|
BEFORE THE SECURITIES
APPELLATE TRIBUNAL MUMBAI Appeal No.43/2002In the matter of: 1. Big Star Films Limited2. �Aspen Securities Pvt. Ltd.,3. �Gloxinia Financial Services Pvt. Ltd.,4. ��Pratik Exim Pvt. Ltd.,5. ��Khazana Finport Pvt. Ltd.,������������������������������������������� AppellantsVs. 1.
Securities and Exchange
Board of 2.
SRG Infotec
( Appearance: Shri Arif Bookwala Advocate Shri Ayaz �Bilawala Advocate������������������������������������������������������������������������������� for
Appellants Shri Vinay Chauhan, Legal Officer, SEBI Shri Amit Tandon, Manager, SEBI��������������������� ����������� ����������� ������������������������for Respondent No.1 Dr. R. K. Pandey, Representative��������������������������������������������������������������������� for
Respondent No.2 ORDER����������� The Respondent No.1 (SEBI) passed an
order on 4.6.2002 holding the Appellants guilty of non compliance of the requirements
of regulation 10 of the Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 (the 1997 Regulations)
with reference to the acquisition of shares representing 64.38%of the share capital� of SRG (Infotec) India Ltd., the Respondent No.2 herein (the
Company).� By the said order the
Appellants were directed to make a public announcement in terms of Chapter III
of the 1997 Regulations within 45 days from the date of the order, taking
21.9.98 as the referal date for determining price of
the shares, and to pay interest to the shareholders at the rate of 15% per
annum on the price from 31.3.1999 till the actual date of payment of
consideration to the shareholders participating in the open offer directed to
be made by the said order.� Claiming to
be aggrieved by the said order the Appellants preferred the present appeal
seeking to set aside the impugned order.�
They had also prayed for interim order staying the operation of the
impugned order till the disposal of the appeal.�� After hearing the concerned parties, the
prayer for interim order was allowed by the Tribunal on� ����������� The main issue in the appeal is that� whether or not
the acquisition of 64.38% shares of the company by the Appellants is an
acquisition covered under regulation 3(1)( c ) enjoying exemption from the
purview of regulation 10.� Regulation 3
of the 1997 Regulations exempts certain acquisitions from the purview� of regulation
10, 11 and 12.�� Regulation 10, 11 and 12
requires the acquirer to make a public announcement to acquire shares from the
other shareholders of the target company on the acquisition of shares� or voting rights in a company crosssing certain limits/or acquiring control over the
company,� as per the Regulations. �But the acquirers are not obliged to make such
public announcement to acquire shares if the acquisition is one falling under
the exempted categories�
provided under regulation 3.�
One of such exempted categories of acquisition is acquisition of
shares� pursuant to preferential
allotment made by a company in pursuance of a resolution passed� under section 81 (1A) of the Companies
Act.� Section 81 of the Companies Act
provides inter alia that �Where at any time after the
expiry of two years from the formation of a company or at any time after the
expiry of one year from the allotment of shares in that company made for the
first time after its formation, whichever is earlier, it is proposed to
increase the subscribed capital of the company by allotment of further shares
then (a) such further shares shall be offered�
to the persons who, at the date of the offer, are holders of the equity
shares of the company, in proportion, as nearly as circumstances admit to the
capital paid up on those shares at that date��..�� However, not with standing the requirements
of section 81, section 81(1A) enables the company to offer further shares to
any persons whether or not those persons are holders of the company�s shares on
the date of offer, provided that� a
special resolution to that effect is passed by the company in general
meeting.� Regulation 3(1)(c) in the 1997
Regulations provides exemption to acquisition pursuant to preferential
allotment made� in terms of section
81(1A) of the Companies Act.� But the
exemption is not automatic.� It is
subject to fulfilment of the conditions provided in
clause (i)and (ii) of
regulation 3 (1) (c).� These conditions
are: (i)
Board Resolution in respect of the proposed
preferential allotment is sent to all the stock exchanges on which the shares
of the company are listed for being notified on the notice board; (ii)
Full disclosures of the identity of the class of the
proposed allottee(s) is made, and if any of the
proposed allottee (s) is to be allotted such number
of shares as would� increase his holding
to 5% or more of the post issued capital, then in such cases the price at which
the allotment is proposed, the identity of such persons, the purpose of and the
reason for such allotment, consequential changes if any, in the board of
directors of the company and in voting rights,�
the share holding pattern of the company, and whether such allotment
would result in change in control over the company are all disclosed in the
notice of the General Meeting called for the purpose of consideration of the preferential
allotment. There is no
dispute about the�
number of shares acquired by the Appellants and that the
acquisition crossed the threshold limit provided in regulation 10.� It is also admitted that the shares were
acquired pursuant to the preferential allotment made in pursuance of section
81(1A) of the Companies Act.� Compliance
of the requirements of clause (ii) of regulation 3(1) ( c)
is also not in dispute.� The fact that
Appellants are persons�
acting in concert has also been admitted.� In the report dated 29.10.99� under regulation 3(4) filed by
Appellant No.5 this factual position has been admitted by the Appellants.��� According to the impugned order the
Appellants had failed to comply with requirements of clause (i) of regulation 3(1)(c ).� SEBI after citing the text of certain
regulations and the factual position as per the material in its possession,� has stated in para 8.4 of its order that: �In� view of the above
legal provisions and facts on record, it is clear that the acquisition of shares
pursuant to a preferential allotment under section 81(1A) of the Companies Act
per se, is not eligible for exemption unless the conditions stipulated in the
proviso to regulation 3(1)( c) are complied with.� It may be mentioned that the regulations specifically
provide that exemption is available subject to the compliance of the
conditions.� For availing the exemption,
the acquirer must comply with the stipulated conditions. In this regard, I
observe from the report dated 29.10.99 that in respect of the acquisition in
the instant case, the condition as laid down in clause (i)
of proviso to regulation 3 (1) ( c ) of the said
regulations has not been complied with as the copy of the Board of Resolution
in respect of the preferential allotment passed on 21.09.98 was sent to the
stock exchanges only on 22.9.99 i.e. subsequent to allotment of shares by way
of preferential issue.� �This is the only ground based on which SEBI
has come to the conclusion that the Appellants had failed to fulfil the requirements of clause (i)of
regulation 3(1)( c ) and because of the failure to fulfil
the said� precondition the acquisition
pursuant to preferential allotment was not considered as� an exempted one.� ����������� Shri Arif Bookwala, learned Counsel
appearing for the Appellants submitted that the Appellants are erstwhile
partners of M/s. Silicon Valley Information Technology Corporation (Silicon
Valley), that the Appellants sold the said partnership firm as going concern to
the company at a consideration of Rs.240 crores, that
the said consideration was discharged in the form of shares in the company
issued on� the basis of preferential
allotment of 8 crores equity shares and 14.40 crores optionally convertible preference shares (OCPs).� Learned
Counsel referred to the sequence of events relating to the matter under
consideration in the present appeal.� He
admitted that the Appellants� case was not properly handled at the time of
enquiry before SEBI and�
as a result some�
information crucial to the issue could not be placed before the enquiry
officer/Chairman, SEBI, and one such crucial information was the fact of the
Board resolution dated 5.10.1998 regarding the proposed preferential allotment
and the evidence showing despatch of the copy of the
said Board Resolution to all the concerned stock exchanges� by registered post.� He referred to the copy of the said
resolution and the copy of letters forwarding the same to the stock exchanges
and submitted that the relelvant resolution as per
clause (i)regulation 3 (1) (c ) required to be sent
to the concerned stock exchanges� is the
one passed by the Board on 5.10.1998 and not the one passed on 21.9.1998.� He admitted that the report filed under
regulation 3(4) with SEBI vide� letter
dated 29.10.1999 had inadvertantly shown that the
resolution passed on 21.9.1998 was forwarded to the stock exchanges on
22.9.1999 though the correct date of despatch of the
resolution was 22.9.98 and in support thereof referred to letters filed along
with the appeal.� The Appellant had also
made submissions as to intimations sent�
in time to the stock exchanges, in compliance of the regulation 3 (1)( c
)( ii) and with reference to the Board resolution approving the allotment of
shares pursuant to the approval granted by the General body of the share
holders.� For the purpose of determining
the issue in the present appeal I do not consider it is necessary to go into
the details of such post Annual General Meeting reports/communications etc. ����������� Shri Vinay Chauhan, learned
representative of the Respondent submitted that SEBI had come to the conclusion
that the Appellants were not entitled to the exemption in terms of
regulation� 3 (1)( c ) as they had failed
to fulfil the pre condition of clause (i)in regulation 3 (1) (c ) and that the Appellants
themselves had admitted in their report filed with SEBI under regulation 3 (4)
that the Board resolution passed on 21.9.98 was sent to the stock exchanges
only on 22.9.99, i.e. after a delay of one year.� The object of sending copy of Board
resolution to the stock exchange was defeated by sending the same
belatedly.� He submitted that the
resolution is required to be sent to the stock exchanges� before allotment of shares on
preferential basis takes place so as to inform shareholders/public at large the
material position.�� By sending the said
resolution after one year of passing the same and even after allotment of
shares as proposed thereunder has defeated the very
object of the said requirement.� Shri� Chauhan
argued at length the scope of regulation 3(1)( c ), 3 (3), 3 (4) and regulation
10 and the reach and scope of� the
expression �acquirer�,� �persons acting
in concert� etc.� He had also cited few
authorities in support of the legal propositions made by him.� But the thrust of his argument was that the
Appellants are not entitled to avail of the benefit of exemption provided under
regulation 3 (1) (c ) inasmuch as they had failed to fulfil the requirement of the pre condition in clause (i)of regulation 3(1)( c ) having failed to send the Board
resolution dated 21.9.98 to the concerned stock�
exchanges.� He submitted that
facts now brought on record by the Appellants� be not taken cognizance of and the
order be allowed to be sustained. ����������� I have considered the rival
contentions and the material on record.�
It is clear that the Respondent�s conclusion that the Appellants are not
entitled to have the benefit of exemption in terms of regulation 3 (1)(c) is solely based on the information furnished by the
Appellants in the report filed under regulation 3(4) with SEBI.� It is seen that said report was filed with SEBI� vide the
Appellants� letter dated 29.10.1999.�� In
the said report under part �c� against item I on �Date when the Board
Resolution was passed for considering the preferential allotment� 21.9.98
has been shown as the relevant date.�
Against query at item II �When the copy of the above Board Resolution
was sent to all SE�s where shares of Target company are listed for being
notified on the notice board� � (reg 3(1) (c )(i), the date of such
notification has been stated as 22.9.1999�
The Appellants� contention is that reference of the year 1999 was a
typographical error.� The Respondent is
not ready to accept it as a clerical mistake.�
The declarations and reports required to be filed with the authorities
are not mere formalities to be treated in a casual way.� The Appellants� conduct in filing the report
without taking adequate care to ensure the authenticity of the information
furnished therein is�
blameworthy.� But it
appears that the Respondent has also mechanically accepted the information
furnished in the report.� The fact that
the Appellants had wrongly furnished the year 1999 not only in the compliance
date but also against item III under part �c� of the same report against the
�date when shareholders meeting was held to pass a resolution u/s.81(1A) of the Companies Act to approve the preferential
allotment� The date of the share holders meeting has been shown 5th
Nov 1999 (against the correct date of 5th Nov 98).� It is noted that the report under regulation
3 (4) was filed with SEBI by the Appellants vide their letter dated 21.10.1999.� In that context if SEBI had scrutinised the report it would have noticed that a report
dated 29.10.1999 can not state that the General Meeting was� held�
on� 5..11.1999.� Filing of returns and report with the
authorities would not serve any purpose, unless those returns or reports are
properly scrutinised and the discrepancies/mistakes
are addressed.� It is also seen from the
report that the Appellants had forwarded to SEBI a copy of the notice of the
General meeting called for on 5.11.1998� for the purpose of seeking approval by
special resolution of the preferential allotment.� It is noticed from the notice of the Annual
General Meeting� that one of the special
resolutions proposed to be passed in the general body� meeting scheduled to be held on 5.11.1998 was
the special resolution in terms of section 81(1A) of the Companies Act, 1956
giving the consent of the company and authorising the
Board of Diriectors of the company �to offer, issue,
and allot 8 crore equity shares of Rs.10 each at a
premium of Rs.2/- per share and 14.40 OCPS of Rs.10/- each at par for
consideration other than cash to the partners of Silicon Valley Information
Technology� Corporation on preferential
basis in one or more tranches as may be deemed
appropriate on such terms and conditions and in such manner as the Board may in
its absolute discretion think fit.�� The
notices and the resolutions proposed to be placed before the General meetings
of the shareholders are required to be approved by the Board of Directors of
the concerned company.� It is seen from
the explanatory statement forming part of the notice dated 5.10.1998 of the
Annual general meeting that Directors had recommended the resolution seeking
approval of the consent of the shareholders in terms of section 81 (1A) of the
Companies Act.� The nature
of the Board resolution which is required to be sent to the concerned stock
exchanges has been rightly explained� by
the Respondent in its order in para 8.4 in the
following words � �The� clause (i)of the proviso to regulation 3(1)( c ) requires� that the Board resolution in respect of the
proposed preferential allotment is to be sent to the stock exchanges i.e. under
clause (i)of the proviso, the resolution which is
passed by the Board for considering and placing before the shareholders at
general meeting (for) the issuance and allotment of such shares is required to
be notified to the stock exchanges�.(emphasis supplied) ����������� It is seen from the copy of the notice
dated 16.9.1998 stated to have been sent by the company to Delhi Stock Exchange
that the company had notified the exchange in terms of clause 36 of the listing
agreement �that the meeting of the Board of Directors of the company will be
held on 21st day of September 1998 at the registered office of the
company to consider acquiring/taking�
over of Silicon Valley Information Technology Corporation, a Delhi based
software company engaged in providing integranted� business and internet solutions and its proposed
modern Technology Park and Institute of Information Technology at Delhi.�� It is noticed from the copy of the letter
dated 22.9.1998� addressed to the Delhi
Stock Exchange� filed along with the
appeal Memorandum, that the company had informed the exchange that �the Board
of Directors of the Company in its meeting held on 21st September,
1998 have duly approved the acquisition proposal of Silicon Valley Information
Technology Corporation, which is engaged in providing integranted
business and internet solutions and its proposed modern Technology Park and
Institute of Information Technology at Delhi.�
The Board of Directors have further decided to appoint a reputed firm
of Chartered Accountants to carry out the necessary due diligence and decide
the mode of payment of consideration within a period of 3 weeks.�� (emphasis
supplied)� The Appellants have not filed
in the appeal proceeding before the Tribunal, the text of the resolution stated
to have been passed by the Board of directors in their meeting held on
21.9.98.� However, from the communication
dated 22.9.98 referred to above it is clear that there was no decision yet on
the issue of shares on preferential basis for the acquisition of the business
in ����������� �Please note the Board has approved
the consideration of Rs.240 crore for the acquisition
of Silicon Valley Information Technology Corporation, as approved in the Board
Meeting on 21.9.1998 to be paid by way of Equity shares and OCP�s
and the resolution passed for the same is enclosed for your record.�� The Appellants have also attached a copy of
the said resolution, which is as follows: �RESOLVED
THAT, in furtherance of the resolution passed in the meeting of Board of
Directors, convened on 21.9.98 consideration for acquisition of running
business of Silicon Valley Information Corporation be fixed for Rs.240 crores to be paid by way of preferential allotment of 800,00,000 equity shares of Rs.10 each at a premium of Rs.2/-
per share and 14,40,00,000� zero per cent
optionally convertible preference shares (OCPs) of
Rs.10.- each at par�. �RESOLVED
FURTHER THAT consent of shareholders be sought in the ensuing general meeting
in accordance with the provisions of section 18(1A) of the Companies Act, 1956
for abovesaid preferential allotment to the partners
of Silicon Valley Information Technology Corporation.� ����������� It is clear
that the Board resolution dated 5.10.1998 is the resolution in respect of the
proposed preferential allotment,� as SEBI also rightly pointed out the
resolution referred to in clause (i) of regulation 3
(1)( c ) is the one passed by the Board of Directors of the company for
considering and placing before the shareholders at general meeting seeking
consent of the members for issuance and allotment of shares on preferential
basis.� In this context it is noticed
that the text of the said resolution has been put in the Special Resolution
forming part of the Annual General Body meeting notice dated 5.10.1998.� The resolution in my view required to be sent
to the concerned stock exchanges is the one passed by the Board of Directors of
the company on 5.10.1998, for availing exemption under regulation 3 (1)( c ). ����������� In the appeal proceedings the
Appellants� have filed copies of the
letters stated to have been sent by them by registered post to the concerned
stock exchanges on 5.10.1998 forwardding the copy of
the Board resolution dated 5.10.1998 to establish compliance of regulation 3
(1)( c ) (i)on their part.��� This evidence is untested.� The information was not available with SEBI
and it had no occasion to consider the same.�
I do not consider that this Tribunal, should embark on an investigation
to ascertain compliance of regulation 3(1) (c ) by the
Appellants and decide as to whether the Appellants are exempted from complying
with the requirements of regulation 10.�
Proper agency to undertake such an enquiry in my view is SEBI.� It is left to SEBI to examine the facts now
brought before the Tribunal in the appeal proceedings and also if considered
necessary to make further enquiries to ascertain the extent of compliance of
the provisions of clause (i)of
regulation 3 (1) (c ) of the 1997 Regulations by the Appellants.� A decision in this regard based on actual
factual position is crucial for determining as to whether the acquisition is an
exempted one or not.� For the purpose the
matter is remanded to SEBI and the impugned order is therefore set aside.� It is made
clear that SEBI is at liberty to issue fresh show cause notice in the matter if
so desired, and decide the matter based on the facts and in accordance with the
provisions of the law.� The Appellants
are directed to extent full co-operation to SEBI in the enquiry.� In case the Appellants fail to co-operate in
the enquiry, SEBI is at liberty to pass appropriate orders based on the material
available with it.��������� Appeal
allowed by way of remand.������������������������������ Sd/- C. ACHUTHAN PRESIDING
OFFICER Mumbai, ������������������������������������������������������������������� � | |
| Printer Friendly page | Email this page |