ORDER
AGAINST
LUXOTTICA GROUP, S.p.A
(IN THE MATTER OF THE ACQUISITION OF THE SHARES OF
RAY BAN SUN OPTICS INDIA LTD)
1. The present proceedings stand directed against Luxottica Group S.p.A for their failure in complying with the provisions of Regulations 10 and 12 read with Regulations 14(1) and (3) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 in the context of the acquisition of 44.15 % of the shares of Ray Ban Sun Optics India Limited.
2. A description of the entities involved in these proceedings and certain details of the case as have led to the present proceedings are recapitulated in brief as follows:-
3. Ray Ban Sun Optics India Ltd. (formerly known as Bausch & Lomb India Ltd and for brevity’s sake, hereinafter referred to as the “target company”) is a company incorporated under the Companies Act, 1956 with its shares listed at the Jaipur Stock Exchange, the Stock Exchange, Mumbai, The Delhi Stock Exchange Association Ltd., The Calcutta Stock Exchange Association Ltd and the Stock Exchange, Ahmedabad.
4. Bausch & Lomb South Asia Holdings Inc., a Delaware Corporation, USA, is a 100% subsidiary of Bausch & Lomb Inc., a New York corporation, USA (for brevity’s sake, hereinafter referred to as the “Seller”).
5. Bausch & Lomb India Holding Ltd, a company incorporated in USA is a 100% subsidiary of Bausch & Lomb South Asia Holdings Inc., and hold 44.152% shares/ voting rights in the target company.
6. Luxotica Group S.p.A (for brevity’s sake, hereinafter referred to as the acquirer) is a company incorporated in Italy and is listed on the New York and Milan Stock Exchange.
7. Ray Ban Holding Inc., a Delaware Corporation, USA is a wholly owned subsidiary of the acquirer formed in February 03, 2000 which merged with the acquirer vide a merger agreement dated October 27, 2000.
8. The acquirer entered into a purchase agreement with the seller on April, 28, 1999 as regards the sale of its eyewear business and by virtue of the same, indirectly acquired 44.152% of the paid up capital of the target company and control over it, being the single largest shareholder of the target company.
9. The facts of the acquisition was brought to the notice of the Securities and Exchange Board of India(SEBI) which after a detailed consideration of the case passed an order dated August 5, 2002 holding that the said acquisition had triggered the applicability of the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers Regulations, 1997 (for brevity’s sake, hereinafter referred to as the ‘Takeover Regulations’) and that in terms thereof, the acquirer was bound to make a public offer to acquire the shares of the target company.
10. Accordingly, SEBI directed the acquirer to make a public announcement to acquire a minimum of 20% shares off the target company within 45 days from the date of the order, taking April 28, 1999 as the reference date for calculation of the offer price. SEBI also directed the acquirer to pay interest @ 15% per annum to the shareholders from August 27, 1999 till the date of actual payment of consideration for the shares to be tendered in the offer.
11. Separately, on the ground that the said public offer was not made within the time specified in the Regulations. SEBI ordered adjudicating proceedings against the acquirer and in this context appointed Shri S.V Krishna Mohan as the Adjudicating Officer on December 13, 2002. Shri Krishna Mohan then issued a notice to show cause dated January 31, 2003 to the acquirer in terms of Rule 4 of the SEBI (Procedure for holding enquiry and imposing penalty by the Adjudicating Officer) Rules, 1995 (Rules). M/s Koura & Co, Advocates & Barristers, acting on behalf of the acquirer, requested the then Adjudicating Officer to stay the proceedings on the ground that the order of SEBI dated August 5, 2002 had been challenged by them before the Securities Appellate Tribunal (Tribunal) in Appeal No.61 of 2002, and that the terms of reference of the appeal yet to be resolved was similar to that of the adjudicating proceedings. Accordingly, the present proceedings were adjourned.
12. After a detailed consideration of the facts and circumstances of the case as also the questions of law involved, the Tribunal upheld the order of SEBI vide its order dated August 29, 2003 to the extent of holding that the acquirer had indeed violated the provisions of the Takeover Regulations and was required to make a public offer, taking April 28, 1999 as the referral date, within 45 days from the date of the order (August 29, 2003). The Tribunal however modified the order of SEBI to the extent of ordering that interest at the rate of 15% per annum be payable from August 27, 1999 only to those persons who were holding shares of the target company and eligible to participate in the public offer and continue to be the shareholders of the target company on the closure day of the public offer, in case those shares are tendered in response to the public offer to be made in compliance of the order.
13. Challenging the decision of the Tribunal, the acquirer filed Civil Appeal Nos. 7304 of 2003 before the Supreme Court while SEBI filed a cross appeal ie. Civil Appeal No. 8540 of 2003.
14. In the meantime, the case was transferred to me and I was appointed as the Adjudicating Officer vide order dated September 30, 2004. In view of the facts above stated, I also kept the proceedings in abeyance pending resolution at the highest court of law.
15. Finally the apex court disposed of Civil Appeal No. 7304 of 2003 vide its order dated December 12, 2006 by directing the acquirer to make the public announcement of an open offer within a period of 45 days from the date of the order, keeping April, 28, 1999 as the referral date and further directed the acquirer to pay the offer price with interest at the rate of 10% per annum with effect from August 27, 1999 till the date of payment, to all those who were shareholders on August 27, 1999 and continue to be shareholders of the target company on the closure date of the public offer. Thereafter, the Supreme Court also disposed of Civil Appeal No 8540 of 2003 without passing any order in the said appeal.
16. Upon the disposal of the appeals by the Supreme Court, I issued a notice of hearing dated December 28, 2006 to M/s Koura & Co. advising them to appear for the hearing scheduled on January 18, 2007. Shri Devraj Ashok, Counsel; P&A Law Offices, stating to be duly authorized by the acquirer appeared on behalf of the acquirer and sought for a short adjournment to plead the issue of this forum not levying any penalty in the present proceedings. He also submitted a copy of the order passed by the Supreme Court and contended that the merits of the matter were not contested before the Supreme Court and that the acquirer had decided on its own to make the public offer. He submitted a letter of M/s Koura & Co. stating that they were no longer representing the acquirer and that they had no objection if the acquirer was represented by P&A Law Offices. The case was accordingly adjourned to February 7, 2007. However no body appeared on behalf of the acquirer on February 7, 2007 at the scheduled time. Later in the day however, the Counsel appeared and submitted additional documents and written submissions which are briefly reproduced below:
i) After submitting the relevant pleadings before the Supreme Court, although the appeals were listed for a final hearing, they could not be heard for about 3 years due to several factors.
ii) Despite the continuance of legal proceedings for over 6 years before various forums, after due consideration and assessment of its options and competing interests, the acquirer had decided as a matter of business prudence to expedite the conclusion of the legal proceedings by agreeing to make a public offer, without admitting to any liability and without any prejudice to its contentions that the provisions of the Takeover Code have not been violated at any stage.
iii) The acquirer had made similar such contentions before the Supreme Court also and in view thereof, the Supreme Court of India passed a short order on December 12, 2006 with directions that the acquirer will make the public offer in accordance with the guidelines stipulated by the SC in Clariant International Limited vs. SEBI as regards the rate of interest payable by the acquirer pursuant to the public offer and the shareholders entitled to such interest.
iv) Thereafter the acquirer and its subsidiary; Ray Ban Indian Holdings Inc., made the public announcement on January 24, 2007.
v) In view thereof and the current public offer being currently under process, the acquirer also wished for a final conclusion of the present penalty proceedings expeditiously and to this effect, was willing to pay the penalty, without admitting to any liability and without any prejudice to its contentions that the Takeover Code had not been violated.
vi) The purported violation of the Takeover Code was attributed to the execution of the Global Purchase Agreement dated 28-4-1999 and since the transaction took place in the year 1999, the applicable provision for imposition of penalty is Section 15 H of the SEBI Act, 1992, as it existed on the date of the impugned transaction and the maximum penalty that could be imposed was INR 500000 only (Rupees Five Lakhs) in accordance with the settled principles of law and in accordance with the judicial precedents of the Supreme Court of India and decisions of the Tribunal and SEBI.
CONSIDERATION OF ISSUES:
17. I have considered the submissions advanced on behalf of the acquirer including the oral and documentary evidence placed before me on their behalf as also the material papers available on record.
18. The simple and uncontroverted point that emerges from the facts brought out above is that while the present proceedings primarily concern the issue of adjudicating the violation of the Takeover Regulations by the acquirer while acquiring the shares of Ray Ban Sun Optics India Ltd; as on date, on their part the acquirer have already initiated the process of making a public offer to the shareholders of the target company in compliance with the guidelines laid down by the Supreme Court, which is currently under process in that the public announcement has been made on January 24, 2007. Going a step further, with a desire to finally conclude the present proceedings expeditiously, as a matter of business prudence, the acquirer has expressed its willingness to pay the maximum penalty amount as can be levied under the law then in force, without admitting to any liability and without any prejudice to its contentions that the Takeover Code has not been violated.
19. In other words, the acquirer desires to settle this case without contesting the merits involved.
20. The acquirer has contended that submission to the effect that they would make a public offer, without admitting to any liability and without any prejudice to their contentions that the provisions of the Takeover Code have not been violated at any stage had also been advanced before the Supreme Court and in view thereof, the Supreme Court passed a short order on December 12, 2006 with directions that the acquirer will make the public offer in accordance with the guidelines stipulated by the SC in Clariant International Limited vs. SEBI as regards the rate of interest payable by the acquirer pursuant to the public offer and the shareholders entitled to such interest.
21. I have perused the order passed by the Supreme Court which is reproduced below :-
Civil Appeal No 7304/03
“Heard the parties.
It is observed that the issues raised in this Appeal are partly covered by the judgment of this court in the case of Clariant International Limited vs. SEBI (2004) 8 SCC 524. In view thereof the following directions are issued:-
(i) The appellants will make the public announcement of the offer within a period of 45 days from the date of this order having regard to the referral date as April 28, 1999.
(ii) The appellants will pay the offer price with interest at the rate of 10% per annum with effect from 27.08.1999 till the date of payment to all those who were the shareholders on 27.08.1999 and continue to be shareholders of the target company on the closure date of the public offer.
The Bank guarantee furnished under the order dated November 17, 2003 in favour of the respondents shall be kept alive till conclusion of the purchase pursuant to the public announcement and offer.
Civil Appeal No 8540 of 2003
“In view of the Orders passed today in Civil Appeal No 7304 of 2003, no orders are required to be passed in this Appeal.
The Appeal is accordingly disposed of. No costs”.
22. Upon a plain reading of the orders so passed, it is clear that the apex court had after hearing the parties involved, and considering all the facts and circumstances of this case, observed that the issues involved in this case are partly covered by the judgment of the Supreme Court in the case of Clariant International Limited vs. SEBI. Incidentally, in the case of Clariant International Limited, the manner of acquisition of the shares and the issues of interpretation of the provisions of the Takeover Regulations, which are similar to that of the present case, were dealt with at length in an order passed by SEBI, and was fiercely contested by the parties before the Tribunal and finally determined only before the Supreme Court. Hence an observation relating to the merits of an earlier judgment passed by the Supreme Court, and its part application to the facts of the present case could have been made only after considering at length, all the questions of law and facts involved in the two cases. The contention of the acquirer that the merits of the matter were not contested before the Supreme Court is therefore untenable. A reading of the orders or the material on record does not even hint of such contentions being advanced before the Court and the Court considering the same or even of the orders being passed consequent to a conditional undertaking given by the acquirer of making a public offer.
23. I am also not in agreement with the contention of the acquirer that “the Court had ordered the acquirer to make the public offer in accordance with the guidelines stipulated by the Supreme Court in Clariant International Limited vs. SEBI (2004) 8 SCC 524 as regards the rate of interest payable by the acquirer pursuant to the public offer and the shareholders entitled to such interest.”
24. As brought out above, the Supreme Court observed that the issues of this case were partly covered by the judgment earlier passed in Clariant International Limited vs. SEBI and thereafter issued, clear cut directions as regards the making of the public announcement of the offer viz timeframe, referral date, payment of interest, rate of interest, determination of eligible shareholders for receipt of interest, etc. If the contention of the acquirer were to be accepted, the court could have merely ordered the acquirer to make the public offer in accordance with the guidelines stipulated by the Supreme Court in Clariant International Limited vs. SEBI and left it at that without issuing any specific directions thereafter, in which case, the guidelines laid down in that case could have been adhered to by the parties involved themselves.
25. Notwithstanding the above, my views on the proposition advanced by the acquirer of permitting them to pay the penalty without admitting to their liability, is very clear. No power has been conferred upon me by the SEBI Act, 1992 or the Rules under which I have been appointed to conduct the present proceedings, to permit an entity, against whom adjudicating proceedings are initiated, to pay the maximum penalty amount as can be levied under the law, without them admitting to any liability and disposing of the matter accordingly. This is not within the realm of the SEBI Act or the Rules/ Regulations framed there under, as on date.
26. In view of the discussion above, it is clear that the liability of the acquirer stands determined by the order of the Supreme Court which accordingly issued specific directions to the acquirer to make a public offer to the shareholders of the target company.
27. On my part, I have also gone through the facts of the case at length and the documents available on record and from the same have culled out the following important aspects of the case :-
· A Global Purchase Agreement had been entered into on April 28, 1999 between the acquirer and the Bausch & Lomb Inc. for the purchase of the business of producing, marketing, distributing and selling sunglasses and certain related accessories in various locations around the world by the acquirer from the Bausch & Lomb group.
· Subsequently, a merger agreement dated October 27, 2000 was entered into between Bausch & Lomb Inc, Bausch & Lomb South Asia Holdings Ltd, Luxottica Group S.p.a. and Rayban Holdings Inc.
· Consideration was paid by the buyer to the seller for the assets of B&L India Ltd prior to the merger agreement as is evident upon a reading of Schedule 3.3(c) of the purchase agreement dealing with the treatment of deferred net asset and deferred subsidiaries during the deferral period.
· Third amendment to the Purchase Agreement dated February 3, 2000 also indicates that :
i) The Luxottica had already purchased the shares of B&L India at the time of the 3rd amendment and consideration to that effect was paid to B&L Inc. and
ii) The transfer of these shares alone had not taken place but would take place only after the spin off.
· Incidentally the Annual Reports of Bausch and Lomb India Limited also corroborate these inferences.
· The Annual Report for the year 1998-99 states, inter alia, that on April 28, 1999, Bausch and Lomb USA had announced that it has agreed to sell the Sun glass business to Luxottica.
· The Annual Report for the year 1999-2000 states, inter alia, that Directors confirm that after the divestment of Vision care division Bausch & Lomb South Asia Holding Inc – a wholly owned subsidiary of Bausch & Lomb USA and the parent company of Bausch and Lomb India Holding Inc, which in turn holds the equity shares in Bausch and Lomb India Limited will merge into a wholly owned subsidiary of Luxottica.
· The Annual Report of Ray Ban Sun Optics India Limited for the year 2000-2001 states, inter alia, that Bausch and Lomb India Holding Inc was merged into RayBan Holdings Inc, a company controlled by Luxottica Group.
28. Upon a cumulative analysis of the above, it is evident that Bausch & Lomb South Asia Holdings Inc., an intermediary holding company in the line of ownership of the target company merged with a subsidiary of Luxottica Group on October 27, 2000 and the said merger changed the ownership of the target company’s holding from Bausch & Lomb Group to that of Luxottica. However this merger was made in terms of the amendment to the purchase agreement effected on February 03, 2000. The merger was also covered by the Global Purchase Agreement by which the acquirer had decided to acquire the shares of the target company. In fact the merger was a follow-up action translating the decision to acquire the target company and obviously an attempt to avoid the requirement of making a public offer.
29. Hence, Regulation 3(1)(j)(ii) of the Takeover Regulations (acquisition pursuant to scheme of arrangement or reconstruction including amalgamation or merger or demerger under any law or regulation, Indian or foreign) would not come into play in this case.
30. To be precise, as rightly held by the Tribunal, the acquisition of 44.152% equity shares / voting rights of the target company falls within the Explanation to Regulation 3(1)(k) of the Takeover Regulations which categorically provides that the exemption under Clause 3(1)(k) shall not be applicable if by virtue of acquisition or change of control of any unlisted company, whether in India or abroad, the acquirer acquires shares or voting rights or control over a listed company. Regulation 3(1)(k) exempts the applicability of Regulation 10, 11 and 12 (the open offer provisions) in case of acquisition of shares in companies, whose shares are not listed in any stock exchange Thus, this acquisition of 44.152% equity shares / voting rights of B&L India triggered the provisions of Regulation 10 of the Takeover Regulations.
31. In terms of Regulation 12 of the Takeover Regulations, 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. Thus, change in control of the target company pursuant to the acquisition of shares / voting rights of the said company by the acquirer also triggered the provisions of Regulation 12 of the Takeover Regulations.
32. Accordingly, a public announcement to acquirer a minimum of 20% shares was to have been made in terms of the said Regulations, within 4 working days from the date of April 28, 1999 in terms with Regulation 14(1) read with Regulation 14(3) of the Takeover Regulations.
33. Clearly had the public offer been made in terms of the Regulations, taking April 28, 1999 as the reference date in the normal course, the offer process would have been completed latest by August 27, 1999 and the shareholders of the target company would have got the price for the shares tendered by them in response to such a public offer, by the said date. However the same was contested and hence delayed. In the process, the interest of the shareholders was jeopardized as they were denied the opportunity to tender their shares pursuant to an open offer if made then and have also been deprived of any capital appreciation on the shares held by them during all those years, since an announcement if made then, would have also impacted the price of the shares in the stock exchange. In fact, I see no record of any dividend declared by them during all these years. Hence a fair exit price and an opportunity available to the shareholders via the secondary market in addition to the open offer has also been denied to them. Although the acquirer may contend that the open offer is under process, the fact remains that the said public offer was made only after several years and that too after the initiation of regulatory proceedings by SEBI and cognizance of their lapse by the highest court of the land.
34. Keeping these facts in mind, on a judicious exercise of the discretion conferred upon me and considering the offence in its entirety and also bearing in mind the factors enumerated in Section 15J of the Act, which also find mention in Rule 5(2) of the Rules, i.e. the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; the amount of loss caused to an investor or group of investors as a result of the default and the repetitive nature of the default, I am inclined to hold that the maximum penalty ought to be levied upon the acquirers.
35. Section 15 H (ii) of SEBI Act, 1992, as on the date of the commission of the offence, reads as follows:-
15H - Penalty for non disclosures of acquisition of shares and takeovers.
If any person, who is required under this Act or any rules or regulations made there under, fails to
(i) disclose the aggregate of his shareholding in the body corporate before he acquires any shares of that body corporate; or
(ii) make a public announcement to acquire shares at a minimum price,
he shall be liable to a penalty not exceeding five lakhs rupees.
PENALTY
36. Accordingly, I, in exercise of the powers conferred upon me under Rule 5 of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995, think it appropriate to levy a penalty of Rs.5.00 lakhs (Rupees Five Lakhs) only in terms of Section 15 H (ii) of the SEBI Act, 1992 upon Luxottica Group S.p.A for their failure to make the timely public announcement to acquire the shares of Ray Ban Sun Optics India Limited, in accordance with the provisions of the SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 1997.
37. The penalty amount shall be paid within a period of 45 days from the date of receipt of this order through a cross demand draft drawn in favour of “SEBI- Penalties remittable to the Government of India” and payable at Mumbai which may be sent to Smt. Soma Majumder, Deputy General Manager, Securities and Exchange Board of India, SEBI Bhavan, Plot No.C4-A, G Block, B Wing, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051.
PLACE : MUMBAI G. BABITA RAYUDU
DATE : MARCH 28, 2007 ADJUDICATING OFFICER