TaxTMI 
TaxTMI 
TaxTMI 
2017 (7) TMI 748
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....s wholly owned by Mr. Rajiv Rattan. Both the Appellant and Rajiv Rattan were listed as promoters of the said company in IBREL in the Annual Report for the Financial Year 2009-2010. For the purpose of disposing of the present appeals, the "Target Company" is Rattan India Infrastructure Ltd. It was originally incorporated as a wholly owned subsidiary of IBREL on 9th November, 2010 with a different name which is not material for the purpose of these appeals. In 2011, the Board of Directors of IBREL framed a demerger scheme by which the power business of the company would be demerged and would vest in the Target Company. The High Court of Delhi sanctioned the aforesaid demerger by its judgment and order dated 17th October, 2011. What is important for the purpose of this appeal is that on 19th July, 2012, an information Memorandum in terms of the listing agreement was filed by the Target Company, pursuant to which it was actually listed on the Bombay Stock Exchange and the National Stock Exchange on 20th July, 2012. The appellant acquired 18% of the equity share holding of the target company at a price of Rs. 6.30 per share some time in July, 2014. It made certain other purchases with....
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....is submission that Regulation 10 must be construed taking into account its object, and when this is done, it is clear that the promoters for IBREL, being the same right from the date of its incorporation, and by continuing as such even after the demerger into the present Target Company, the Regulation should be read in accordance with the object sought to be achieved, which is that where there is stability in the Company and the promoters in that Company do not change for a period of three years or more, inter se transfers between them at prices agreed to between them should be exempt from the aforesaid 2011 Regulations. For this purpose, he referred us to the earlier Regulations which are in pari materia with the 2011 Regulations and also took us through the Achuthan Committee Report dated 19th July, 2010. He also placed great emphasis on the Bhagwati Committee Report which shows that the object of Regulation 10 is not to penalise persons who had remained in control of a particular business entity, notwithstanding that it may ultimately change form. His argument was that had no demerger taken place, it would be clear that the promoters of IBREL, having been promoters for over thre....
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....ny document for offer of securities to the public or existing shareholders or in the shareholding pattern disclosed by the company under the provisions of the Listing Agreement, whichever is later;" The present Regulation with which we are directly concerned is Regulation 10, the relevant part of which is set out hereunder: GENERAL EXEMPTIONS 10.(1) The following acquisitions shall be exempt from the obligation to make an open offer under regulation 3 and regulation 4 subject to fulfillment of the conditions stipulated therefor,- (a) acquisition pursuant to inter se transfer of shares amongst qualifying persons being,- (i) immediate relatives; (ii) persons named as promoters in the shareholding pattern filed by the target company in terms of the listing agreement or these regulations for not less than three years prior to the proposed acquisition;" It is important to first read the general exemption provision by itself. What has been stressed by Shri K.V. Vishwanathan, learned senior counsel for the appellant, is that the acquisition must be pursuant to inter se transfer of shares amongst qualifying persons who, for our purposes, are persons who are promoters of a parti....
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....on 3 of the 1997 Regulations, it was noted as under : "The Committee noted that the Regulation 3 exempt acquisitions through inter se transfers among group companies, relatives and promoters. There may not be any cause for concern in respect of inter se transfers amongst group and relatives as in such cases, the control continues to remain with the group. However the issue assumes significance when it involves interse transfers amongst promoter groups such as between a foreign collaborator and an Indian promoter or between two groups of Indian promoters. In such cases, there is bound to be perceptible change in control. The Committee noted that the arguments raised in such cases are that while the shareholder with substantial holding gets an exit, sometimes at very high prices, the other shareholders are denied such benefit. It is also possible that in such cases, the investment was made by the shareholder on the strength of the existing shareholder with substantial holding. There was a strong feeling that in such cases of transfers, there should be a requirement of compulsory open offer." Finally, the Committee recommended that as regards inter se transfers amongst promoters, t....
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....r companies in which such persons hold not less than fifty per cent of the equity shares, and their subsidiaries subject to control over such qualifying persons being exclusively held by the same persons;" A reading of this sub regulation would show that holding companies and their subsidiaries are treated as one group subject to control over such companies being exclusively held by the same persons. This shows that it has been statutorily recognized in sub regulation (iii) that in a given situation viz holding subsidiary relationship, the corporate veil would be lifted. When we come to sub regulations (iv) and (v), it is clear that these two sub regulations follow the pattern contained in sub regulation (ii) in as much as when it comes to persons acting in concert, the period should be not less than three years prior to the proposed acquisition, and disclosed as such pursuant to filings under the listing agreement. Also, when it comes to shareholders of a target company who have been persons acting in concert for a period of not less than three years prior to the proposed acquisition and are disclosed as such pursuant to filings under the listing agreement, the corporate veil is....
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.... clearly defined and "means" only Rattan Limited. To go behind Rattan Limited would not only be contrary to the clear language of Regulation 10(1)(a) but would also introduce a concept viz lifting the corporate veil by the Court contrary to the Regulation itself, which, as has been pointed out above, also contains sub regulation (iii) which, in the circumstances specified, lifts the corporate veil. The second judgment cited before us "Sait Nagjee Purushotam & Co. Ltd. Vs. Vimalabai Prabhulal and Others" reported in (2005) 8 SCC 252 also does not take us further for the same reasons. In fact, even if we were to accept Mr. Vishwanathan's argument that the object of the regulation being that promoters should not keep changing, and if on facts it is found that the same set of promoters continue, we should exempt such cases, this would not be possible for another good reason. In the case of "M/s. Utkal Contractors and Joinery (P) Ltd. And others vs. State of Orissa" reported in 1987 (Supp) SCC 751, a similar argument was turned down in the following terms : "11.Secondly, the validity of the statutory notification cannot be judged merely on the basis of Statement of Objects and R....