TaxTMI 
TaxTMI 
2009 (7) TMI 1386
X X X X Extracts X X X X
X X X X Extracts X X X X
....o raise additional resources amounting to Rs. 122.40 crores to be utilized for returning the target company's debt and also for additional working capital requirements. A notice dated 3-3-2006 was issued under Section 81(1A) of the Companies Act to the shareholders, inter alia, informing them that an EGM would be held on 27-3-2006 for seeking their approval for allotment to the appellants on preferential basis 50,32,700 Part A convertible debentures of Rs. 100 each carrying interest of 7 per cent per annum which will be compulsorily and automatically converted within 18 months from the date of allotment into 3,41,20,000 equity shares of Rs. 5 each at a premium of Rs. 9.75 per share. Further, as regards Part B optionally convertible debentures, the appellants had the option to convert them into equity shares of Rs. 5 each at a conversion price of Rs. 50 per share. We are not concerned with these Part B optionally convertible debentures in the present appeal. The EGM was held as scheduled on 27-3-2006 and the resolutions were passed. For the issue of convertible debentures and optionally convertible debentures, the target company also made an application to BSE seeking its in-pri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-1-2008 raised the shareholding of the appellants to 26 per cent, Regulation 10 of the takeover code got triggered and the appellants were required to make a public announcement to acquire further shares of the target company. They made a public announcement through YES Bank Ltd. as their merchant banker on 22-1-2008 (4 days before the conversion on 26-1-2008) to acquire shares from the public shareholders up to 2,52,95,496 fully paid-up equity shares of the face value of Rs. 5 each representing 20 per cent of the voting paid-up equity share capital of the target company at a price of Rs. 14.75 per fully paid-up equity share payable in cash. In the public announcement, the price at which the shares were offered to the shareholders was calculated at Rs. 14.75 per share. After the public announcement was made and within the time prescribed by Regulation 18 of the takeover code, the appellants through their merchant banker prepared a draft of the letter of offer and the same was sent to the Securities and Exchange Board of India (for short 'the Board') for its comments. The proviso to Regulation 18(2) provides that if the Board on receipt of the letter of offer specifies chang....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng of the public announcement of offer.--(1) The public announcement referred to in regulation 10 or regulation 11 shall be made by the merchant banker not later than four working days of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein.... (2) In the case of an acquirer acquiring securities, including Global Depository receipts or American Depository Receipts which, when taken together with the voting rights, if any already held by him or persons acting in concert with him, would entitle him to voting rights, exceeding the percentage specified in regulation 10 or regulation 11, the public announcement referred to in Sub-regulation (1) shall be made not later than four working days before he acquires voting rights on such securities upon conversion, or exercise of option, as the case may be. 18. Submission of letter of offer to the Board.--(1) Within fourteen days from the date of public announcement made under regulation 10, 11 or 12 as the case may be, the acquirer shall, through its merchant banker, file with the Board, the draft of the lett....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sp; ** (11) The letter of offer shall contain justification or the basis on which the price has been determined. Explanation: (i) ** ** ** (ii) Where the public announcement of offer is pursuant to acquisition by way of firm allotment in a public issue or preferential allotment, the average price under Clause (c) of Sub-regulation (4) shall be calculated with reference to twenty-six week period preceding the date of the board resolution which authorised the firm allotment or preferential allotment. 5. The primary grievance of the appellants is that the Board was not justified in directing them to re-calculate the offer price by rec....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cent or more of the voting rights in a company and not on the acquisition of shares which do not carry voting rights. The argument is that the appellants acquired the voting rights only on 26-1-2008 when the debentures held by them were converted into equity shares which carried voting rights, and according to Shri Bhatt, it is this date with reference to which the offer price has to be calculated. 6. From the rival contentions of the parties, the question that requires consideration is as to what should be the reference date for the determination of the offer price which the appellants as acquirers are required to offer to the existing shareholders of the target company. Regulation 20 of the takeover code deals with the offer price. Clause (i) thereof makes it clear that the offer to acquire shares under Regulation 10 shall be made at a price not lower than the price determined as per SUB-regulations (4) and (5). Sub-regulation (4) is the one with which we are concerned in the instant case. It has three Clauses (a), (b) and (c) and they prescribe three different modes of calculating the offer price and the highest of the three prices shall be the offer price. We are really con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orised the allotment of shares carrying voting rights. As already noticed, the appellants contend that this happened on 3-3-2006 when the BoD resolved to convene the EGM for 27-3-2006 for the allotment of convertible debentures. According to the appellants the preferential allotment was, in any case made to them by the BoD on 21-7-2006 and at the most this could be the date when they authorised the preferential allotment. The learned senior counsel appearing for the Board seriously disputes this position and contended that the date of public announcement could well be taken as the date on which the preferential allotment could be said to have been authorised by the board of directors. He strenuously contended that, in any case, 26-1-2008 would be the date on which the preferential allotment was authorised by the board of directors as it was on that date that the allotment of shares were made to them on the conversion of the warrants. 8. We have given our thoughtful consideration to the rival contentions of the parties and find merit in the alternative contention of Shri J.J. Bhatt, learned senior counsel for the Board. March 3, 2006 cannot be the date as in that meeting the BoD ....