1. Grasim Industries Ltd.,
2. Samruddhi Swastik Trading and Investments Ltd., Appellants

Securities and Exchange Board of India Respondent

Appearance:

Shri G. E. Vahanvati,

Advocate General of Maharashtra

Shri D. J. Khambata,

Advocate

I/b Mulla & Mulla & Craigie Blunt & Caroe For Appellants

Shri R. A. Dada,

Senior Advocate

Shri Kumar Desai

Advocate

Ms. Uma Dalal

Advocate

I/b Maneksha & Sethna For Respondent

Shri Somasekhar Sunderasan

Advocate For Applicant

JM Morgan Stanley Private Ltd.,(the merchant banker) on behalf of the Appellants issued a public announcement in terms of regulation 10 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the 1997 Regulations). The public announcement was addressed to the shareholders of Larsen and Toubro Ltd., (the target company) offering to purchase 497,32,070 fully paid up equity shares, representing upto 20% of the paid up capital of the target company. The offer price was quoted at Rs.190/- per share. The public announcement was made on 14.10.2002.

The background of the offer has been explained in the draft offer letter. On 18.11.2002, first Appellant acquired 2,50,00,000 equity shares, aggregating 10.05% of the voting share capital of the target company at a price of Rs.306.60 per share. The acquisition was made in November 2001. First Appellant and its wholly owned subsidiary viz. Samruddhi Swastik Trading and Investments Ltd, Second Appellant, further acquired 1,11,21,540 equity shares aggregating 4.48% of the voting capital of the target company, through open market purchase at an average price of Rs.176.75 per shares. According to the Appellants, as on the date of the public announcement, 3,59,97,798 shares and 1,23,742 shares of the target company were owned by the first and second Appellant respectively. It has been stated in the draft letter of offer that the Board of Directors of the first Appellant decided to augment the shareholding in the target company beyond 15%. The public offer is in the said context. The public announcement, as per regulation 15(1) was made in the newspapers on 14.10.2002.

There were complaints relating to the said acquisition and the Respondent had dealt with same. We will come to the details a little later in this order.

Securities and Exchange Board of India Act, 1992, as can be seen from the preamble, is enacted to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of and to regulate the securities market and for matters connected therewith or incidental thereto. The Securities and Exchange Board of India is established for the purpose. Powers and functions of the Board have been enumerated under Chapter IV of the Act. One of the functions of the Board is regulating substantial acquisition of shares and takeover of companies. The Board (Respondent) has notified the 1997 Regulations for the purpose. As per regulation 10, referred to above "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 15% or more of the voting rights, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the Regulations." Since the Appellants were holding 14.5% shares in the target company�s paid up capital and they were planning to acquire upto 20% shares, public offer as required under regulation 10 warranted and accordingly the public announcement was made. In terms of regulation 13, before making any public announcement of offer, acquirer is required to appoint a merchant banker. The Appellants appointed JM Morgan Stanley Private Ltd. as the merchant banker for the purpose. Regulations provide for timing of the public announcement of offer, extent of the publicity to be made, contents of the public announcement etc. The time frame of action applicable to the instant case is as under:
 

For the time being, it is felt not necessary to go into specifics. The Regulations, apart from providing a time frame for action also prescribes the sequence of action. One of such requirements is submission of letter of offer to the Board. This requirement is under regulation 18

As required by regulation 18(1) the Appellants through their merchant banker filed with the Respondent, the draft of the letter of offer. This was done on 24.10.2002.

In response to the draft letter of offer filed with the Board, the Respondent inter alia informed the Merchant banker

"�������

1. Not to proceed further with the open offer formalities pursuant to the public announcement made on 14.10.2002.
2. To issue a revised public announcement in all the newspapers in which the original public announcement appeared stating, inter alia, the contents of this letter suitably.

1. The Appellants say and submit that the impugned decision and communication caused grave prejudice to the Appellants. The balance of convenience is entirely in favour of the Appellants and grave and irreparable harm will be caused to the Appellants if the impugned orders are not quashed/stayed."

Prayer for interim relief was listed for consideration on 21.11.2002, after due notice to the parties. On 21.11.2002 the matter was part heard and adjourned to 27.11.2002, as the learned Counsel for the Respondent stated that there were certain new facts which had come to the notice of the Respondent which had led to the decision to order investigation by the Chairman of the Respondent on 6.11.2002 and he expressed his willingness to file an affidavit listing the same and sought short time for the purpose. The Respondent was directed to file the affidavit by 26.11.2002 and the matter was posted on 27.11.2002, taking into consideration the convenience of all concerned.

On 21.11.2002, a representative of on investor association viz. Investor Grievances Forum, sought permission to intervene. He was directed to file a proper application for the purpose and accordingly they filed application on 26.11.2002. Respondent filed the affidavit on 26.11.2002. The Appellants filed a Rejoinder to the said affidavit on 27.11.2002. One Shri M. R. Prasanna, described as President (Legal) of the "Aditya Birla Group" filed a short affidavit, stating the background of the 1^st Appellant�s letter dated 22.11.2001, therein the Appellant had recommended the names of Shri Kumar Mangalam Birla and Mrs. Rajashree Birla for appointment to the Board of Directors of the target company. This affidavit was also filed on 27.11.2002.

On 27.11.2002 when the argument on interim relief was resumed, Shri Sokasekhar Sundaresan, learned Counsel stated that he is appearing for the Investor Grievances Forum and requested to consider their application. Shri Goolam Vahanvate, learned Advocate General appearing for the Appellants submitted that the application was served on the Appellants only on 26.11.2002 and he requires some time to go through the same.

I have perused the application. It is seen that the applicant has been requesting the Respondent to investigate the matter relating to acquisition of shares by the Appellants and take suitable action against the Appellants for quite some time. The request has been met with as is seen from the Respondent�s letter dated 8.11.2002. In the said letter it has been stated that they had decided to investigate the matter. Therefore, I do not see any grave urgency to consider the application at this juncture, without hearing the other parties in the Appeal.. This Tribunal at present is considering only the Appellants� prayer for interim order. The appeal will be taken for consideration in due course on receiving the Respondent�s reply etc. Whether applicant�s prayer seeking intervention is to be allowed or not will be decided after hearing the parties, before this Tribunal takes up the appeal for consideration on merits. Accordingly consideration of the application filed by the applicant is deferred for the time being.

Before proceeding further it is felt that it would be advantageous to extract for referral purpose some of the regulations heavily relied on by the parties.

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 percent 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."

38. The Board may appoint one or more persons as investigating officer to undertake investigation 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."

39.(1) Before ordering an investigation under Regulation 38, the Board shall give not less than 10 days notice to the acquirer, the seller, the target company, the merchant banker, as the case may be.

2. Notwithstanding anything contained in sub-regulation (1), where the Board is satisfied that in the interest of the investors no such notice should be given, it may, by an order in writing direct that such investigation be taken up without such notice.
3. During the course of an investigation, the acquirer, the seller, the target company, the merchant banker against whom the investigation is being carried out shall be bound to discharge his obligation as provided in Regulation 40."

"44. Without prejudice to its right to initiate action under Chapter VIA and section 24 of the Act, the Board may, in the interest of securities market or for protection of interest of investors, issue such directions as it deems fit including:-

(a) directing appointment of a merchant banker for the purpose of causing disinvestment of shares acquired in breach of regulations 10,11 or 12 either through public auction or market mechanism, in its entirety or in small lots or through offer for sale;

(b) directing transfer of any proceeds or securities to the Investors Protection Fund of a recognised stock exchange;\

(c) directing the target company or depository to cancel the shares where an cquisition of shares pursuant to an allotment is in breach of regulations 10,11 or 12;

(d) directing the target company or the depository not to give effect to transfer or further freeze the transfer of any such shares and not to permit the acquirer or any nominee or any proxy of the acquirer to exercise any voting or other rights attached to such shares acquired in violation of regulations 10, 11 or 12;

(e) debarring any person concerned from accessing the capital market or dealing in securities for such period as may be determined by the Board;

(f) directing the person concerned to make public offer to the shareholders of the target company to acquire such number of shares at such offer price as determined by the Board;

(g) directing disinvestment of such shares as are in excess of the percentage of the shareholding or voting rights specified for disclosure requirement under the regulations 6,7 or 8;

(h) directing the person concerned not to dispose of assets of the target company contrary to the undertaking given in the letter of offer (i) directing the person concerned, who has failed to make a public offer or delayed the making of a public offer in terms of these Regulations, to pay to the shareholder, whose shares have been accepted in the public offer made after the delay, the consideration amount along with interest at the rate not less than the applicable rate of interest payable by banks on fixed deposits."

Shri Goolam Vahanvati, learned Advocate General submitted that he is not pressing the prayer at para 29(i) and (ii) and first part of the prayer inpara (iii). He submitted that his prayer for the time being is to stay the Respondent�s order, prohibiting the Appellants proceeding further with the open offer formalities pursuant to the public announcement made on 14.10.2002.

Learned Advocate General submitted that as per the Respondent�s letter dated 8.11.2002, the Respondent had taken a decision to conduct an investigation against the Appellants, that Chapter V of the Regulations prescribes the procedures to be followed in this regard. In this context he referred to regulation 38 and 39 and submitted that regulation 38 empowers the Respondent to appoint one or more persons as investigating officer to undertake investigation for any of the purposes specified in the said regulation and regulation 39 is on the requirement to give notice before investigation.

Learned Advocate General submitted that under the Regulations it is only the Board which can appoint an investigating officer, that under regulation 39 the Board is obliged to give a notice of not less than 10 days to the acquirer before ordering an investigation, that an investigation has serious consequences against the person sought to be investigated and therefore regulation 39 incorporated the requirement of notice and the requirement need be scrupulously followed. He submitted that if any order has been passed under regulation 39(2) dispensing with such notice, the Appellants are not aware of it since no such order has been served on them. He further submitted that the letter dated 8.11.2002 is also addressed to the merchant banker and not to the Appellants though the investigation is directed to the Appellants. He submitted that the notice contemplated under regulation 39(1) is not one issued after the investigating officer is appointed under regulation 38. In this context he referred to the Respondent�s statement in their affidavit that "The decision to investigate was made by the Chairman of SEBI after considering all the facts and circumstances of the case. The decision was communicated to the Appellants. Thereafter an investigating officer has been appointed by the Chairman of SEBI under Regulation 38(1) of Chapter V of the said Regulations on 20.11.2002�. In terms of Regulation 39 of the said Regulations, a notice of investigation is given by the investigating officer to the persons to whom the investigating authority seeks to examine. The said communication dated 8^th November 2002 is not a notice under Regulation 39(1). The notice under Regulation 39 of the said Regulation is issued by the investigating officer to the persons whom he seeks to examine. The investigating officer will be issuing notice as per Regulation 39 of the said Regulation to the Appellants or any person or persons for the purposes of investigating into the affairs relating to possible acquisition of shares and or control of M/s. Larsen & Toubro Ltd. as and when deemed appropriate by such investigating authority." Learned Advocate General stated that the so called order of 6.11.2002 has not been brought on record till date. He also submitted that the understanding of regulation 39, as reflected in their reply cited above is contrary to the unambiguous provisions of the said regulation. He reiterated that the notice issued by the investigating officer during the course of investigation is not a substitute for the notice required to be issued before ordering an investigation. With reference to the Respondent�s failure to communicate the order of investigation to the Appellant, learned Advocate General referred to the following observation by the Hon�ble Supreme Court in Bachhitar Singh V State of Punjab (AIR 1963 SC 395):

Learned Advocate General submitted that the Appellants after acquiring 10.05% equity capital in the target company was the largest shareholder (after the Financial Institutions) that at the instance of the target company, the 1^st Appellant vide its letter dated 22.11.2001 recommended the names of two persons to be appointed as directors. In this context he referred to the affidavit of Shri M. R. Prasanna, President (Legal) of the �Aditya Birla Group� wherein shri Prasanna has stated that the Company Secretary of the target company had suggested to him that the 1^st Appellant could address a letter to the company recommending the names of two persons to be appointed as directors of the target companay and it was in the said context the 1^st Appellant wrote to the target company recommending the names of two persons for appointing as directors. Learned Advocate General submitted that at no point of time till today have these directors or for that matter the Appellants exercised any form of control over the target company, that there has not been a single change made in the management of the target company at the behest of the Appellants, and as a matter of fact, the said two Directors are not even on any committee of Directors of the Board of the target company.

Shri Goolam Vahanvate submitted that on the basis of some allegation raised by some investors forum, the Respondent had looked into the matter of acquisition by the 1^st Appellant of 10.05% of the shares of the target company as far back as in November 2001/December 2001 and even sought for information from the target company and subsequent to this the Respondent had written three communications dated 10.12.2001, 19.12.2001 and 21.12.2001 categorically holding that the open offer requirement under the Regulations had not been triggered and therefore, there had been no violation of the Regulations. He submitted that once a decision is taken it can not be reviewed unless there is power to do so and even if there is such a power it can be exercised when there is good reasons to do so, that another investigation by the Respondent amounts a review of the decision taken earlier, that this is impermissible and in any case not warranted today to reconsider or reopen the matter when there has been no change in the factual situation at all. There are no new allegations made, nor are there any new materials forthcoming on the basis of which the decision taken in December 2001 can be altered or set aside.

Learned Advocate General referred to the target company�s letter dated 31.12.2001 addressed to the Respondent explaining actual factual position in response to the Respondent�s queries on several points in the context of acquisition of 10.05% shares by the 1^st Appellant in November 2001 and the reply thereto. Thereafter the Respondent did not act further. Neither the complainant viz. Investor Grievances Forum made any attempt to interfere. He referred to the public announcement dated 14.10.2002 and also to the draft offer document forwarded to the Appellant. On 24.10.2002 the said Forum wrote to the Respondent reiterating the allegations they had earlier raised. On 25.10.2002 this Tribunal pronounced its order in Gujrat Ambuja case, directing the Respondent to re investigate the matter to ascertain whether Ambujas had gained control over ACC. Learned Advocate General submitted that SEBI is not under obligation to re-examine a matter which it had already decided on receiving a complaint which did not raise any new issue or provide any new material and that the decision in Gujrat Ambuja, is case specific and that based on the said decision all the other closed cases can not be reviewed and reopened. He reiterated that there is no material before the Respondent to order an investigation that on the same set of facts the Respondent has decided to carry out investigation. In this context learned Advocate General referred to the affidavit filed by the Respondent and submitted that no new material has been brought therein, which were not before the Respondent while taking the decision in November/December, 2001, holding that the Appellants had not violated the provisions of the Regulations. In this context he referred to the Appellants� rejoinder also. He stated that the demerger of cement unit was mooted in the year 2000 when the Appellant was not there. He also referred to the letter dated 1.11.2002 of Shri Kumar Mangalam Birla to Shri A. M. Naik, Mg. Director of the target company and Shri Naik�s reply thereto. He submitted that these two letters indicate that the Appellants had no control over the management. He also referred to the press report dated 25.12.2001 on cross branding of cement by the Appellant and the target company and stated that it was only a press report that cross branding never took place, that press report of December 2001 can not be a ground for starting an investigation in November, 2002. He also referred to the share sale/purchase agreement dated 18.11.2001, (which was in possession of the Respondent in 2001,) relied on by the Respondent and submitted that there is nothing to show that the Appellants had acquired control over the target company.

Learned Advocate General referred to various documents filed alongwith the appeal and the rejoinder to establish his contention that there was no material before the Respondent to order any investigation, that the Appellant had from time to time furnished to the Respondent the information required by them. He also submitted that an attempt is made to show that the Appellant had acquired more than 15% shares in the target company without complying with the provisions of regulation, little realising that a person is entitled to acquire shares to the specified limit after making the public announcement and the acquisition which crossed the 15% bench mark provided in regulation 10 was done after making the public announcement. In this context he referred to the Respondent�s own decision dated 31.10.95 in the case of acquisition of shares by Torrent Group of Companies in Ahmedabad Electricity Company Ltd.,

Learned Advocate General submitted that the Respondent has no power under the Regulations to give directions as contained in the impugned communication of 8.11.2002, that the directions therein are in response to the draft letter of offer submitted by the merchant banker under the provisions of regulation 18. He referred to regulation 18 and stated that the said regulation provides that on receipt of such a draft letter of offer, the Respondent may (a) specify changes if any required in the letter of offer, (b) may call for a revised letter of offer (in case the information in the letter of offer is inadequate or if the Respondent has received any complaint or initiated any enquiry or investigation in respect of a public offer) (c) the Respondent may call for a revised offer with or without rescheduling the dates of opening and closing of the offer. He submitted that the power under regulation 18 is restricted to changes in the letter of offer accompanied by a rescheduling of dates if so required. Nowhere does regulation 18 provide that the Respondent can put a stay on the offer formalities as has been done in the present case. In this context he referred to the recommendations made by Justice Bhagwati Committee (2002 ) based on which 2^nd proviso to regulation 18 was incorporated. He submitted that the Appellants have a right to make public offer which can not be taken away under regulation 18.

Learned Advocate General submitted that the Appellants have put about Rs.117 crores in the escrow account and stopping the Appellants from pursuing the matter further in terms of the public announcement already made would cause immense harm. In this context he submitted that it is not only the interest of the complainants or the shareholders of the target company alone be taken into consideration. The interest of the Appellants� shareholders also need be taken into consideration and stalling the public offer would certainly adversely affect the interest of the Appellant and its shareholders.

He submitted that the question is not what the Respondent can do under regulation 44. The question is what should be done in the facts and circumstances of the case. He reiterated that the observation made by this Tribunal in Gujrat Ambuja should not be a ground for reopening a closed matter.

Shri Rafiq Dada, learned Senior Counsel appearing for the Respondent submitted that the appeal is not maintainable, for the reason that an appeal under section 15T of the Act can only be filed against an order passed by the Respondent, that the impugned communication dated 8.11.2002 is addressed to the merchant banker and not to the Appellants. In this connection he cited the decision dated 31.10.2002 of the Bombay Hon�ble High Court in appeal number 6 of 2002 filed by Shri Harinarayan Bajaj against the Respondent and stated that therein the Hon�ble Court had inter alia held that an appeal can not lie against a purely procedural order under section 15T.

Learned Senior Counsel referred to regulation 38 and 39. He submitted that regulation 38 empowers the Respondent to appoint one or more investigating officers to undertake investigation for any of the purposes mentioned therein, that the power to investigate into the complaints received from any person on any matter having a bearing on the allegations of substantial acquisition of shares and takeovers is covered under the said regulation. With reference to the requirement of regulation 39 regarding giving notice to the person to be investigated, Shri Dada submitted that it is not necessary that in each and every case notice is required to be given. In this context he referred to sub regulation 2 of regulation 39 and stated that thereunder the requirement of giving notice could be dispensed with in cases where the Board is satisfied that in the interest of the investors no such notice should be given. In this context he referred to the order dated 20.11.2002 made by the Chairman of the Respondent appointing investigating officer to investigate into the affairs relating to possible acquisition of shares and control of M/s. Larsen and Toubro Ltd. In the said order the Chairman has recorded that "I am further satisfied that in the interest of investors and in public interest/securities market no notice to the persons to be investigated should be given. I, therefore, order in terms of the provisions of regulation 39(2) of SEBI (Substantial Acquisition of Shares and Takeover) Regulations that the above investigation may be conducted without such notice." Learned Senior Counsel submitted that the Regulations envisage a formal order by the Respondent for appointment of an investigating officer, giving of notice or dispensing with notice, if required or found appropriate. According to the learned Senior Counsel, pursuant to the decision to conduct investigation taken on 6.11.2002, formal order of investigation was passed and an investigating officer was appointed in terms of regulation 38(1) on 20.11.2002, that the investigating officer on being appointed as such is empowered to issue notices/summons etc. that the communication dated 8.11.2002 is not a notice under regulation 39(1). He referred to this Tribunal�s observation in Gujrat Ambuja that "it is to be noted that what is contemplated in Regulation 39 is a notice of investigation so as to avoid inconvenience to the investigation officer and the person under investigation. In fact regulation 39 empowers SEBI to investigate even without a notice. A notice of investigation under regulation 39 is only an intimation and not a show cause notice" He submitted that there was no investigation into the matter earlier, and no decision was taken thereafter by the Respondent and as such the question of the Respondent reviewing its decision does not arise.

Shri Dada referred to regulation 18 and submitted that the Respondent�s power is not confined only to ask the offerors to submit revised offers. He read out the 2^nd proviso to the regulation and submitted that the regulation has to be understood in true prespective. According to the said proviso if the disclosures in the draft letter of offer are inadequate or the Board has received any complaint or has initiated any enquiry or investigation in respect of the public offer, the Board may call for revised letter of offer with or without rescheduling the date of opening, or closing of the offer and may offer its comments to the revised letter of offer within seven working days of filing of such revised letter of offer. Shri Dada submitted that when the regulation provides for calling for revised letter of offer if the Respondent has received any complaint or has initiated any enquiry or investigation in respect of the public offer, it does not stand to reason to say that before investigating the complaints or completing the ongoing enquiry, the offeror should be allowed to go ahead with the public offer and all that SEBI is expected to do is to call for a revised schedule. He also submitted that regulation 18 should not be seen in isolation. The provisions in the Act and the Regulations should also be looked into, that there are several provisions in the law to deal with errant persons who were found on investigation/enquiry guilty of offences. In this connection he referred to the newly incorporated section 11(4) in the Act "empowering the Respondent to take certain measures either pending investigation or enquiry or on completion of such investigation or enquiry", that one of such measures is to "restrain persons from accessing the securities mark and prohibit any person associated with the securities market to buy, sell or deal in Securities." He also referredto regulation 44 which empowers the Respondent to issue certain directions, (an extract of the said regulation could be seen in the earlier part of this order). He said that there are wide ranging directions which can be given to the concerned person. He further submitted that the direction under regulation 44 is not relatable to the finding of any investigation and this position has been accepted by this Tribunal in Rhodia S.A V SEBI (2001) 34 SCL 597 (SAT) in the following paras:

Shri Dada submitted that the Respondent has enough material to take a decision to investigate the matter. In this connection he referred to several complaints received by them even after the issue of the public announcement, including complaints from representative investor grievances association like Investor Grievances Forum. In this context he referred to compilation of complaints filed in the proceedings and to various annexures forming part of the appeal, rejoinder and the Respondent�s affidavit. He submitted that the complaints give input to decide as to whether the matter need be investigated or not and the Respondent decided in the light of the information before it to investigate into the matter. Shri Dada submitted that it is not possible to say as to what would be the outcome of the investigation and as a result of the investigation whether any action will have to be taken against the Appellants and if so what could be the action. He also submitted that the decision of the Tribunal in Gujrat Ambuja case has provided certain broad guidelines of general application, to ascertain whether acquirer has acquired control over the target company and the Respondent is investigating into the matter taking into consideration the observations made by the Tribunal in the said case. He submitted that investigation was not initiated in the light of the Tribunal�s order in the Gujrat Ambuja case.

Shri Dada submitted that what this Tribunal is required to look into, at this stage, is as to whether there is a case for investigation. In this case he referred to the complaint dated 24.10.2002 from the Investor Grievances Forum alleging violation of the provisions of the 1997 Regulations by the Appellants. Learned Counsel read out certain paragraphs from the said letter and stated that the charges leveled therein certainly needed investigation, as the issues raised have considerable effect on the interest of the investors. Learned Counsel submitted that what is stated in the Respondent�s affidavit is not exhaustive, that factual position will come out only after investigation, that had the Respondent all the requisite material to reach at a conclusion on the investigation, the investigation would not have been necessary. By way of illustration he referred to several aspects such as the Appellants progressively acquiring the shares after November, 2001 acquisition, crossing their cumulative holding to 15.35% after the issue of the public announcement, inclusion of two nominees of the 1^st Appellant as the directors of the target company in the place of nominee directors of Reliance Industries Ltd., from whom the Appellants acquired 10.05% shares at a very high premium in November 2001, the terms and conditions of share sale/purchase agreement entered into on 18.11.2001 between the 1^st Appellant and the Reliance Industries Ltd., particularly the restrictive covenants applicable to the seller (i.e. Reliance), newspaper reports on cross-branding etc. to drive home the point that an investigation is justified in the case. He said that there are allegations that as a result of acquisition of shares, the Appellants have gained control over the company that if the said allegation is found correct, the Appellants may require to give higher offer price depending on the finding as to on what exact date the Appellants gained control. He reiterated that the Respondent had disposed of the complaints received earlier, referred to by the Appellants on the basis of the facts then available with them and that does not mean that the new complaints should not be investigated. He submitted that the investors complaints can not be disregarded by the Respondent.

Shri Dada submitted that the Appellants contention that their nominees were appointed to the Board of the target company at the instance of the target company is contrary to the facts, as could be seen from the correspondence on record exchanged by the 1^st Appellant and the target company. He submitted that it is difficult to accept Shri Prasanna�s version, as stated in the affidavit that the Appellant recommended names of directors as suggested by the Company Secretary of the target company. Shri Dada submitted that the Appellants have not come out with full facts as to whether it was a condition of acquisition of 10.05% shares by the Appellants from Reliance that the Reliance�s representative who were on the Board of target company should step down, that if the Appellants were not interested on being on the Board of L & T why should they make it a condition that the Reliance Directors from the target company�s Board should step down, whether the Appellants are in a position to influence the management and have acquired control or intended to acquire control of the target company etc. is being investigation. Shri Dada stated that if the Appellants did not want to consolidate their powers what was the need to make a public offer to acquire 20% more shares, that the answer to this would get only on an investigation. The fact also requires to be investigated to ascertain in the context of the Appellants� progressively increasing their holding in the company as to when these shares were purchased, the quantum of shares purchased and when was the decision to purchase further shares taken. Shri Dada submitted that the Respondent is investigating the share transaction between the Appellants and the Reliance Industries Ltd. from the angle of insider trading also.

Learned Senior Counsel submitted that the Respondent is a statutory body and that the investigation order is in discharge of their duties, that the Appellant has not alleged any mal fide or dishonest intention on the part of the Respondent.

Shri Dada referring to Shri Goolam Vahanvati�s submission that he is not for the time being challenging the prayer against the Respondent�s decision to investigate the matter and submitted that in that case he can not claim interim relief till the investigation is complete.

Shri Dada referred to the Hon�ble Bombay High Court�s decision in Shirish Finance & Investment Pvt. Ltd. V M. Sreenivas Reddy (2002) 35 SCL 27 (Bom) wherein the Court had viewed that the acquisition of shares, in breach of regulations are void under section 6(h) of the Transfer of Property Act, the Regulation can not save them from such invalidity.

Learned Counsel submitted that if the open offer made by the Appellants is permitted to be proceeded with, even when the investigations are in progress, the investors will be detrimentally affected, that the questions regarding a mandatory or voluntary offer, the price at which the offer will be made or disinvestment of acquisition etc. will depend upon findings of investigation initiated pursuant to the order passed by the Respondent and as such the option available to the Respondent under regulation 44 can not be foreclosed by permitting the Appellants to go ahead with the public offer pending investigation.

I have carefully considered to rival submissions made by learned Counsel for the parties. I have also perused the appeal, the Respondent�s affidavit, rejoinder and other material placed before me.

Learned Advocate General has made it clear that he is seeking interim relief to the limited extent of staying that part of the Respondent�s order dated 8.11.2002 debarring the Appellants� proceeding further with the open offer formalities pursuant to the public announcement made on 14.10.2002.

As already stated in the earlier part of this order the Appellants had acquired 10.05% shares in the target company sometime in November, 2001. This purchase was made from Reliance Industries on negotiated terms. The purchase price was Rs.306 per share, a rate much higher than the then prevailing market rate. The Appellants, it is noticed, have been progressively increasing their holding and they wanted to acquire further shares upto 20% of the target company�s capital and made a public announcement for the purpose on 14.10.2002. The offer price was Rs.190/-. It is noticed that subsequent to the said announcement, the Appellants holding in the target company reached 15.35% (on 17.10.2002).

It is noticed from the material on record that there were complaints from investor associations, especially from one "Investor Grievances Forum" making several allegations with reference to the acquisition of 10.05% shares. It is noticed that the complaint flow never stopped. In November/December 2001, the Respondent had informed the complaint that in the light of the material available with them, in the perception of the Respondent there was no violation of takeover Regulations. However, the matter got heated up after the Appellants made the public offer at the rate of Rs.190. The complainants felt that while the Appellants paid Rs.306 per share to the Reliance Industries from whom they purchased 10.05% shares, the price offered in the public offer is only Rs.190/-

The Appellants, as required under regulation 18(1) had submitted the draft text of the letter of offer to the Respondent, through their merchant banker. The Respondent vide their letter dated 8.11.2002 addressed to the merchant banker, in the said context, informed them that the Respondent "has decided to conduct an investigation in terms of Chapter V of the captioned regulations on the alleged violations, if any, with regard to acquisition of 2,50,00,000 equity shares aggregating to 10.05% of the paid up and voting capital of L & T by Garsim Industries Ltd. on 18.11.01." They were advised:

15T . (1) Save as provided in sub-section (2) , any person aggrieved,-

1. by an order of the Board made, on and after the commencement of the Securities Laws (Second Amendment) Act, 1999, under this Act, or the rules or regulations made thereunder; or
2. by an order made by an adjudicating officer under this act, may prefer an appeal to a Securities Appellate tribunal having jurisdiction in the matter.

1. by the Board on and after the commencement of the Securities Laws (Second Amendment) Act, 1999;
2. by an adjudicating officer,

1. xxxxxx
2. xxxxxx
3. xxxxxxx

Mumbai

Dear Sir,

Sub: Public Issue of Eider-e-Commerce Ltd

Now coming to the question of notice required under regulation 39, it is to be noted that the general rule is that before ordering an investigation under regulation 38, it is required to give not less than 10 days notice to the persons who is under investigation. However, sub regulation(2) provides that where the Board is satisfied that in the interest of investors no such notice should be given, it may, by an order in writing direct that such investigation be taken up without such notice. In this connection it is noticed that the Chairman of the Respondent vide his order dated 20.11.2002 has appointed an investigating officer to investigate into the matter. In the order it has also been stated that "in the interest of investors and in public interest/securities market, no notice to the persons to be investigated should be given. I, therefore, order in terms of provisions of regulation 39(2) of SEBI (Substantial Acquisition of Shares and Takeover) Regulations 1997, that the above investigation may be conducted without such notice." Thus it is clear that there was no need to serve any notice on the Appellants against whom an investigation has been ordered. The communication dated 8.11.2002 is referring only to the decision taken to investigate and this decision as per the information furnished in the Affidavit filed by the Respondent was taken by the competent authority on 6.11.2002. A decision to investigate and an order for investigation need not necessarily be one and the same. A decision to investigate normally precedes the formal order of investigation. The notice contemplated under regulation 39(1)is not a show cause notice but only an intimation. This Tribunal in Rhodia case had explained the position, the relevant extract has already been cited in the earlier part of this order. In the light of the legal position explained above, it can not be said that the Respondent has not followed the requirements of regulation 39.

Learned Advocate General had at length argued that the impugned direction is beyond the scope of regulation 18.

2. The acquirer shall, along with the draft letter of offer referred to in sub-regulation (1), pay a fee of Rs.50,000/- to the Board, either by a banker�s cheque or demand draft in favour of the Securities and Exchange Board of India, payable at Mumbai

Place: Mumbai
Date:November 28, 2002.