted companies from the purview of the regulations in clause (k) of sub-regulation (1) of regulation 3, which has been accepted and necessary changes have been incorporated in the 1997 Takeov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lpably a perverse finding of SEBI, which totally ignores the reality that the acquisition of shares of FINSIDER by MITSUI (through EARLY GUARD) entitled MITSUI to exercise voting rights in respect of 51 per cent of the shares of SESA Goa held by FINSIDER. That was the stated purpose of the acquisition. 35. It is further contended that even in the appellate order, the finding to the effect that - "Insofar as SESA Goa which is a listed company in India is concerned, it is clear that FINCO was all along the 51 per cent shareholder of SESA Goa and no change in the shareholding of SESA Goa is alleged to have taken place. The acquisition of FINCO by MITSUI from the RIVA Group has not altered the control of FINCO or SESA Goa. Insofar as Indian shareholders in SESA Goa are concerned, no change in control of the company has taken place. The provisions of the old takeover code, thus, do not seem to be attracted in the present case, and we find no reasons to disagree with the findings of SEBI." can be said to be perverse, as it totally ignores the fact that the acquisition of FINSIDER shares entitled MITSUI to exercise the voting rights in regard to 51 per cent of share capital of SESA Goa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rities' entitled MITSUI to more than 10 of voting rights in SESA Goa. 42. It is further submitted that the shares of FINSIDER are thus 'Securities' for the purposes of the Substantial Acquisition of Shares and Takeovers Regulations, 1994. It is undisputed that the acquisition of these securities, viz., the shares of FINSIDER, gave MITSUI the voting rights in regard to 51 per cent of the share capital of SESA Goa, the target company. 43. It is also submitted that the sole purpose of MITSUI acquiring the shares of FINSIDER - "securities" for the purposes of clause 9(3) of the Substantial Acquisition of Shares and Takeovers Regulations, 1994 - was to acquire voting rights of the target company, SESA Goa. There is no other object for such acquisition. In view of this admitted position, the takeover of SESA Goa by MITSUI squarely falls within the provisions of the Substantial Acquisition of Shares and Takeovers Regulations, 1994. 44. In order to substantiate the above contentions, Mr. D'Vitre, the learned Senior Advocate appearing for the petitioner, placed reliance on the decision of this Court in the case of Shirish Finance & Investment (P.) Ltd. v. M. Sreenivasulu Reddy [2002] 35 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hartered Bank v. Directorate of Enforcement [2005] 125 Comp. Cas. 513 2. Therefore, MITSUI's reliance on the judgment of the Supreme Court in Nathi Devi v. Radha Devi Gupta [2005] 2 SCC 271 is misplaced. In any event, by the application of those principles as stated therein, the present transaction would fall within and would be covered by the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 inasmuch as regulation 9 is clear and unambiguous. 48. In Herbertson Ltd.'s case (supra) the Single Judge (H.L. Gokhale, J.) came to the conclusion that some of the acquisitions involved in that case were indirect acquisitions which were covered under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994. (See paragraph 123 at pages 161 and 162) "Indirect acquisitions cannot be read as outside the 1994 Regulations or else the regulations will be frustrated." In the same paragraph the learned Single Judge noted that : "...It cannot be lost sight of that these Regulations are for the benefit of the shareholders, companies and society at large and hence while interpreting them, one will have to adopt the purposive approach as do....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch an indirect acquisition was covered by the 1994 Regulations as otherwise the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 would be frustrated. (ii)the Division Bench dealt with the matter on the basis that it was a case of persons acting in concert and that the question of direct or indirect acquisition did not arise. In that context, the Division Bench distinguished SESA Goa's order of SEBI and did not decide the issue as to whether indirect acquisitions were covered by the 1994 Regulations. 53. It is the contention of Mr. D'Vitre that the fact that the 1994 Regulations were repealed by the 1997 Regulations and that the 1997 Regulations contained provisions which 'improved' upon the provisions under the 1994 Regulations is irrelevant. Merely because an indirect acquisition was explicitly covered by the 1997 Regulations would not lead to the conclusion that such an indirect acquisition was not covered by the 1994 Regulations. In the present case, it has been demonstrated that the present acquisition of voting rights in SESA Goa is squarely covered by the 1994 Regulations on a plain reading of those Regulations. It was contended on behalf of MITSUI t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....which is not listed on any stock exchange in India does not come within the purview of Regulation 10 of the 1994 Regulations. This dicta also clearly applies to cases under Regulation 9 of the 1994 Regulations which along with Regulation 10 forms part of Chapter III of the 1994 Regulations. In fact, the Division Bench considered the order of the Appellate Authority in SESA Goa, which is impugned in the present petition, and expressly held in that context that the 1994 Regulations did not apply to the acquisition of shares in the SESA Goa case. Respondent No. 5 was not an 'acquirer' of shares in SESA Goa under the 1994 Regulations. As stated above, respondent No. 5 only acquired shares of FINCO. 57. Mr. Chagla submitted that this Court ought not to import into the 1994 Regulations matters that were only introduced by the 1997 Regulations. To do so would run counter to all principles of statutory interpretation, and it would result in great uncertainty in the capital markets. 58. Mr. Chagla further submitted that the Bhagwati Committee Report of 1997 expressly recognised the various loopholes in the 1994 Regulations and in particular, the position that the 1994 Regulations did not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on or writs propounding theories and thesis. That is not the function, scope and purpose of article 226...." (p. 603) As on the date of the hearing of the petition, the petitioner did not hold a single share in SESA Goa. In the circumstances, coupled with the fact that the petitioner was not pressing prayer (c ) of his petition, the petitioner ceased to have the locus standi to prosecute the petition and the same was not maintainable and was rendered infructuous and academic. 59.3 The petitioner, vide his affidavit dated 28-3-2007, admits that he transferred his shareholding in SESA Goa. As on date the petitioner does not hold even a single share of SESA Goa. This is not a representative action or public interest litigation. It is a pure money claim that hinges on the petitioner's ability to offer shares. Yet he has no shares to sell. The Apex Court in Clariant International Ltd. v. SEBI [2004] 8 SCC 5241 held : "... The shareholders contemplated under clause (i ) of Regulation 44 must be those shareholders whose shares have been accepted upon public announcement of offer and who have suffered loss owing to blockage of amount by not being able to sell the shares held by them. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n transferring his shareholding in SESA Goa to third parties. A shareholder who does not continue to be a shareholder at the time of the public offer is not entitled to any relief under the Regulations, assuming without admitting that any relief could be granted in the facts and circumstances of the present case. That apart, the rules of the C.P.C. cannot be invoked in aid of writ proceedings before the Court. 59.6 To further support his contention that he continued to have the locus standi to maintain and prosecute the petition, the petitioner relied upon the decision of the Hon'ble Supreme Court in the case of Rajahmundry Electric Supply Corpn. Ltd. v. A. Nageshwara Rao AIR 1956 SC 213, wherein the Hon'ble Apex Court held that the validity of a petition for oppression and mismanagement filed under the Companies Act, 1913 must be judged on the facts as they were at the time of its presentation and the petition, which was valid when presented, cannot cease to be maintainable by reason of subsequent events. It is submitted that the aforesaid decision of the Hon'ble Supreme Court as well as the principle laid down therein has no application in the present case for at least two reaso....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... per cent of its Indian shareholding and constituting 6.9 per cent of its total issued, subscribed and paid-up share capital of SESA Goa. The petitioner was, thus, the largest Indian individual shareholder of SESA Goa, and his two sons continue to be shareholders of SESA Goa to the extent of 100 shares. The petitioner has tried to explain that between 1997 and 1999, the petitioner's shares were sold partly by the pledgees to whom the shares were pledged, which transaction is under challenged by the petitioner, who has filed suits against the pledgees, i.e., against Reliance Capital Ltd. and Standard Chartered Bank Ltd., seeking return of the shares. According to the petitioner, in the case of Creative Outerwear Ltd., there is no dispute with that party that the petitioner is entitled to 8,000 shares. The only dispute is with regard to the identity (distinctive numbers) of those shares, and, therefore, according to the petitioner, on the date the Court issued rule in the matter, i.e., 19-3-1998, the petitioner did hold substantial shares in SESA Goa. Therefore, reliance was placed on the decision of the Supreme Court rendered in the case of Rajahmundry Electric Supply Corpn. Ltd. (s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h University AIR 2001 SC 2552 while dealing with the rights of the parties as specified under Order 22, Rule 10, of the Code of Civil Procedure, 1908. The Supreme Court held : "6. Rule 10 provides for cases of assignment, creation and devolution of interest during the pendency of a suit other than those referred to in the foregoing rules and is based on the principle that the trial of a suit cannot be brought to an end merely because the interest of a party in the subject-matter of suit is devolved upon another during its pendency but such a suit may be continued with the leave of the Court by or against the person upon whom such interest has devolved. But, if no such a step is taken, the suit may be continued with the original party and the persons upon whom the interest has devolved will be bound by and can have the benefit of the decree, as the case may be, unless it is shown in a properly constituted proceeding that the original party being no longer interested in the proceeding did not vigorously prosecute or colluded with the adversary resulting in decision adverse to the party upon whom interest had devolved." (p. 2555) [Emphasis supplied] In the same paragraph, the Suprem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of India to set aside the impugned decisions and seek a declaration that the takeover by MITSUI of FINSIDER constituted a takeover which attracted and requires compliance of the provisions of the SEBI Takeover Regulations, 1994 and Clauses 40A and 40B of the Listing Agreement. It is submitted that even in the case of Clariant International (supra), it was held that the open offer to be made once the Regulations were triggered was to be made to and interest would be paid to "such persons who were shareholders of the target company as on a triggering date". It was also held that a shareholder "... must be one who was a shareholder on the triggering date"; and, therefore, according to the petitioner, he was undoubtedly a shareholder on the triggering date, had there been an open offer as required by the 1994 Regulations. 65. It is fairly conceded that due to passage of time, it may not be expedient to press for or be granted prayer (c) of the petition, i.e., the requirement for the acquirer to make an open offer, as the pendency of the petition for the last 9 years in this Court is due to no fault of the petitioner, and that though the petitioner, time and again, tried to get th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... no such sale can be completed until the public offer is made under the prevailing regulations. It is submitted that the contention of MITSUI in their sur-rejoinder that the petition is not maintainable on the ground of inordinate delay also cannot be accepted, as the facts of the case relied upon by MITSUI i.e., General Manager, Eastern Railway's case (supra ), is wholly untenable to the facts of the present case. In the present case, the petitioner filed the present petition in 1998 itself, immediately after the Appellate Tribunal passed the impugned order, and the petitioner has been vigilant in prosecuting the matter; and, therefore, the petition survives insofar as grant of reliefs in terms of prayer clauses (a) and (b) is concerned; and a relief be granted that SEBI be directed to take appropriate steps against respondent Nos. 3, 4 and 5 in accordance with law. 67. In our view, the issue of maintainability of the petition, which is raised by the respondents, i.e., it cannot be sustained by reason of events subsequent to its presentation need not refrain us from addressing the key issue raised in the petition, which does deserve consideration. The Appellate Authority, while d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd consequently, the provisions of the Takeover Chapter, i.e., Chapter III, were not triggered. The only shares that have been acquired are the shares of FINCO (not an Indian Target Company) by EARLY GUARD (also not an Indian Target Company). 71. It is submitted that unless there is an acquisition of shares in a target company, the 1994 Regulations are not triggered. It is submitted that neither change in control nor indirect acquisition triggers the provisions of the 1994 Regulations. In the case of Shirish Finance and Investment (P.) Ltd.'s case (supra) and Herbertson Ltd.'s case (supra), the Court found that there was acquisition of shares in the target company and the Appellate Bench of the High Court found that the parties who acquired shares in the target company were also acting in concert. It is on this basis that the Court accepted the violation prima facie of the 1994 Regulations. SESA Goa's case was in terms referred to by the learned Judges of the Division Bench and was held to be distinguishable from the Herbertson Ltd.'s case (supra). 72. It is submitted that change in control/management of a target company simpliciter is not covered under the provisions of the 1994....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r). SCL was a listed company whose 80 per cent of the voting capital was held by three private limited investment companies. Originally, the entire capital of these three companies was held by M/s. C. Sivsankaran & Associates (Shiva Group). EIL acquired these three investment companies from Shiva Group. Pursuant to the said acquisition of these three companies, EIL introduced its nominee directors on the Board of Target Company. It is understood that by the acquisition of shares in unlisted companies, there has been takeover of management control of the target company. However, the acquisition of shares in unlisted company was outside the purview of the takeover Regulations, 1994 and also Clauses 40A and 40B of the listing agreement. 77. However, the acquirer made a voluntary open offer for acquiring 20 per cent equity shares of the target company which was allowed in the interest of the shareholders of the target company. 78. In order to appreciate the key issue, which we have spelt out in paragraph 16 of the judgment, and to appreciate the rival contentions of the parties, we have made reference to some of the experts from the Report of the Committee on substantial acquisition....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of Shares and Takeovers) Regulations, 1994 being regulatory in nature, therefore, in construing a regulatory statute, the principle of purposive interpretation must be adopted. According to him, what has been, introduced in the subsequent Regulations of 1997 is nothing but explanatory, and the Court takes view that indirect acquisition will have to be read with the Regulations of 1994, which have been further clarified by repealing the same and introducing radical changes in the 1997 Regulations. The main thrust of the petitioner that the 1994 Regulations are repealed by the 1997 Regulations and that the 1997 Regulations contained the provisions which improve the provisions of the 1994 Regulations is not of much relevance, merely because and indirect acquisition was explicitly covered by the 1997 Regulations; and that would not lead to the conclusion that such an indirect acquisition was not covered by the 1994 Regulations. 79. If one examines the provision of the 1994 Regulations, particularly regulation 3(d) of the provisions of Chapter III of the 1994 Regulations including regulation 9, it does not apply to the impugned acquisition. regulation 3(d) expressly provides that no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ollowing paragraphs of the judgment are extracted:- "94. ... Mr. Chidambaram next submitted that the acquisition of shareholding of defendant Nos. 3 to 5 by seven star and defendant No. 11 did not violate the regulations because of the express provisions in regulation 3(d) of the 1994 Regulations. Regulation 10 has no application when shares of unlisted companies are acquired by virtue of regulation 3(d). Defendant Nos. 3 to 5 not being listed companies, their acquisition did not attract regulation 10. He relied on the decision, of the SEBI in the case of Sesa Goa which was affirmed by the appellate authority. Mr. Nariman, on the other hand, submitted that regulation 3(d ), no doubt, makes the provisions of Chapter III of the regulations inapplicable to acquisition of shares 'in companies whose shares are not listed on any stock exchange'. He emphasised the words 'in companies' and submitted that the words used are not 'through companies'. According to him, if it was a simple transaction of takeover of an unlisted company, regulation 10 may not be attracted, but in the facts of this case, since the defendants were acting in concert with each other, the complexion of the case chang....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and it was in pursuance of such a common plan that funds were made available to the three unlisted companies who acquired the shares of Herbertsons Ltd., and later, handed over those companies to the defendant No. 11. Since an acquirer by definition includes any person acting in concert with the acquirer, the acquisition by these three unlisted companies of the shares in Herbertsons Ltd., were in fact acquisition by the acquirers within the meaning of Regulation 10. When two or more persons acquire shares in a company, acting in concert with each other, each one of them is an acquirer within the meaning of regulation 2(b) of the 1994 Regulations. If this Court ultimately finds that the defendants were acting in concert with each other pursuant to a common plan to acquire substantial shares of Herbertsons Ltd., the acquisition of these unlisted companies by the defendant No. 11, at a later stage, would not help the defendants because the initial acquisition by the aforesaid three unlisted companies would itself be an acquisition of shares by an acquirer in breach of the prohibition contained in Regulation 10. 96. So far as the judgment of the SEBI and the appellate authority in SE....
X X X X Extracts X X X X
X X X X Extracts X X X X
....areholder and a holder of shares on the basis of blank transfer with a right to get his name registered was included in that term. On the question of indirect acquisition and control, he submitted that in the facts and circumstances of this case, that was not relevant in view of the fact that the defendants were acting in concert with each other, and, therefore, on a purposive interpretation, whether the acquisition was direct or indirect is immaterial. 99. We are inclined to agree with Mr. Nariman. We have already recorded our conditions earlier. As far as indirect acquisition is concerned, in the facts and circumstances of this case, if it is held that the defendants were acting in concert with each other, each one of them must be deemed to be an acquirer, and the question of direct or indirect acquisition does not arise. 101.1 We agree with Mr. Nariman in view of the findings already recorded by us, but we may only add that so far as acquisition of unlisted companies is concerned, under the Regulations of 1997, Regulations 10 to 12 thereof will apply to the acquisition of shares in unlisted companies in the category of cases enumerated under the explanation to which the Regula....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the definition of 'securities' contained in section 2(h ) of the Securities Contract (Regulation) Act, 1956 and 'body corporate' in the Companies Act, 1956. The expression 'securities' in regulation 9(3) clearly and obviously refers to securities of the target company and not securities of a company which holds shares in the target company. The expression 'securities' has been used in contradistinction to the expression 'shares' in regulation 9(1) and 9(2) so as to cover a case where an acquirer acquires voting rights in a company by acquiring securities other than shares which may entitle the acquire to such voting rights. It is not as if the expression 'securities' was meant to cover the acquisition of shares of an unlisted holding company. 82. In 1995, SEBI asked Justice P.N. Bhagwati (Retd.) to lead a committee of experts in reviewing the 1994 Regulations. The contents of the Bhagwati Committee Report dated 18-1-1997 clearly demonstrate the view of that expert committee that the 1994 Regulations did not apply to indirect acquisition. "(ix)The terms of reference of the Committee were: uTo examine the areas of deficiencies in the existing regulations; and uTo suggest amendmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acquire indirect control of a listed company by acquiring the holding company or a set of investment companies which has block holding and which may be unlisted, because the scope of the regulations apply only to acquisitions of shares in listed companies. The committee thought it fit to clarify by way of an explanation that acquisition of an unlisted company would not be exempted if by virtue of such acquisition, or change in control of the unlisted company whether in India or abroad, there is brought about a change in control of the listed company or control over the voting rights of the listed company. The Committee recommends that: Concept of indirect acquisitions be brought in. This has been done in the definition, of acquirer in clause (b) of sub-regulation (1) of regulation 2; in the definition of persons acting in concert in sub-clause (1) of clause (e) of sub-regulation (1) of regulation 2; further while excluding unlisted companies from the purview of the regulations in clause (k) of sub-regulation (1) of regulation 3. 3.35 Chain principle.-Occasionally, a person or group of persons acquiring statutory control of a company (which need not be a company to which the regu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ital of a company carrying voting rights and include any 'security' which would entitle the holder to receive shares with voting rights". Regulation 2(1)(h) defines a Stock Exchange to mean a stock exchange which has been granted recognition under section 4 of the Securities Contract and Regulations Act, 1956 (SCRA). The word 'company' or 'companies' is not defined in the 1994 Regulations; but regulation 2(2 ) of the 1994 Regulations provides that all other expressions unless defined herein shall have the same meaning as have been assigned to them under the SEBI Act or the Companies Act, 1956, or the SCRA, as the case may be. 86. The SEBI Act does not define the expression 'company' or 'companies'. Section 2(10) of the Companies Act, 1956 defines a company as being a company defined in section 3. Section 3 of the Companies Act, 1956 in essence defines a company as a company formed and registered under this Act or previous Companies Acts. Therefore, the word 'companies' in regulation 3(d ) and regulation 2(1)(i) of the 1994 Regulations would mean a company formed and registered under the Companies Act, 1956 or earlier Companies Acts. Thus, Chapter III of the 1994 Regulations does n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l. The Explanation to Regulations 10 and 11 of the 1997 Regulations provided that the acquisition under Regulations 10 and 11 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. Therefore, it is quite evident that the concept of indirect acquisition of shares or change in control has been introduced for the first time by the 1997 Regulations. 90. Mr. Chagla has placed reliance on the decision rendered by the Hon'ble Supreme Court in Raghunath Rai Bareja v. Punjab National Bank [2007] 2 SCC 2301 so as to demonstrate how and in what manner a statute has to be interpreted and that ordinarily, Courts should not depart from the literal rule that would really be amending the law in the garb of interpre- tation, which is not permissible; and that departure from the literal rule be only done in very rare cases, and the Court cannot attend to the principles of interpretation other than literal rule where the words are absolutely clear and unambiguous; and, therefore, the literal rule of interpretation, for example, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erpretation. Hence there should be judicial restraint in this connection, and the temptation to do judicial legislation should be eschewed by the Courts, in fact, judicial legislation is an oxymoron." 92. We, therefore, do not find that both SEBI and the Appellate Authority were in error when they concluded that the transaction did not come within the ambit of the provisions of the 1994 Regulations and no public offer was required to be made. 93. Recently, followed by the decision in Raghunath Rai Bareja's case (supra) the Hon'ble Supreme Court had another occasion to deal with the issue in the decision rendered by it in the case of Southern Petrochemical Industries Co. Ltd. v. Electricity Inspector [2007] 5 SCC 447. The Hon'ble Apex Court dealt with the issue of purposive construction and restriction of operation of repeal clause in context with the State of Tamil Nadu having passed a number of Notifications under section 13 of the T.N. Electricity (Taxation on Consumption) Act, 1962 granting exemption from payment of tax to many of the appellants and based on which exemptions, the appellants established their various industrial units; and in many cases, applied for high tension....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in a statute are plainly taken from an earlier statute in pari materia which have received judicial interpretation, it must be presumed that Parliament was aware thereof and intended it to be followed in the latter enactment. But, it is another thing to say that it is necessary or proper to resort to or consider the earlier legislations on the subject only because the consolidating Act re-enacts in an orderly form the various statutes embodying the law on the subject. (See Williams v. Permanent Trustee Co. of New South Wales 1906 AC 249 AC at p. 252 and N.S. Bindra's Interpretation of Statutes, 10th Edn., Pp. 1071-72. 79. The words 'consolidate and amend' furthermore often occur in a statute in repealing provision. Such a statute is not intended to alter the law. 80. In Union of India v. Mohindra Supply Co. AIR 1962 SC 256 this Court observed : (AIR pp. 260-61, para 7) "7. ... The Arbitration Act of 1940 is a consolidating and amending statute and is for all purposes a code relating to arbitration. In dealing with the interpretation of the Indian Succession Act, 1865 the Privy Council in Novendra Nath Sircar v. Kamalbasini Dasi [1895-96] 23 1A 18 observed that a code must be con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ever, there is no constitutional or statutory embargo that a consolidating Act must also be an amending Act. When different terms are used in the new Act, it would not be proper for the Court to refer to the provisions of a repealed statute. 82. We may furthermore notice that the distinction between consolidating statute and other statutes is no longer valid. It is only in certain exceptional situations that the language used in the earlier Act can be resorted to. In G.P. Singh's Principles of Statutory Interpretation, 10th Edn., pp. 315-16, it is stared: 'The distinction between consolidating statutes and other statutes for purposes of interpretation is being obliterated. Recent decisions have emphasised that a consolidation Act should be interpreted according to normal canons of construction and recourse to repealed enactments can be taken only to solve any ambiguity, for the process of consolidation would lose much of its point if, whenever a question as to construction of a consolidating Act arose, reference had to be made to the statutes which it has consolidated and repealed. The primary rule of construction of a consolidation Act is to examine the language used in the Act ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lso unless the new legislation manifests an intention incompatible with or contrary to the provisions of the section. Such incompatibility would have to be ascertained from a consideration of all the relevant provisions of the new law and the mere absence of a saving clause is by itself not material. It is in the light of these principles that we now proceed to examine the facts of the present case.' 85. In Jayantilal Ararathlal v. Union of India [1972] 4 SCC 174 this Court held: (SCC pp. 177-78, para 8). 'The above contention is untenable. There are no provisions in the Gold (Control) Act, 1968 which are inconsistent with Rule 126(1)(10) of the Rules. That being so, action taken under that rule must be deemed to be continuing in view of section 6 of the General Clauses Act, 1897. It is true that Gold (Control) Act, 1968 does not purport to incorporate into that Act the provisions of section 6 of the General Clauses Act. But the provisions therein are not inconsistent with the provisions in section 6 of the General Clauses Act. Hence the provisions of section 6 of the General Clauses Act are attracted in view of the repeal of the Gold (Control) Ordinance, 1968. As the Gold (Contr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bstance, depending upon the intention of the Legislature. If the intention indicated expressly or by necessary implication in the subsequent statute was to abrogate or wipe off the former enactment, wholly or in part, then it would be a case of total or pro tanto repeal. If the intention was merely to modify the former enactment by engrafting an exception or granting an exemption, or by super-adding conditions, or by restricting, intercepting or suspending its operation, such modification would not amount to a repeal [see Craies on Statute Law, 7th Edn., pp. 349, 353, 373, 374 and 375; Maxwell's Interpretation of Statutes, 11th Edn., pp. 164, 390 based on Mount v. Taylor [(1868) LR 3 CP 645]; Southerland's Statutory Construction, 3rd Edn. Vol. 1, paras 2014 and 2022, pp. 468 and 490. . . .' 87. In T.S. Baliah v. ITO AIR 1969 SC 701 this Court held : (AIR p. 705, para 5). 'The principle of this section is that unless a different intention appears in the repealing Act, any legal proceeding can be instituted and continued in respect of any matter pending under the repealed Act as if that Act was in force at the time of repeal. In other words, whenever there is a repeal of an enactme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y Central Act or Regulation made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not- (a )revive anything not in force or existing at the time at which the repeal takes effect; or (b )affect the previous operation of any enactment so repealed or anything duly done or suffered thereunder; or (c )affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or (d )affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or (e )affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid; and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed. ****** 24. Continuation of orders, etc., issued under enactments repealed and re-enacted.-Where any Central Act or Regulation is, after the commence....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld be created and then urge that they should be read together. 92. Submission of Mr. Andhyarujina (learned Senior Advocate for the respondents) that this Court must read the words 'unless a different intention appears' in sub-section (1) of section 20 of the 2003 Act, in our opinion, is impermissible in law. We have rejected a similar contention of Mr. Nariman urging us to read down and apply the purported rule of purposive construction while construing section 14 of the 2003 Act. We do not intend to apply different tests in the matter of construction of section 20 of the 2003 Act. Omission of words in a particular statute may play an important role. The intention of the Legislature must be, as is well known, gathered from the words used in the statute at the first instance and only when such a rule would give rise to anomalous situation, may the Court take recourse to purposive construction. It is also a well-settled principle of law that casus omissus cannot be supplied. [See J. Srinivasa Rao v. Govt. of A.P. (2006) 12 SCC 607]. 93. The proviso appended to sub-section (1) of section 20 of the 2003 Act although for all intent and purport incorporates section 6 of the General Cla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o application, sub-section (1) of section 20 would apply. Once sub-section (1) of section 20 of the 2003 Act is found to have application, the absence of the words 'unless a different intention appears' will assume great significance. If that be so, then there is no conflict between the proviso appended to sub-section (1) of section 20 and sub-section (2) thereof. In that view of the matter, sub-section (2) of section 20 of the 2003 Act would prevail. 97. The High Court, therefore, in our opinion, committed a manifest error in opining that both the provisions relate to the same scenario. Furthermore, sub-section (2) of section 20 of the 2003 Act uses the expression 'notwithstanding such repeal' and, thus, the same cannot be construed to be notwithstanding anything contained in sub-section (1) of section 20 thereof. 98. Once the aforementioned conclusion is arrived at, it would not be necessary to construe the proviso appended to sub-section (1) of section 20 in its own language. Proviso, as is well known, has four functions, as has been noticed by this Court in S. Sundaram Pillai v. V.R. Pattabiraman [1985] 1 SCC 591, in the following terms: (SCC P. 610, Para 43) '43. (1) qualif....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on, 3rd Edn., p. 229, wherein it was stated : 'Paragraph (ii ).-This derives from the Interpretation Act, 1978, section 16(1)(b). The reference to 'anything duly done' avoids the need for procedural matters, such as the giving of notices, to be done over again. Example 89.3.-The Interpretation Act, 1978, section 16 preserved the effect of a noise nuisance notice served under the Control of Pollution Act, 1974, section 58(1) before its repeal and replacement by the Environmental Protection Act, 1990, sections 162 and 164(2) and Schedule 16 Part III.' The treatment of the law, in our opinion, is not exhaustive as different consequences are required to be taken into consideration and applied having regard to the nature of the statutory provision. 102. Mr. Andhyarujina also relied upon Maxwell on the Interpretation of Statutes, 12th Edn., p. 18, wherein it was stated : 'When an Act is repealed, any delegated legislation made under the Act falls to the ground with the statute unless it is expressly preserved. Where the subordinate legislation is continue in force, however, the general rule is that its scope and construction are determined according to the repealed Act under which i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... rule was held to be a thing done within the meaning of article 357(2) of the Constitution of India. 105. In Harnek Singh (State of Punjab v. Harnek Singh) [2002] 3 SCC 481 this Court held: (SCC p. 490, para 16) 'The words 'anything duly done or suffered thereunder' used in clause (b) of section 6 are often used by the Legislature in saving clause which is intended to provide that unless a different intention appears, the repeal of an Act would not affect anything duly done or suffered thereunder. This Court in Hasan Nurani Malad v. S.M. Ismail, Asstt. Charity Commr. [AIR 1967 SC 1742] has held that the object of such a saving clause is to save what has been previously done under the statute repealed. The result of such a saving clause is that the pre-existing law continues to govern the things done before a particular date from which the repeal of such a pre-existing law takes effect. In Universal Imports Agency v. Chief Controller of Imports and Exports (supra) this Court while construting the words things done' held that a proper interpretation of the expression 'things done' was comprehensive enough to take in not only the things done but also the effect of the legal conseque....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al Acquisition of Shares and Takeovers) Regulations, 1997 nowhere provide for retrospective application of these Regulations. Therefore, Regulation 47, which provides for repeal and saving, is in consonance with the usual provisions which are required to be incorporated under section 6 of the General Clauses Act, i.e., it merely qualifies that anything done or any action taken or purported to have been done or taken, including approval of letter of offer, exemption granted, fees collected, any adjudication, enquiry or investigation commenced or show-cause notice issued under the said regulations shall be deemed to have been done or taken under the corresponding provisions of these Regulations; and so also in respect of any application made to the Board under the said regulations and pending before it shall be deemed to have been made under the corresponding provisions of these Regulations; and so also in case of appeals preferred to the Central Government. 95. To sum up, the law is well settled from catena of decisions, including those cited and discussed in this judgment. The 1994 Regulations, on being repealed by the 1997 Regulations, will be restricted to their operation as giv....