TaxTMI 
TaxTMI 
2021 (1) TMI 390
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....r short). 2. The question raised in this appeal is, whether the information relating to signing of a Binding Implementation Agreement ('Binding Agreement' for short) by an Authorized Executive Director of the appellant with the dominant Shareholders of the Bank of Rajasthan was liable to be disclosed on an immediate basis under clause 36 of the Listing Agreement and Regulation 12(2) of the PIT Regulations, 1992. 3. The facts relating to the matter are the following: - (i) On May 18, 2010 at 4.30 AM a Binding Agreement was signed by the Executive Director of the appellant with the dominant shareholders of Bank of Rajasthan who held 28.61% of the equity shares of Bank of Rajasthan proposing an amalgamation of the appellant bank and the Bank of Rajasthan. (ii) Same day, at 5.12 p.m. and at 5.25 pm the Bank of Rajasthan informed the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) respectively that a meeting of its Board of Directors is being convened immediately to discuss the proposal relating to amalgamation of the Bank of Rajasthan with the ICICI Bank (appellant). It also stated that the Board of Directors of the ICICI Bank also was sche....
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....ng Agreement had reached some stage of being capable of performance (in terms of its contracting nature) but it would achieve certainty only when the Board of Directors of both the banks approved it and in the case of the appellant it was approved only when the board concluded its meeting at 7.30 p.m. Therefore, there has been no delay in disclosing the proposed amalgamation to the Stock Exchanges concerned at 8:10 p.m. and 8:18 p.m. on the same day after the binding conditions have been fulfilled. 7. The learned Senior Counsel relying on a number of judgments stated that contingent agreements are not certain agreements because for those agreements to attain certainty the conditions precedents have to be first fulfilled. Therefore, contingent contracts cannot be treated as certainties. He also emphasized the meaning of 'condition precedent' as defined in the Black's Law Dictionary as "An act or event, other than a lapse of time that must exist or occur before a duty to perform something promised arises. If the condition does not occur and is not excused, the promised performance need to be rendered. The most common condition contemplated by this phrase is the immedia....
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....nding Agreement was not between the relevant parties and hence had not attained the stature of material information liable to be disclosed with immediate effect. In this regard reliance was placed on the Guidelines of the Reserve Bank of India dated May 11, 2005 which, inter alia, stated as follows:- "2....Boards of the banks have to play a crucial role in the process. It may be ensured that the decision of merger should be approved by two third majority of the total Board members and not those present alone." 9. Therefore, as per the RBI Guidelines it was contended that the banks could not have considered the Binding Agreement as a concluded contract unless board approvals had been obtained and, therefore, when the boards of both the banks were not privy to the Binding Agreement it was not liable to be disclosed, particularly, when the Binding Agreement also contained confidentiality provisions to that effect. The appellant further relied on the decision of the Supreme Court in M.V. Shankar Bhat & Anr. v. Claude Pinto Since (Deceased) by LRs & Ors [2003] 4 SCC 86 wherein it was held that "31. When an agreement is entered into subject to ratification by others, a conclu....
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....he board approval the company should make the relevant disclosure. 13. In short, the learned Senior Counsel for the appellant contended that the Binding Agreement signed in the early hours of May 18, 2010 was not an agreement between the relevant parties, it was only an understanding to bind the dominant promoters to take the next steps towards a possible amalgamation; not a Binding Agreement till the conditions precedent i.e. obtaining power of attorney and board approvals, are met; both the RBI Guidelines and BSE Guidelines on amalgamations require disclosures only after board approval; it was not an agreement between the relevant parties as only the dominant Shareholders of the Bank of Rajasthan was a party not the Bank of Rajasthan itself; it was not a PSI and it was treated as a PSI based on the post disclosure price movement of the shares of only Bank of Rajasthan; the relevant disclosure was made immediately after the board approvals and therefore there was no delay in disclosing the relevant information both under the Listing Agreement and PIT Regulations, 1992 and if the Binding Agreement itself was disclosed the appellant would have been charged with premature disclosu....
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....lear that the proposed amalgamation was enabling synergy between the two entities and hence material and as such price sensitive. Further, actual trading data itself shows that the announcement which was made subsequently did impact the volume of trading and prices of both the scrips. Therefore, it was contended that the argument of the appellant that the Binding Agreement was subject to conditions and therefore was liable to be disclosed only after the conditions have been fulfilled has no merit. The learned Senior Counsel also submitted that the circular of the BSE relied on by the appellant came more than four years later to the event and in any case such circulars/guidelines cannot overrule provisions in an Act and the Regulations. 17. Before we proceed, the relevant provisions of SCRA, Listing Agreement, PIT Regulations, 1992 and Annexure to the PIT Regulations, 1992 are reproduced for convenience below:- "S. 21. SCRA.-Where securities are listed on the application of any person in any recognized stock exchange, such person shall comply with the conditions of the listing agreement with that stock exchange. Listing Agreement.-Cl. 36. Apart from complying wi....
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....s; (vi) disposal of the whole or substantial part of the undertaking; (vii) and significant changes in policies, plans or operations of the company; Code of internal procedures and conduct for listed companies and other entities.-R. 12(2). The entities mentioned in sub-regulation (1), shall abide by the code of Corporate Disclosure Practices as specified in Schedule II of these Regulations. SCEHDULE II - CODE OF CORPORATE DISCLOSURE PRACTICES FOR PREVENTION OF INSIDER TRADING 2. Prompt disclosure of price sensitive information 2.1 Price sensitive information shall be given by listed companies to stock exchanges and disseminated on a continuous and immediate basis." 18. A reading of the aforesaid legal provisions makes it eminently clear that disclosures have to meet all of those stated provisions. Clause 36 is sweeping in nature as it mandates all disclosures to enable the shareholders and the public to appraise the position of the Company and to avoid the establishment of a false market in its securities. It also mandates that the Company will also immediately inform the Exchange of all the events, which will have bearing on the performance/o....
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....n event is what is tested in disclosure; if the event does not fructify disclose that as well with reasons explained. Be that as it may. For the sake of argument let us probe this proposition further. Is the Binding Agreement a completely uncertain document about its outcome? What are the proposed conditions to be met? (1) production of Power of Attorney by the same Dominant Shareholders who have already signed the agreement at 4.30 a.m. and (2) approval of the respective Boards of both the banks, the appellant as well as Bank of Rajasthan. The signatory of the appellant was a board authorized Executive Director. Shri. Sanjay Kumar Tayal, one of the two signatories on the other side, was also a Director on the Board of Bank of Rajasthan at the relevant time. Two of them signed on behalf of all the dominant shareholders. In the light of this it would be irrational to assume that the Binding Agreement did not have any certainty or did not have a reasonable certainty of performance. 21. Further, a look at the run up to signing the Binding Agreement as given in the Investigation Report would indicate that it was a story of amalgamation foretold. Starting in February 2010 ICICI Bank ....
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....t have an adverse impact on ICICI Bank. The proposed amalgamation and any future acquisitions or mergers may involve number of risks, including deterioration of asset quality, diversion of our management's attention required to integrate the acquired business and failure to retain key acquired personnel; and clients, leverage synergies or rationalize operations, or develop the skills required for new businesses and markets, or unknown and known liabilities, some or all of which could have an adverse impact on our business." 24. This statement clearly demonstrates that the appellant was aware of the potential risk and hence the impact the proposed amalgamation could have on its share prices clearly making it price sensitive information. Therefore, the disclosures by the appellant regarding the potential synergy and performance of the amalgamation and its risk factors would make it both material and price sensitive information. Therefore, the finding to this effect in the impugned order cannot be faulted, irrespective of whether post-facto share prices were in fact affected or not, and whether such an analysis has been done or not. What is relevant for disclosure is the materi....
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....ntinuously on real time basis. 27. By the same reasoning the interpretation given by the circular of the BSE dated September 30, 2014 relied on by the appellant also does not come to the aid of the appellant even ignoring the fact that this circular was not available on the date of the event. What the circular states is as follows:- "9. The BSE Circular of 2014.-Disclosures relating to Any other information having bearing on the operation/performance of the Listed Entity as well as price sensitive information, which includes but not restricted to; I. ** ** ** II. Acquisition, merger, de-merger, amalgamation, restructuring, scheme of arrangement, spin off or selling divisions of the Listed Entity, delisting, redemption/cancellation/retirement of any securities issued by the Listed Entity. This should be informed at time of Board approval or any committee authorized by the Board Acquisition/agreement to acquire: (a) Name of the target entity (b) Whether the promoter/promoter group/group companies have any interest in the entity being acquired? If yes, nature of interest and details thereof; (c) Whether the acq....
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....n on-going, continuous basis. If such disclosures had to await finality/complete certainty of material corporate decisions not only disclosure laws become redundant but consequently even core PIT Regulations to help prevent insider trading, a major bane of securities market, will also become a casualty. The purpose and spirit of disclosure in a disclosure-based regulatory regime is simple and clear; disclose all material and price sensitive events/information and disclose even when one is in doubt. It does not have to be tested with finer legal examination, hairsplitting arguments or semantics. Here, it is an admitted fact that the appellant itself had a view that the event was disclosable; hence consulted their legal advisers though at 12.31 p.m. they advised against disclosing for whatever reasons. In our reasoned view, given the facts of this matter, the signed Binding Agreement in question was price sensitive and admittedly material to the performance of the appellant and needed to be disclosed on an immediate basis which was not done. 29. Similarly, we do not agree with the submissions made by the learned Senior Counsel for the appellant on the usage of some adjectives or q....
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....ven thereafter), no prejudice has been caused to the appellant etc cannot be accepted since a company, that too a banking company, being a dynamic entity grows organically and inorganically and learns by doing. Given that a violation committed at an early stage of an organizational life cycle, and which was known to the Regulator, cannot be invoked to punish it several years down the line when the organization has reached a different stature and position. That would cause prejudice to the appellant unlike as argued by the respondent SEBI. Moreover, corrective actions relating to market violations have to be taken by the regulator as early as possible, at least soon after it becomes known to the regulator, for appropriately punishing the guilty not only for the sake of modifying the behavior of the violator but also for sending strong messages to the market participants in general. After all the charge against the appellant is one trading day's delay in disclosure, but the delay on the part of SEBI to show cause is 2955 days from the date of the event and about 2130 days from the date of the preliminary investigation report, which is too wide a gap to be ignored. Several years&#....