In the case of the Securities and Exchange Board of India (SEBI) versus Akshya Infrastructure Pvt. Ltd., a significant legal dispute unfolded before the Supreme Court of India. The case, which was decided on April 25, 2014, was presided over by Justice Surinder Singh Nijjar and Justice A.K. Sikri.
Facts of the Case
The case revolved around an appeal under Section 15Z of the Securities and Exchange Board of India Act, 1992 (the ‘SEBI Act’). The appeal was directed against the judgment and final order of the Securities Appellate Tribunal, Mumbai (SAT) dated 19th June, 2013. The appeal was filed by M/s. Akshya Infrastructure Private Limited, the respondent, against the directions issued by SEBI on 30th November, 2012.
The central issue of the appeal was whether an open offer voluntarily made through a Public Announcement for the purchase of shares of the target company could be permitted to be withdrawn at a time when the voluntary open offer had become uneconomical to be performed.
The respondent, M/s Akshya Infrastructure Pvt. Ltd., was part of the Promoter Group of MARG Limited (‘the Target Company’). For the years 2006-07, 2007-08, and 2010-11, the gross acquisition by the Promoter Group of shares in the Target Company was as follows:
- 2006-07: 14.34% on 30.03.2007
- 2007-08: 5.64% on 12.10.2007
- 2010-11: 7.11% on 19.02.2011
As a result of these acquisitions, the acquirers breached the 5% creeping acquisition limit and were required to comply with the provisions of Regulation 11 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the “Takeover Regulations”).
Issues Raised
On 20th October, 2011, the respondent made a voluntary open offer through a Public Announcement in major National Newspapers, under Regulation 11 of the Takeover Regulations. The public shareholders of the Target Company were given an opportunity to exit at an offer price of Rs.91/- per equity share. This price represented a premium of 10.3% over the average market closing price for the two weeks preceding the Public Announcement. The tendering period was scheduled to commence on 1st December, 2011 and conclude on 20th December, 2011.
However, due to certain events, the respondent sought to contend that the open offer in question had become outdated, thereby outliving its necessity and, therefore, the same ought to be permitted to be withdrawn. It was also contended that the amount of Rs.17.46 crores deposited by the respondent in an escrow account towards the open offer ought to be allowed to be withdrawn.
Court’s Observations
The court observed that the appellant, SEBI, had conveyed its comments in terms of the proviso to Regulation 16(4) of the Takeover Regulations on the draft letter of offer. Certain information was sought in the aforesaid letter. No reference was made in this letter with regard to the request made by the respondent for permission to withdraw the open offer.
The respondent claimed that the impugned directions, ostensibly in the form of comments and observations on the draft letter of offer, reject the plea of the petitioner that the delay caused by SEBI in clearance of the draft letter of offer, now renders the open offer unviable and academic.
The respondent also claimed
that the directions contained in the impugned letter of SEBI dated 30th November, 2012, incorrectly allege that prima facie requirement to make an open offer was triggered by the promoters and the promoter group entities of the Target Company (Promoter Group) under Regulation 11(1) of the Takeover Regulations on three past occasions, viz. March 30, 2007, October 12, 2007 and February 19, 2011 (Alleged Triggers).
The respondent argued that the directions to revise the offer price, on account of the requirement to make open offers pursuant to the alleged triggers was illegal and without jurisdiction. They also claimed that the directions contained in the impugned letter has caused severe civil consequences to the respondent.
The appeal was contested by the appellant by filing a detailed affidavit on 12th April, 2013. The appeal was allowed by SAT in terms of prayer clause (a), (b) and (c) of Para 7 of the appeal filed by the respondent. However, SAT made it clear that it has not made any observation on the merits of the issue regarding the three alleged triggers and the contentions of the parties in this regard were kept open.
Aggrieved by the aforesaid impugned judgment, SEBI filed the present Civil Appeal. The court heard the learned counsel for the parties at length.
Conclusion
The court observed that the issues raised by the appellant herein are squarely covered against the respondent by an earlier judgment of this Court in Nirma Industries Ltd. & Anr. Vs. Securities and Exchange Board of India. The court also noted that the respondent had made a Public Announcement on 20th October, 2011 which clearly informed the public shareholders of the Target Company that they were being given an opportunity to exit at an offer price of Rs.91/- per equity share, which represented a premium of 10.3% over the average market closing price for the two weeks preceding the Public Announcement.
The court concluded that the provisions contained in Regulation 27 have to be strictly adhered to in considering the request for withdrawal of the open offer. The court also held that the judgment in Nirma Industries Ltd. (supra) is applicable in the present case.