TaxTMI 
TaxTMI 
2008 (10) TMI 730
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.... September 9, 2008 from respondent no.1 addressed to respondent no. 2, the appellant has filed this appeal under section 15T of the Securities and Exchange Board of India Act, 1992 and Regulation 46 of the Regulations. The main grievance of the appellant is against the direction contained in the impugned communication whereby respondent no.1 has directed that the price offered in the public announcement for acquisition of 20 per cent equity shares of the target company should be recalculated by reckoning the date of the public announcement as the reference date in terms of Regulation 20 of the Regulations. The appellant is also aggrieved by the direction contained in the impugned communication to the effect that the letter of offer should be dispatched to the shareholders within 10 days after carrying out necessary changes and that the offer should open within 5 days thereafter failing which the appellant would be liable to pay interest at the rate of 10% per annum to all the shareholders for the delay in payment. 2. We may now notice the facts of the case in brief. In a meeting held on 16.12.2006, the Board of Directors (BoD for short) of the target company decided to convene a....
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....activity schedule and consequential effects/compliance on other obligations like escrow etc., be made in the offer document, wherever required. .......................................................................................... 4. Offer price and Financial arrangement: a. Under point 7 - Re-calculate the offer price by reckoning the date of PA as the reference date in terms of regulation 20 and offer the revised price as re-calculated to all the shareholders. Further, necessary changes in terms of the escrow account and other disclosures may be made at all the relevant places in the offer document." 3. The dispute between the appellant and Respondent no.1 is essentially about the method of pricing of the public offer. However, both sides agree that the price in this case is to be determined in accordance with Regulation 20(4) and Explanation (ii) below Regulation 20(11) of the Regulations which are reproduced below:- "Offer Price 20. (1) The offer to acquire shares under regulation 10, 11, or 12 shall be made at a price not lower than the price determined as per sub-regulations (4) and (5). (2) .......... (3) ....
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....rice paid by the Acquirer or Persons Acting in Concert under any Agreement referred to in sub regulation (1) of Regulation 14. N.A. 2 Highest price paid by the Acquirer or PAC for acquisition of Shares or voting rights including by way of allotment in a Public or Rights issue or preferential allotment, if any, during the twenty-six week period prior to the date of PA. N.A. 3 The average of the weekly high and low of the closing prices at BSE in the 26 weeks preceding the date of Board meeting which authorized the preferential Allotment Rs.15.16 4 The average of the daily high and low prices at BSE in the 2 weeks preceding the date of Board meeting which authorized the preferential allotment Rs.17.98 5 The price at which Equity Shares are allotted to the Acquirer, upon exercise of Warrants allotted on a preferential basis. Rs.19.00 6 Highest of the above Rs.19.00 .............................................................." The appellant has taken the date of the meeting of the BoD which made the allotment of warrants as the reference date in items 3 and 4 in the above table. Respondent no.1 has directed the appella....
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.... respondent no.1, would be wholly irrational since it would violate the basic principle that during a public offer, the price to be offered by the acquirer must be based on price movement of the scrip prior to the knowledge of the acquisition becoming public. 5. Defending the impugned directions, the learned senior counsel for respondent no.1 pointed out that the case of the appellant had been argued entirely on the basis of the understanding that it was the acquisition of warrants by the acquirer that triggered Regulation 11(1) of the Regulations and led to the public offer. According to him, this is not correct and it is the acquisition of voting rights by the acquirer with the issue of shares on conversion of warrants that the Regulations are triggered. On this basis, the learned senior counsel argued that two views are possible. Since the Regulations are triggered only with the acquisition of shares, a view can be taken that the date of allotment of shares to the acquirer by the BoD should be the reference date for the purpose of computing the offer price. An alternative view could be that the preferential allotment was only of warrants and not of shares; in other words, the....
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.... acquisition of voting rights that triggers the public announcement and not mere acquisition of securities without voting rights. Therefore, in the present case, the requirement of public announcement arises only with the allotment of shares and not with the allotment of warrants. 7. The next question to be addressed in this case is what should be the date with reference to which the offer price is to be determined. Respondent no.1 has directed the appellant to treat the date of the public announcement as the reference date on the premise that the allotment of shares to the appellant on conversion of the warrants was not a preferential allotment and, therefore, pricing of the public offer should be strictly on the basis of Regulation 20(4)(c). We do not agree with this proposition. The target company initially made a preferential allotment of warrants to the appellant as approved by the members of the target company in the EGM held on 15.1.2007. The warrants had a lock in period of three years and could be converted to shares upon exercise of option by the appellant at any time within 18 months from their date of issue. The allotment of these converted shares to the appellant by....