IN
THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
�����������������������������������
In the matter of : Appeal No. 134 of 2005
����������������������������������������������� Appeal No. 137 of 2005
Appeal No. 138 of 2005
Appeal No. 139 of 2005
Condonation
Application No. 1/158 of 2005 Appeal No. 158 of 2005
Condonation
Application No. 1/159 of 2005 Appeal No. 159 of 2005
Condonation
Application No. 1/160 of 2005 Appeal No. 160 of 2005
Condonation
Application No. 1/161 of 2005 Appeal No. 161 of 2005
Condonation
Application No. 1/162 of 2005 Appeal No. 162 of 2005
Condonation
Application No. 1/163 of 2005 Appeal No. 163 of 2005
Condonation
Application No. 1/164 of 2005 Appeal No. 164 of 2005
Coram: ����������� Justice
Kumar Rajaratnam, Presiding Officer ����������� C.
Bhattacharya, Member ����������� Per:� Justice
Kumar Rajaratnam, Presiding Officer 1.
In Appeal Nos. 158
to 164 of 2005, there are applications for condonation of delay in filing the
appeals.� It is submitted by the learned
counsel for the appellant that the delay of nine days was caused on account of
Durga puja festival and they were not able to approach the Court in time.� It is further submitted that it is a
statutory appeal and connected appeals on the same cause of action has been
admitted by this Court. 2.
Heard the counsel
for the respondent and having regard to the fact that this is a statutory appeal,
taking into account that the delay is bonafide after hearing the counsel for
the appellant and the counsel for the respondents, who do not seriously object
for the condonation of the delay to be allowed and also taking into account the
connected appeals have been admitted, we condone the delay of 9 days.� Delay condoned. 3.
Admit Appeal Nos. 134,
137 to 139 of 2005and 158 to 164 of 2005. 4.
Appeals are taken up
�for final disposal on merits with
consent of parties.� 5.
Since common
question of fact arises in all these appeals, they are taken up together and a
common order is passed by consent of parties. 6.
In all these appeals
the grievances of the appellants was that SEBI and the merchant banker had not
valued the shares of the target company in accordance with the parameter laid
down under Regulation 20(5) of Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeover) Regulations, 1997� (hereinafter referred to as the �Takeover
code�). 7.
It is another matter
that the appellants accepted the consideration offered by the acquirers under
the obligation of the takeover code, and have tendered their share and have
received the monies.� What the appellants
seek in this appeal is enhancement of the value of the shares in accordance
with the parameters set out under Regulation 20(5) of the Takeover Code. 8.
It is stated very
briefly that one C.K. Somany and Ace Glass Containers Ltd., �(hereinafter referred to as �acquirers�) had
acquired 7.3% of the shares of Hindustan National Glass and Industries Ltd., (hereinafter
referred to as the �target company�).� By
this acquisition, the acquirers had triggered the code under Regulation
11.� The code having been triggered,
acquirers were directed to make an open offer under the provisions of the
Takeover Code by order dated 2.9.2003.�
The merchant banker appointed by the acquirer in accordance with the
Regulation determined the price of shares to be offered to the shareholders in
accordance with the Regulation at Rs. 40 per share.� Some of the appellants not being satisfied
with the price of the share which was offered to the shareholder under
Regulation objected to the price being low.�
It would not be out of place to state that the rate of Rs. 40 per share
was based on a memorandum of understanding entered into on 7.10.2002 between
the acquirer and his brother S.K. Somany group who were seller.� As per the MOU dated 7.10.2002, the acquirer
acquired 8,06,192 shares of the target company at the rate of Rs. 40/- per share.� This price was not acceptable to the
appellants.� Consequently, the acquirers
in consultation with the UTI Bank Ltd., the merchant bankers appointed M/s.
Deloitte Haskin & Sells(�Deloitte� in short), a chartered accountant firm
for valuation of the equity share of the target company. ��On 11.11.2003 a report was submitted by
Deloitte wherein Deloitte stated that the fair value of the shares of the
target company was Rs. 43.02 per share.�
(The valuation report is placed before us as exhibit B in the reply
affidavit in the appeal no. 138/2005.) 9.
It appears that the
appellant who wished to exit from the company filed objections before SEBI
questioning the valuation made by Deloitte at�
Rs. 43.02 per share.� SEBI took
serious note of the objections and appointed an independent valuer M/s. Patni
& Co., Chartered Accountant, to once again value the shares of the target
company under Regulation 20(5) of the Takeover Code.� Thereafter Patni & Co., Chartered Accountant,� �carried out valuation of the target company
and submitted a report on �20.5.2004 to
SEBI.� They also forwarded the valuation
report to the merchant bankers and the acquirers.� (the report is placed before us as annexure
D).� The valuation was done on the basis
of the market price of the shares of the target company and other methods as required
under accounting principles and Patni revised the valuation to 63.50 per share by
one method and Rs.64.17 plus interest per share as per the method approved by
the Supreme Court in Hindustan Lever employees Union case reported in AIR 1995
(1) Supp SCC 499.� The acquirers felt
aggrieved by the hike in the valuation and felt that� the valuation by Deloitte at Rs. 43.02 as
reasonable.� The merchant bankers
pursuant to this objection by the acquirers wrote a letter dated 9.3.2005 to
SEBI on this aspect of the matter.�� SEBI
permitted the merchant bankers to obtain valuation from a third Chartered Accountant.
Accordingly, the merchant bankers� in
consultation with SEBI appointed Chadha & Co. to carry out the valuation of
the shares of the target company.� Chadha
& Co., submitted a report on 13.4.2005 stating that the fair market value
of the share was Rs. 60.04 of the target company.� The report of Chdha & Co.,. is marked as
Exhibit G. 10.
SEBI after
considering all the three reports felt that in public interest justice must be done
to the shareholders and held that the highest price per share amongst the three
valuations �be the fair price.� In other words, SEBI rejected the negotiated
price at Rs. 40/- per share.� SEBI also
rejected the value of the share given by Deloitte at Rs. 43.02.� SEBI also rejected the report of the merchant
bankers� Chartered Accountant, Chadha & Co., who valued at Rs. 60.04 and
accepted the report of Patni at Rs. 64.17.�
It would not be out of place at this stage to mention that Patni had
determined the market value by one method (which we shall deal later) as Rs.
63.50 and by another at Rs. 64.17.� they
accepted the higher figure and determined the price at which the shares should
be offered to the public at Rs. 64.17 plus interest which comes to Rs.81.28 per
share.� The merchant bankers and
acquirers accepted the suggestion of SEBI and a draft letter of offer was also
approved by SEBI on �19.8.2005. �The corrigendum in the draft letter reads as
follows:- �A public Announcement as required under SEBI (SAST)
Regulations was made on Since
considerable time has passed and with a view to expedite and complete all
formalities involved in the matter and bearing the interests of the Public
shareholders in mind, the Acquirer, without prejudice to their rights, has
agreed to revise the Offer Price to Rs. 64.17 per share, arrived as per the
method upheld by the Hon�ble Supreme Court in the case of Hindustan Lever
Limited and also being the price higher than the fair price considered by the
three valuers. The Acquirer has agreed to adopt the highest possible price and
are therefore offering their price vide this Corrigendum to the Public
Announcement. The Acquirer has also agreed to pay interest at 10% p.a. on the
Offer Price from 4th February 2003 as contemplated in the Public
Announcement until the date of actual payment to persons who are shareholders
of the Target Company as on 26th August 2005.� �( Emphasis by the Tribunal) 11.
This offer opened on
31.8.2005 and closed on 19.9.2005, the appellants tendered their shares with
the words �without prejudice�.� The
merchant bankers and the acquirers permitted the appellants to exit and while
issuing payment to the appellants who were shareholders of the target company
it was made clear that� the amount given
to the appellants was Rs. �64.17 plus
interest per share �as �full and final
settlement�.� The appellants apparently
wrote back to the acquirers that although they have accepted the cheque and
encashed it they would be entitled to get more.�
It is in this circumstances, the appellants have filed this appeal.� The appellants in Appeal No. 134, 138, 139
and 137 of 2005 approached the Court before the closure date of the open offer
i.e. 19.9.2005.� The other appellants
have approached the Court after the closure date.� In all these, however, �admittedly, the appellants have accepted the
consideration with interest by tendering their shares and no leave was granted
by the Court for the four appellants to tender the shares subject to the result
of the appeal.�� In other words, the
appellants have suo moto tendered
their shares without prejudice to their contentions and have approached the
Tribunal for enhancement.� The background
to this litigation between the brothers makes interesting reading and has
relevance to the dispute before us and may be stated briefly as follows: 12.
The whole dispute pertains to
the fixing of �fair price of share by
SEBI. The Target Company Hindustan National Glass and Industries� Limited�
is primarily in the business of manufacture and sale of glass� bottles and containers. Hindusthan National
Glass and Industries� Limited started its
manufacturing activity at Rishra, 13.
The promoters of Hindustan
National Glass and Industries� Limited
are Shri C K Somany and his family. Ace Glass Containers the other acquirer is
a group company of C K Somany group. Way
back in the year 1994 Somany family was in management and control of four
listed manufacturing companies viz., 1.
2.
3.
Somany Pilkingtons Limited (SPL) and 4.
Soma Textiles and Industries Limited (STIL) and
an unlisted manufacturing company viz., Krishna Glass Limited.� 14.
At that relevant time the
Somany family consisted of four groups namely H L Somany group, S K Somany
group, C K Somany group and R K Somany group. As there was some disagreement
between the brothers, the four groups entered into a settlement with regard to
the business assets.� Somany Pilkingtons
Limited, Soma Textiles and Industries Limited and Krishna Glass Limited were
jointly allotted to H L Somany group and S K Somany group in equal shares,
Hindustan Sanitaryware and Industries Limited was exclusively allotted to R K
Somany group. 15.
Now we come to the status of
holding in the target company, which is the subject matter of this appeal.� C.K. Somany had 64% in the target company. 16.
Even in 1994 there
was a preliminary settlement where by there was an agreement where by the
appellants had agreed to sell 3,40,000 shares of the target company of C.K.
Somany, the contesting respondent at the price of Rs. 15/- per share.� This agreement was in the year 1994 it was
stated in the agreement only after C.K. Somany declined the offer it was to be
sold to any other group. 17.
Notwithstanding this, the
appellant on 4.2.1997 filed a civil suit No. 35/1997 before the Calcutta High
Court for specific performance against C.K. Somany, the contesting respondent
with respect to unsigned agreement purportedly made by G.L. Sultania.� By this purported agreement, the prices of
the share was not Rs. 15/- but Rs. 267 per share.� The appellants obtained an ex-parte ad-interim order of injunction against C K Somany group. The
Calcutta High Court on 4.02.1997 restrained all the four brothers from
transferring their shares in the Hindusthan National Glass and Industries
Limited which is the target company. In May 1997, C K Somany Group filed a
counter claim in the Calcutta High Court suit stating that the price was not
Rs. 267/- but Rs. 15/- per share.�� While
the matter was pending in the Calcutta High Court in September 2002, one of the
brothers, who is not an appellant before us, namely S.K. Somany� evinced an intention to sell the holdings in
the Target Company to� �C.K. Somany group at the rate of Rs. 40/- per
share.� The Calcutta High Court permitted
S.K. Somany to sell his holdings to the contestant respondent at a negotiated
price of Rs. 40 per share.� The High
Court by an order dated 13.9.2002 in an interlocutory application held as
follows: ��������� �This Court:-���� This is an
application for modification of an order dated ����������� It also appears to me that at one stage the petitioners, in response to
a letter written by the SEBI, had written to the said authority that they have
no objection if the C.K. Somany group purchases the shares of the S.K. Somany
group at the price mutually agreed as between themselves.� The said letter is dated ������� Under
these circumstances, if the petitioners are interested to offer in accordance
with letter of offer, they are permitted to do so. �����
Under these circumstances, the order dated ������� Since
no affidavit-in-opposition has been filed, the allegations made in the petition
are not deemed to have been admitted. ������� The
application is thus disposed of. ������� All
parties concerned are to act on a signed xerox copy of this dictated order on
the usual undertaking.� 18.
C.K. Somany, the contestant
respondent thought that since it was an order of the Court, he was not obliged
to make an open offer and accordingly, on 14.9.2002 made an application for
exemption from making an open offer under the provisions of the Takeover
Regulations. 19.
After hearing the appellant SEBI passed order
dated 28.1.2003 rejecting� the
application for exemption and directed the applicants� family to make an open
offer.� On 13.11.2003 C.K. Somany made a
public announcement for acquiring 19.19% of the Target Company @ Rs.43/- in
terms of the valuation report of Deloitte, the Chartered Accountant appointed
by the Merchant Bankers.�� Including� interest the offer came to Rs.47.70 per
share.� On 27.11.2003�� the draft letter of offer�� was submitted to SEBI.� The appellant started giving complaints
alleging that the price should be Rs.228.61 per share.� In March 2004, SEBI appointed Patni &
Co., Chartered Accountants to conduct a valuation of the Target Company.� As stated earlier they submitted their report
on 20.3.2004 and arrived at a value of Rs.63.50 by one method and value of
Rs.64.17 as per the method approved by the Supreme Court in Hindistan Lever
Ltd., Employees Union case reported in 1995 Supp(1)Supreme Court Cases
499.� The contesting respondents felt
that the price fixed by Patni & Co., was on the higher side and wanted the
merchant banker, UTI Bank to have a fresh valuation of the shares.� The merchant banker appointed T. R. Chadha �& Co., to value the shares.� SEBI did not accept the valuation made by
Chadha� who arrived at a price of
Rs.60.04 per share which is lower than the price arrived at by Patni & Co.,
which was Rs.64.17 and including interest the price came to Rs.81.28.� Of all the three valuations made by three
valuators SEBI accepted the valuation made by Patni & Co., as that was� the highest.�
On 19.8.2005 SEBI approved the letter of offer made by C. K. Somany and
Ace Glass and directed them to proceed with the offer at the price of Rs.64.17
per share.� The Corrigendum to the Public
announcement was issued on 25.8.2005. �The offer was kept open for 20 days.�� The offer was opened on 31.8.2005 and closed
on 19.9.2005.�� The appellants tendered
their shares to the Share Transfer Agents of the Target Co., stating that they
are tendering shares� �without prejudice
to our rights and contentions in the matter�. The acquirer and the Share
Transfer Agents accepted the shares tendered by the appellants and made payment
to all the appellants by cheque.� The
cheque�� was also sent in �full and final
settlement� of the amount payable to the appellants. One such letter is placed
before us and it would be relevant to extract the same below: ��������� �MAHESHWARI DATAMATICS PVT.LTD., ��������������������������������������������������������� R.O.
6, ������������������������������������� (Surendra
Mohan Ghosh Sarani) ������������������������������������� 2nd
floor, Kolkata � 700 001. REGISTERED REF.MDPL/OFR/HNG/21��������������� DATE; MR
GIRDHARILAL SULTANIA 2, KOLKATA
700 001. RE;
OPEN OFFER BY ACE GLASS CONTAINERS LTD., AND C. K. SOMANY (�THE ACQUIERER�) TO
THE SHAREHOLDERS OF HINDUSTHAN NATIONAL GLASS & INDUSTRIES LTD., (HNG) FOR
PURCHASE OF 21,91,664 FULLY PAID EQUITY SHARES OF RS.10/- EACH REPRESENTING
19.19% OF THE EQUITY� CAPITAL BEING THE
PUBLIC SHAREHOLDING OF HNG. DEAR
SIR(S)/MADAM, WE
THANK YOU FOR TENDERING YOUR SHARES IN THE CAPTIONED OFFER. THE
ACQUIRER HAS ACCEPTED THE SHARES TENDERED BY YOU AS PER THE DETAILS GIVEN
HEREUNDER:- FOLIO
NO./DPID/CLIENTID��������������������� 60051302 SHARES
TENDERED�������������������������������������������
345 SHARES
ACCEPTED�������������������������������������������
345 MICR
NO.�������������������������������������������������� ���� 866284 OFFER
PRICE @RS.64.17 PER SHARE������ 22,138.65 INTEREST
@ RS.17.11 PER SHARE����������� ��� 5,902.95 TOTAL
AMOUNT������������������������������� RS.��� �
28,041.60���������� LESS
T.D.S.��������������������������������������������������������� - ������������������������������������������������������������������ -------------- NET
AMOUNT����������������������������������� RS.��� �
28,041.60 ������������������������������������������������������������������ ========= *INCLUDING
EDUCATION CESS & SURCHARGE. WE
ARE PLEASED TO ENCLOSE THE PAY ORDER FOR THE CONSIDERATION PAYABLE TO YOU SHOWN
ABOVE IN FULL AND FINAL SETTLEMENT OF THE AMOUNT PAYABLE FOR PURCHASE OF THE
SHARES TENDERED.� T.D.S. CERTIFICATE
SHALL BE SENT TO YOU SHORTLY. (Emphasis by the Tribunal) THANKING
YOU, YOURS
FAITHFULLY, FOR
MAHESHWARI DATAMATICS PVT.LTD., SD/- REGISTRAR
TO THE OFFER ENCL:
AS STATED.� ���������������������������� From this letter it is clear
that when the appellants tendered their shares they accepted it as full and
final settlement of the amount at as payable to them.� All the appellants admittedly encashed the
cheques at the price arrived at by the merchant banker and approved by
SEBI.� After� encashing the cheque in payment as full and
final settlement Shri G. L. Sultania has filed appeal No.134/05 on 15/9/2005
(2) Pranay Dhelia � appeal No.138/05 on 15/9/2005, New Delhi Industries
Promoters and Investors Ltd., - appeal No.139/05 on 15/9/2005 and H. L. Somany
� appeal No.137/2005 on 15/9/2005 before the closure date which was on
19.9.2005.�� The other appellants viz.
Shrikant Somany � Appeal No.159/05, Abhishek Somany � Appeal No. 160/05, Anjana
Somany Appeal No.161/05, R. K. Somany -�
Appeal No.158/05, Sandeep Somany � Appeal No.162/05, Sumita Somany �
Appeal No.163/05 , Bhilware Holding Ltd., -�
Appeal No.164/2005 -� all on
10/11/05.� For all the appeals filed on 20.
Mr. Mookherjee, the
learned senior counsel for the appellants vehemently submitted that there was
no application of mind either by SEBI or by the Chartered Accountants in
determining the fair market value of the shares.� He also submitted that no appeal will become
infructuous merely because the shares were tendered by the appellants if this
Court comes to the conclusion that there was undervaluation of the shares by
the merchant bankers.� It was further
submitted by Mr. Mookherjee, the learned senior counsel for the appellant that the
established accounting principles of share valuation was not followed.� It was further submitted that since the scrip
of the target company was an illiquid scrip, the parameters mentioned in
Regulation 20(5) has not been complied with.�
21.
The learned counsel
relied on various judgements of the High Court and the Court of appeal in 22.���� Mr. S. K. Kapur, learned senior counsel for the contesting
respondent,� the acquirers, �submitted that the scope of the appeal should
be limited to determine whether the Merchant Bankers had made a fair assessment
of the value of the shares of the target company.� He further submitted that it does not lie in
the lips of the appellant to blow hot and cold once the cheques have been
encashed by the appellants,� it is not
open for them to challenge the open offer made by the acquirers.� The learned counsel also submitted that the
cheques were given by the acquirers as full and final settlement.� It is further submitted that the appellants
have dragged his client to court in the Calcutta High Court which is pending
and a parallel litigation with respect to valuation of shares is being agitated
before the Tribunal.� Such a course of
action would amount to an abuse of process of law.� The learned senior counsel for the respondent
also submitted that SEBI has acted fairly and impartially by accepting the
highest value recommended by the CA.� It
was further submitted that the architect of this litigation both in the High
Court and before SEBI and this Tribunal is one of the appellants by name G. L.
Sultania who has been misleading the appellants by creating friction in the
family.� Sultania was only an employee
and a small shareholder.� 23.���� It was further submitted that all the brothers have already
approached the Calcutta High Court to enable Shri S. K. Somany to exit without
prejudice but Calcutta High� Court only
granted permission for S. K. Somany to exit at negotiated price of Rs.40/- and
the price determined by the Merchant Bankers in the open offer. 24.���� The learned counsel for SEBI, Shri Ravichandra Hegde submitted
that SEBI took an extra ordinary step of appointing T. R. Chadha & Co., as
an independent Chartered Accountant and since the assessment of Patni &
Co., �was the highest, among the 3
valuations, SEBI approved the offer documents on the basis of this highest
price per share.� It is also submitted by
the counsel for SEBI that the appellants after having received the cheque in
full and final settlement now seek enhancement and reverse the clock.� They cannot approbate and reprobate.� 25.���� It was further submitted that the job of SEBI as a regulator is
only to approve the offer document and to find out if the price determined in
the offer document is fair and reasonable.��
It is only in this context that SEBI appointed an independent Chartered
Accountant. 26.���� We have heard at length the submissions of Mr. S. N. Mookherji,
learned senior counsel for the appellants and Mr. Kapur, learned senior counsel
for� the Respondent.� We have also heard the counsel for SEBI Mr.
Ravichandra Hegde.� 27.���� It is settled law that valuation of shares could be impeached
not only for fraud but also for mistake or miscarriage of justice if the
Chartered Accountant made an arithmetical error or took something into account
which he ought not to have taken into account or interpreted the regulations
wrongly or proceeded on some erroneous principles.� Valuation of shares could be impeached on the
ground that it affects the shareholders who have tendered the shares.� It is equally settled law that if the figure
given by the Chartered Accountant is so extravagantly large or so inadequately
small,� then the only conclusion would
be� that the expert must have made some
error and the court would be at liberty to interfere.� ��������� 28.���� In this case there has been no allegation of malafide against
the three Chartered Accountants who have evaluated the value of the shares
independently.� 29.���� Therefore, the question that arises for consideration for all
these appeals is whether the valuation of the shares was in accordance with the
regulations.� The offer price to acquire
shares under regulation 10,11 and 12 are set out under Regulation 20.� 30.���� Very briefly we shall deal with the two categories of offer
prices.� Where the shares are traded
frequently, the offer price is determined under regulation 20(1).� The relevant portion of regulation 20(1)
reads as follows: ��������� �20.(1) The offer to acquire shares under regulation 10,11
or 12� ��� shall
be made at a price not lower than the price determined as ���� per sub-regulations (4) and (5). ��������� (2) The offer price shall be payable -- a) In cash; b) By issue, exchange
and/transfer of shares (other than preference shares) of acquirer company, if
the person seeking to acquire the shares is a listed body corporate; or c) By issue, exchange and, or
transfer of secured instruments of acquirer company with a minimum �A� grade
rating from a credit rating agency registered with the Board;� The offer price with regard
to shares that are illiquid of infrequently traded will be determined in
accordance with Regulation 20(5) and the proviso thereof.� The relevant portion of Regulation 20(5) and
the proviso reads as follows: ��������� (5) Where the shares of the target company are infrequently
traded, the offer price shall be determined by the acquirer and the merchant
banker taking into account the following factors: a) The negotiated price under
the agreement referred to in sub-regulation (1) of regulation 14; b) The highest price paid by
the acquirer or persons acting in concert with him for acquisitions, if any,
including by way of allotment in a public or rights or preferential issue
during the twenty-six weeks period prior to the date of public announcement; c) Other parameters including
return on networth, �book value of the
shares of the target company, earning per share, price earning multiple
vis-�-vis the industry average; Since it is the common
ground that the shares of the target company are infrequently traded and or are
illiquid shares, the method of evaluating the shares would have to be under
regulation 20(5) and the proviso thereunder.�
The factors set out under��
regulation 20(5) are that the valuation of the shares can be a� negotiated�
price under the agreement or higher price computed by the acquirer or
persons acting in concert or other parameters including return on net worth,
book value of the shares of the target company, earning per share etc.� Mr. Mukherji, learned senior counsel for the
appellants vehemently submitted that the Chartered Accountants did not take
into account the return on net worth, book value or the earning per share.� If that is taken into account, it was
submitted,� that the value per share would
be Rs.200/- or more and not Rs.64.17 per share.�
The learned counsel for the appellant relied on a Judgement of the
Calcutta High Court, reported in 1966 2 Company Law Journal Page 278 in the
matter of Cannon Tea Co. Ltd.,� That was
a case which related to amalgamation under section 391, 393 and 494 of the
Companies Act, 1956.� This Judgement has
no application to the facts of the present case.� That was a case where the court held that
quotation of the stock exchange would be a safe and proper basis for fixing the
ratio unless it is demonstrated that the Stock Exchange quotation was not
reliable and does not represent the true value.�
This is a case dealing with the procedure contemplated under regulation
20(5).� 20(5)(a) refers to negotiated
price which triggered the code.� The
negotiated price admittedly was Rs.40/- per share. �If regulation 20(5)(a) and (b) were the only
two considerations, the value of the share in the public offer would have
been� merely Rs.40/-.per share.� Notwithstanding that the Merchant Bankers
went into the matter independently and carefully and evaluated the value of the
shares in accordance with regulation 20(5)(c).�
The only question before this court is whether the parameters under
regulation 20(5)(c) have been broadly complied with.� We have perused the Chartered Accountants�
valuation report.� The first report by
Deloitte appointed by the Merchant Bankers dealt with the parameters mentioned
in the regulation and came to the conclusion that the valuation of the share
was Rs.43/- per share.� When this was
brought to the notice of SEBI, and a number complaints was received, SEBI
appointed an independent Chartered Accountant to evaluate the shares once
again.� We may well ask what is the power
of SEBI to re-evaluate the value of the shares.�
The answer to this question was stated by Mr. Hegde, the learned counsel
for SEBI wherein he submitted that under the proviso to section 20(5), it is
always open to the Board to require the Merchant Bankers to revalue the shares
of infrequently traded shares by an independent merchant banker� or an independent Chartered Accountant with a
minimum of 10 years� standing or a Public Financial Institution.� This is exactly what SEBI did.� It appointed Patni & Co., an independent
Chartered Accountant of a minimum of 10 years standing.� The evaluation of value of shares by Patni
& Co., was Rs.64.17.� This time the
acquirers were not happy with the price determined by Patni & Co., as it
was according to them high.��� So they
requested the Merchant Bankers to appoint another Chartered Accountant by name
T. R. Chadha & Co.,� T. R. Chadha
& Co.,� gave its report with the
value of the shares at Rs.60.04 per share which was lower than the assessment
made by the independent Chartered Accountant appointed by SEBI.� SEBI said nothing doing and directed the
Merchant Bankers and the acquirers to fix the offer price at Rs.64.17 plus
interest on the delayed payment which in all came to Rs.81.28 per share.�� Mr. Mookherji, learned counsel for the
appellant assailed the valuation of all the three Chartered Accountants and
submitted that it was ridiculously low.�
He further submitted that there was a subsidiary of the target company
by name ACE Glass Containers Ltd., whose valuation was not taken into account
and if taken into account would increase the value of the shares.� 31.���� It was also submitted by the respondent that ACE Glass was
before the BIFR and was a sick company and net value of the shares had been
taken into consideration in the evaluation of the price of shares in the target
company.� But to say that the entire
assets of ACE Glass should be taken into account cannot be sustained.� It was the submission of the appellant that
ACE Glass was a subsidiary of the target company.� But it was also admitted by the appellants
that the target company only holds 50% of the equity share capital of ACE
Glass.� Towards this end, the definition
of the term �subsidiary� as contained in section 4(1) of the Companies Act,
1956 is relevant.� For ease of
convenience, the same is extracted below: ��������� Meaning of
�holding company� and �subsidiary� 1)
For the purposes of this Act,
a company shall, subject to the provisions of sub-section (3), be deemed to be
a subsidiary of another if, but only if,-- a)
that other control the
composition of its Board of directors; or b)
that other � i.
where the first-mentioned
company is an existing company in respect of which the holders of preference
shares issued before the commencement of this Act have the same� voting rights in all respects as the holders
of equity shares, exercises or control more than half of the total voting power
of such company; ii.
where the first-mentioned
company is any other company, holds more than half in nominal value of its
equity share capital; or� ��������� (c) the first-mentioned company is a
subsidiary of any company which is that other�s subsidiary. Illustration ��������� Company B is a subsidiary of Company
A, and Company C is a subsidiary of Company B.�
Company C is a subsidiary of Company A, by virtue of clause �
above.� If Company D is a subsidiary of
Company C, Company D will be a subsidiary of Company B and consequently also of
Company A, by virtue of clause � above, and so on. Since the Target Company
does not own more than half of the capital of Ace Glass, the latter is not a
subsidiary of the Target Company in terms of Section 4(1)(b)(ii) of the
Companies Act, 1956.� So also, the
composition of the Board of Directors of Ace Glass is not controlled by the
Target Company.� Consequently, it is
submitted that by no stretch of imagination can Ace Glass be deemed to be a
subsidiary of the Target Company.� In
fact, it has been acknowledged by Mr. Bajoria, the valuer whose report has been
procured by the Appellants, that Ace Glass is not a subsidiary of the Target
Company.� It has�� been expressly acknowledged by the
Appellants� valuer that for Ace Glass to become a subsidiary of the Target
Company, the Target Company would have to acquire at least one more share in
Ace Glass, and that until such an acquisition takes place, Ace Glass would not
be a subsidiary. 32.���� Mr. G. L. Sultania, the Appellant in Appeal No.134 of 2005, and
the prime architect of this litigation before this Hon�ble Tribunal and� also of the proceedings before the Calcutta
High Court, has himself acknowledged this position i.e. that Ace Glass is not a
subsidiary of the Target Company. 33.���� The Appellants have attempted to claim that Ace Glass Containers
is a subsidiary of the Target Company by relying on statements in the annual
report of the Target Company in relation to the acquisition of 50% equity of
Ace Glass by the Target Company.� It is
submitted that the same is of no assistance to the Appellants since whether or
not one company is a subsidiary of another has to be determined� from the�
facts and circumstances� of the
case i.e. the absence of power to control the board of Ace Glass, as evidenced
by the Articles of Association of Ace Glass, and the clearly evident and
acknowledged holding of just 50% of the Target Company in Ace Glass, which
makes Ace Glass fall short of being a subsidiary. 34.���� There is nothing on record that can lead to any reasonable
conclusion� that there has been any
perverse or gross error in the manner of computation of fair value of the share
of the target company by any of the three independent expert valuers.� With respect to one of the parameters namely
return on net worth it was the appellants� contention that Patni & Co., has
not taken into account net worth of the target company� which is a factor specified under regulation
20(5)� of the Take Over Regulations, return on net worth is a
profitability� indicator �and is �not a share valuation method by itself.� There is no specific described formula for
arriving at a value per share on the basis of return on net worth.� Return on net worth has to be one of the
factors in evaluation.� In this case
Patni & Co., has� calculated the
yield value on the basis of the ratio by Supreme Court in Hindustan Lever
reported in.� 1995 Supp SCC 499.�� A careful perusal of paragraphs 3.2.1 of the
report of Patni & Co.,� marked before
us as Exhibit �D� to the Written Reply�
clearly indicate that �the return
on n et worth� has been calculated.�� Patni & Co., in his report has given an
indication of return of net worth for the year 2001-02 at 5.38%.� This in our opinion would meet the ends of
justice since the book value by itself, is the basis of valuation and there is
no meaning in the challenge of the appellant on this ground. 35.���� With respect to net asset value which is the other parameter it
is clear that the accounting law mandates exclusion of revaluation from
computation of net worth.� The appellants�
contention that in computation of net worth revaluation of resources ought to
have been added to the net worth of the target company is untenable.� The net worth has been calculated on the
basis of the definition of net worth from the Companies Act, Sick Industrial
Companies (Special Provisions) Act, 1956 and the SEBI (Disclosure and� Investor Protection Guidelines, 1999 and the
Control of Capital Issues Guidelines. ��������� 36.���� It was the contention of the appellant that the earnings per
share has not been taken into account.�
We have carefully perused the report of Patni & Co.,� and at para 3.3.2 EPS has been calculated
which reads as follows: EPS Method � Average EPS multiplied by
Industry P/E ratio works out to Rs.67.97
per share. �Industry P/E ratio is
taken� as 9.60 (Source Capital Market
dated� After considering the above
mentioned parameters of Regulation 20(5) Value per Share of HNGIL works out to Rs.57.55 per share.
37.���� A submission was also made by the learned counsel� for the appellants that capitalization ratio
of 15% ought not to have been adopted.�
The CCI Guidelines which was adopted by Govt. of India and Controller of
Capital Issues for computing the price at which the shares could get listed in
the stock exchanges clearly has been complied with.�� Although SEBI has abolished the CCI
Guidelines, it is one of the important aspect of share valuation including
valuation of shares for cross-border transactions� between resident and non resident under the
exchange control regulations currently in force in 38.���� To briefly sum up, �the
valuation of Deloitte (CA of Merchant Bankers) was Rs.43/- per share, valuation
of� Patni & Co., (SEBI�s CA)
Rs.64.17, and the merchant banker sought to get the fresh valuation with the
help of T. R. Chadha & Co.,� and
Chadha�s valuation was Rs.60.04.� Of all
the three, after application of mind SEBI chose the highest value and approved
the same in the offer letter. 39.���� Curiously, �the appellants
brought out a valuation by their�
Chartered Accountant which valued the shares abnormally high Agarwal at
Rs.408/- & Bajoria at Rs.590/- per share.�
The difference between the valuations of Agarwal & Bajoria itself was
nearly Rs.100/- �per share.� �It is
not prudent or in ��public interest to
overlook the role of the regulator in fixing of a fair price with respect to
illiquid shares since it acts in the interest of the shareholders.� The fact that the regulator did not accept
Rs.40/- which could have been done under regulation 20(5) (a) & (b) is a
clear indication� that the regulator
wanted a fair bonafide offer of market price per share to be offered in the
open offer to the shareholders.� This the
regulator has done by scrupulously following the proviso to regulation 20(5). ��������� 40.���� The learned counsel for the appellant relied on a �Study on
Share Valuation� issued by the Institute of Chartered Accountants of India
Ltd.,� While certainly the issue in the
booklet are factors that can be taken into account for valuation of shares for
arriving at fair price, �we do not think
that it advances the case of the appellants since the booklet more or less
repeats all that is stated in report of Patni & Co.,� 41.���� We are dealing with the facts before us in this statutory appeal
and� it is not necessary to refer to
other pronouncements cited by the learned counsel for the appellants and respondents
which deals with maintainability of the appeal.�
We have relied on the pronouncement of the Supreme Court in Hindustan
Lever Ltd., case reported in 1995 (1) Supp SCC 499 with respect to the
valuation since Patni & Co.,�s report makes a reference to it rightly so. ��������� We have carefully perused the report of Patni & Co.,
and there is no reason for us to question the credibility of the report. � ��������� The appeals are devoid of merit.� ��������� Appeals stand dismissed. ��������� No order as to costs.
Place: Mumbai Date:
Smn/23/11 |
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