|
IN THE SECURITIES APPELLATE TRIBUNAL MUMBAI Appeal
No:� 86 of 2003
Appeal
No:� 86 of 2003
Appeal
No:� 86A of 2003
Appeal
No:� 86B of 2003
CORAM ��������� Justice
Kumar Rajaratnam, Presiding Officer ��������� N.L.
Lakhanpal, Member Per:��� N.L. Lakhanpal, Member 1.
The
appeal was taken up for final disposal with the consent of parties. 2.
The
appellants had made a public announcement on
3.
It
is common ground that the entire time table laid down in the Takeover Code for
such public offers was followed by the appellants except in the matter of
payment of consideration to the above 9 Non-Resident persons. In respect of
this category, payment of consideration was required to be effected by
25/07/2002 i.e. within 30 days from the closure of offer while the payment was actually
made to 8 out of these 9 persons on 04/09/2002 i.e. after a delay of 40 days
and to the remaining one person on 03/10/2002 i.e. after a delay of 69 days. On
this issue of delay in payment to these 9 Non-Resident shareholders, the
appellants case is that this category of persons were prohibited from
transferring any securities under the Foreign Exchange Management (Transfer or
Issue of Security by a person Resident outside India) Regulations, 2000
(hereinafter FEMA Regulations) notified under the Foreign Exchange Management
Act, 1999 except with the prior permission of the Reserve Bank of India. SEBI�s
case as made out in the impugned order is that the appellants were bound to
make payment of the consideration to all the shareholders who tendered their
shares in response to the open offer by 27/05/2002 under Regulation 22(12) and
any failure to do so for any reasons whatsoever, requires payment of interest
to the share holders for the period of delay.�
SEBI has accordingly passed the following impugned order: �9.1���� In view of the findings made above and in
exercise of the powers conferred upon me under sub-section (3) of Section 4
read with Sections 11 and 11B of SEBI Act read with regulations 44 and 45 of
the Regulations, I hereby direct the Acquirers to pay interest @ 10% p.a. to
the India Fund, Inc., Metdist India Holdings Limited, Krishna Kumar Rajamani,
Lal Tolani, Nazir Ghulamhusain, Saurin J.Shah, Anuja Rohit Wariawalla alias
Anuja Kaushik Sheth and Merlyn Lee for delay of 40 days from 26.07.02 to
04.09.02 and to Societe Generale for delay of 69 days from 26.07.02 to 3.10.02
in making payment of the consideration amount to the aforesaid NRI/OCB/FII
shareholders, as in terms of sub-regulation (12) of regulation 22, the payment
of consideration to the said NRI/OCB/FII shareholders of the Target Company was
to be made within 30 days of the closure of the offer. Since delayed payment of
consideration amount for acquisition of shares of the Target Company has
adversely affected interest of said NRI/OCB/FII shareholders of Target Company,
they shall be paid amount within 45 days of this Order. �9.2���� In case of failure of the Acquirers to
comply with the aforesaid direction, I hereby direct:- ����������� �(a)����� the forfeiture of the escrow account in
full, maintained by the Acquirers in terms of regulation 28(11) and direct that
the proceeds be transferred to Investor Protection Fund as provided in
regulation 28(13). ����������� �(b)����� that the Acquirers will be liable for
action in terms of Section 15H and/or Section 24 of SEBI Act. �9.3���� This order
shall come into force with immediate effect.� 4.
�The case of the appellants in brief is that
the delay in respect of these 9 non-resident shareholders has occurred because
of the Reserve Bank of �22(12)���������� The acquirer shall, within a period of 30 days from the
date of the closure of the offer, complete all procedures relating to the offer
including payment of consideration to the shareholders who have accepted the
offer and for the purpose open a special account as provided under regulation
29: �Provided that
where the acquirer is unable to make the payment to the shareholders who have
accepted the offer before the said period of 30 days due to non-receipt of
requisite statutory approvals, the Board may, if satisfied that non-receipt of
requisite statutory approvals was not due to any willful default or neglect of
the acquirer or failure of the acquirer to diligently pursue the applications
for such approvals, grant extension of time for the purpose, subject to the
acquirer agreeing to pay interest to the shareholders for delay beyond 30 days,
as may be specified by the Board from time to time.� 5.
SEBI�s
case therefore is that the Regulation contemplates completion of all procedures
relating to the offer including payment of consideration to the share holders
who have accepted the offer within a period of 30 days from the date of closure
of the offer.� The proviso to Regulation
22(12) permits SEBI to condone the delay at its discretion provided� (i) the delay is only due to non-receipt of
requisite statutory approvals (ii) the non receipt of statutory approvals is
not due to any willful default or neglect of the acquirer or his failure to diligently
pursue the applications for such approvals and (iii) the acquirer agrees to pay
interest to the shareholders for the delay beyond 30 days.� Therefore, according to the learned counsel
for the respondents, SEBI is bound to follow the provisions contained in this
regulation and cannot in any case condone the delay without imposition of
interest to the benefit of the shareholders. As regards appellants� argument
that the FEMA Regulations place the responsibility for acquiring RBI permission
on the non-resident shareholders, SEBI contends that despite this provision of
the FEMA Regulation, the appellants took on this responsibility of obtaining
RBI permission in their letter of offer and that since they failed to obtain
the RBI permission within this period of 30 days they are liable to pay
interest to these shareholders. The learned counsel for the respondent Shri
Kumar Desai further argued during the hearing that if the applications received
from these 9 non-resident shareholders were deficient in any respect warranting
repeated queries and objections by the Reserve Bank of India, it was open to
the appellants to have rejected these applications but that having accepted the
offer of these shares and having failed to obtain RBI permission in time, the
appellants must pay interest for the period of delay as per the no fault
liability clause contained in Regulation 22(12). Shri Kumar Desai further
argued that the RBI had raised queries only regarding 5 entities and that the
appellants could have taken part approval from the RBI for the remaining 4
entities to whom payment was delayed for no fault of theirs. 6.
As
against this, the learned counsel for the appellants argued that Regulation 3
of the FEMA Regulations stipulated that �save as otherwise provided in the Act
or Rules or Regulations made thereunder, no person resident outside 7.
We
do not consider it necessary to recount the entire sequence here because lack
of due diligence is not a charge levelled against the appellants in the
impugned order.� Nevertheless, we have carefully
gone through the list of dates and have come to a definite conclusion that the
appellant acquirer had acted with due dispatch at every stage of the process. �The chronology of events as presented by the
learned counsel for the appellant and not objected to by the respondent was as
follows: Chronology of Events Public Announcement ( 90
days closure of offer ( [Regulation 22(12) 21
days Opening
of special a/c (non-interest bearing) and transfer of funds thereto ( [Regulation
29(1)] ����������������������������������� Letter
from Sahrepro Services setting out the basis of allocation (
����������������������������������� Application
to RBI in form TS1 after collation of acceptances to the offer throughout
Letter from RBI seeking clarifications ( Reply to RBI ( Meeting with RBI ( Letter to RBI complying with further queries raised ( Receipt of approval on behalf of 8 NR sharesholders (
Receipt of approval on behalf of the remaining 1 NR
shareholders ( Payment to 1 NR shareholder It will be seen from the above
chronology that there has not been a single day�s unexplained delay on the part
of the appellants in pursuing the matter with the RBI. 8.
In
fact if any such lack of due diligence had been noticed, the respondent could
not have granted condonation under Regulation 22(12) of the Takeover Code and
would have proceeded to take action against the appellants under Regulation
22(13). Regarding the reason why they did not make payment to the remaining 4
non-resident persons in respect of whom the RBI had not raised any queries, the
appellants contend that they did pursue the matter of granting permission to these
4 shareholders, but the RBI insisted on treating all the 9 applications in a
consolidated manner. Regarding Regulation 22(12) being a no fault liability
clause the appellants have contended that these regulations stipulate that the
acquirers have to agree to the payment of interest for the period of
delay.� According to the appellants the
extension of time under Regulation 22(12) is required to be sought only if the
open offer itself is substantially incapable of being closed for want of statutory
approvals that are required to be taken by the acquirer.� In the instant case, according to the
appellants, the statutory approval from the RBI was required to be taken by
non-resident shareholders and not by the acquirers and therefore no extension
of time was sought and no payment of interest was agreed to by the
acquirers.� The appellants have further
contended that the Takeover Code required them to open a special account into
which all funds required for the open offer are transferred and that this
special account is required to be a non-interest bearing account. This special
account in the present case was opened, as required, on 16/07/2002 and that
that the appellants therefore had not earned any interest on these amounts
during the period of delay in payments and that it is therefore inequitous to
ask them to pay interest which they had not earned for the period of delay
caused due to the failure of the non-resident shareholders themselves in
obtaining RBI permission within the stipulated period. 9.
We
have carefully gone through the facts of the case and the arguments of the
learned counsel on both sides.� Before we
go into the contentious issues it would be profitable to record the areas constituting
common ground. It is thus agreed that there was a delay in payment of
consideration to the 9 non-resident shareholders beyond the stipulated period
of 30 days; it is also common ground that the responsibility under FEMA
Regulations for obtaining the RBI permission is on the non-resident
shareholders and not on the appellant acquirers; it is also common ground that
the letter of offer did contain the provision that the acquirer would make
application to RBI for obtaining this permission on behalf of the non-resident
shareholders; it is also common ground that lack of due diligence on the part
of the appellants is not the gravamen of the charge against the appellants. It
is also common ground as seen from para 7.18 of the impugned order that the RBI
approval under the FEMA Regulations was not a statutory approval required by
the acquirers in order to make the open offer. It is also common ground that no
gains have accrued to the acquirers on account of the delay in payment to the
shareholders. Thus, what we are left with is only the interpretation of the proviso
to Regulation 22(12) of the Takeover Code to see whether it is indeed a no
fault liability clause as contended by the appellants. 10.
We
have gone through Regulation 22(12) very carefully.� We find that it is a regulation made to
protect the interests of the shareholders who tender their shares in response
to the open offers made by the acquirers as per the requirements of the
Takeover Code. It is a salutary provision mandating the acquirers to complete
all procedures including the payment of consideration within the period of 30
days from the date of closure of the offer and to pay interest if such payment
is delayed despite due diligence of the acquirer due to non-receipt of
requisite statutory approvals. In the present case the impugned order states in
para 7.18 that: �I have noted the contention of the
acquirers that the RBI approval under the FEMA Regulations was not a statutory
approval required by the acquirers in order to make open offer.� 11.
If
that be the case and if there is no charge of lack of due diligence it is
difficult for us to come to the conclusion that there was indeed a delay in
payment requiring grant of extension of time by SEBI subject to the acquirer
agreeing to pay interest.� Since no such
extension of time was sought by the acquirer in the belief that there was no
delay in payment, the acquirer never agreed to pay interest.� SEBI�s jurisdiction under Regulation 22(12)
was thus never attracted and no order was necessary under this Regulation
because no application for extension of time indicating willingness to pay
interest was made by the acquirer.� Thus
while being in agreement with SEBI that Regulation 22(12) is a no fault liability
clause, we hold that it is indeed a no fault liability clause in respect of
resident shareholders who are in a position to tender their shares on their own
volition in response to the open offer without any regulatory or statutory
handicaps. So far as the non-resident shareholders are concerned, their ability
to tender shares is limited by the requirement of advance permission from the
Reserve Bank of India and the protection of Regulation 22(12) becomes available
to them only from the date on which they acquire the RBI permission or it is
obtained for them with their own help and assistance by the acquirer acting on
their behalf unless, of course, the acquirer is shown to have been guilty of
lack of due diligence. As we have observed above, there is no finding of lack
of due diligence against the appellants. Accordingly we find it difficult to
sustain the impugned order. We note that apart from the delay in payment of
these 9 non-resident shareholders no other delay or inefficiency or any other
lapses have been alleged against the appellants in respect of the open offer. 12.
The
learned counsel for the appellants also contended during the hearing of the
appeal that if the interest is paid, the biggest beneficiary would be Metdist
India Holdings Limited who would be entitled to receive an amount of approximately
Rs. 32 lakhs out of a total of about Rs. 46 lakhs. According to the learned
counsel for the appellants Metdist India Holdings Limited is also their
competitor in business. This position was not challenged by the respondents during
the hearing. This entity was a complainant before SEBI and had also moved an
intervention application before this Tribunal which was naturally declined. We
would, however, not like to go into this aspect because this does not form any
part of the impugned order. 13.
Accordingly
both on interpretation of Regulation 22(12) of the Takeover Code and
Regulations 3, 9 and 10 of the FEMA Regulations as well as on the facts of this
case the appeal is allowed and the impugned order is set aside. No order as to
costs.
Place: Mumbai Date:� */as |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Printer Friendly page | Email this page |