1. Ashwin K. Doshi
2. Pankaj G. Joshi
3. Jatin K. Shah
4. S. Srivastan
5. Sunita S.C. Dagli
6. P. R. Shridhar
7. J. Balakumar Appellants

1. Securities and Exchange Board of India Respondent No.1
2. Secretary, Ministry of Finance,


Govt. of India Respondent No.2

3. Industrial Development Bank of India Respondent No.3
4. Gujrat Ambuja Cements Ltd. Respondent No.4
5. Ambuja Cement Holdings Ltd. Respondent No.5
6. Tata Sons Ltd. Respondent No.6
7. Tata Chemicals Ltd. Respondent No.7
8. Tata Tea Ltd. Respondent No.8
9. Sabras Investment and Trading Company


Ltd. Respondent No.9

10. Bambino Investment and Trading Co. Ltd. Respondent No.10
11. Associated Cement Companies Ltd. Respondent No.11

Appearance:

Ms. Rajni K. Iyer

Advocate

I/b Sudhir Shah & Associates

Shri Nitin Khandray

Advocate

Shri Jayesh Desai

Advocate For Appellants

Shri Kumar Desai

Advocate

I/b Maneksha & Sethna

Shri K. K. Billimoria

Soslicitor

Shri Vinay Chauhan

Legal Officer, SEBI For Respondent No.1

Ms. A. C. Motwani

DGM, IDBI

Shri G. S. Wagh

DGM (Legal) IDBI For Respondent No.3

Shri I. M. Chagla

Senior Advocate

I/b Thakore Jariwala & Associates

Shri H. N. Thakore

Advocate

Shri F. P. Pooniwalla

Advocate For Respondent Nos.4 & 5

Shri Nitin Potdar

Advocate

I/b Amarchand and Mangaldas For Respondent Nos.6 to 10

And Suresh A. Shroff & Co.

Shri Dinyar Madon,

Advocate

I/b Gagrat & Co.

Shri H. D. Petit,

Solicitor

Shri L. A. Rubens

Solicitor For Respondent No.11

(Appeal arising out of the order dated 19^th July 2001 made by the Chairman, Securities and Exchange Board of India).
 
 

The present appeal is against the order dated 19.7.2001 made by the Chairman of Respondent No.1, disposing of a complaint filed by Shri Ashwin Doshi & others. relating to acquisition of shares/alleged taking over of control of Associated Cement Companies Ltd.( Respondent No.11) by Gujrat Ambuja Cement Ltd., and Ambuja Cement Holdings Ltd., (Respondent No. 4 and 5 respectively. )

The Appellants are stated to be shareholders in Respondent No.11. They claim to be aggrieved by the order made by SEBI on 19.7.2001

Respondent No.1 (SEBI) is a statutory body established under the provisions of the Securities and Exchange Board of India Act, 1992 (the Act), mandated to protect the interests of investors in securities and to promote the development of, and to regulate the securities market by such measures as it thinks fit. Respondent No.2 is the administrative Ministry of Government of India, of the Respondent No.1. Respondent No.3 (IDBI) is a public financial institution and the lead financial institution of Respondent No.11, representing other public financial institutions like General Insurance Corporation and its subsidiaries, Unit Trust of India etc. together having large equity stake in Respondent No.11. Respondent No.4 is a company incorporated under the provisions of the Companies Act, 1956 and engaged in the business of manufacture and sale of cement and Respondent No.5 is a subsidiary of Respondent No.4 (Ambujas). Respondent Nos. 6,7,8, 9 and 10 are companies incorporated under the Companies Act, 1956, stated to be group companies of TATAs.( Tata group companies) Respondent No.11 is a company incorporated under the Companies Act, 1913 engaged inter alia in the business of manufacturing and sale of cement. It is the target company in the acquisition.(ACC)

The background of the order under challenge has been stated in the order as under:

"A Memorandum of Understanding dated 21^st December, 1999 was entered into by and between the Tata Group Companies (the seller) on the one hand and Ambuja Cement India Ltd., (Ambuja Cement Holdings Ltd.,?) (ACIL) a subsidiary of GACL on the other hand in respect of the sale of shares of the target company. Pursuant to the said MoU, on 22^nd December, 1999 the Tata Group Companies sold 1,23,00,000 fully paid up equity shares of the face value of Rs.10/- each in the target company (out of an aggregate of 2,46,70,000 shares held by them) on a spot delivery basis to the ACIL at a price of Rs.370/- per equity share. The said 1,23,00,000 shares constituted 7.2% of the equity capital of the target company. Thereafter, during April and May, 2000, ACIL purchased a further 71,54,000 shares (constituting approximately 4.2% of the equity share capital) of the target company from the Tata Group Companies on spot delivery basis also at a price of Rs.370/- per equity share.

In September 2000, ACIL purchased the balance 52,16,000 shares (constituting approx. 3.05% of the equity share capital) of the target company from the Tata Group Companies on a spot delivery basis which was at a price of Rs.370/- per equity share. By virtue of the said shareholding, ACIL became registered holder of 14.45% of the equity share capital of the target company.

On 27.12.1999, at a meeting of the Board of Directors of the target company, two directors of ACIL viz. Mr. Narottam S. Sekhsaria (Managing Director of the GACL) and Mr. A. L. Kapur (Wholetime Director of the GACL) were appointed on the Board of the target company as additional directors and on 19.1.2000, Mr. N. S. Sekhsaria was made the Deputy Chairman of the target company. They were appointed as the Directors of the target company vide a unanimous resolution at the company�s AGM held on 19.7.2000.

The complainant filed a Writ Petition (No.1650/2000) against SEBI, the target company and 9 others in the High Court of Bombay stated to be in the interests of public shareholders of the target company who were alleged to have been deprived of the benefits of the provisions of the SEBI Act, 1992 and the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and sought investigation by SEBI. The said petition was then dismissed by the Hon�ble Bombay High Court vide its order dated 13^th September, 2000 directing the petitioners to move SEBI for relief. Thereafter, the petitioners filed a Review Petition for review of the order dated 13.9.2000. The Hon�ble High Court vide its order dated 16^th October, 2000 dismissed the Review petition directing the petitioners to press their points before SEBI in a proper proceeding. Pursuant to the said order of the Hon�ble High Court the complainant filed a complaint before SEBI inter alia, requesting SEBI to fix a hearing in respect of the complaint to hear the parties and investigate the matter and dispose of the same by passing a reasoned order."

The Appellants in the context stated above filed a written complaint before SEBI alleging violation of the provisions of regulations 10 and 12 by Ambujas.

The said complaint was considered by SEBI. All the parties i.e. the complainants, the target company, the Ambujas and the sellers were given opportunity to produce all the materials and make submissions to enable SEBI to come to proper findings. All the concerned parties including the complainants were heard.

SEBI, based on the submissions made by parties and the materials presented before it came to the conclusion that: there was no merit in the complaint to warrant any further investigation or enquiry. The complaint was accordingly disposed of on 19.7.2001 without any directions. SEBI has in its order briefly stated the reasons for reaching the said conclusion. I think it would be advantageous for referal purpose to extract the reasoning given by SEBI. It is as under:

"The Ambujas has challenged the locus of the complainant. It has been stated that the complainant was not a shareholder of the target company at the time of initial transaction between Tatas & GACL. I find that the complainant is a shareholder of the target company and holds about 970 equity shares of the target company. Therefore, the prayer of the Ambujas that the complaint is not bonafide or be dismissed is hereby rejected.

The main issue for consideration is whether the transaction in question namely the acquisition of shares of the target company by the Ambujas from the Tata Group amounted to acquisition of shares exceeding 15% or control of the target company by the Ambujas without making public offer thereby violating regulation 10 and 12 of the regulations. At this stage, it would be relevant to set out some of the provisions of the Regulations: Reg2(1)( c ): "control" shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

Reg.10: No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise fifteen per cent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the regulations.

Reg.12: Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company, unless such person makes a public announcement of acquired shares and acquires such shares in accordance with the regulations.

I have gone through the contentions of all the parties i.e. the complainant, the target company and the Ambujas. I now proceed to deal with their submissions in the light of the above provisions of the regulation as under:

(I) Whether there is violation of regulation 10? The complainants have stated that about 10% of the equity shares in the target company which are held by Harshad Mehta & Group stands frozen by the Special Court under the provisions of Special Court (Trial of Offences Relating to the Transactions of Securities) Act 1992 and, therefore, have to be excluded from the purview of the total available voting rights of the target company. It is further stated that by purchasing 2,46,70,000 equity shares of the target company, the Ambujas have acquired voting rights in the target company to more than 15% of the total voting rights exercisable as on the acquisition date and, therefore, they are in violation of regulation 10 of the Takeover Regulations.

The Ambujas and the target company on the contrary have disputed that Harshad Mehta & Group holds 10% of the equity in the target company. The Advocates for the target company vide their letter dated 16^th March, 2001 pointed out that no attachment order has been served on ACC excluding any shares from the purview of the total available voting rights of ACC. It is further stated that the attachments of shares only means prohibition against their sale and the receipt of dividends thereon and the same does not have effect on the voting rights therein.

The target company further stated that the provisions of the Special Court (Trial of Offences Relating to the Transactions in Securities) Act, 1992 do not prohibit the registered holder from exercising voting rights in respect of its shareholders. The notified parties have also subscribed to rights issues. Furthermore, it was stated that it is the settled law that even in respect of attached shares, voting rights are not kept in abeyance. In this connection, the judgement of the Hon�ble Supreme Court of India reported in AIR 1985 S.C. page 520 was relied on. Reference was made to para 29 of the said judgement that "mere appointment of a receiver in respect of certain shares of a company without more can not, therefore, deprive the holder of the shares whose name is entered in the Register of Members of the company the right to vote at the meeting of the company or to issue a notice under section 169of the Act. Further, in para 32 of the said judgement it is again reported "an order of attachment cannot, therefore, have the effect of depriving the holder of the shares the title to the shares. We are of the view that the attachment of the shares held by, the Cotton Mills Company had not deprived the Cotton Mills Company of its right to vote at the meeting or to issue the notice under section 169 of the Act."

I have perused the relevant provisions of the Companies Act, 1956 and also considered the submissions of the parties. I find that under section 87 of the Companies Act, 1956 every member of a company limited by shares and holding any equity share capital therein shall have a right to vote except in cases of unpaid call under sub-section (2) of section 92 of the Companies Act, 1956. Further, under section 111A of the Companies Act, 1956, in the matter of transfer of shares the CLB has been empowered to suspend voting rights under certain circumstances as an interim measure. Under sub-section (5) of section 111A of the Companies Act, 1956, it is specified that the provisions of section 111A shall not restrict the rights of the holder of the shares or debentures to transfer such shares or debentures and any person acquiring such shares or debentures shall be entitled to voting rights unless the voting rights have been suspended by an order of CLB.

I find that the Takeover Regulations deal with "shares carrying voting rights". The shares which carry voting rights do not cease to be so merely because the same have been suspended or attached. I am of the view that even in the cases where the voting rights are suspended, or attached, it cannot be said that the said shares do not carry voting rights. It is merely suspension of exercise of voting rights and just because the exercise of voting right has been suspended it does not mean that the shares have ceased to carry voting rights.

Under the Companies (Amendment) Act, 2000, a new provision has been made for issue of shares with differential voting rights i.e. a company can now issue non-voting shares. In my view, the non-voting shares can be said to carry no voting rights. The Central Government has notified on 9^th March, 2000 Differential Voting Rights Rules, inter alia, prohibiting conversion of shares issued with voting rights into non-voting shares or vice versa. I, therefore, find merit in the submissions of the Ambujas and the target company that the shares which are said to be held by a registered holder or a notified person i.e. Shri Harshadad Mehta in this case carry voting rights. I am of the view that even if it is presumed that the extent of shares as alleged by the complainant has been frozen or attached, the said shares shall carry voting rights and, therefore, cannot be excluded for the purpose of calculating total voting capital of the target company.

It has not been disputed that the acquisition of 2,46,70,000 constitutes only 14.45%, if the total voting capital of the target company without excluding alleged attached shares is taken into consideration. Therefore, I find that the Ambujas have acquired 2,46,70,000 shares out of 17,06,75,296 of the target company which constitute 14.45% equity share capital / voting capital of the target company which is below the trigger point of 15% as specified under regulation 10 and the said Regulation will not be applicable to the acquisition in this case. I therefore hold that there is no violation of regulation 10 of the Takeover Regulations.

1. Whether there is violation of regulation 12?

1. The ACC in its letter of offer stated that 5 Tata Companies held 6.28% of the paid up capital of ACC and described the Tata companies as present promoters.
2. The premium paid to the Tatas by the Ambujas were merely to acquire the control of management of ACC. GACL has shown ACC as their Group Company in the presentation made to the institutions.
3. Financial institution has expressed view that Ambujas are required to make an offer to purchase shares at the same price of Rs.370/- in view of Ambujas taking control over ACC.
4. ACC in their declaration under regulation 8(2) , have stated Tatas as promoters.

1. a premium paid to the seller which was higher than the prevailing market price was paid for 14.45% shares of Tata Group which constituted a block of shares.
2. It was denied that any financial institution has expressed the view that Ambujas are required to make an open offer.
3. The capacity of ACC had not formed part of the capacity of GACL but shown separately. The acquisition of control in case of DLF Cements was clearly shown and whereas ACC was mentioned as strategic alliance. It was denied that GACL made a presentation claiming, control over ACC.
4. Mere reference to Tata Group as a promoter group does not amount to Tata Group companies being in control of the target company.
5. Mr. Soonawala, Mr. Palkhiwala, etc. and other directors of Tata Group were inducted in the Board of ACC in their individual capacity and not as a nominee of Tatas.

I find that the regulations contain an inclusive definition of the term �control�. Therefore, the issue of control has to be determined on the touchstone of the regulation 2 ( c) of the Takeover Regulations and also on the basis whether the seller i.e. Tatas were in control of the target company and the Ambujas who have purchased the share of target company from Tatas has acquired such control.

It has not been disputed by the parties that Tatas had been described as promoters of the target company in various declarations or offer documents issued by the target company. The question for consideration is whether such mention of Tatas as promoters can be construed that they were in control of the target company. Regulation 2(h) of the Takeover Regulations defines a promoter as:

1. �promoter� means a person or persons who are in control of the company, or
2. person or persons named in the offer document as promoters

Under regulation 8(3) of the Takeover Regulations, every listed company has to disclose holding of the person holding more than 15% holding, of promoters and of persons having control over the company. The target company has stated that the declaration made by it stating Tatas as promoters was only indicative of shareholding pattern of the company and not evidence of any control being exercised by Tatas. A mere declaration by a company about a group as a promoter will not make such group in control. The percentage of shares or voting rights held by a person or any right under the Articles of the company, to appoint directors, control the management of the company, etc. will determine whether a person is in control or not. A mere declaration by a company stating a particular person to be promoter will not be enough. The same is to be determined in terms of regulation 2(c).

The shareholding of various shareholders of the target company after the total purchase of 2,46,70,000 shares of the target company by the Ambujas on September 2000 is as under:

The next issue is whether the Tatas / Ambujas have control over the Board of Directors. The management control ultimately manifests itself through control over the Board of Directors of the company. Therefore, it would be necessary to see the composition of Board of Director of the target company and the persons who can procure or secure appointment or removal of such directors in the Board of the target company. The target company has submitted the list of the Directors of the target company before and after the acquisition of 14.45% by the Ambujas. The list of the directors of the target company after the acquisition of 14.45% is as under:

I find that out of 16 Directors constituting the Board of Directors of the target company, 2 directors are directors of GACL, 2 directors re directors of Tata Group Companies, 4 directors are whole-time Directors, 5 directors are nominees of FIs and Govt. and rest are stated to be independent professional directors. Thus only 2 Directors belong to Ambjua group and two belong to the sellers i.e. Tatas.

Regulation 12, inter alia, provides that "no acquirers 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."

Control is defined in regulation 2 (c) as follows:

"control" shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner."

One test of control is the right to appoint majority of the directors. Under the MoU, ACL can with the support of Tatas appoint four directors. Two directors have already been appointed and in future two more can be appointed by ACL as provided in the MoU. The Articles of Association of the target company provide that "the number of directors shall not be less than twelve nor more than twenty-eight." At the time of the transaction in question there were fifteen directors on the Board of the target company. The directors representing the interest of the Tata Group were clearly in a minority. There were three directors from financial institutions, two directors representing State Governments and four whole-time directors were professional directors. In these facts and circumstances, it could not be said that Tata Group exercised any control in the target company. Therefore, by the acquisition of shares from Tata Group, Ambujas cannot exercise control over the Target Company when Tata Group itself did not have control. It cannot be said that the appointment of two or four directors of the Ambuja Group, itself leads to acquisition of control by Ambujas over the target company as contemplated by regulation 2(c).

I find that there has been an increase in the number of directors, two directors have been appointed from the Ambujas. Two more directors can also be appointed as aforesaid by the Ambujas in place of the nominees of Tatas. In the facts of the case, even though Mr. Sekhsaria and Mr. Kapur of Ambuja Group were inducted in the Board it does not mean that the Ambujas have acquired control of the target company. It is not unusual that a person with a large shareholding is invited to join a Board. Nonetheless these facts by themselves, and in view of the existing composition of the Board can not lead to the necessary inference that control is exercised by the Ambujas over the target company. It is also noticed that Mr. Sekhsaria or Mr. Kapur is not the Chief Executive of the Target Company or exercise executive powers. Besides they or the Ambujas do not hold controlling shares in the target company. There is also no evidence or material at present to show control of the management of the target company by Ambujas. Having regard to the existing situation regulation 12 is not attracted.

If as a result of further developments, which enable the Ambujas directly or indirectly, to exercise control over the target company, the matter may have to be examined afresh at that stage. As things stand presently, in my view, there has been no contravention of Regulation 12.

The issue of strategic alliance or monopolistic market power may draw application of other law such as MRTP Act or the Companies Act and the same however will not amount to control as defined under the Takeover Regulations or violation of Takeover Regulations.

I have also examined the issue of power of Tata Group or Promoter Group to appoint directors under the Articles. It is observed that according to the Articles of Association the minimum number of Directors required to be appointed on the Board of target company were 12 and the maximum number required to be appointed were 28. However, the said Articles further provided for about five directors to be appointed by State Governments mentioned in the said Articles. The financial institutions also have similar right to appoint nominee Directors on the Board of the target company so long as their respective outstanding dues are pending. There is no provision in the Articles whereby the Promoter Group or the Tata Group can appoint any Directors.

In view of what is stated above, I find that the plea of the complainant, in the instant complaint, has no merit and does not warrant any further investigation or enquiry by the Board. The complaint is accordingly disposed off without any directions." (emphasis supplied).

The Respondent Nos. 1, 4, 5 and 11 filed replies under rule 14 of the Securities Appellate Tribunal (Procedure) Rules, 2000. Respondent Nos. 2,3 and 6 to 10 did not file any written reply under rule 14. But all the Respondents except Respondent No.2 were represented at the argument stage.

Ms. Rajni Iyer, learned Counsel appearing for the Appellants explained the background leading to the filing of the present appeal. She submitted that the Appellants on knowing that Ambujas have entered into a MoU with Tata group companies for the purchase of 14.4% shares held by Tata companies in ACC at the rate of Rs.370/- per share and that there was a change in control in ACC from TATAs to Ambujas, approached SEBI through a formal complaint seeking redressal of their grievances, and also requested SEBI to furnish certain material information relating to the transaction, that since SEBI�s response was not to the satisfaction of the Appellants they approached the Hon�ble Bombay High Court by filing a Writ Petition. No.1650/2000, that the Hon�ble High Court dismissed the said Writ Petition on 13.9.2000 with liberty to the petitioners to move SEBI, if so advised. The Appellants thereafter filed Review Petition before the Hon�ble Court, which was also dismissed on 16.10.2000 with the observation that "we had dismissed the Writ Petition since we felt that the points being urged before us by the Petitioners could be preferred before SEBI in a proper proceedings and the SEBI may dispose of the same by a reasoned order. Thereafter, if the petitioners are still aggrieved, they may seek appropriate remedy��." Learned Counsel submitted that, consequently the Appellants filed a written complaint dated 15.11.2000 before SEBI, that the Chairman, SEBI after having heard the representatives of the parties involved in the transaction passed the order on 19. 7.2001. She read out extensively from the said order referring to various observations made therein.

Ms. Iyer, referring to SEBI Chairman�s findings recorded in the order that the acquisition of shares by Ambujas did not attract the provisions of regulation 10, submitted that as a result of acquisition of shares, Ambujas became entitled to exercise more than fifteen per cent of the voting rights in ACC. She submitted that about 8.40% of the equity capital in ACC held by Shri Harshad Mehta stands frozen by the Special Court established under the Special Court (the Trial of Offence Relating to Transactions in Securities) Act, 1992 (the Special Court Act), that the said group holdings have to be therefore excluded from the purview of total available voting rights of ACC and on such exclusion Ambujas� holding would be 15.5% and not 14.4%, that public announcement to acquire shares from other shareholders required under regulation 10, thus attracted. She submitted that under section 3 of the Special Court Act, Central Government is empowered to appoint one or more Custodians and the Custodian(s) so appointed on being satisfied that any person has been involved in any offence relating to transactions in securities during 1^st April 1991 and 6^th June 1992 is empowered to notify the name of such person in the official Gazette that simultaneously on such notification any property belonging to the person so notified shall stand attached that the property so attached shall be dealt with by the Custodian in such manner as the Special Court may direct. The learned Counsel referred to section 11 of the Special Court Act and submitted that the Special Court has been empowered thereunder to dispose of the property under attachment and discharge certain liabilities specified in the section in the order of preference mentioned therein. In this context she referred to the following observation by the Hon�ble Supreme Court in Minoo Mehta Vs. Shavak D Mehta (1998) 2 CLJ 217 SC.

Learned Counsel referred to the following observations by the Hon�ble Supreme Court in Harshad Shantilal Mehta v. Custodian (AIR 1988 SC 2291):

. According to the learned Counsel under the scheme of the Special Court Act, the implication of the attachment in the instant case can be that about 8.4% of ACC shares attached under section 3(3) of the Special Court Act, can not be stated as being held by Shri Harshad Mehta or the Custodian, that in other words there is no holder of these shares to exercise any voting rights. She further submitted that in the instant case though it can not be said that the shares attached have ceased to carry voting rights, there are no holders for these shares to exercise any voting rights. According to the learned Counsel voting right relating to the shares attached is under suspended animation for the past 9 years, that Ambujas with the acquisition of the 14.4% shares can exercise 15% or more of the voting rights IN the target company (not 15% or more voting rights OF the target company) till such time the attached shares gets a holder and such holder exercise the voting rights thereof. She reiterated that about 8.40% voting rights attached to the shares which were belonging to notified persons did not carry any voting rights at the time when Ambujas acquired shares of ACC, and therefore Ambujas by acquiring 14.4% of shareholding of ACC acquired currently exercisable voting rights of 15.7%, that the said acquisition therefore attracted regulation 10.

She submitted that regulation 10 is with reference to exercise of 15% or more of voting rights consequent to the acquisition. In this context, she referred to this Tribunal�s observation in Ch. Kiron Margadarsi Financiers V. Adjudicating Officer, SEBI (2001) 33 SCL 349 (SAT)

Ms. Iyer referred to the Respondent�s reliance on the provisions of the Companies Act, with reference to the voting right attached to member, and submitted that the Special Court Act has overriding effect on the provisions of the Companies Act. In this regard she cited the view held by the Hon�ble Supreme Court in Soliddaire India Ltd. V. Fairgrowth Financial Services Ltd., (2001) 30 SCL 59 (SC) holding that the Special Court Act is to have an over riding effect notwithstanding any provision in contrary in another Act.

Learned Counsel submitted that, as held by the Apex Court in Harshad Mehta (supra) the right of notified person in his property stands extinguished, on being notified, and as the right having extinguished, it can not be exercised. According to the learned Counsel, the notified person has no right as the property belonging to him � i.e the right, title and interest therein � is under attachment, the custodian has also no right as the attached property also does not vest in the Custodian. She referred to para 15 of ACC�s reply and submitted that their contention is not right as ACC has stated that under section 9A of the Special Court Act, the Special Court has power to issue directions relating to right, bonus, dividend etc. relating to the shares attached, for the reason that as per the scheme of the Special Court Act once the person is notified and the property, as a result thereof is attached, the Special Court can not permit the notified person to act further on the attached property. She reiterated that section 9A, as held by the Apex Court in Minoo Mehta (supra) is available only to deal with the civil liabilities of the notified person in relation to the property attached and is not available to allow voting rights of the notified person being exercised by him or the Custodian as contended by ACC.

Learned Counsel referred to the decision in Balakrishan Gupta V Swadeshi Polytex Ltd., (AIR 1985 C 520) relied on by the Respondents and submitted that the attachment under the Special Court Act can not be compared with any attachment by any Civil Court while deciding rights and entitlement of the concerned parties, as the right, title and interest in the property belonging to the notified person stands attached in an attachment under the Special Court Act. She submitted that the Hon�ble Court had decided the question of voting rights in Balkrishan Gupta in respect of the shares held by the Cotton Mills, in an entirely different situation and therefore the view held by the Court in the said case has no application to the present case.

The learned Counsel referred to the decision of the Hon�ble Supreme Court in BOI Finance Ltd. V The Custodian (AIR 1997 SC 1952, para 12) wherein it has been held that "there is no vesting of the attached properties of the notified persons in the Custodian. This is in contrast with section 28(2) of the Provincial Insolvency Act. There is the vesting in the Official Receiver or Official Assignee. He is also not in a position of an Official Liquidator under the Companies Act in whom not only the property vests but who is also in control thereof. This being so there is considerable force in the contention of the Counsel for the Appellants that except for the power exercisable under section 4 the position of the custodian is the same as that of the notified person." She submitted that thus it is clear that neither the notified person, nor the Custodian has any right in the property under attachment, and therefore no one was entitled to exercise the voting rights in the shares under attachment, as long as the shares are under attachment.

With reference to SEBI Chairman�s finding that regulation 12 is not attracted to the case, Ms. Iyer submitted that the 1997 Regulations brought in the concept of change in control as a triggering event for a public offer, in regulation 12. Learned Counsel submitted that the provisions relating to take over � control over the target company � was incorporated in the regulation based on the recommendations of Justice Bhagwati Committee. Ms. Iyer submitted that as per the definition of the expression control in regulation 2(c) control, shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their share holding or in any other manner. She submitted that the definition is an inclusive definition, which enables SEBI to ascertain as to the nature of control, by enquiry. In this context she referred to the observation in the Bhagwati Committee report and the scope of the regulations, discussed in detail by this Tribunal in Rhodia SA V. SEBI (2001) 34 SCL 597 that:

1. Equality of treatment and opportunity to all shareholders.
2. Protection of interests of shareholders
3. Fair and truthful disclosure of all material information by the acquirer in all public announcements and offer documents.
4. No information to be furnished by the acquirer and other parties to an offer exclusively to any one group of shareholders.
5. Availability of sufficient time to shareholders for making informed decisions.
6. An offer to be announced only after most careful and responsible consideration.
7. The acquirer and all other intermediaries professionally involved in the offer, to exercise highest standards of care and accuracy in preparing offer documents.
8. Recognition by all persons connected with the process of substantial acquisition of shares that there are bound to be limitations on their freedom of action and on the manner in which the pursuit of their interests can be carried out during the offer period.
9. All parties to an offer to refrain from creating a false market in securities of the target company.
10. No action to be taken by the target company to frustrate an offer without the approval of the shareholders.

1. Complete ownership of the share capital. Here no difficulty arises.
2. Majority (or "voting") control � control exercised by persons holding shares conferring the majority of the voting power normally exercisable at a general meeting of the company; as a result of various legal devices, such as non-voting, restricted or weighted voting equity shares, "gearing" of the capital structure or pyramiding of companies, the persons in a position to exercise the majority voting power may hold a minority or even a very small portion of the equity.
3. Minority (or "effective") control � control exercised through holding a block of shares which, having regard to the dispersion of the remaining shares among a large number of shareholders, enables control effectively to be maintained by a combination of the voting power conferred by the block of shares held and the position of strength conferred by control over the proxy-gathering machinery.
4. Management control � the mere control over the proxy-gathering machinery, having regard to the inertia of shareholders, enables the existing management to maintain control, where shareholding is very widely dispersed. While management control may confer sufficient hold over a company in normal circumstances, it may lose its holding power in the face of a take-over bid where the terms are pitched high enough.

Learned Counsel submitted that from the 2^nd limb of regulation 8(3) it is clear that the reporting envisaged therein is of the control exercised by the promoter or any person and not reporting of holding by a promoter who has no control over the company. In this context she referred to the term �promoter� as defined in regulation 2 (h), that promoter means ( i)" a person or persons who are in control of the company or (ii) a person or persons named in any offer document as promoters" and submitted that the 1^st limb of the definition in regulation 2 (h)read with the second limb of regulation 8(3) would be relevant for applying and enforcing regulation 12. She submitted that the definition of "promoter" under regulation 2(h) (1)( i) would show that what is contemplated under the second part of the regulation 8(3) is a disclosure declaration by the company as to the holding of the promoter having control or any other person having control over the company, that in the absence of control by anybody no reporting is required under regulation 8(3), that in the instant case the declaration filed by ACC under regulation 8(3) disclosed the holding of Tata Group as promoter as well as the person in control of the company, that since Tatas� holding being 6.3%, there was no need to report as regulation 8(1) does not attract, that it is evident that what was reported was in the context of control exercised by Tatas as promoters. Learned Counsel submitted that in spite of such clear evidence, borne out of a statutory declaration made by ACC, SEBI brushed aside the same and endorsed the Respondent�s version that Tata group was not having control over the company.

Ms. Iyer submitted that regulation 10 requires the acquirer to make a public offer if his holding along with the holdings of the persons acting in concert with him entitle him to exercise 15% or more of the voting rights in a company, that it would be against the spirit of the regulation as expressed by the Bhagwati Committee, that only because the holding was short of a fraction to be 15%, regulation 10 is not attracted and consequently denial of the benefit to the shareholders in a public offer. In support, she referred to the Bhagwati Committee Observation that "The question of defining takeovers was discussed. It was noted that though the concept of take overs was easily comprehensive, it eluded precise definition. It is perhaps for this reason why regulation in most countries have not defined it. While takeover is taken to be synonymous with acquisition of control over the company, opinions vary on what constitutes change of control. According to industrialists and professionals who have involved themselves in takeovers, management control ultimately manifests itself through control over the board of directors of the company, whatever be the manner in which such change of control may be achieved. The Committee agreed that attempting a precise definition of takeover would not only be counter productive but also limit the scope of the Regulations, and it should be left to SEBI to decide whether there has been a violation of regulations in a given situation of a takeover, through investigation if necessary, and enforce the Regulations. The Committee was of the view that the Regulations should nonetheless contain an inclusive definition of the term �control� which would serve to indicate the circumstances when compliance with the provisions of the Regulations would be necessitated, even where there has been no acquisition of shares, so that SEBI would not be on an uncharted sea in investigating whether there has been change in control. On the issue of change in control of a company attracting the provisions for public offer, the Committee felt that control of a company is interlinked with its fortunes and any change in control could not be without impact on company�s policies and business prospects and is thus linked to investors interest. And given that investor protection is a mandate of SEBI, takeover which entails change in control should necessarily be the concern of SEBI. This is all the more necessary because under clause (h) or sub section (2) of Section 11 of SEBI Act, SEBI is empowered to regulate not only substantial acquisition of shares but also takeovers. This was also the overwhelming view of all professionals, intermediaries and financial journalists who made submissions before the Committee. The Committee also noted that though the existing Regulations did not include change in control as triggering of a public offer, SEBI has placed continued reliance on Clause 40A and B of the Listing Agreement in such cases where the acquisition of shares has been less than the threshold limit of 10%. The Committee recognised that the Regulations should, as far as possible, be comprehensive and self contained and SEBI should not have to rely on outside rules and regulations to implement its objects. On the above considerations and given on the one hand that it would be difficult, if not impossible, to attempt at a precise and comprehensive definition of takeover, and on the other hand that takeover does ultimately result in change in control of the company, howsoever such control may be exercised, the Committee felt that change in control of a company, as opposed to change in management of a company, should be made a condition requiring a public offer to be made. When there is a change in control, the shareholders must be afforded an opportunity to exit from the company if they do not want to continue under the new acquirers. This will also obviate the need for SEBI to fall back upon Clause 40A & B of the Listing Agreement, which could now be repealed. The Committee originally thought that it would be advisable to refrain from defining "control of a company" and allow time and practice to craft a well accepted definition of control. The above decision of the Committee was incorporated in the draft report of the Committee. But, as already discussed in para 2.2 of this Report, the Committee received numerous comments advocating the need to define at least the parameters of control. Having regard to the feed back received, the Committee felt that a term of such critical relevance to the Regulations should not be left undefined. The Committee, therefore, agreed to define control. The Committee also felt that concept of joint control which is often seen in practice should also be recognised. The Regulations should make it explicit that cessor of any one person from joint control, thus giving the remaining person or persons sole control or taking of any person or persons in joint control by a person having sole control shall not be construed as �change in control over the company� attracting the Regulations.

The Committee recommends that

• The term �control, may be defined by giving an inclusive definition and also, the consequences of change in control be included in the substantive portion of the Regulations, through provision for disclosure of person(s) in control of the company at periodical intervals which would indicate change in control over the company, when it occurs, (Reference: Part II of the Report � Regulations 2(1) ( c) , 6 & 8)
• Mandatory public offer consequent upon change in control over the company be also provided (Reference: Part II of the Report � Regulation 12)."

Learned Counsel submitted that SEBI failed to take note of the public perception that ACC is a Tata group company. In this context she referred to ACC�s own disclosure at its website that "The House of Tatas� has been intimately associated with ACC, ever since its formation in 1936. Since then, the Tata group links have operated on a continuous basis, both at formal and informal levels. Recently the group sold 11.2 per cent of its share holding to Gujrat Ambuja Cements Ltd., (GACL) who are now the largest single share holder in ACC", that in the same document under the heading JOINTVENTURES, it has been stated "Floatglass India Ltd. is a joint venture between the Asahi Glass Co. Ltd. of Japan with the Tata group consisting of ACC, TELCO and Tata Exports as the three Indian partners." She referred to the chart showing the composition of the Board of Directors of ACC annexed to the Memorandum of appeal and submitted that the changes which have been carried out in the composition of the Board of Directors of ACC since 1975 would show as to how systematically Tatas through the Directors associated with them came to be in control of the Board of ACC as on the date of transaction, the position of the Financial Institution/Government nominee in the functioning of ACC and the position of the remaining directors being the employees promoted to the position of directors of ACC. She further submitted that even if it is accepted that the company is managed by professionals, it was incumbent on the part of SEBI to find out as to who was formulating policies. It can not be said that policies are formulated in the ordinary course by the nominee directors of the financial institutions and Government, that the nominee directors are on the Board to protect their interests and they vacate the day their interest in the company ceases. She submitted that, the Appellants have no access to the minutes of the Board meeting to produce the same as evidence to show the role of the management directors, but certainly SEBI could have investigated and found out the role of Tatas in the policy decision making in ACC. She referred to various newspaper clippings and other published reports annexed to the Memorandum of appeal and submitted that all these clearly indicated the market perception that Tatas are in control of ACC. She also referred to the factual "presentation by Ambuja Cement" copy of the text annexed to the appeal and stated that this also indicates that ACC has become part of Ambujas. Learned Counsel submitted that the extent of the authority in control the Tata Group in the Board of ACC is evident from the fact that they could get the Board�s approval to move a special resolution in the ACC�s Extraordinary General Meeting (EGM) scheduled to be held on 7.1.1999, that the Board had approved the following item of agenda of EGM as could be seen from the EGM notice dated 8.12.1998--

"5. ISSUE OF NAKED WARRANTS/EQUITY SHARES TO PRESENT

PROMOTER GROUP.

�To consider and, if thought fit, to pass with or without modification, the

following resolution as a special resolution.�

Learned Counsel further referred to a copy of the note reportedly recorded by the Capital Market Division of the IDBI annexed to the Memorandum of appeal, observing therein that "the following events indicate that GACL has apparently joined Tata Group as co-promoters of ACC.

1. GACL has acquired the shares only from the existing promoters and not


through open market operation.

2. The shares have been acquired at a price of Rs.370/- per share which is much higher than the then ruling market price of the scrip (around Rs.250/- per share). The surplus over the ruling market price prima facie represents the control premium.
3. The shareholding of GACL in ACC equals the shareholding of Tata Group, the present promoters of ACC (disclosure to this effect, was made at the time of ACC�s last rights issue made during July � August, 1999)
4. Immediately on acquisition of shares, GACL has appointed its nominees on the Board of ACC including a Deputy Chairman. As a stand alone financial investor GACL could have waited for the shareholders meeting for induction of its nominee on the Board of ACC.

• GACL is amongst the top cement producers in the India and has been locked in intense jockeying with other leading players for leadership position in the industry.
• The speed with which two senior directors of GACL were inducted into the ACC board. While one of them is a promoter and Managing Director of GACL, the other is a wholetime director and was, it is pertinent to note, the Director (Finance) and later a wholetime director in ACC itself a few years ago.
• The alacrity with which GACL�s Managing Director was appointed as the Deputy Chairman of ACC.
• The initial claims made by GACL that along with ACC, GACL now would control some 20 million tonnes of cement capacity. To quote from a GACL�s press release, "�The proven track record of Ambuja Cement, together with the manufacturing and distribution strengths of ACC will create a formidable strength and will make them jointly the largest cement producers in India totalling to over 20 million tonnes per annum." Reportedly GACL had also factored in the ACC capacity in its own growth projections in recent presentations to the financial institutions.
• Even if it is accepted that there was no outright change in control, there can be little doubt about sharing of control, given the facts in this case.

Learned Counsel submitted that the control which Tatas as promoters held over ACC was acquired by Ambujas indirectly under the terms of the MoU dated 22.12.1999 and the action of Ambujas as acquirers required compliance of the requirements under regulation 12, that an indirect takeover designed and acted upon in such a manner to circumvent the provisions of regulation 12 with an ulterior motive to deny the statute recognised equal treatment and opportunity to the investor under the Regulations has been not only condoned but justified by SEBI. She submitted that even as on the date of the proceedings, the Chairman SEBI confined to the position as obtained during December, 1999 namely acquisition of 7.5% of shares and appointment of directors only ignoring the actual decision of the contracting parties as manifested in the said MoU and the implications thereof regarding control exercisable on ACC by Ambujas.

Ms. Iyer referred to the MoU, a copy of which was provided to the Appellants during the course of the argument by Shri Chagla, and stated that the MoU is a share purchase agreement. She referred to para 6.4 wherein it has been stated that "in case the Purchaser(GACL) decides to merge a company, belonging to the purchasers group of companies, with the company, the Sellers (Tatas) shall agree to support such a proposal". She further referred to Covenants of Seller at Clause 6.3(iii) that the seller was to support the "Appointment of upto 4 directors, closely connected with the Purchaser on the Board of Directors of the company". Learned Counsel submitted that these covenants would not have been put in the MoU, had the Tatas no control over ACC. She pointed out that one of the covenants of Purchaser was that "the Purchaser will comply with the provisions of the Securities and Exchange Board of India (Substantial acquisition of Shares and Takeovers) Regulations 1997." That this requirement itself is indicative of the fact that the parties to the agreement knew that the transaction attracted regulation 10/12. Learned Counsel submitted that the view taken by SEBI is erroneous and untenable.

Shri Kumar Desai, learned Counsel appearing for SEBI, referred to the provisions of regulation 10 and 12 and submitted that it is clear from regulation 10 that the triggering point for public offer is acquisition of shares or voting rights entitling the acquirer to exercise 15 per cent or more voting rights in a company whereas in regulation 12 it is the acquisition of control over the target company that triggers of the public offer. He submitted that benchmark provided for making public offer in regulation 10 is 15 per cent or more of the voting rights, that there is no dispute as to the quantum of shares acquired by Ambujas in ACC, and the acquisition was of equity shares carrying voting rights accounting for 14.4% of the total paid up capital of ACC. According to the learned Counsel, since the acquisition was below the prescribed limit of 15% it can not be said that the acquisition of Ambujas attracted the provisions of regulation 10, that as the law clearly states the quantum, in the absence of any specific statutory power enabling SEBI to vary the same, contention that 14.4% is only a shade below the prescribed,. limit and hence need be construed as 15% and public offer as contemplated in regulation 10 is warranted, cannot be accepted.

Referring to the Appellants� contention that for the purpose of computing the percentage holding of Ambujas, the shares belonging to Shri Harshad Mehta , under attachment in terms of section 3(3) of the Special Courts Act are to be excluded, Shri Kumar Desai submitted that the voting rights attached to the shares are not done away with an attachment. He referred to section 3(3) of Special Court Act and submitted that it is a non obstante provision for attachment of any property belonging to a notified person simultaneously with the issue of notification under section 3(2). Learned Counsel submitted that the expression "attached" in this context has to be understood in its true sense. In this context he referred to Order 21 Rule 46 (Civil Procedure Code) and submitted that the attachment in question is "share in the capital of" a corporation referred in Rule 46(1)(b). In terms of R 46(1)(ii) the attachment only prohibits "in the case of the share, the person in whose name the share may be standing from transfering the same or receiving any dividend thereon". Shri Kumar Desai submitted that a company�s "share" has a bundle of rights which includes right to vote. He submitted that when the share is attached, the right to vote or right to attend meeting of the company is not attached, that it is not capable of being attached. He submitted that in this regard, the principles of civil law need be accepted.

Shri Kumar Desai referred to the objects and reasons to the Special Court Act and submitted that the statute was brought in, in the context of large scale irregularities and malpractices in transactions in both Government and other securities, indulged in by some brokers in collusion with the employees of various bonds and financial institutions and that the said irregularities and mal practices led to the diversion of funds from banks and financial institutions to the individual accounts of certain brokers. It was decided to deal with the situation and in particular to ensure speedy recovery of the huge amount involved, punish the guilty and restore the confidence in and maintain the basic integrity and credibility of the banks and financial institutions, and for the purpose Special Court Act was enacted by the Parliament. The said Act provides for appointment of one or more custodians for attaching the property of the offenders with a view to prevent diversion of such property by them. Learned Counsel submitted that the purpose of attachment under section 3 has to be understood in the context of the object and reasons as stated. He referred to section 3(3) of the Special Court Act which states � "Notwithstanding anything contained in the Code and any other law for the time being in force or and from the date of notification under sub-section (2), any property movable or immovable, or both belonging to any person notified under that sub section shall stand attached simultaneously with the issue of notification" that in terms of sub-section (4) "the property attached under sub section (3) shall be dealt with by the custodian in such manner as the Special Court may advise". Learned Counsel submitted that it is thus clear that the purpose of attaching the property of the notified person was to prevent alienation of the same so as to be available to discharge the liabilities that this has to be clearly understood while considering the voting rights attached to those shares under attachment.

Shri Kumar Desai submitted that the legal position regarding voting rights of attached shares is no more in dispute in the light of the decision by the Hon�ble Supreme Court in Balkrishna Gupta V. Swadeshi Polytex Ltd., (AIR 1985 SC 520). He submitted that while considering the voting rights in the equity shares attached under section 149 of the Land Revenue Act, the Hon�ble Supreme Court observed:

Learned Counsel referred to sections 3(3), 9A, 11 and 13 of the Special Court Act and submitted that on a careful perusal of the provisions in those sections it could be seen that basically the attachment of the property of a notified person, under the Special Court Act is in no way different from the attachment under other laws and the ratio in Balkrishan Gupta is applicable to the present case.

Learned Counsel submitted that the Companies Act which governs the rights of shares, has specifically barred voting rights where it was considered necessary � that in terms of Section 92(2) "the Member shall not be entitled, where the company is one limited by shares, to any voting rights in respect of the moneys so paid by him until the same would, but for such payment, become presently payable". He submitted that under section 111A of the Companies Act, the Company Law Board while considering appeal against an order refusing to effect the transfer of shares of a company, is empowered to suspend the voting rights of the transferee, pending the appeal, that thus it is clear that wherever the exercise of voting right is considered to be stalled, the law specifically provides for the same. Shri Desai submitted that SEBI has rightly computed the percentage holding of Ambujas in ACC and the holding being less than the 15%, regulation 10 is not attracted.

With reference to the Appellants� challenge on SEBI�s decision that regulation 12 is not attracted to the transaction, Shri Desai submitted that SEBI has rightly taken the view in the light of the provisions of regulation 12 read with regulation 2(1)( c ). Learned Counsel submitted that the triggering point in regulation 12 is acquisition of control over a company. He referred to the definition of the expression �control� in regulation 2(c) and submitted that in the light of the material before SEBI it was not possible for it to conclude that Tatas had control over the company and that as a result of acquisition of Tatas� holding in the company by Ambujas the control passed on to Ambujas. He submitted that neither the Articles of Association nor any other agreement empower Tatas to appoint majority of the directors on the Board of ACC. He further submitted that Tatas representatives were in minority in ACC�s Board of Directors and their holding accounted for just 14.4% of the total paid up capital of ACC. In this context he referred to the finding of the Chairman recorded in the order that :

Shri Desai with reference to the Appellants� reliance on the declaration filed by ACC under regulation 8(3), referred to the definition of the expression "promoter" appearing in regulation 2(h) and compliance of the requirement under regulation 8(3) and submitted that in terms of regulation 2(h)(1) promoter means (i) the person or persons who are in control of the company; or (ii) person or persons named in any offer document as promoters. He referred to regulation 8 and submitted that sub regulations (1) and (2) are not attracted and the relevant provision is regulation 8(3) according to which the concerned company is required to report the position as on 31^st March as well as on the record date of the company for the purpose of declaration of dividend, to the concerned stock exchange the changes if any, in respect of the holdings of the persons referred to under sub regulation (1) and �also holdings of promoters or person(s) having control over the company as on 31^st March. In this connection he referred to the copy of the declaration made under regulation 8(3) in respect of the holdings of the present promoter group in ACC on 31.3.2000, filed with the Memorandum of Appeal, and submitted that the requirement is to report changes in the holdings of the promoter as well and that the declaration shows change in the voting right of Tatas as promoter and not as persons in control of the management of the company.

Referring to the Appellants� version that nominee directors of Financial Institutions/Govt. should not be considered for the purpose of considering the extent of representation by Tata nominees on the Board of ACC, Shri Desai submitted, that their exclusion as suggested by the Appellants would not be possible, as once the interested FI or Government. nominates directors, their role is not confined to that of a watchdog for their nominator, but their duty lies to the company of which they are directors, that they are required to consider the interest of the company as a whole including the nominators interest. He submitted that therefore it is not legally correct to view that the nominee directors are not concerned or involved in making policy decisions and their presence should be ignored.

Shri Desai referred to the note stated to have been prepared by the Capital Market Division of IDBI, relied on by the Appellants and submitted that IDBI�s nominee has to report his version, and he reported, but the nominator had reason not to endorse the said view, that it has to be noted in this context that in the Annual General Meeting of ACC the appointment of two directors Shri Sekhsaria, Shri Kapur were approved unanimously, that nobody including the Financial Institutions/Government opposed the Resolution.

Shri Desai further submitted that the Board of Directors did not pass the resolution for issuing naked warrants/equity shares on preferential basis to Tatas, that only the General Body of the company is empowered to pass the Resolution, that the resolution was not put forth in the Extra Ordinary General Meeting of the shareholders of ACC because of the resistance of FIs/Govt. itself is indicative of the fact that Tatas were not in control of the company, that they had withdrawn the resolution as it was not likely to get through.

Learned Counsel submitted that working directors are the core management and in ACC the working directors are not the nominees of Tatas, that they are on the Board of non Tata companies also. He submitted that two directors of Ambujas with two directors of Tatas can not influence the decision making process by a Board consisting of 15 directors. He reiterated that nominee directors are part of the policy making set up and they can not be excluded to show that effective strength of the Board in number was small and Ambujas and Tata nominees had a sizeable place therein.

Shri Desai referring to the submission of the Appellants that the public perception in the matter is reflected in the news paper reports submitted that SEBI can not go by newspaper reports, that it has to go by facts that it collected facts from ACC, Ambujas and Tatas, examined the same and decided the matter. Shri Desai with reference to the Appellants� reliance on the ACC�s website disclosing ACC as a Tata group company, submitted that this one stray website disclosure is not everything. He submitted that SEBI had considered all the relevant aspects and referred to letter dated 9.8.2000 from SEBI to the Appellants counsel wherein it was inter alia stated that:

He referred to "Minoo Mehta" (supra) relied on by the Appellants and submitted that the ratio of the said case can not be applied to the present case as the facts and circumstances applicable to the said case are totally different to the present case.

Shri Desai submitted that there is nothing to show that Ambujas have acquired control over ACC, that SEBI in a detailed speaking order has clearly explained the position.

Shri I. M. Chagla, learned Senior Counsel appearing for Ambujas referred to the provisions of regulation 10 and the benchmark holding prescribed therein. He submitted that the Takeover Code is a regulatory law, and what the law states is the one to be followed.

Referring to the Appellants� version that shares belonging to Shri Harshad Mehta in ACC under attachment be excluded for the purpose of calculating the percentage holding of voting rights by Ambujas in ACC, learned Senior Counsel submitted that there is no statutory prohibition on exercising the voting rights of the shares attached. He submitted that �extinguished� means gone for all the time and if the Appellants� argument that the rights in the shares extinguished on attachment is accepted the shares even after sale will continue to be without voting rights as any change in ownership of share will not resurrect the already extinguished voting rights. He further submitted that any view that the voting rights of the shares attached is extinguished would lead to serious anomalies. By way of illustration he stated that in case where majority shares in a company found to be belonging to notified persons are denied of voting rights on the plea that those shares have no voting rights, the microscopic minority in the company can run the company and even alienate its assets to the detriment of others, and that would even affect the purpose of attaching the shares as the value of shares also will be depleted in that process. He further submitted that such a view would even affect the right available to the notified person under section 397 of the Companies Act to approach Company Law Board seeking relief against oppression and mismanagement. He further submitted that the very purpose of notifying persons and simultaneous attachment of property is to preserve and protect property from being alienated, so as to be available to meet the claims of the persons to whom money is due from the notified persons. He further submitted that yet another situation could be that the acquisition of "attached shares" which would otherwise attract regulation 10 or 11 would remain out of the purview of the 1997 Regulations on the ground that acquisition of shares which belonged to the notified person would not have any effect on the voting strength of the acquirer in the company. Learned Counsel submitted that the submission to exclude "attached shares" from the total of the company�s voting share capital, would be against the object of the Special Court Act and SEBI Act.

Shri Chagla referred to sub sections (3) and (4) of section 3 of the Special Court Act,. and submitted that attachment under sub section (3) is an attachment by law. Sub-section (4) provides for disposal of the property so attached. In this context he submitted that it is to be noted that the Special Court had directed the Custodian to subscribe t o the right share offered by companies including ACC, that it is viewed that if the share of the company under attachment did not exist or was outside the capital structure of the company, the court would not have directed the Custodian to apply for shares in the right issue, that right to participate in a public issue as per section 81 of the Companies Act is available only to the shareholder of the equity shares of the company. Learned Counsel submitted that as a result of attachment, no prohibition comes into on the voting rights of shares that even the use of the property attached is not prohibited, that what is intended by attachment is prevention of alienation of the property. In this context he also referred to section 11 of the Special Court Act, enabling the Special Court to direct the Custodian for disposal of the property under attachment and the order of priority for discharging the liabilities. Learned Counsel submitted that the equity shares belonging to Shri Harshad Mehta carried voting rights. In terms of section 87(a) of the Companies Act every member of a company limited by shares and holding any equity share capital therein shall have a right to vote in respect of such capital on every resolution placed before the company�." In terms of section 41(3) of the Companies Act, every person who agrees in writing, to become a member of a company and whose name is entered in its register of members shall be a member of the company, that Shri Harshad Mehta�s name appears on the register of members of the company. Citing Balkrishan Gupta (supra) learned senior Counsel submitted that the privileges of member can be exercised only by that person whose name is entered in the register of members that even where the holder of a share whose name is entered in the Register of Members hands over his share with blank transfer form duly signed, the transferee would not be able to claim the rights of the member against the company concerned until his name is entered in the Register of Members.

Learned Counsel referred extensively to the observations made by the Hon�ble Supreme Court in Balkrishan Gupta (supra) to show that in the absence of any statutory prohibition the rights attached to the property under attachment remains with its owner. He submitted in the said case the court was considering the right of a company to join as a requisitionist of a meeting under section 169 of the Companies Act or vote in the meeting of the company, in which the shares held by it was under attachment. In that context the court was considering whether by the attachment of the shares under section 149 of the Land Revenue Act, the Cotton Mills Company suffered any diminution or curtailment in its right as a shareholder in respect of the shares so attached. The Apex court held therein that "when once a person becomes a member, he is entitled to exercise all the rights of a member until he ceases to be a member in accordance with the provisions of the Act. (Companies Act). The voting rights of a member of a company are governed by section 87 of the Act. Section 87 of the Act says that subject to the provisions of section 89 and sub section (2) of section 92 of the Act every member of a company limited by shares and holding any equity share capital therein shall have a right to vote, in respect of such capital, on every resolution placed before the company and his voting right on a poll shall be in proportion to his share of the paid up capital of the company.

Learned Counsel referred to the decision of the Hon�ble Bombay High Court in Hitesh Shantilal Mehta V. Union of India (1992) (3) (Bom. C.R. 716) and stated that the court has held that the property attached remains in the custody of the Custodian till it is disposed of as per the directions of the Court. He also referred to the decision of the Hon�ble Supreme Court in BOI Finance Ltd., V. The Custodian (AIR 1997 SC 1952):

Learned Senior Counsel referred to regulation 10 and submitted that the regulation is an objective one; that it is clear in words and it is absolute that it is not permissible to vary the percentage of voting rights prescribed therein, in any circumstance..

Shri Chagla referred to the observation made by the Apex Court in Harshad Shantilal Mehta (supra) (in para 12) relied on by the Appellants and submitted that the observation by the Court therein is relating to the third party rights and that the said position is clear from the court�s observation that "there is no provision in the Special Court Act which extinguishes the right, title and interest of a third party in any property which is attached as consequence f notification under section 3." He submitted that voting right is an integral part of the equity shares and when the shares are sold under section 11 of the Special Court Act, the right is also sold along with the shares, that a non existent right can not be sold, that there would be hardly any buyers of equity shares without voting rights. He also referred to the Solidaire case (supra) cited by the Appellants and submitted that the non obstante clause has application only when any of the provisions of the Special Court Act is found conflicting with the provisions of any other law, that there is no such conflict as far as the provisions of the Companies Act and the provisions of the Special Courts Act, that on the contrary the provisions of the Companies Act and Special court Act are in perfect harmony.

On the applicability of regulation 12, Learned Senior Counsel submitted that it involves solution to question of law and fact. According to the learned senior Counsel change in control referred to in regulation 12 requires to be objectively established and not on the perception of Tatas, Ambujas or anybody. Shri Chagla submitted that regulation 12 envisages acquisition of control at once and not at a later date or in future, that there should be an actual change in control, and therefore what is to be seen in the instant case is as to whether there is material to show that Ambujas acquired control over ACC. He submitted that policies pursued by the acquirer and the target company may be common for several reasons, but that does not mean that one is controlled by the other, that if the two nominee directors of Ambujas on the Board of ACC persuade the ACC management to choose a better strategy, it can not be said to be an act of exercise of control over ACC by Ambujas.

He submitted that Regulation 12 triggers, on acquisition of control, that the prohibition is on acquisition of control without making a public offer. According to the learned senior Counsel the Appellants have to show that Tatas had control over ACC and with the acquisition of the shareholding of Tatas in ACC, Ambujas acquired control, that it is not the Appellant�s case that Ambujas acquired control independently. In this context he referred to the definition of the expression �control� in regulation 2(c ) and submitted that though it is an inclusive definition, it is very exhaustive, that the definition clearly states the nature of control and mode of exercising the control over a company. He submitted that the words "in any other manner" used in the definition need be interpreted following the ejusdim generis principle and not be given an out of context wild meaning. In this context he also referred to para 6.3 of the Bhagwati Committee Report and stated that it has been stated therein that "The Committee agreed that attempting a precise definition of takeover would not only be counter productive but also limit the scope of the Regulation and it should be left to SEBI to decide whether there has been a violation of regulations in a given situation of a takeover through investigation if necessary, and enforce the Regulations. The Committee was of the view that the Regulations should nonetheless contain an inclusive definition of the term control which would serve to indicate the circumstances when compliance with the provisions of the Regulation would be necessitated, even where there has been no acquisition of shares, so that SEBI would not be an uncharted sea in investigating whether there has been change in control" It is thus clear that the question as to whether there is any acquisition of control is a matter to be decided by SEBI. He further referred to the Committee�s observation: "on the above considerations and given on the one hand that it would be difficult, if not impossible, to attempt at a precise and comprehensive definition of takeover, and on the other hand the takeover does ultimately result in change in control of the company, howsoever such control may be exercised, the committee felt that change in control of a company, as opposed to change in management of a company should be made a condition requiring a public offer to be made". Bhagwati Committee in its report has indicated the parameters and the need for acting by SEBI in the event of change in control taking place over a company.

Shri Chagla submitted that the Appellants have not shown anything to the effect that Ambujas acquired control of management or policy decisions. He submitted that to have control, right to appoint directors alone is not sufficient, but it should be the right to appoint majority of directors and that such a right should be an enforceable right. In the said context he referred to the MoU and submitted that in clause 6.3, all that the Sellers had agreed to is that they would support the appointment of Ambujas nominees on the Board of ACC. He submitted that the MoU is not to replace the Tata Directors. He submitted that the power to appoint Directors is vested in the shareholders in a general body meeting and that the Board of Directors is empowered to appoint only additional directors for a short period. He further submitted that ACC is not a party to the MoU, and therefore right of any one to appoint directors created by the MoU is not binding on ACC.

He submitted that ACC has a Board with 16 directors consisting nominee directors of Financial Institutions, Government., Executive Directors and several independent Directors that no particular group has any majority in the Board of the company. In this context he referred to the factual position stated by ACC in its reply before SEBI:

.

"This tradition of professional management continued over the times. A true reflection of the professional face of ACC Ltd., would be evident from the history of its Managing Directors as well as those persons who formed a core part of its management team over the years as also on dates material to the complaint.
 
 

Shri Chagla submitted that by any standard it can not be said that Ambujas violated the provisions of regulation 10/12 of the 1997 Regulations and SEBI has rightly held so.

Shri Dinyar Madon, Learned Counsel appearing for ACC submitted that in the proceedings before SEBI it was the Appellants� Counsel who had alleged that voting rights in respect of shares held by Harshad Mehta remained frozen and that it was the Appellants� counsel who stated that he would send copies of the order (freezing the share holding by Shri Harshad Mehta) to SEBI and ACC. Shri Madon referred to the minutes of the Hon�ble Bombay High Court�s order dated 13.3.1995 (Misc. Appl.No.121/1995) and stated that the Hon�ble Court subject to certain conditions had permitted Shri Harshad Mehta to apply for the right issues of ACC. Learned Counsel submitted that whether ACC is/was a Tata Group company is not a matter to be decided by the public perception, but on facts. He submitted that Tata Group never controlled ACCnor did they interfere with the management of the company which was, and continues to be a professionally managed company. Referring to the management structure of ACC he submitted that there was no one in the management of ACC representing the interests of Tatas, nor were they drawn from the Tata Administrative Services (as is the case with various Tata owned companies). He submitted that not only currently, but historically also ACC was not controlled by Tatas, as could be seen even when the company was having a Managing Agency. He submitted that, though some Directors on the ACC Board were then, as they are today the Directors on the Board of some Tata Companies, this is of no consequence as they are small in number as compared to the total strength on the Board.

Learned Counsel referred to the addendum to the notice dated 8.12.1998, of the Extra Ordinary General Meeting of ACC stating therein that "This issue will neither result in any change in the constitution of the Board of Directors of the company nor in the control over the Company" was only in compliance of the requirements of regulation 3(i) (c)(ii) which requires such a positive statement and can not be viewed as an admission that the company was under the control of Tatas or some one else. Learned Counsel referred to the �IDBI� note relied on by the Appellants and stated that in the said note it has been stated by IDBI that :

Shri Nitin Potdar, learned Counsel appearing for Tata companies submitted that he is adopting the arguments advanced on behalf of ACC. He referred to the Affidavit filed by Tata Sons Ltd., in W.P. No.1650/2000 filed by the Appellants in the Hon�ble Bombay High Court and in particular referred to para 12 therein that:

I have carefully considered the rival contentions.

From the factual position before me, it is noticed that Ambujas purchased from Tata group companies 2,46,70,000 equity shares, out of a total of 17,06,75,296 equity shares of ACC which accounted for 14.4% of the total equity paid up capital of ACC. The shares were purchased at the rate of Rs.370/- per share in three spells i.e. 7.2% on 22.12.1999, 4.2% in April-May 2000 and 3.05% in December 2000. The said acquisition was pursuant to an MoU entered into between Ambujas and Tata group companies on 21.12.1999. It is noticed that on 27.12.1999 Shri Narottam Sekhsaria , Managing Director of Ambujas, and Shri A. L. Kapur Wholetime Director of Ambujas, were appointed as Additional Directors in the Board of Directors of ACC. Shri Sekhsaria was appointed as Deputy Chairman of ACC on 19.1.2000. The Annual General Body Meeting of the shareholders of ACC held on 19.7.2000 confirmed the appointment of Shri Sekhsaria and Shri A. L. Kapur as directors by a unanimous resolution. This factual matrix remains undisputed. The dispute is on the effect of the acquisition of 14.4% shares by Ambujas vis-à-vis the provisions of regulations 10 and 12 of the 1997 Regulation. The Appellants in their complaint before SEBI had alleged that the said acquisition attracted the provisions of regulations 10 and 12 requiring Ambujas to make public announcement to acquire not less than 20% of ACC�s shares from the other shareholders in accordance with the regulations. But Ambujas, Tatas and ACC did not subscribe to the said view. The Chairman, SEBI after hearing the complainants (the Appellants herein) and the representatives of Ambujas, Tata group of companies and ACC, came to the conclusion that "the plea of the complainant in the instant complaint, has no merit and does not warrant any further investigation or enquiry by the Board" Accordingly he disposed of the complaint without any directions.

In the context stated above, the core issue for consideration is whether acquisition of shares by Ambujas attracted the provisions of regulations 10 and 12 as alleged by the Appellants. To begin with, let us have a look at the said regulations and the nature of compliance required thereunder.

According to regulation 10:

"No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him) entitle such acquirer to exercise fifteen per cent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the regulations."

According to regulation 12:

" Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, 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."

Provided that nothing contained herein shall apply to any change in control which takes place in pursuance of a resolution passed by the shareholders in a general meeting.

Explanation: (i) For the purpose of this regulation, where there are two or more persons in control over the target company, the cessor of any one such person from such control shall not be deemed to be a change in control of management nor shall any change in the nature and quantum of control amongst them constitute change in control of management:

Provided however, that if the transfer of joint control to sole control is through sale at less than the market value of the shares, a shareholder meeting shall be convened to determine the mode of disposal of the shares of the outgoing share holder, by a letter of offer or by block transfer to the existing share holders in control in accordance with the decision passed by a special resolution. Market value in such cases shall be determined in accordance with regulation 20.

(ii) where any person or persons are given joint control such control shall not be deemed to be a change in control so long as the control given is equal to or less than the control exercised by person(s) presently having control over the property."

The expression acquirer referred to in regulations 10 and 12 has been defined in regulation 2(1)(b) as follows:

"Acquirer" means any person who directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer."

�Person acting in concert� has been defined in regulation 2(1)(e) as follows:

(e) "person acting on concert" comprises .�

1. persons who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal or informal), directly or indirectly co-operate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company,
2. without prejudice to the generality of this definition, the following persons will be deemed to be persons acting in concert with other persons in the same category, unless the contrary is established:

1. a company, its holding company, or subsidiary or such company or company under the same management either individually or together with each other;
2. a company with any of its directors, or any person entrusted with the management of the funds of the company;
3. directors of companies referred to in sub-clause (i) of clause (2) and their associates;
4. mutual fund with sponsor or trustee or asset management company,
5. foreign institutional investors with sub-account(s);
6. merchant bankers with their client (s) as acquirer;
7. portfolio managers with their client(s) as acquirer;
8. venture capital funds with sponsors;
9. banks with financial advisers, stock brokers of the acquirer, or any company which is a holding company, subsidiary or relative of the acquirers;


Provided that sub-clause (ix) shall not apply to a bank whose sole relationship with the acquirer or with any company, which is a holding company or a subsidiary of the acquirer or with a relative of the acquirer, is by way of providing normal commercial banking services or such activities in connection with the offer such as confirming availability of funds, handling acceptances and other registration work;

10. any investment company with any person who has an interest as director, fund manager, trustee, or as a shareholder having not less than 2 per cent of the paid-up capital of that company or with any other investment company in which such person or his associate holds not less than 2 per cent of the paid-up capital of the latter company.

1. any relative of that person within the meaning of section 6 of the Companies Act, 1956 (1 of 1956); and
2. family trusts and Hindu undivided families;

The expression �control� has been defined in regulation 2(1) ( c )as follows:

"Control shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreement or in any other manner."

"Target company" as per regulation 2(1)(o) means, "a listed company whose shares or voting rights or control is directly or indirectly acquired or is being acquired"

The 1997 regulations, I am told, is drafted on the basis of the recommendations of an expert committee (Justice Bhagwati Committee). Therefore, while interpreting the provisions of the Regulations, the observations, caution and guidance provided by the said committee need be considered. Both parties had extensively cited the Committee�s observation to canvas their point of view:

The Committee was of the view that "the Regulations for substantial acquisition of shares and takeovers should operate principally to ensure fair and equal treatment of all shareholders in relation to substantial acquisition of shares and takeovers." It is in this context SEBI�s role as a regulator comes into. The Act mandates SEBI to protect the interests of investors in securities. The Regulations framed under the Act is for the same purpose. Therefore, in terms of the Regulations and the mandate given by the Act to protect the interests of investors, SEBI is required to enforce the Regulations in a fair and equitable manner. In fact, the Committee itself had felt that the approach should be realistic and not dogmatic. According to the Committee "�it would be unrealistic to make Regulations in this area without taking into consideration the ground realities of the Indian industry". So should be the enforcement of the Regulations. In this context the following observations of the Committee are also very relevant for considering the applicability of regulations 10 and 12 in the instant case:

"the Committee also recognised that the process of takeovers is complex and is inter related to the dynamics of the market place. It would, therefore, be impracticable to devise regulations in such details as to cover the entire range of situations which could arise in the process of substantial acquisition of shares and takeovers. Instead there should be a set of General Principles which should guide the interpretation and operation of the Regulations, especially in circumstances which are not explicitly covered by the Regulations." Such principles include-- (i) equality of treatment and opportunity to all shareholders (ii) protection of interests of share holders.

The Appellants� contention that regulation 10 is attracted is on two counts � that (i) effectively Ambujas are in a position to exercise more than 15% voting rights in ACC, though numerically their holding is only 14.4%, for the reason that about 8.40% voting capital held by Shri Harshad Mehta is under attachment in terms of section 3(3) of the Special Court Act and therefore, not to be the part of the voting capital base for computing the percentage of voting right available with Ambujas, (ii) on a realistic point of view, fraction of a percentage short to reach the 15% bench mark should not be a factor to oust applicability of regulation 10. According to the Appellants as a result of the attachment of about 8.40% shares of ACC, belonging to Shri Harshad Mehta, under section 3(3) of the Special Court Act, the right, title and interest of the holder i.e. Shri Harshad Mehta, remained frozen and consequently, all his personal right exercisable in relation to the said shares is removed, till the Special Court issues direction under section 11 of the Special Court Act and some one acts on the property as purchaser. According to the learned Counsel as a result of attachment of shares belonging to Shri Harshad Mehta, those shares cannot be considered as being held by Shri Harshad Mehta or the Custodian, that in other words, there is no holder of these shares to exercise voting rights. She had submitted that in the instant case though it can not be said that the shares attached have ceased to carry voting rights, there are no holders for these shares to exercise any voting rights, that the Special Court can not, under section 9A or 11 of the Special Court Act, issue any direction regarding voting rights in the shares attached. She had also relied on the Hon�ble Supreme Court in Harshad Mehta (supra)) that "The attached property also does not vest in the Custodian. In this regard the position of a custodian is different from that of an official liquidator" The words "belong to" have a reference only to the right, title and interest of the notified person in that property. If in the property belonging to a notified person, another person has a share or interest, that share or interest is not extinguished." I have very carefully gone through the decision of the Hon�ble Supreme Court in Harshad Mehta(supra) cited by the learned Counsel for the Appellants and find no support therefrom to the proposition that the rights and titles in the property extinguished as a result of attachment. The observation of third party right in the said judgement was in the context of the disposal of the property attached to protect the interests of the third parties unconcerned with the offences relating to the transactions in securities covered under the Special Court Act. In my view attachment does not destroy anything in the property. Shri Chagla, learned Senior Counsel rightly had pointed out that if it is viewed that rights in the property stand extinguished or frozen on attachment, then the nature of property available for disposal to meet the liabilities of the claimants would be "something minus" and there is no provision in the Act to resurrect an extinguished right or to defrozen a frozen right. Right to exercise voting rights by a person can certainly be frozen by a competent court of law. But the voting rights attached to the shares can not be taken away, except under law.

In this context it is to be noted that the regulation itself has defined what exactly is a share. Share means share in the share capital of a company carrying voting rights. Voting rights has not been defined in the Regulations. I do not think it proper or necessary to seek guidance in this regard from the alien city code as suggested by Ms. Iyer Companies Act, 1956 is the governing law for shares and the shareholders� rights. In terms of section 86 (prior to the amendment effected in the year 2000) of the Companies Act, 1956 equity share is one kind of share which a company is entitled to issue. The voting right in terms of section 87(1) of the Companies Act is available to every member of a company limited by shares and holding any equity share capital therein. In terms of section 41(2) every person who agrees in writing to become a member of a company and whose name is entered in the register of members shall be a member of the company. In terms of sub section (3) every person holding equity share capital of a company and whose name is entered as beneficial owner in the records of the depository shall be deemed to be a member of the concerned company. Learned Counsel for the Appellants had relied on this Tribunals decision in Ch. Kiron (Margadarsi) in support of her contention, that shares belonging to Shri Harshad Mehta under attachment need be excluded for the purpose of working out the percentage of voting rights exercisable by the Ambujas in the companay. On a perusal of the Tribunal�s said order it is evident that her reliance is misplaced. The following paragraphs explain the legal position explained therein:

"On a perusal of regulation 2(1)(b) it is clear that a person is an acquirer who acquires or agrees to acquire shares or voting rights/control in the target company. The mode of acquisition of shares or the purpose of acquisition is of not much significance to identify the acquirer. As has been held in the case of Joshi Jayantilal v. State of Gujarat (AIR 1962 Gujarat 297) and as per the Blacks Law Dictionary acquisition is the act of becoming the owner of certain property, the act by which one acquires or procures the property in any thing. In this context it is to be noted that the act of acquisition of shares or voting rights by itself will not attract the provisions of regulation 10 , though the person who acquired the shares or voting rights may fall within the definition of the expression �acquirer�. Each and every acquisition by an acquirer need not necessarily attract the provisions of regulation 10. What attracts the regulation is the acquisition of shares/voting rights which will entitle the person acquiring the shares to exercise voting rights beyond certain limits specifically provided in the regulation, say ten percent in regulation 10. Thus it is clear that a plain acquisition even if it exceeds 10% of the paid up capital of the company will not attract regulation 10, unless the acquisition entitle the acquirer to exercise ten percent or more of the voting rights in the company.

In this context it is considered necessary to look at the legal provisions which entitles a person to exercise voting rights in a company. Section 87(1) of the Companies Act, inter alia states that every member of a company limited by shares and holding any equity share capital therein shall have a right to vote, in respect of such capital on every resolution placed before the company. The expression �member� has been defined in section 41 as follows:

As discussed earlier, the legal ownership in the property which is pledged, vests with the pledger and does not pass automatically to the pledgee. What passes is merely the possession of the property. It is well settled that if blank transfer forms alongwith share certificates are delivered with the intention of sale, then the tranferee gets a right to fill in his name and to get his name transposed in the records of the company. However, in all cases where blank transfer forms alongwith share certificates are handed over to the transferee, the same position will not apply. Thus for example if a pledger hands over to the pledgee share certificates alongwith blank transfer forms as and by way of pledge, the transaction still remains a transaction of pledge. Mere receipt of share certificates alongwith blank transfer forms will not give to the pledgee any right, title or interest in the shares. The right, title and interest and ownership of the shares will continue in the pledger. The only right which the pledgee will have will be on non-payment to have the shares sold after notice. Such sale can only take place after a notice to the pledger. This is one instance where, even though blank transfer forms have been handed over alongwith share certificates, there is still no transfer of ownership. Another instance may be where the shares alongwith blank transfer forms are kept as security towards repayment of a debt. If they are merely kept as security, then again by such deposit no right is created in favour of the creditor. It is only after the agreed time of repayment is over that the security can be enforced and it is only at that stage that the creditor gets a right to fill in his name in the transfer forms and get his name transposed in the records of the company.

In the instant case it is seen that 332540 shares (7.04%) were transferred in the name of the Appellant and its name was entered in the members register maintained by APL, thereby entitling the Appellant to exercise voting rights attached to those shares. For computing the entitlement for exercising voting rights in APL, for the purpose of regulations, the said holding has to be taken into consideration in view of the legal position that a member is entitled to exercise voting rights. In view of the clear words in the regulation regarding entitlement to exercise voting rights , the shares standing in the name of pledgee, though acquired by way of security need be taken into account. However, it is not so in the case of the remaining shares which were only held by the Appellant, but not registered in its name. The voting rights in respect of the said shares remained with the pledgers. Even the loan agreement in the instant case does not authorise the Appellant to exercise the voting rights attached to the said shares, on their behalf. Shareholding, irrespective of the quantum, which does not entitle the person concerned to exercise voting rights in the company is to be discarded for computing the 10% bench mark in regulation 10.

The Appellant�s submission that the entire quantum of shares received by it by way of pledge need be excluded for the purpose of regulation 10 is untenable for the reason that in respect of 7.04% of the share capital it had become entitled to exercise voting rights. However that is not the case with regard to the remaining portion of the shares held by it since these shares were only "held" by it and

the Appellant was not entitled to exercise voting rights attached to those shares, it cannot be said that holding those shares amounted to acquisition to decide the bench mark provided in regulation 10. Once the said holding is not taken into consideration, the Appellant�s holding remains at 7.04% which is well below the threshold limit provided in regulation 10 and therefore it was not required to make any public announcement to acquire shares in accordance with the regulations.

The Respondent�s argument that since pledge has been specifically excluded from the scope of the regulation in the case of banks and financial institutions and not in other cases and therefore the instant case is covered by the Regulation is not acceptable. If the acquisition entitles an acquirer to exercise ten percent or more of the voting rights in a company, then only the regulation would be attracted. It is not the manner in which the shares are acquired. It is the effect that triggers action. If the acquisition has no impact on the voting rights, regulation is not attracted. In the light of the factual position discussed above, the Appellant had not become entitled to exercise voting rights in the company over and above the said limit for the reason that its holding of 435040 shares was not registered in the company�s register of members in its name. Therefore, the regulation cannot be said to attract in this case. The Respondent�s apprehension that if "pledge" is not treated as acquisition, it would negate the purpose of the Regulation is baseless as a �mere pledge� as such does not affect the management or control of the company. It will not even affect the market quotation as the pledged shares are kept on hold and not traded in the market. Change in possession of share certificates by itself, without transferring attendant rights, will not affect the ownership or management control of a company. The moment those shares are registered in the company�s register automatically the acquirer will become entitled to voting rights and depending on the quantum of shares involved and its attendant voting rights acquired regulation 10 also would attract.

Shri Barua had cited the case of Bhavesh Parekh and VLS Finance(Supra). Bhavesh Parekh�s case was relied to show that in matters of economic policy Court should not interfere with the decision of the expert bodies which have examined the matter VLS Finance case was relied to show that simple shareholding would attract the regulation. But in VLS�s case the applicable regulation was the one under the 1994 Regulations which was replaced by the 1997 Regulations. These two cases are therefore of no relevance to the matter under consideration."

It is to be noted that in the present case we are not examining the entitlement of Shri Harsha Mehta to exercise votes. The question is by Ambujas� holding of 14.4% shares in ACC entitled them to exercise 15% or more of the voting rights in the company. They are not notified persons. The voting rights are embedded in the equity share. Attachment does not alter the basic characteristic of the equity share. It is not in dispute that the equity shares issued by ACC carried voting rights. Shares referred to in regulation 10, are the shares carrying voting rights and undoubtedly ACC�s shares carry voting rights. Therefore, the percentage of voting rights exercisable by a person has to be worked out in relation to the total number of shares carrying voting rights issued by a company, and not to the exclusion of the holding of any person who is not in a position to exercise the voting rights for one reason or the other. As I already stated, the learned Counsel had admitted that in the instant case it can not be said that the shares attached have ceased to carry voting rights. However, her submission that the voting rights relating to the shares attached is under suspended animation is unfounded. The fact that a person has not exercised the voting right does not mean that the entitlement to exercise that right has lost. I do not see any conflict between the provisions of the Companies Act and the provisions of the Special Court Act, as regards the voting right attached to equity share is concerned and, therefore, the overriding effect of the Special Court in view of the non obstante clause therein canvassed by the learned Counsel is of little help. Therefore, the observation made by the Hon�ble Court in Solidaire India (supra) cited by Ms. Iyer is of no application to the matter under consideration.
 
 

The observation of the Hon�ble Supreme Court in Balkrishna Gupta (supra) that "Mere appointment of a Receiver in respect of certain shares of a company without more cannot, therefore, deprive the holder of the shares whose name is entered in the Register of Members of the company the right to vote at the meetings of the company or to issue a notice under section 169 of the Act." has to be noted in this context. The Court had further observed that "an order of attachment can not therefore, have the effect of depriving the holder of the shares of his title to the shares."

It is to be noted that as a result of attachment effected in terms of section 3(3) of the Special Court Act, the generic characteristic of the property under attachment would not change and that the rights attached to the equity shares subsisted even after attachment. Whether those rights are exercisable by the notified person, or Custodian or none is not a matter required to be considered in the present case as Ambujas are not notified persons, or for that matter the shares purchased by them are not under attachment. The 15% voting right exercisable by the acquirer has to be worked out in relation to the total mass of shares issued by ACC carrying voting rights. The total number of shares issued by ACC is 170675296 and the number of shares acquired by Ambujas is 2,45,70,000. Since the position is very clear I do not consider it necessary to go into the details of each and every case cited by the parties in this regard.

The Appellants� argument that the provisions of regulation 10 need be seen from a realistic angle, that pegging the acquisition at 14.4%, a shade below the prescribed limit of 15%, was designed to circumvent the regulation and, therefore, discarding the technicalities Ambujas should be directed to comply with the requirements of regulation 10, is not tenable. The legislative intend in regulation 10 is very clear. The Regulation does not empower SEBI to ignore the specific bench mark level and enforce compliance of regulation 10, though the acquisition is below the bench mark only by a fraction. There is no discretion available to SEBI in this regard to vary the prescribed limit. SEBI has power to grant exemption from compliance of the regulations in deserving cases, if the acquisition is above the limit but there is no power to include the acquisition which are below the bench mark, like the instant one under regulation 10 by construing that in effect 15% and 14.5% does not make any difference. Fixed percentage limit has been put in regulation 10, to avoid arbitrariness and it has to be strictly adhered to. Therefore, the submission that since only because of a fraction of a point, the acquirers are out of the purview of regulation 10, they should be asked to comply with the requirements of regulation 10 is not acceptable.

The next question is regarding applicability of regulation 12. In this context it is to be noted that the Appellants in their complaint dated 15.11.2000 had alleged that Ambujas have taken over control of ACC, without making a public offer as required under regulation 12 and they wanted SEBI�s intervention to ensure Ambujas make an open offer under the 1997 Regulations at an offer price of Rs.370/- per share i.e. the price at which Ambujas purchased the shares from Tata group companies.

The Appellants� contention is that Tatas have always been in control of the management of ACC by virtue of their shareholding that public perception is that ACC is a company managed by Tatas, which is based on several factors including various disclosures made by ACC showing Tatas as their promoter and also describing ACC as one of the Tata group companies.

The Appellants have detailed in their complaint the basis of their charges, a gist of which has been stated in the impugned order. According to the Appellants Tata group companies wanted to divest their entire shareholding (14.4%) in ACC for various reasons, that they thereafter entered into negotiations with prospective purchasers and that on 21.12.1999 Ambujas entered into an MoU with Tata group companies for acquisition of Tata group�s holding of 14.45% at a price of Rs.370/-, that 7.2% shareholding of Tatas were acquired on 27.12.1999 and the balance in two transactions , that on 27.12.1999 Shri N. S. Sekhsaria and Shri A. L. Kapur, Managing Director and Wholetime Director, respectively of Ambujas were inducted to the ACC Board as additional directors and their appointment was confirmed by the shareholders in their general meeting held on 19.1.2000 and Shirr N. S. Sekhsaria was made Deputy Chairman of ACC.

• The report of the said MoU between Ambujas and Tatas the acquisition of 7.2% shareholding of Tatas in ACC by Ambujas, and appointment of S/Shri Sekhsaria and Kapur as Deputy Chairman and Director respectively, on the Board of ACC were flashed in the media upon which the complainants came to know of the acquisition and the appointments.

• It was also reported in the Press that the financial institutions who held a large share-holding of about 24% in ACC through the Lead Financial Institutions viz., the Industrial Development Bank of India, expressed a view that Ambujas are required to make an open offer under the Take Over Code for purchase of shares from the other share-holders at the same price, viz. Rs 370/- per share, in view of Ambujas taking control over ACC consequent to the MoU and the acquisitions of shares was from the Tatas being the promoters of ACC.

• From the newspaper reports during February 2000, it was made public that a presentation was made by Ambujas to the Financial Institutions wherein Ambujas had shown that it would have a consolidated capacity to manufacture 29 million tones of cement in India. Ambujas, in their calculation factored in the total production capacity of ACC also along with their DLF Cement in Rajasthan and the Gujarat Ambuja Cements Ltd, as Ambujas production capacity in India.

• The complainants understood that during the relevant time based on the public opinion and views expressed by the Financial Institutions as reported in the press the Board caused examination on the issue and was reported in the press that the Board held a view that a change in control of management in ACC had occurred on account of appointment of Ambujas directors on Board of ACC. It was also reported in the press subsequent to the Board expressing such a view the Ambujas were reported to have drawn defense that the accession is only strategic alliance etc.

• From the reports appeared in the paper, the complainants understood that various opinions and views were expressed in the Press with regard to non-compliance of the provisions of the Take Over Code by Ambujas in matter connected with the acquisition of shares and control of ACC and it appeared from the newspaper report dated 22.4.2000 that the SEBI had rendered a judgment concluding that the acquisition of shares by Ambujas from Tatas in ACC did not necessitate a public offer nor it amounted to a take over under the Take Over Code in as much as the two criteria, viz., neither the triggering acquisition of 15% nor taking control of the company had occurred. The Board was also of the view that Ambujas were not in a position to appoint maximum number of Directors and therefore they had no control and SEBI sought the opinion of Attorney General of India on the matter and the Attorney General of India has given such an opinion.

• That after the aforesaid judgement of the board concluding that there was no violation of Take Over Code, there was a reshuffle of Board of Directors of ACC wherein the Chairman and the Exe.Vice Chairman of ACC associated with Tatas resigned from the Board of ACC and a new Chairman was appointed. It could be seen, the position of executive vice Chairman was not filled and the Dy. Chairman appointed started acting in that position.

• That during May 2000, Ambujas, under the said MoU with Tatas, purchased an additional 4.1% of shares of ACC from Tatas at a price of Rs 370/- per share as against the then prevailing market price of Rs. 127/- per share as a result of which their share-holding in ACC increased and stood at 11.3% of the paid-up capital.

• It was understood by the complainants that during this period some of the Investor Protection Association in the country took up the issue with Board and the matter was pending without any relief forthcoming.

• It was the view of the complainants that in the above circumstances, Ambujas have taken control over ACC and failed to comply with the provisions of the Take Over Code to protect the interest if the other share-holders and SEBI who had the statutory duty to protect the interest of other share-holders have not carried out any proper and appropriate investigation as per the provisions of the Take Over Code.

• ACC, in their notice dated December 8, 1998 to the share-holders for the Extra-ordinary General Meeting held on January 7, 1999, had shown Tatas as promoters of ACC. It was stated by the company to its share-holders that the proposed Resolutions Nos. 4 and 5 touching on the Rights Issue were to take steps for increasing the share capital of the company, while at the same time also increasing the share-holding of the promoter viz., Tatas. In the explanatory statement to the said notice with reference to Resolution No.5, it was categorically stated by the company to the share-holders that the issue of naked warrants/equity shares proposed was to the present promoters group viz., Tatas. It was further stated that Tatas had 13% equity shares in ACC as on that date and that it was necessary to secure the stability and position of the management of the company and the issue was intended to enhance the promoters� holding to around 20%.

• ACC, in their Rights Offer Document issued during May 1999 to share-holders, have categorically stated the following:

• ACC, in its communication dated 28 April 2000 to the stock exchanges, while making the statutory declaration under Regulation 8(3) of the Take Over Code, while disclosing the holding of the present promoter group, informed that the five Tata companies aforesaid held 6.28% of the paid-up capital of ACC and described the said five Tata companies as the present promoter group of ACC.

• ACC had represented to the public at large which includes its share-holders on its own web site, the following:

• The majority of the Directors on the Board of ACC are Directors who belong to the Tata group and have been on the Board of ACC as being or belonging to Tata group because of their association as Directors in other Tata group companies or being an employee of ACC and the facts and circumstances stated herein would show that most of the Directors who have controlling right or say to draw management into one direction or in control of the management are those who belong to Tata group. For instance, Mr. N.A. Palkhiwala has been Chairman of the Company from 1975 and is now a Chairman Emeritus and he is a Director of the holding company of the Tata Group viz., Tata Sons Ltd and 17 other Tata companies. Similarly, Mr. P S Mistry who resigned in the wake of the Ambuja take over from the Chairmanship of ACC was also on the Board of more than ten Tata companies. Dr S Ganguly who has been the Executive Vice Chairman and Managing Director of ACC from 1987 to 1999, resigned from the position of Executive Vice Chairman of ACC when Mr. N S Sekhsaria, managing Director of Gujarat Ambuja Cements Ltd was made the Deputy Chairman of ACC. Late Mr. S R Vakil has been Director of this company right from 1975 till his death in 1999 and was on the Board of Directors of many of the Tata Group of companies. Mr. N.A. Soonawala has been Director in ACC from 1987 till date, is also a Director in most of the Tata companies.

• That the above would categorically show that Tatas have always been in control of the management of ACC by virtue of their share-holding � whether it was a single figure or in double digit, and as per their own representation and the representation of the Company viz., ACC, the public at large invested to become share-holders of ACC on these terms alone and it is therefore, that the share-holders such as the complainants herein have sought an exit option as guaranteed under the Take Over Code when Tatas relinquished their position as promoters of ACC and handed over their control on ACC to Ambujas.

• It is the reliable understanding of the complainants that the Industrial Development Bank of India, who, along with other leading financial institutions having the largest share-holding in ACC and who expressed their view point in the matter connected with the applicability of Take Over code on the acquisition of 14.45% shares of ACC by Ambujas from Tatas and Ambujas taking control of ACC, had the issue examined internally and arrived at a view that there is a prima face evidence of Ambuja having taken over control of ACC and the provisions of the Take Over Code being attracted on this transaction between Ambujas and Tatas.

• It is also the reliable understanding of the complainants that the nominee director of a participating institution in his report to the parent body informed that the meeting of the Board of Directors of Ambujas held during December 1999 it was informed to the Board by the Managing Director that on the transaction for acquisition of 14.45% of ACC shares from Tatas, one of the understandings between the Tatas and Ambujas was that the Tatas would share the management of ACC with Ambujas.

• The Board of Directors f ACC in their report to the share-holders for the year 1999-2000, in the 64^th Annual Report of ACC for the year ending 31.3.2000, vide para 20.4 has stated that "consequent upon the acquisition of shares of ACC by Ambujas Mr. N S Sekhsaria, who is the Managing Director of Gujarat Ambuja Cements Ltd was made an additional Director of ACC and subsequently made the Deputy Chairman of ACC and Mr. A L Kapur, the whole-time Director of Gujarat Ambuja Cements Ltd was appointed as additional Director of ACC.

• It is the reliable understanding of the complainants that in the minutes of the meting of the Board of Directors of ACC on 22 December 1999 while explaining TATAs sale of their entire share-holding in ACC to Ambujas, it is recorded as hereunder:

• It is also the reliable understanding of the complainants that in the said minutes, as regards the appointment of Mr. Narotam Sekhsaria the Managing Director of Gujarat Ambuja Cements Ltd as Director of ACC, it has been recorded as hereunder:-

• It is also the reliable understanding of the complainants that in the meeting of the Board of ACC held on 27 December, 1999, the appointment of Mr. Sekhsaria and Mr. A L Kapur, the Managing Director and the whole-time Director of Gujarat Ambuja Cements Ltd (Directors of a competitor company of ACC) as Directors of ACC was proposed by Mr. Pallonji S Mistry, the chairman of ACC and seconded by Mr. N S Soonawala, both Directors belonging to Tata group.

• It is the submission of the complainants that the appointment of two Directors representing Ambuja Cements on the Board of ACC within 5 days of acquiring of 7.2% of ACC shares from Tatas would itself show that the acquirers under the understanding with the Promoters of ACC namely Tatas were accommodated by the Board of Directors of ACC of their intention to get into the Management of ACC as early as possible. The Investment made with huge premium would render credentials to such action. After buying 7.2% shares in December 1999, the Ambuja had the option either to agree to or refuse to purchase the balance 7.2% shares of ACC. Though at the time of exercising the option the market price was much lower the Ambujas went ahead with purchasing of these shares at Rs.370 per share. The shares were available in the market at or around Rs.125/ Rs.100 at the time of exercising the option in two lots 4.2% and 3.1% respectively. The purchasing of the shares from market would not have given them the scope to gain control over management of ACC. Obviously because of this reason or in the alternative possibly based on certain tactic understanding elected to purchase the shares from Tata�s when they were also ready to disinvest. The premium of Rs.110, Rs.244 and Rs.272 paid in December 1999, May 2000 and October 2000 respectively thus is a premium paid to acquire the control of management of ACC from Tata�s.

• It is the reliable understanding of the complainants that the company, viz., ACC had three power generating facilities at Jamul, Khymore, and Wadi as captive power generating units as separate entities to cater to the cement manufacturing plants of ACC. At the Annual General meeting held on August 25, 1998 the shareholders approved that these power-generating units can be transferred as separate undertakings to the Tata Electric Co. It is learnt that after Ambujas taking over the control and management of ACC, the transfer of two of the power generating undertakings at Jamul and Khymore has been decided to be kept in abeyance and the entire matter is being directed to be reviewed by the Deputy Chairman Mr. N S Sekhsaria. A reference to the relevant Board Minutes of ACC may throw further light upon this aspect.

• The above materials show categorically that till the transfer of their entire holding in ACC Tatas as promoters were in control and management of ACC and Ambujas having acquired the interest of Tatas have stepped into the shoes of Tatas and gained control over the company. Thus there is a clear change in control of ACC from Tatas to Ambujas attracting the provisions of the Take Over Code, whereunder the Ambujas are having statutory obligation to make a public offer under the provisions of the Take Over Code for purchase of shares of other share-holders at the same price, viz., Rs.370/- per share, which was paid by Ambujas to Tatas.

• It is the belief and expectation of the complainant that this Board with all its sweeping and exclusive powers under the SEBI Act and the Take Over Code were to conduct a deep and detailed investigation on the issue with TATAs, Ambujas, ACC, participating Financial Institutions, the Financial Advisors to the deal, Bank of America, Registrar of Companies, Mumbai, Stock Exchanges with which ACC has listing arrangements and others connected to the deal much more facts and details can be ascertained in support of the view being held by the complainant.

• As reported in the press, Mr. Nimesh Kampani, Chairman of J.M. Morgan and Stanley acted as advisors to the deal between Tatas and Ambujas, is also a Director in Gujarat Ambuja Cements Limited. Mr. N.S. Seksharia, managing Director of Gujarat Ambuja and Dy. Chairman of ACC is also a Trustee of Unit Trust of India (UTI) who among the participating Financial Institutions holds largest stakes in ACC. The extent of their involvement in the deal with reference to various provisions of the Takeover Code has also to be taken into account while examination.

In the impugned order it has been stated that regulation 12 is an inclusive definition and, therefore, the issue of control has to be determined on the touchstone of the regulation 2(c ) of the 1997 Regulations and also on the basis whether the seller i.e. Tatas were in control of the target company and Ambujas who have purchaed the share in ACC from Tatas has acquired control.

With reference to the disclosure/declaration made by ACC showing Tatas as promoters, SEBI has cited the definition of "promoter" available in regulation 2(h) and stated that from the definition it is clear that as per the regulation even though a person is not in control of the company he can still be a promoter if he has promoted the company or is named in the offer document as a promoter, that according to SEBI (Disclosure and Investor Protection) Guidelines, 2000, "persons who are instrumental in the formulation of a plan or a programme of the company" are included as promoter even though such person may not be in control of the company or having any substantial holding in the company, that therefore if a person is described as a promoter in an offer document it will not ipso facto make such promoter as person in control for the purpose of the Takeover Regulations, that for determining whether a promoter is in control, the requirement of regulation 2(c) needs be fulfilled. There is no dispute as to whether ACC had shown Tata group companies holding shares in ACC as the present promoters of ACC. In this context it is necessary to know the scope of the expression "promoter".

According to regulation 2(h) "promoter means"

(1) (i) the person or persons who are in control of the company or

(ii)person or persons named in any offer document as promoters.

In the SEBI (Disclosure and Investor Protection) Guidelines, 2000 referred to in the order it has been stated that the term �promoter� shall include �

1. the person or persons who are in overall control of the company
2. the person or persons who are instrumental in the formulation of a plan or programme pursuant to which the securities are offered to the public
3. the person or persons named in the prospectus as promoters..

SEBI has also accepted the fact that Tata group has been shown as promoter group in the offer document etc. It is to be noted that an entity can be shown as a promoter in terms of clause (i) or (ii) of regulation 2(h)(1). Whether the entity is a "promoter" in terms of clause ( i) or clause (ii) would depend on facts. It appears that SEBI has come to the conclusion that a person described in the offer document need not necessarily be in control of the company. But SEBI has to accept that a person mentioned as promoter in the offer document can also be in control of the company. Since the Appellants and Respondents have hotly contested the question as to Tata group companies were in control or not, it would have been more appropriate for SEBI to make a detailed investigation into the matter and decide the question based on the facts so collected. Instead of adopting a simplistic approach, an investigative approach would have been of considerable help in deciding the dispute. SEBI has simply observed "for determining whether a promoter is in control, the requirement of regulation 2 ( c ) needs to be fulfilled" But SEBI seems to have not made any serious attempt to find out as to whether the said need has been really fulfilled or not. Again with reference to the disclosure made by ACC in terms of regulation 8(3) � the factual position of reporting remains undisputed � in the order, it has been observed that every listed company has to disclose on annual basis to the concerned stock exchanges the holding of promoters and of persons having control over the company. ACC has stated that the declarations made by it stating Tatas as promoter were only indicative of the shareholding pattern of the company and not evidence of any control over the company. In the order it has been stated that the percentage of shares or voting rights held by a person or any right under the Articles of the company to appoint directors, control the management of the company etc. will determine whether a person is in control or not. A mere declaration by a company stating a particular person to be promoter will not be enough, that the same is to be determined in terms of regulation 2(1)( c ). What prevented SEBI from determining the position accordingly is not available from the order.

In this context it is considered necessary to have a look at regulation 8. As per the said regulation:

It is to be noted that the declaration under regulation 8(3) by a company is based on the declaration required to be filed by the persons referred to in regulation 8(2). In this context it has to be understood that the best person who can authoritatively say that whether a company is under the control of someone, is the person who is in control and the person who is under control. I am not suggesting that based only on the said declaration, Tatas be considered as the persons in control of ACC. But at the same time, such a declaration could be one of the factors which SEBI could have considered with reference to other material facts for deciding the question of control by Tatas. So is the case of the disclosure made by ACC on its website showing ACC as one of the Tata group companies. As stated earlier the statements from the "horses mouth" should not have been discarded without any probe. It must be remembered that disclosures have an impact on investor perception.

According to SEBI the shareholding pattern of ACC after Ambujas acquired Tata group companies� holding in ACC was LIC and other FIs 22.34%, Ambujas 14.45% and public 63.21%, that Financial Institutions and public are the major shareholders and the fact that a resolution for a preferential issue of 90,00,000 naked warrants/equity shares of the target company to Tata companies, could not be put in the AGM because of the opposition thereto from the Financial Institutions and therefore "the Tata Group, in whose shoes the Ambujas have stepped in, did not have control to get the said resolution passed". This is what the other Respondents had also stated. According to the Appellants the agenda for the General Meeting was issued with the approval of the Board of Directors and that because of the dominance of Tata group therein, the Board approved inclusion of the said resolution in the agenda for the EGM, and that since the resolution was to be a special resolution, Tatas were apprehensive of the same being defeated in the EGM and hence withdrew the resolution. The fact remains that the proposal to move such a resolution to issue naked warrants/equity on preferential basis to Tata group of companies "to secure the stability and position of the management" was approved by the Board of ACC can not be ignored because that resolution had to be withdrawn from the EGM due to opposition thereto by FIs. In this context it is to be noted that the nominees of the Financial Institutions and Government companies are not in the Board normally to control the companies. They are there to protect the interests of the nominator. They become alert normally if any decisions are taken by those in management which would affect their interest as a financial participant. They don�t normally interfere in the corporate management and leave the show to be run by the management. It is absolutely incorrect to say that the nominees of the Financial Institutions are in the Board to exercise control over the company, to which they have given financial assistance. It is, therefore, difficult to accept the version that FIs and Govt. nominee directors are also in control of the management of the company. In any case it would have been proper in the light of the complaint to probe into the circumstances under which the Board of Directors of ACC agreed to put the said resolution before the shareholders and what transpired in the concerned Board meeting. It is true that some times in the Board meeting it is more said than recorded.

It is seen that SEBI has been guided by the numerical strength of the Board of Directors, that out of the 16 directors, two directors are nominees of GACL, 2 directors are of Tata group companies, 4 directors are whole time directors, 5 directors are nominees of FIs and Government and the rest are stated to be independent professional directors, that thus, there were only 2 directors belonging to Ambujas and two belonging to Tatas. In this context it is to be remembered that in case it is established with evidence that Tata group companies were in a position to exercise control over the company, the role of the executive directors is well imaginable, as they being the employees of the controller would naturally be with the controller. A pure assessment of the numerical composition of the Board by itself will not lead one too far to identify the seat of control. It is also to be noted that in the order SEBI had stated that Target company had four nominee directors. If one is to go by the version that Tatas were in minority and Financial Institutions/Govt. and public were in majority, how Tatas could get their 4 nominees in the Board of ACC need be explained.

In the order, referring to the definition of the expression �control�, it has been stated that one test of control is the right to appoint majority of the directors, that there is no provision in the Articles of Association of the company entitling Tata group companies to appoint even one director, that at the time of transaction the directors representing the interest of Tata group were clearly in minority, that ACC�s four wholetime directors are professional Directors. In the order it has been emphatically stated that "in these facts and circumstances it could not be said that Tata group exercised any control in the target company". With reference to induction of Shri Sekhsaria and Shri Kapur of Ambujas, it has been observed that their appointment does not mean that Ambujas have acquired control over the target company, that it is not unusual that a person with a large shareholding is invited to join the Board, that Shri Sekhsaria or Shri Kapur is not the Chief Executive of ACC or they exercise executive powers. But then it is not clear as to why a person like Dr. S. Ganguly who has been the Executive Vice Chairman and Managing Director of ACC from 1987-1999 resigned from the position of Executive Vice Chairman of ACC when Shri N. S. Sekhsaria, Managing Director of GACL was appointed as ACC�s Deputy chairman, as alleged in the complaint. Was it a mere coincidence? Designation by itself is not a deciding factor of exercise of control. It is the role one plays in the management that matters. The fact that a company is professionally managed does not necessarily mean that nobody is in control over the company. It is an accepted practice in the corporate sector that competent professional managers are given policy directions by those in control of the company. The crucial issue is that whether there was any material to show that Tatas had actual control over ACC. It has been stated in the order that there was no evidence or material at the point of time to show control of the management of ACC by Ambujas. But how the material or evidence would come in. It has to be collected. The question is that what effort SEBI had made to collect material evidence to find out the actual position? It is seen from the order that the complaint was disposed of on the basis of the submissions made by the parties before the Chairman of SEBI. In such a proceeding it is hardly likely to come to light full facts, as the complainant being an outsider has no access to the material relating to the company�s internal management and Ambujas or Tata group of companies or ACC can not be expected to produce on their own any material which would go against their contention that Tatas were not in control of ACC. Therefore, it was for SEBI to investigate and consider in the light of the factual position obtained from such investigation as to whether the allegations in the complaint are true or not. It was all the more necessary to reach at a fair and just conclusion based on material facts, as SEBI�s decision has a bearing on the interest of the large mass of investors of ACC. SEBI is not short of power to undertake investigation. The Regulations have given the requisite power to investigate for any of the following purposes, namely :--

1. to investigate into the complaints received from the investors, the intermediaries or any other person on any matter having a bearing on the allegations of substantial acquisition of shares and takeovers.
2. to investigate suo-moto upon its own knowledge or information in the interest of securities market or investors interests for any breach of the Regulations.
3. to ascertain whether the provisions of the Act and the Regulations are being complied with �

1. *********
2. **********
3. Appointment upto 4 directors closely connected with Purchaser on the Board of Directors of the Company."

The reason for the Bhagwati Committee to leave such an open ended definition of �control� is understandable. �Control� is a term of wide connotation and amplitude. The control by its very nature is not amenable to any precise standard definition of general application. It varies from case to case. The power of control though intangible, the area over which it is exercised can be identified within certain limitations. Having regard to the object and scheme of the Act and the Regulations, in my view, the expression control in regulation 12 must mean effective control. In other words control must be taken to mean defacto control also and not dejure control alone. The observation made by Prof. Gower in his treatise on Company Law that "control is a matter of degree ranging from complete legal control for all purposes over a wholly owned subsidiary to defacto control �. Normally exercisable by the existing management even though they may hold few or none of the shares. It may be difficult to detect, but it is becoming to be recognised as a separate item of property, the value of which will depend upon the degree of its completeness. The statutory definition is undoubtedly right to place the emphasis which it does on the power to control the Board, for as we have seen the Board is the company�s head and brain. But defacto control over the Board can exist without any legal power at all. Thus it is well known that in a company with a large and dispersed membership, a comparatively small proportion of shares, if held in one hand may enable actual control to be exercised." It is now well recognised that majority holding of shares is not the decisive factor in determining effective control. Such control can be had in many ways.

In a well researched study "The Modern Corporation and Private Property" by Adolf G. Berle and Gardiner C. Means (p. 110-111) the source of control flowing form, has been stated as follows:

"It is apparent that, with the increasing dispersion of stock ownership in the largest American Corporations, a new condition has developed with regard to their control. No longer are the individuals in control of most of these companies, the dominant owners. Rather there are no dominant owners and control is maintained in large measure apart from ownership. As has been indicated control is something apart from ownership on one hand and from management on the other is a new concept ill defined in practice. It deals with a condition which exists only relatively and one on which information of the most approximate character � Formally assumed to be merely a function of ownership, control now appears as a separate seperable factor. This position has been reiterated by Wembly in his authoritative work �.that "sometimes persons in a position to exercise the majority voting power may hold a minority even a very small position of the equity." Indian condition is not different as stated in an authoritative research study by Prof. R. K. Hazari � "the structure of the Corporate Private Sector" (Allied publishers) that "in fact, if the shareholding is widely dispersed, even a fractional holding of equity can suffice to ensure control over the company. Therefore, SEBI�s finding that Ambujas with just 14.4% shareholding, not in majority, is not in a position to exercise control over the company, by itself is not a conclusive factor in this regard.

The allegation that Ambujas even though acquired 14.4% shares in ACC, effectively are in a position to exercise more than 15% of the voting rights in the company is untenabale. In my view SEBI has rightly come to the conclusion that the shares carrying voting rights standing in the name of Shri Harshad Mehta, a person notified under section 3(3) of the Special Court Act, need not be excluded for the purpose of calculating the percentage of voting rights exercisable by Ambujas for the reasons discussed in this order. Regulation 10 is not attracted.
 
 
 
 
 
 

But as far as SEBI�s finding that section 12 is not attracted, I am of the view that SEBI jumped to the conclusion without properly investigating all the relevant aspects to ascertain as to whether Ambujas are in a position to effectively exercise control over ACC. SEBI has come to the conclusion based solely on the basis of the submission made on behalf the complainants, Ambujas, ACC and Tata group companies. In fact in the order it has been stated that "opportunity was given to all the parties for them to produce all materials and submissions to enable SEBI to come to a proper finding". This procedure in my view has severe limitation, as the complainant has no access to the records of ACC to bring out material information. It is also futile to expect Ambujas or Tata group of companies or ACC to voluntarily furnish any material which would not support their contention. The proper course for SEBI would have been to investigate the matter independently availing the expertise available at its command. SEBI Act is a piece of beneficial legislation to protect the interests of investors in securities, and the 1997 Regulations have been framed with the object of carrying out the purpose of the Act. "Equality of treatment and opportunity to all shareholders" and "protection of interests of shareholders" are the two general guiding principles amongst several other principles to be followed while administering the Regulations. Therefore it is the duty of SEBI to act fairly, reasonably and in a manner which is transparent and inspiring confidence in the investors. An independent fact finding investigation into the complaint would be in tune with the said objective.

For the reasons stated above SEBI�s finding that regulation 12 is not attracted requires reconsideration. SEBI is directed to properly investigate the question as to whether Ambujas acquired control over ACC as a result of acquisition of shares held by Tata group companies and in the light of the investigation, decide further course of action, if any, required. For the purpose the matter is remanded.

I would like to make it clear that SEBI shall not be influenced in its investigation or decision making in any manner by the observations made by the Tribunal in this order. All the contentions of the parties are expressly kept open. It is expected that the complainants and the other Respondents herein would extend full co-operation to SEBI in its investigation into the matter.

The appeal is disposed of in the above lines.
 

Sd/-