Page 1 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.6082 OF 2008

Nirma Industries Ltd. & Anr. ...Appellants

VERSUS

Securities & Exchange Board of India ...Respondent

J U D G M E N T

SURINDER SINGH NIJJAR,J.

1.This statutory appeal is filed under Section 15Z of the Securities

and Exchange Board of India Act, 1992 (hereinafter referred to as

the ‘SEBI Act’) against the order dated 5

th

June, 2008 (impugned

order) passed by the Security Appellate Tribunal (SAT) whereby

SAT has dismissed the appeal filed by the appellants impugning

the direction contained in the communication dated 30

th

April, 2007

of SEBI (SEBI order). By the aforesaid order, the request of the

appellants for withdrawal of an offer to acquire the equity shares of

1

Page 2 Shree Ram Multi Tech Limited (SRMTL) under the SEBI (Substantial

Acquisition of Shares and Takeovers) Regulations, 1997 (Takeover

Code/Takeover Regulation) has been rejected.

Facts :

2.On 22

nd

March, 2002, the Promoters (including friends, relatives

and associates) of SRMTL – a listed company – borrowed a sum

of Rs.48.94 crores from the appellants and pledged equity shares

of SRMTL worth Rs.1,42,88,700/- (24.25% of equity capital) as

security. The debt was in form of issue of Secured Optionally Fully

Convertible Premium Notes by three closely held unlisted

companies (Issuer Companies) for an issue price of Rs.1,00,000/-

each having nominal value of Rs.1,35,000/- each. The issue was

made by the Issuer Companies by way of subscription agreements

and the individual premium notes issued by each are as under :

(i) Shree Rama Polysynth Pvt. Ltd.- 1664

(ii) East-West Polyart Ltd. - 1500

(iii) Ideal Petroproducts Ltd. - 1730

--------

Total - 4894

2

Page 3 3.The Issuer Companies pledged equity shares in the capital of

SRMTL and other closely held companies as security in favour of

the appellants till the redemption of the Premium Notes by way of

pledge agreements (Pledged Shares). The equity shares of

SRMTL pledged by each of the Issuer Companies are as under :

(i) Shree Rama Polysynth Pvt. Ltd. - 52,49,786

(ii) East-West Polyart Ltd. - 28,74,800

(iii) Ideal Petroproducts Ltd.- 62,64,114

---------------

Total - 1,42,88,700

4.In May-June, 2002, the pledge over the shares, which were in

dematerialized form, was carried out in the form prescribed by

National Securities Depository Limited and was recorded in the

records of the respective depositories of the appellants and the

Issuer Companies. On June 10, 2005, the appellants, in terms of

the enforcement provisions contained in the subscription

agreements and the pledge agreements issued notices to the

Issuer Companies calling upon them to redeem the outstanding

Premium Notes within a period of 30 days, failing which the

appellants would be constrained to invoke the pledge. Premium

notes were not redeemed (i.e. debt was not repaid). Upon default,

3

Page 4 under the provisions of the Notes, the appellants called upon each

of the Issuer Companies to redeem the outstanding Notes within

30 days. Since the Notes were not redeemed within the notice

period, the pledge was invoked on July 22, 2005.

5.The invocation of the pledge triggered Regulation 10 of the

Takeover Code.

6.On 26

th

July, 2005, in accordance with the Regulation 10 of the

Takeover Code, the appellants made a Public Announcement (PA)

for proposed open offer to acquire upto 20% of the shares of the

existing shareholders. The Public Announcement was published in

the Financial Express, Mumbai Edition. According to the

appellants, the price offered in the PA, being Rs.18.60/- per share,

was arrived at as per Regulation 20(4) of the Takeover Code

(applicable to frequently traded shares). The PA stated that

SRMTL has suffered business losses and its net worth has been

eroded. The PA also clearly stated that the offer may be withdrawn

as per Regulation 27 of the Takeover Code.

7.The appellants further claimed that as per Regulation 18 of the

Takeover Code, draft letter of offer was submitted to SEBI on

4

Page 5 August 8, 2005. According to the appellants in the aforesaid letter,

it was specifically stated that details were given of the composition

of Board of Directors and audited balance sheets of last three

years, share holding pattern PRE-OFFER and POST-OFFER and

justification of offer price. The letter further stated that “Acquirers

reserve the right to withdraw the offer pursuant to Regulation 27 of

the Regulation”. In the meanwhile, the concurrent auditor

appointed by the Lenders of SRMTL, M/s Ernst & Young and the

internal auditor of SRMTL, M/s. R. C. Sharma & Co. in their

respective audit reports for the quarter July-September, 2005, had

noted certain irregularities in the operations and systems of

SRMTL. The Audit Committee, therefore, recommended a special

investigative audit to look into the irregularities. In view of the

above, a change in management was effected on the insistence of

the Lender Banks. All Promoter Directors tendered their

resignations in their place independent Directors were appointed.

The Board of Directors of SRMTL, after considering the respective

audit report of the aforesaid two accountants, accepted the

recommendations of the Audit Committee and on January 28, 2006

directed a special investigative audit into the financial affairs of the

company. The Board appointed M/s. R. C. Sharma & Co., to

conduct the special investigative audit and submit its report. After

5

Page 6 investigation, M/s. R. C. Sharma & Co. submitted its report in three

parts, comprising of two interim reports and one final report on

January 30, 2006. In March-April, 2006, the aforesaid report of

M/s. R.C. Sharma came in the public domain, resulting in sharp

decline in prices of shares of SRMTL. It is claimed by the

appellants that M/s. R.C. Sharma’s report enclosed two earlier

inspection reports of 2002 by Kalyaniwala & Mistry (Kalyaniwala

Report) and by Sharp and Tannan Associates (Sharp Report),

respectively. These reports were not made available to public.

Their existence was disclosed for the first time when they were

filed in the Gujarat High Court as part of proceeding in Company

Petition No.111 of 2005. The appellants further claimed that under

Regulation 18 of the Takeover Code, SEBI was expected to revert

with its comments and observations in about 21 days, i.e. by 29

th

August, 2005. However, letter of offer submitted to SEBI was

issued after more than 249 days on 26

th

April, 2006.

8.The appellants further claim that pursuant to the fraud perpetrated

by the Promoter Directors of SRMTL and fraudulent embezzlement

of funds in SRMTL in excess of Rs.350 crores being unearthed, an

application was made on 4

th

May, 2006 to either exempt them from

making the open offer or to permit them to withdraw the open offer

6

Page 7 under Regulation 27 of the Takeover Code or to re-fix the price of

the Open Offer. The appellants further claimed that the aforesaid

request was justified on the basis of special circumstances cited by

the appellants in the aforesaid letter of May 4, 2006. It had been

pointed out that an investigation into the affairs of SRMTL by M/s

Ramesh C. Sharma and Co. Chartered Accountants revealed that

a cumulative amount of Rs.326.48 Crores had been siphoned out

of/embezzled from the coffers of SRMTL by its erstwhile Promoter

Directors. This conclusion was based on the reports submitted by

M/s. R.C. Sharma & Co. It was pointed out that the financial

accounts of SRMTL revealed that it had lost its net worth. Asset

Reconstruction Company (India) Limited (ARCIL) had acquired the

debts and underlying rights and obligations from the secured

creditors of SRMTL. ARCIL had also issued a notice dated January

25, 2006 under Section 13(2) of the Securitization and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 (SARFAESI) threatening action under Section

13(4) thereof. In the meantime, the High Court of Gujarat had

disposed of the winding up petition filed against SRMTL by the UTI

Bank and Karnataka Bank Ltd. on February 27, 2006. It had also

come to the knowledge of the appellants that though the balance

sheets of SRMTL disclosed a contingent liability of only Rs.15.28

7

Page 8 Crores as on March 31, 2005, the actual value was about

Rs.263.65 Crores (out of which Rs.30.65 Crores had already

crystallized). The final reason given was share price of SRMTL

shares had fallen substantially from the date of making the Public

Announcement.

9.Since the appellants did not receive any response from the

respondent, a request was made on July 1, 2006 to the Merchant

Bankers requesting them to forward an application for withdrawal

of the open offer to the respondent. It appears that the Merchant

Bankers vide letter dated 27

th

June, 2006 inter alia informed the

appellants that the grounds mentioned in the letter dated 4

th

May,

2006 are not valid grounds, in terms of the provisions of Regulation

27 of the Takeover Code. On July 1, 2006, the appellants

requested the Merchant Bankers to convey its request in a

renewed form to SEBI for its consideration. The renewed request

was contained in a letter dated July 01, 2006 which was sent to the

Merchant Bankers as an annexure to the letter which was also sent

on July 01, 2006, in reply to the letter of the Merchant Bankers

dated 27

th

June, 2006. In the aforesaid reply, the appellants had

also informed the Merchant Bankers that it did not agree with the

views expressed by the Merchant Bankers even prior to the

8

Page 9 consideration of the facts presented by the appellants to SEBI.

Regulation 27(1) (c) does not provide for specific approval of SEBI

for withdrawal of the open offer, which is what they were seeking.

On July 8, 2006, the Merchant Bankers informed the appellants

that the relevant regulation is 27(1)(d) and not 27(1)(c). The letter

also refers to a telephonic conversation with one Mr. Deepak Shah

on 8

th

July, 2006 informing him about certain particulars required by

the Merchant Bankers. A complete list of details, required by the

Merchant Bankers, was listed in the aforesaid letter. The

appellants were requested to send the same at the earliest. The

appellant sent a reply to the aforesaid request on 8

th

July, 2006.

Thereafter, on 1

st

September, 2006, the appellant was informed by

the Merchant Bankers that based on the information supplied on

July 1, 2006 and August 28, 2006, an application had been drafted

by them for being filed with SEBI, seeking withdrawal of the open

offer. The aforesaid draft application was sent to the appellant for

verification of the factual position stated therein. From a perusal of

the letter dated 21

st

September, 2006, the appellants informed the

Merchant Bankers that the clarifications sought on September 1,

2006 had been sent to them on 7

th

September, 2006. Therefore, a

request was made to include the clarifications in the original draft

9

Page 10 letter and include the same in the paragraph in contingent liability

under special circumstances for withdrawal of the open offer.

10.In response to the aforesaid request of the appellants, the

Merchant Bank applied to SEBI on September 22, 2006 requesting

that the appellants be permitted to withdraw the offer. The letter

also mentioned the special reasons for the withdrawal as given by

the appellants in the letter dated 4

th

May, 2006. It is important to

notice here that no request for personal hearing was made in any

of the aforesaid communications.

11.The appellants further claimed that on 30

th

April, 2007, the

application of the Merchant Bankers/appellants was rejected on the

ground that the appellants ought to have conducted due diligence.

The appellants pointed out that the aforesaid decision was taken

by SEBI without affording any personal hearing to the appellants

and without application of mind. The appellants claim that the

respondent did not appreciate that the fraudulent transactions,

systematic embezzlement and siphoning of funds was unearthed

by special investigative audit and could not have been found by an

outside third party like appellants before invoking the pledge. Even

any due diligence that could be conducted could only have been

10

Page 11 done on published financial information in the public domain, which

has now been found to be fraudulent in character. The appellants

have in the Public Announcement and Letter of Offer relied on

books of accounts for last three financial years i.e. 2002-03, 2003-

04 and 2004-05 of SRMTL. Even SEBI with all its compliance

requirements and investigative powers was unable to unearth

these instances of fraud perpetrated by promoters of SRMTL.

12.Being aggrieved by the SEBI order, the appellants filed Appeal

No.74 of 2007 before the SAT. By the impugned order dated 5

th

June, 2008, the SAT rejected the appeal filed by the appellants. It

has been held by SAT that :

“a) Regulation 27(1)(d) of the Takeover Code is to be

given a strict interpretation and the words “such

circumstances as in the opinion of the Board merit

withdrawal” is to be read ejusdem generis to be limited

to only circumstances where it is impossible to make a

public offer.

b) Appellants ought to have conducted due diligence.

C) Appellants knew about (i) poor financial condition of

SRMTL; (ii) filing of winding up petitions by UTI Bank

against SRMTL; (iii) net worth of SRMTL being

negative; (iv) several cases of recovery being filed

against SRMTL.”

11

Page 12 13.The aforesaid order of SAT is challenged before us by Nirma

Industries Ltd. in this statutory appeal under Section 15Z of the

SEBI Act.

14.We have heard very elaborate submissions made by Mr. Shyam

Divan, learned senior counsel on behalf of the appellants and

Mr. Pratap Venugopal for SEBI. Mr. Divan submits that the main

issue involved in this appeal is whether under Regulation 27(1)(d),

SEBI has power to grant exemption to the appellants from the

requirement of making a public offer under Regulation 10. The

alternative issue framed by Mr. Divan is as to whether dehors

Regulation 27(1) (d), SEBI would still have the residual power to

grant exemption. Apart from the aforesaid two legal issues, Mr.

Divan’s primary submission is based on breach of rules of natural

justice. He submits that the order passed by SEBI has been

passed without granting any opportunity of hearing to the

appellants. Even if the regulations do not specifically provide for

the grant of an opportunity of hearing, it ought to be read into the

regulations in view of the drastic civil consequences, which the

appellants would suffer under the impugned order passed by the

SEBI upheld by SAT. Mr. Divan has straightaway pointed out to the

order passed by SEBI on 30

th

April, 2007 rejecting the request

12

Page 13 made in letter dated 22

nd

September, 2006 for withdrawal of the

public offer. He has pointed out the observations made in

Paragraph 4 of the aforesaid order, which are as under:-

“We are of the view that the acquirer should have done

due diligence before invocation of pledge, and refrained

themselves from invoking their pledge if circumstances

so warranted. Such circumstances, arising out of

omission on the part of the acquirers to have taken due

precaution or business misfortunes, in our opinion, are

not reasons sufficient enough to merit withdrawal of the

open offer.”

15.The aforesaid conclusions, according to Mr. Divan, are not

supported by any reasons let alone sufficient reasons. The order

passed by SEBI, according to him, is non-speaking and, therefore,

ought to have been quashed on that ground alone.

16. The same submission was also made before the SAT. It has

been rejected by the SAT by giving detailed reasons. Taking into

consideration the facts and circumstances of this case, it cannot be

said that Rules of Natural Justice have been violated. The special

circumstances which had been elaborately set out in the two letters

written by the appellants on May 4, 2006 and July 1, 2006 and the

application made by the Merchant Bankers on September 22, 2006

have been summarized by Mr. Shyam Divan in the written

submission which are as follows :

13

Page 14 “a.An investigation into the affairs of SRMTL by

Ramesh C. Sharma & Co., Chartered

Accountants, revealed that a cumulative amount

of Rs. 326.48 Crores had been siphoned out

of/embezzled from the coffers of SRMTL by its

erstwhile Promoter Directors. Ramesh C.

Sharma & Co. submitted two interim reports [in

February and March 2006] and a final report (in

March 2006) to arrive at its aforesaid conclusions.

b.Further the financial accounts of SRMTL revealed

that it had lost its net worth.

c.Asset Reconstruction Company (India) Limited

(“ARCIL”) had acquired the debts and underlying

rights and obligations from the secured creditors

of SRMTL. ARCIL issued a notice dated January

25, 2006 under Section 13(2) of the Securitization

and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002

(“SARFAESI”) threatening action under Section

13(4) thereof.

d.The High Court of Gujarat had disposed of the

winding up petition filed against SRMTL by the

UTI Bank and Karnataka Bank Ltd. vide order

dated February 27, 2006.

e.It had come to the Appellant’s knowledge that

though the Balance Sheets of SRMTL disclosed a

contingent liability of only Rs. 15.28 Crores as on

March 31, 2005, the actual value was about

Rs. 263.65 Crores (out of which Rs.30.65 Crores

had already crystallized).

f.The share price of SRMTL shares had fallen

substantially from the date of making the Public

Announcement.”

17.In the letter dated May 4, 2006, it was pointed out that

subsequent to the Public Announcement dated 26

th

July, 2005 and

14

Page 15 filing of the draft letter of offer, the circumstances leading to the

requirement of making of Public Announcement by the appellants

(pledgee acquirers) or requirements of the regulation has

substantially changed to the prejudice of the appellants and,

therefore, it was constrained to seek exemption from requirement

of the Regulations and/or permission to withdraw the draft letter of

offer. The letter sets out the sequence of events leading to the

acquisition, which triggered the provisions of Regulation 10. It sets

out the reasons for fixing the offer price at Rs. 18.60 per share.

The price had been determined at deriving the average of weekly

high and low closing prices of shares of SRMTL (the target

company) at Bombay Stock Exchange (BSE) during 26 weeks

preceding the date of Public Announcement. In Paragraph 4 of the

letter, it is mentioned as under:-

“Subsequent to the Public Announcement and filing of

the draft Letter of Offer, the price of the shares of

SRMTL has fallen substantially due to circumstances

beyond the control of the Acquirers. It has come to the

knowledge of the Acquirers that subsequent to the

Public Announcement and filing of the draft Letter of

Offer, the financial condition of SRMTL has substantially

deteriorated on account of gross mismanagement and

embezzlement by the promoter directors of SRMTL. It

is apparent that SRMTL has lost its substratum and that

chances of its revival are negligible.”

15

Page 16 18.In Paragraph 5 of the letter, a prayer is made for permission

either to exempt the Regulation 3(1) (1) read with Regulation 4(2)

of the Takeover Regulations or withdrawal of offer under

Regulation 27, on the basis of the justification given for seeking

withdrawal. The complete justification is given

thereafter in Paragraph 6, which consists of sub-paragraphs 6.1 to

6.8. The ultimate reason for seeking withdrawal is given in

Paragraphs 7 and 8, which are as under:-

"7.Under the aforesaid circumstances, it is apparent

that SRMTL has lost its substratum and that

chances of its revival are negligible. The Pledgee

Acquirers while enforcing the security created by

pledging the shares of SRMTL, are being saddled

with an additional burden of Rs.21,91,54,314 to

the undue advantage of the other shareholders of

SRMTL. The purpose sought to be achieved by

operation of the Regulations is lost in view of the

subsequent developments and the Regulations

are operating harshly against the Pledgee

Acquirers. In view of the changed scenario, it

would be inequitable and unfair to compel the

Pledgee Acquirers to offer to purchase the shares

of SRMTL from the other shareholders of SRMTL

in accordance with the draft Letter of Offer.

8.In light of the change in circumstances as stated

hereinabove, considering the present state of

affairs, it would be just, fair and equitable (i) to

exempt the Pledgee Acquirers from operation of

Regulation 10 of the Regulations in exercise of

powers conferred by Regulation 3(1)(1) read with

Regulation 4(2) of the Regulations or (ii) to permit

withdrawal of the Public Announcement and the

draft Letter of Offer in terms of Regulation 27 of

the Regulations or (iii) permit the Pledgee

16

Page 17 Acquirers to re-fix the offer price on the basis of

the current market price of the shares of SRMTL.”

19.It is an admitted fact that the aforesaid letter was sent by the

appellants to its Merchant Bankers. In its letter dated 27

th

June,

2006, the Merchant Bankers informed the appellants that the

grounds mentioned in the letter dated 4

th

May, 2006 are not valid

grounds in terms of provisions of Regulation 27 of the Takeover

Code. Therefore, clearly the Merchant Banker was also of the

opinion that the specific circumstances relied upon by the

appellants were of no relevance in seeking withdrawal under

Regulation 27. However, on the insistence of the appellants, the

Merchant Bankers by its letter dated 22

nd

September, 2006

requested SEBI to exempt the appellants from the open offer or

withdraw the open offer under Regulation 27 or re-fix the price of

the open offer. It appears that the Merchant Bankers had

discussions with the officers of the SEBI before giving the

aforesaid opinion in its letter dated 27

th

June, 2006. it was only

thereafter the appellants were informed as under:-

“We have perused the various grounds you have

mentioned in your above letter to SEBI and are unable

to find any of these as valid grounds in terms of the

provisions of Regulation 27 of the SEBI (Substantial

Acquisition of Shares & Takeovers) Regulations, 1997.

The fact that the market price of the target company is

far below the offer price cannot be a reason for seeking

17

Page 18 withdrawal of the offer. Regulation 27(1) of the

Takeover code is the only regulation permitting

withdrawal of public offers and the same is reproduced

below:

…………………………………………………”

20.Still not satisfied, the appellants wrote to its Merchant Bankers on

1

st

July, 2006 requesting it to forward the letter dated 4

th

May, 2006

to SEBI for its consideration. In the letter, it was mentioned as

follows:-

“Meanwhile, we do not agree with your views even prior

to SEBI’s consideration of the facts presented by us.

Please do note that Regulation 27(1)(c) does provide for

specific approval of SEBI for withdrawal of the open

offer, which is what we are seeking. Unless SEBI

considers our letter and informs us of a decision not to

approve the application for withdrawal, it would be

premature to foreclose the options available to us by a

fair application of the law. Consequently, you are

requested to forward our enclosed application formally

to SEBI so that SEBI can consider the same and take a

decision in the matter. Once the decision of SEBI is

communicated, we can take further steps in the matter.”

21.As noticed earlier, the Merchant Bankers were still not satisfied

with the information provided by the appellants in support of its

request for withdrawal of the open offer. Therefore, the appellants

had given further clarifications to the Merchant Bankers. It was only

on receipt of the clarifications that the Merchant Bankers forwarded

the request to SEBI for consideration.

18

Page 19 22.From the above, it is apparent that all the necessary information

was available before SEBI for taking a decision as to whether the

claim of the appellants seeking exemption from the Takeover

Code, or withdrawal of the Letter of Offer would fall within the

purview of Regulation 27(1) (d). The purpose of granting an

opportunity of hearing is to ensure fair treatment of the person or

entity against whom an order is likely to be passed. In the present

case, we are unable to accept the submission of Mr. Shyam Divan

that the impugned order passed by SEBI on 30

th

April, 2007,

rejecting the application of the appellants for exemption/withdrawal

by SEBI caused any “adverse civil consequences”. Having

acquired the shares of the target company to the extent which

triggered the Regulation 10 of the Takeover Code, the appellants

published in the Financial Express, Mumbai Edition the proposed

open offer to acquire upto 20% of the shares of the existing

shareholders. The price offered in the Public Announcement,

being Rs. 18.60 per share was arrived at as per Regulation 20(4)

of the Takeover code, which is applicable to frequently traded

shares. It is undisputable that normally the public offer once made

can only be withdrawn in exceptional circumstances as indicated in

Regulation 27(1) (b), (c) and (d). In their letter dated 4

th

May, 2006,

19

Page 20 the appellants had given detailed reasons giving justification for

seeking exemption/withdrawal/price fixation. Not being given the

opportunity of oral hearing cannot always be equated to a situation,

where no opportunity is given to a party to submit an explanation at

all, before an order is passed causing civil consequences to it. Mr.

Shyam Divan has been at pains to point out that rules of natural

justice require that an opportunity of hearing should have been

given to the appellants. We see no reason to read into Regulation

27 - the provision that the party seeking to withdraw from the public

offer is required to be given an oral hearing before an order is

passed on the request for withdrawal. We also see no merit in the

submission that an oral hearing was particularly necessary in the

light of the fraud, which has been perpetrated by the promoters of

the target company on the innocent shareholders, which will also

include the appellants. Such a submission can not be accepted

either on facts or in law. The appellants had made a business

decision in deliberately purchasing the shares of the target

company to such an extent that it had to, under the law; make the

Public Announcement for purchase of other shares at the price of

Rs.18.60 per share.

23.In support of his submissions on breach of Rules of Natural

Justice, in his written submission, Mr. Shyam Divan has relied on

20

Page 21 Canara Bank & Ors. Vs. Debasis Das & Ors.

1

In this case, this

Court reiterated the well known Rules of Natural Justice. Otherwise

the particular case relied upon has no relevance to the present

proceedings. In the Canara Bank’s case (supra), this Court was

considering the case of an employee subjected to the disciplinary

proceedings. Again this Court reiterated the well known principle

that natural justice is the administration of justice in a

commonsense liberal way. Further that the rules have been

enforced by the Courts to ensure that substantial justice is done to

the party proceeded against. In the present case, it is a matter of

record that all material had been placed by the appellants before

the SEBI in its letter dated 4

th

May, 2006 and the same material

was also placed before the Merchant Bankers. Necessary

clarifications, as required by the Merchant Bankers, had also been

given in the subsequent correspondences, as noticed by us in the

earlier part of the judgment. Therefore, it cannot be said that

substantial justice has not been done in the case of the appellants.

This Court in Canara Bank’s case (supra) reiterated the principle

laid down in Managing Director, ECIL, Hyderabad & Ors. Vs. B.

Karunakar & Ors.

2

Here again, this Court has reiterated that

1

(2003) 4 SCC 557

2

(1993) 4 SCC 727

21

Page 22 even an administrative order, which involved civil consequences,

must be consistent with the rules of natural justice. The expression

“civil consequences” encompasses infraction of not merely

property or personal rights but of civil liberties, material

deprivations and non-pecuniary damages. In other words,

anything which affects the rights of the citizen in ordinary civil life.

24.In our opinion, the appellants cannot justifiably claim that any

order had been passed by SEBI that would cause adverse civil

consequences, as envisaged by this Court in B. Karunakar & Ors.

(Supra). The appellants after making a market assessment

decided to invoke the pledge on July 22, 2005. Since the shares

which came to the appellants were more than 15%, statutorily

Regulation 10 was triggered. The rejection of the request made by

the appellants for withdrawal from the public offer or exemption

under Regulation 27(1)(d) cannot be said to be an order causing

adverse civil consequences. The appellants had made and

informed business decision which unfortunately for them, instead

of generating profits was likely to cause loses. In such

circumstances, they wanted to pull out and throw the burden on to

the other shareholders. We, therefore, fail to see what prejudice

22

Page 23 has been caused to the appellants by the order passed by the

SEBI rejecting the request of the appellants.

25.In B. Karunakar & Ors. (supra), having defined the meaning of

“civil consequences”, this Court reiterated the principle that the

Court/Tribunal should not mechanically set aside the order of

punishment on the ground that the report was not furnished to the

employee. It is only if the Court or Tribunal finds that the furnishing

of the report would have made a difference to the result in the case

that it should set aside the order of punishment. In other words,

the Court reiterated that the person challenging the order on the

basis that it is causing civil consequences would have to prove the

prejudice that has been caused by the non-grant of opportunity of

hearing. In the present case, we must hasten to add that, in the

letter dated 4

th

May, 2006, the appellants have not made a request

for being granted an opportunity of personal hearing. Therefore,

the ground with regard to the breach of rules of natural justice

clearly seems to be an after thought.

26.Mr. Shyam Divan had also relied on Automotive Tyre

Manufacturers Association Vs. Designated Authority & Ors.

3

3

(2011) 2 SCC 258

23

Page 24 The aforesaid judgment is again of no relevance in the present

case. The scope and ambit of the Anti-Dumping Regulations, the

Customs Tariff (Identification, Assessment & Collection of Anti-

Dumping Duty on Dumped Articles & for Determination of Injury)

Rules, 1995 was under consideration of this Court. Upon

consideration of the entire matter, the Court reiterated the principle

of law, which is stated as follows:-

“80. It is thus, well settled that unless a statutory

provision, either specifically or by necessary implication

excludes the application of principles of natural justice,

because in that event the court would not ignore the

legislative mandate, the requirement of giving

reasonable opportunity of being heard before an order

is made, is generally read into the provisions of a

statute, particularly when the order has adverse civil

consequences which obviously cover infraction of

property, personal rights and material deprivations for

the party affected. The principle holds good irrespective

of whether the power conferred on a statutory body or

Tribunal is administrative or quasi-judicial. It is equally

trite that the concept of natural justice can neither be put

in a straitjacket nor is it a general rule of universal

application.”

27.Considering the 1995 Rules, it was held as follows:-

“83. The procedure prescribed in the 1995 Rules

imposes a duty on the DA to afford to all the parties,

who have filed objections and adduced evidence, a

personal hearing before taking a final decision in the

matter. Even written arguments are no substitute for an

oral hearing. A personal hearing enables the authority

concerned to watch the demeanour of the witnesses,

24

Page 25 etc. and also clear up his doubts during the course of

the arguments. Moreover, it was also observed in

Gullapalli, if one person hears and other decides, then

personal hearing becomes an empty formality.”

28.It was noticed by the Court that in the matter under consideration,

the entire material had been collected by the predecessor of the

DA. He had allowed the interested parties and/or their

representatives to present the relevant information before him in

terms of Rule 6(6) but the final findings in the form of an order were

recorded by the successor DA, who had no occasion to hear the

appellants. Therefore, it was held that the final order passed by the

new DA offends the basic principle of natural justice. In the present

case, the appellants did not make a formal request before SEBI for

being given an opportunity of personal hearing. Thus, the reliance

on the aforesaid case is misplaced.

29.Mr. Shyam Divan then relied on Darshan Lal Nagpal (Dead) by

LRs. Vs. Government of NCT of Delhi & Ors.

4

The Court in this

case was considering whether the Government of NCT of Delhi

could invoke Section 17(1) and (4) of the Land Acquisition Act and

dispense with the rule of hearing embodied in Section 5A (2) for

4

(2012) 2 SCC 327

25

Page 26 the purpose of acquiring certain land. In this context, the Court

observed that the reasons given by NCT for invoking the

emergency provision were not justified. It was observed that the

documents produced by the parties including the notings recorded

in the concerned file and the approval accorded by the Lieutenant

Governor do not contain anything from which it can be inferred that

a conscious decision was taken to dispense with the application of

Section 5A which represents two facets of the rule of hearing that

is the right of the land owner to file objection against the proposed

acquisition of land and of being heard in the inquiry required to be

conducted by the Collector. There is no such duty caused on SEBI

under the Regulations, which would make it incumbent upon it to

grant an opportunity of hearing before rejecting the application

made by the appellants or its Merchant Bankers. This apart, we

again reiterate that the appellants in its letter of 4

th

May, 2006 did

not make any request for a personal hearing. In such

circumstances, in our opinion, SAT has correctly concluded that:

“Having acquired the shares of the target company

which breached the threshold limit prescribed by the

takeover code, the appellants were required to make a

public officer to acquire further shares of that company

for which a public announcement was made. The

normal rule being that the public offer once made could

not be withdrawn, it was only in the exceptional

circumstances referred to in the earlier part of our order

that such an offer could be withdrawn. The appellants

26

Page 27 were invoking those exceptional circumstances and the

Board having considered the matter took a decision. It

is not that they had no opportunity to place their point of

view before the Board. In these circumstances, it was

not necessary for them to be given a personal hearing.”

30.Mr. Venugopal has further pointed out that apart from the

appellants, even the Merchant Bankers did not make a request for

a personal hearing. He submitted that grant of an opportunity for a

personal hearing can not be insisted upon in all circumstances. In

support of this submission, he relied on judgment of this Court in

the case of Union of India & Anr. Vs. Jesus Sales Corporation

5

.

The submission can not be brushed aside in view of the

observations made by this Court in the aforesaid judgment, which

are as under:-

“5. The High Court has primarily considered the

question as to whether denying an opportunity to the

appellant to be heard before his prayer to dispense with

the deposit of the penalty is rejected, violates and

contravenes the principles of natural justice. In that

connection, several judgments of this Court have been

referred to. It need not be pointed out that under

different situations and conditions the requirement of

compliance of the principle of natural justice vary. The

courts cannot insist that under all circumstances and

under different statutory provisions personal hearings

have to be afforded to the persons concerned. If this

principle of affording personal hearing is extended

whenever statutory authorities are vested with the

power to exercise discretion in connection with statutory

appeals, it shall lead to chaotic conditions. Many

5

(1996) 4 SCC 69

27

Page 28 statutory appeals and applications are disposed of by

the competent authorities who have been vested with

powers to dispose of the same. Such authorities which

shall be deemed to be quasi-judicial authorities are

expected to apply their judicial mind over the grievances

made by the appellants or applicants concerned, but it

cannot be held that before dismissing such appeals or

applications in all events the quasi-judicial authorities

must hear the appellants or the applicants, as the case

may be. When principles of natural justice require an

opportunity to be heard before an adverse order is

passed on any appeal or application, it does not in all

circumstances mean a personal hearing. The

requirement is complied with by affording an opportunity

to the person concerned to present his case before

such quasi-judicial authority who is expected to apply

his judicial mind to the issues involved. Of course, if in

his own discretion if he requires the appellant or the

applicant to be heard because of special facts and

circumstances of the case, then certainly it is always

open to such authority to decide the appeal or the

application only after affording a personal hearing. But

any order passed after taking into consideration the

points raised in the appeal or the application shall not

be held to be invalid merely on the ground that no

personal hearing had been afforded.

………………………………………….……..”

31.Taking into consideration the facts and circumstances of this

case, we are unable to accept the submission of Mr. Shyam Divan

with regard to the breach of rules of natural justice, in this case,

merely because the appellants were not given a personal hearing.

32.Mr. Shyam Divan had also submitted that grant of opportunity of

hearing ought to be read into Regulation 27(1) (d), which enables

28

Page 29 SEBI to grant exemption or permit withdrawal in “such

circumstances as in the opinion of the Board merit withdrawal”. He

submits that an informed opinion could only be taken by the Board

under the aforesaid Regulation by permitting the concerned

applicant an opportunity of personal hearing. The learned senior

counsel also sought support for the aforesaid submission that

Regulation 32(1) which permits the Board to issue directions as it

deem fit in the interests of investors in the securities and securities

market under Section 11 or 11(b) or 11(d). Regulation 32(2)

specifically provides that in any proceedings initiated by the Board,

it shall comply with the principle of natural justice, before issuing

directions to any person. In our opinion, the aforesaid provisions

are of no assistance to the appellants. Firstly, neither the

appellants nor their Merchant Bankers requested for an opportunity

for a personal hearing. Secondly, in the present case, SEBI has

not issued any instructions or directions under Section 11, which

requires that the rules of natural justice be complied with. Thirdly,

it cannot be said that the appellants had been condemned unheard

as the entire material on which the appellants were relying was

placed before SEBI. It is upon consideration of the entire matter

that the offer of the appellants was rejected. This is evident from

the detailed order passed by SEBI on 30

th

April, 2007. The letter

29

Page 30 indicates precisely the exceptional circumstances mentioned by

the appellants seeking to withdraw the public announcement.

Each and every circumstance mentioned was considered by SEBI.

Therefore, it can not be said that the appellants have been in any

manner prejudiced by the non-grant of the opportunity of personal

hearing. Therefore, the submission made by Mr. Shyam Divan

with regard to the breach of rules of natural justice is rejected.

33.Mr. Shyam Divan then submitted that the interpretation placed on

Regulation 27(1) (d) by SEBI as well as the SAT results in

restriction on the wide powers given to SEBI to regulate the

securities market to further the object of the SEBI Act. He submits

that the appellants are equally “an investor” in the market;

therefore, the regulator also has to keep the interest of the

appellants in mind. He makes a reference to Regulation 3(1) (f)

which provides that nothing contained in Regulations 10, 11 and 12

shall apply to acquisition of shares in the ordinary course of

business by banks and financial institutions as pledgees. This,

according to Mr. Shyam Divan, is an indicator that, for a certain

class of institutional investor there is a carve out. He submits that

similar carve out is also provided for the small investors. In the

present case, the appellants have lost out only because there was

30

Page 31 an inordinate delay in taking action by SEBI. Specifying the

changes that would be required in the letter of offer, the necessary

decision was to be taken by SEBI within 21 days under Regulation

18. But it was not taken by SEBI for a period of 8 months or 239

days, to be precise. Thus, there was a delay of 221 days. During

this period, the entire scenario had changed. In such

circumstances, the appellants would be entitled to exit option like

any other ordinary investor. He submits that by giving a very

narrow and restrictive interpretation to Regulation 27, SAT has

actually curtailed the wide powers vested in SEBI to regulate the

securities market to further the object of the Regulations.

34.He submits that Regulation 27(1) (d) should be construed to

confer wide powers on SEBI to allow withdrawal of an open offer in

cases where although it is not impossible to complete open offer,

but such an offer, in its opinion, merits withdrawal. It is submitted

that the words “such circumstances as in the opinion of the Board

merit withdrawal”, appearing in Regulation 27(1)(d) of the Takeover

Regulations must mean –

“a. The formation of an opinion by Respondent – which though

subjective in nature – must be based on the existence of

objective facts;

31

Page 32 b. The opinion must be one that is formed by Respondent

based upon, circumstances which merit withdrawal of the

public offer;

c. Circumstances which go into the formation of the opinion,

must be circumstances that are relevant to the question of

withdrawal of the public offer;

d. The circumstances must be such that no reasonable

person, who comes into possession or knowledge thereof,

can be compelled to (ignore such circumstances and)

proceed with the public offer.”

35.Therefore, the discretion conferred on respondent under

Regulation 27(1) (d), entailed the duty of respondent to form its

opinion based on relevant facts and the circumstances prevailing

at the time when the application for withdrawal of open offer was

made. Admittedly, the respondent failed to do so.

36.Learned senior counsel further submitted that the SAT in

interpreting Regulation 27 has wrongly relied upon the principle of

Ejusdem Generis. He submits that the rule of ejusdem generis

applies only if the statutory provision – (i) contains an enumeration

32

Page 33 of specific words; (ii) the subjects of enumeration constitute a class

or category; (iii) that class of category is not exhausted by the

enumeration; (iv) the general terms follow the enumeration; and (v)

there is no indication of a different legislative intent.

37.Learned senior counsel submits that in the present case none of

the said requirements are met. The rule of ejusdem generis is

restricted to cases where the specific words precede the general

words in the language of the statute, and in totality from a singular

genus along with the general words. The sub-clauses of

Regulation 27 do not form a common genus of cases where it is

impossible to do an open offer. Learned senior counsel submitted

that the provisions contained in the Takeover Code are regulatory

in nature and, therefore, have to be construed widely. The

Takeover Code provisions do not apply to pledgees. The text of the

Takeover Code indicates a different legislative intent so far as the

pledgees are concerned. He submits that the court is entitled to

look at the legislative history for interpretation of any provision in

the Act, Rule or Regulation. He submits that the legislative history

of Regulation 27(1) would clearly show that ejusdem generis was

not the appropriate rule of interpretation to be implied while

construing the aforesaid provisions. He pointed out that sub-

33

Page 34 regulation (a) of Regulation 27(1), as originally enacted, dealt with

a case of a competing acquirer which would entitle the first

acquirer to be exempted from making the open offer. However, to

ensure that shareholders of Target Company should have an

option to decide from both offers, sub-regulation (a) was omitted on

September 9, 2002. Sub-Regulation (b) deals with a situation

where requisite statutory approvals are not granted to make the

open offer; and Sub-Regulation (c) deals with a situation where the

sole acquirer dies and although it is possible that the legal heirs

could make the open offer, nonetheless grants an exemption to the

deceased acquirer and his heirs. Regulation 27(1) (d), is not

confined to a particular situation, but grants a general power to

SEBI to permit withdrawal of open offer where the facts and

circumstances in its opinion may merit withdrawal, taking into

account the facts and circumstances of that particular case.

Therefore, according to the learned senior counsel, the SAT erred

in law in construing Regulation 27(1) (d) on the principle of

ejusdem generis. According to Mr. Shyam Divan, Regulation 27(1)

(d) provides an exception for withdrawal of open offer not limited to

the narrow confines of Clauses (b) and (c) of Regulation 27(1).

According to him, the exception under Regulation 27(1) (d) deals

with a separate and distinct class of cases i.e. where respondent

34

Page 35 has been conferred discretion to allow withdrawal of open offers in

“such circumstances,” which “in the opinion of the Board merit

withdrawal”. Therefore, for this reason also Regulation 27(1)(d)

cannot be read ejusdem generis with the preceding clauses to

restrict the scope. According to him, the word “such” used in

Regulation 27(1)(d) is used in the context of circumstances that in

the opinion of the Board merit withdrawal. According to learned

counsel, the same does not take colour from Regulations 27(1) (b)

or 27(1)(c). This apart, he submits that the interpretation given to

Regulation 27 by the SAT is so narrow that it leads to absurd

consequences. The narrow construction of Regulation 27(1) (d)

would permit withdrawal only on the same footing as the

circumstances enumerated under Regulation 27(1)(b) and (c). This

would leave no discretion with SEBI to approve withdrawal, “in

such circumstances”, which in the opinion of the Board “merit

withdrawal.” Finally, it is submitted that it is an accepted principle

that where two interpretations are possible then such an

interpretation ought to be taken which will not render any provision

of a statute otiose. According to him, Regulation 27(1) (d) would be

rendered meaningless if it is read ejusdem generis with Regulation

27(1) (b) and Regulation 27(1) (c). Learned senior counsel also

relied on Regulation 3 of Takeover Regulations which empowers

35

Page 36 the respondent to grant a complete exemption to an acquirer from

Regulations 10, 11 and 12 in certain cases. He submits that

residuary power under Regulation 3(1) in addition to the specific

scenario mentioned therein is strongly indicative of the intention of

the legislature. In the facts of the present case, it is submitted by

Mr. Shyam Divan that had the appellants realized that there was a

fraud before making public announcement, it could have gone to

the Takeover Panel after it exercised the pledge on July 22, 2005

and applied for exemption from Regulations 10, 11 and 12. In

those circumstances, the plea of the appellants for exemption

would have been considered before the making of the public

announcement. It is only because the fraud was detected much

after the making of the public announcement that the appellants

had made an application for withdrawal of the open offer. In such

circumstances, the respondent can certainly exercise its power

under Regulation 27(1)(d) after granting a hearing. In short, the

submission of Mr. Shyam Divan is that the regulations permit

exercise of discretion before and after public announcement.

Therefore, SEBI as well as SAT had erred in giving a very narrow

interpretation to regulation 27(1)(d). Learned senior counsel also

referred to Regulation 22(14) of the Takeover Regulations which

provides that an acquirer who has withdrawn an open offer shall

36

Page 37 not be permitted to make an open offer for a period of six months

from the date of withdrawal of the offer. Applying this to Regulation

27, he submits that it is amply clear that impossibility as sought to

be interpreted in Regulation 27 cannot vanish in six months.

Therefore, according to him, it is clear that withdrawal of an open

offer need not be on account of impossibility only. In support of

these submissions, he relied on Municipal Corporation of

Greater Bombay Vs. Bharat Petroleum Corporation Ltd.

6

Maharashtra University of Health Sciences & Ors. Vs.

Satchikitsa Prasarak Mandal & Ors.

7

and Union of India & Ors.

Vs. Alok Kumar

8

.

38.We are unable to accept the submission of Mr. Shyam Divan that

the rule of ejusdem generis has been wrongly applied by SAT in

interpreting the provisions of Regulations 27(1) (b) (c) and (d).

39.In our opinion, the SAT has correctly come to the conclusion that

under the SEBI Act, Board has been entrusted with the

6

(2002) 4 SCC 219,

7

(2010) 3 SCC 786

8

2010) 5 SCC 349.

37

Page 38 fundamental duties of ensuring orderly development of the

securities market as a whole and to protect the integrity of the

securities market. It is precisely for this purpose that the provision

is made in Regulation 7 that any acquirer, who acquires shares or

voting rights which would entitle him to more than 5% or 10% or

14% shares or voting rights in a company, shall disclose at every

stage the aggregate of share holding or voting rights in that

company to the company and to the stock exchanges where

shares of the target company are listed. Under Regulation (8),

such an acquirer shall within 21 days from the financial year ending

March 31, make yearly disclosures to the company, in respect of

his holdings as on 31

st

March. Regulation 8A provides for

disclosure of information with regard to pledged shares. The Board

has power under Regulation 9, to call for information with regard to

the disclosures made under Regulations 6, 7, and 8 as and when

required by the Board. Regulation 10 mandates that no acquirer

shall acquire shares or voting rights which entitle such acquirer to

exercise 15% 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. The Takeover

Code then prescribed a detailed procedure for making a public

announcement and the manner in which the offer price is

38

Page 39 determined at which the shares are offered to public shareholders.

Regulation 11 provides that no acquirer who, together with persons

acting in concert with him, has acquired, in accordance with the

provisions of law, 15% or more but less than 55% of the shares or

voting rights in a company, shall acquire, either by himself or

through or with persons acting in concert with him additional

shares or voting rights entitling him to exercise more than 5% of

the voting rights unless such acquirer makes a public

announcement to acquire shares in accordance with the

Regulations. Again, Regulation 12 provides that irrespective of

whether or not there has been any acquisition of shares or voting

rights in a company, no acquirer shall acquire control over the

target company, unless such person makes a public

announcement to acquire shares and acquires such shares in

accordance with the Regulations. Under Regulation 13, before

making any public announcement of offer referred to in Regulation

10 or Regulation 11 or Regulation 12, the acquirer is duty bound to

appoint a Merchant Banker holding a certificate of registration

granted by the Board. Such Merchant Banker is required to be not

associates of or group of the acquirer or the target company. In

other words, it has to be a totally independent entity. Under

Regulation 14, the Merchant Banker is required to make public

39

Page 40 announcement under Regulation 10 or Regulation 11 within four

working days of entering into an agreement for acquisition of

shares or voting rights exceeding the respective percentage

specified in Regulations 10 and 11. Regulation 15 provided that

public announcement to be made under Regulations 10, 11 or 12

shall be made in all editions of one English national daily with wide

circulation, one Hindi national daily with wide circulation and a

regional language daily with wide circulation at the place where the

registered office of the target company is situated and at the place

of the stock exchange where the shares of the target company are

most frequently traded. Simultaneously, a copy of the public

announcement has to be submitted to the Board through the

Merchant Banker; sent to all the stock exchanges on which the

shares of the company are listed for being notified on the notice

board; and sent to the target company at its registered office for

being placed before the Board of Directors of the company.

Regulation 16 sets out in detail the particulars which are required

to be expressly stated and the public announcement is made under

Regulations 10, 11 or 12. Regulation 17 provides that the public

announcement or any advertisement, circular, brochure, publicity

material or letter of offer issued in relation to the acquisition of

shares must not contain any misleading information. Under

40

Page 41 Regulation 18, within 14 days from the date of public

announcement made under Regulations 10, 11 or 12, as the case

may be, the acquirer, through its Merchant Banker, is mandated to

file with SEBI the draft of the letter of offer, containing disclosures

as specified by the Board. This letter of offer is to be dispatched to

the shareholders not earlier than 21 days from its submission to

the Board. However, the Board has the power to specify changes,

if any, in the letter of offer which the merchant banker and the

acquirer is required to carry out such changes before the letter of

offer is dispatched to the shareholders. Regulation 20 provides that

the offer to acquire share under Regulations 10, 11 or 12 shall be

made at a price not lower than the price determined as per sub-

regulations (4) and (5).Sub-Regulations (4) and (5) provides a

complete procedure for determination of the price. Under

Regulation 21, it is provided that the public offer made by the

acquirer to the shareholders of the target company shall be for a

minimum 20% of the voting capital of the company. Regulation 24

imposes certain general obligations of the merchant banker. Before

the public announcement of the offer is made, the merchant banker

is required to ensure that - (a) the acquirer is able to implement the

offer; (b) the provision relating to Escrow account referred to in

Regulation 28 has been made; (c) firm arrangements for funds and

41

Page 42 money for payment through verifiable means to fulfil the obligations

under the offer are in place; (d) the public announcement of offer is

made in terms of the Regulations. Under Regulation 24(2), it is

provided that the merchant banker shall furnish to the Board a due

diligence certificate which shall accompany the draft letter of offer.

Under Regulation 24(4), the merchant banker is required to ensure

that the contents of the public announcement of offer as well as the

letter of offer are true, fair and adequate and based on reliable

sources, quoting the source wherever necessary. To ensure the

independence of the merchant banker under Regulation 24(5A),

the merchant banker is not permitted to deal in the shares of the

target company during the period commencing from the date of

appointment in terms of regulation 13 till the expiry of 15 days from

the date of closure of the offer. It is only upon fulfillment of all

obligations by the acquirers under the Regulations, that the

merchant banker is permitted to cause the bank with which the

escrow amount has been deposited to release the balance amount

to the acquirers. (Regulation 24(6)). Under Regulation 24(7), the

merchant banker is called to send a final report to the Board within

45 days from the date of closure of the offer.

42

Page 43 40.A conspectus of the aforesaid Regulations would show that the

scheme of the Takeover Code is – (a) to ensure that the target

company is aware of the substantial acquisition ; (b) to ensure that

in the process of the substantial acquisition or takeover, the

security market is not distorted or manipulated and (c) to ensure

that the small investors are given an option to exit, that is, they are

offered a choice to either offload their shares at a price as

determined in accordance with the takeover code or to continue as

shareholders under the new dispensation. In other words, the

takeover code is meant to ensure fair and equal treatment of all

shareholders in relation to substantial acquisition of shares and

takeovers and that the process does not take place in a

clandestine manner without protecting the interest of the

shareholders. It is keeping in view the aforesaid aims and objects

of the takeover code that we shall have to interpret Regulations

27(1).

Regulation 27 reads as under:

“Withdrawal of offer – (1) No public offer, once made,

shall be withdrawn except under the following

circumstances:-

(a)……………’

43

Page 44 (b) the statutory approval(s) required have

been refused;

(c) the sole acquirer, being a natural person,

has died;

(d) such circumstances as in the opinion o

the Board merits withdrawal.

(2) In the event of withdrawal of the offer under any

of the circumstances specified under sub-regulation

(1), the acquirer or the merchant banker shall:

(a) make a public announcement in the same

newspapers in which the public

announcement of offer was published,

indicating reasons for withdrawal of the

offer;

(b) simultaneously with the issue of such

public announcement, inform – (i) the

Board; (ii) all the stock exchanges on

which the shares of the company are

listed; and (iii) the target company at its

registered office.”

41.We may notice here that Regulation 27(1) (a) was omitted by

SEBI (Substantial Acquisition of Shares and Takeovers) (Second

Amendment), Regulations, 2002 w.e.f. 9.9.2002. Prior to omission,

it read as under :-

“(a) the withdrawal is consequent upon any competitive bid.”

44

Page 45 42.A bare perusal of the aforesaid Regulations shows that

Regulation 27(1) states the general rule in negative terms. It

provides that no public offer, once made, shall be withdrawn. Since

Clause (a) has been omitted, we are required to interpret only the

scope and ambit of clause (b), (c) and (d). The three sub-clauses

are exceptions to the general rule and, therefore, have to be

construed very strictly. The exceptions cannot be construed in

such a manner that would destroy the general rule that no public

offer shall be permitted to be withdrawn after the public

announcement has been made. Clause (b) would permit a public

offer to be withdrawn in case of legal impossibility when the

statutory approval required has been refused. Clause (c) again

provides for impossibility when the sole acquirer, being a natural

person, has died. Clause (b) deals with a legal impossibility

whereas clause (c) deals with a natural disaster. Clearly clauses

(b) and (c) are within the same genus of impossibility. Clause (d)

also being an exception to the general rule would have to be

naturally construed in terms of clauses (b) and (c). Mr. Divan has

placed a great deal of emphasis on the expression “such

circumstances” and “in the opinion” to indicate that the Board

would have a wide discretion to permit withdrawal of an offer even

45

Page 46 though it is not impossible to perform. We are unable to accept

such an interpretation.

43.The term “ejusdem generis” has been defined in Black’s Law

Dictionary, 9

th

Edn. as follows :

“A canon of construction holding that when a general

word or phrase follows a list of specifics, the general

word or phrase will be interpreted to include only items

of the same class as those listed.”

44.The meaning of the expression ejusdem generis was considered

by this Court on a number of occasions and has been reiterated in

Maharashtra University of Health Sciences and Ors. Vs.

Satchikitsa Prasarak Mandal & Ors.

9

The principle is defined

thus :

“The Latin expression “ejusdem generis” which means

“of the same kind or nature” is a principle of

construction, meaning thereby when general words in a

statutory text are flanked by restricted words, the

meaning of the general words are taken to be restricted

by implication with the meaning of the restricted words.

This is a principle which arises “from the linguistic

implication by which words having literally a wide

meaning (when taken in isolation) are treated as

reduced in scope by the verbal context”. It may be

regarded as an instance of ellipsis, or reliance on

implication. This principle is presumed to apply unless

there is some contrary indication [see Glanville

9

(2010) 3 SCC 786.

46

Page 47 Williams, The Origins and Logical Implications of the

Ejusdem Generis Rule, 7 Conv (NS) 119].”

45.Earlier also a Constitution Bench of this Court in Kavalappara

Kottarathil Kochuni vs. State of Madras

10

construed the principle

of ejusdem generis wherein it was observed as follows :

“ …….. The rule is that when general words follow

particular and specific words of the same nature, the

general words must be confined to the things of the

same kind as those specified. But it is clearly laid down

by decided cases that the specific words must form a

distinct genus or category. It is not an inviolable rule of

law, but is only permissible inference in the absence of

an indication to the contrary.”

46.Again this Court in another Constitution Bench decision in the

case of Amar Chandra Chakraborty Vs. Collector of Excise

11

observed as follows :

“. … The ejusdem generis rule strives to reconcile the

incompatibility between specific and general words. This

doctrine applies when (i) the statute contains an

enumeration of specific words; (ii) the subjects of the

enumeration constitute a class or category; (iii) that

class or category is not exhausted by the enumeration;

(iv) the general term follows the enumeration; and (v)

there is no indication of a different legislative intent.”

47.Applying the aforesaid tests, we have no hesitation in accepting

the conclusions reached by SAT that clause (b) and (c) referred to

10

AIR 1960 SC 1080

11

(1972 (2) SCC 444)

47

Page 48 circumstances which pertain to a class, category or genus, that the

common thread which runs through them is the impossibility in

carrying out the public offer. Therefore, the term “such

circumstances” in clause (d) would also be restricted to situation

which would make it impossible for the acquirer to perform the

public offer. The discretion has been left to the Board by the

legislature realizing that it is impossible to anticipate all the

circumstances that may arise making it impossible to complete a

public offer. Therefore, certain amount of discretion has been left

with the Board to determine as to whether the circumstances fall

within the realm of impossibility as visualized under sub-clause (b)

and (c). In the present case, we are not satisfied that

circumstances are such which would make it impossible for the

acquirer to perform the public offer. The possibility that the acquirer

would end-up making loses instead of generating a huge profit

would not bring the situation within the realm of impossibility.

48.We are unable to accept the submission of Mr. Shyam Divan that

clause (d) would permit SEBI to accept the offer of withdrawal even

in circumstances when it has become uneconomical for the

acquirer to perform the public offer. The rule of ejusdem generis as

48

Page 49 defined by this Court in Commissioner of Income Tax, Udaipur,

Rajasthan Vs. McDowell and Co. Ltd.

12

is as follows :

“The principle of statutory interpretation is well known

and well settled that when particular words pertaining to

a class, category or genus are followed by general

words, the general words are construed as limited to

things of the same kind as those specified. This rule is

known as the rule of ejusdem generis. It applies when:

(1) the statute contains an enumeration of

specific words;

(2) the subjects of enumeration constitute a

class or category;

(3) that class or category is not exhausted by the

enumeration;

(4)the general terms follow the enumeration;

and

(5) here is no indication of a different legislative

intent.”

49.Mr. Divan has sought to persuade us that clause (d) in fact

carves out an exception out of the exceptions provided in clauses

(b) and (c). We see no justification in moving away from the Latin

maxim “noscitur a sociis”, which contemplates that a statutory term

is recognized by its associated words. The Latin word “sociis”

means society. It was pointed out by Viscount Simonds in Attorney

General vs. Prince Ernest Augustus of Hanover, (1957) AC 436

that when general words are juxtaposed with specific words,

general words cannot be read in isolation. Their colour and their

12

(2009 10 SCC 755)

49

Page 50 contents are to be derived from their context. Applying the

aforesaid principle, we are unable to stretch the meaning of terms

“such circumstances” from the realm of impossibility to the realm of

economic undesirability. In essence, the submission made

by Mr. Divan is that unless they are allowed to walk away from the

public offer they would have to bear losses which would otherwise

have been shared by the erstwhile shareholders of the target

company. Accepting such a proposition would be contrary to the

aims and objectives of the Takeover Code which is to ensure

transparency in acquisition of a large percentage of shares in the

target company. It would also encourage undesirable and

speculative practices in the stock market. Therefore, we are unable

to accept the submission of Mr. Shyam Divan. Regulation 27(1) (d)

would empower the SEBI to permit withdrawal of an offer merely

because it has become uneconomical to perform the public offer.

50.Mr. Venugopal, in our opinion, has rightly submitted that the

Takeover Regulations, which is a special law to regulate

“substantial acquisition of shares and takeovers” in a target

company lays down a self contained code for open offer; and also

that interest of investors in the present case required that they

should be given an exit route when the appellants have acquired

50

Page 51 substantial chunk of shares in the target company. He has

correctly emphasised in his submissions that the orderly

development of the securities market as a whole requires that

public offers once made ought not to be allowed to be withdrawn

on the ground of fall in share price of the target company, which is

essentially a business misfortune or a financial decision of the

acquirer having gone wrong. SEBI as well as the SAT have

correctly concluded that withdrawal of the open offer in the given

set of circumstances is neither in the interest of investors nor

development of the securities market. Mr. Venugopal is correct in

voicing the apprehension that if on ground of fall in prices, public

offer is allowed to be withdrawn, it could lead to frivolous offers,

being made and withdrawn. This would adversely affect the

interests of the shareholders of the target company and the

integrity of the securities market, which is wholly contrary to the

intent and purpose of the takeover regulations. In such

circumstances, we are unable to agree with the submission of Mr.

Shyam Divan that the order passed by SEBI on 30

th

April, 2007 can

be said to be an order causing civil consequences. The appellants

wanting to withdraw the public offer merely wishes to cut its losses

at the expense of the innocent shareholders, who are entitled

under the Regulations to the exit option. In such circumstances,

51

Page 52 the appellants would have to buy the shares at the quoted prices of

Rs.18.60 per share, placing a financial burden on the appellants.

The aim of the appellants was merely to avoid such an added

burden. This is patent from the plea made by the Merchant

Bankers on 22

nd

September, 2006 on behalf of the appellants. In

the aforesaid application, it is clearly mentioned as under:

“Under the aforesaid circumstances, it is apparent that

SRMTL has lost is substratum, has become a “sick

company” and that chances of lis (sic) survival are

negligible. The pledgee Acquirers while enforcing the

security created earlier (invoking the pledge on the shares

of SRMTL) had triggered Regulation 10 of the Regulations

requiring the Pledgee Acquirers to make the open offer.

However, on account of subsequent knowledge of

development at SRMTL, it is apparent that if this offer is not

withdrawn, the Pledgee Acquirers will be saddled with an

additional burden of over Rs.25 crores. In our view, the

purpose sought to be achieved by operation of the

Regulations is lost in view of the subsequent developments

and hence the Regulations will operate harshly again the

Pledgee acquirers. In view of the changed scenario, it

would be inequitable and unfair to compel the Pledgee

Acquires to proceed with the offer to purchase the shares

of SRMTL from the shareholders of SRMTL in accordance

with the draft Letter of Offer.

In light of the change in circumstances as stated above and

considering the present state of affairs, we now appeal to you

to kindly permit the acquirers to withdraw the offer by using

the powers vested in you in terms of Regulation 27(4) of the

Regulations.”

51.In view of the foregoing reasons, we are not inclined to accept the

submissions of Mr. Divan that the principle of ejusdem generis is

52

Page 53 not applicable for interpreting Regulation 27(1) (d) of the Takeover

Code.

Object of Takeover Code qua the Lenders

52.The next submission of Mr. Shyam Divan is based on

Regulation 3(1)(f) of the Takeover Code, which exempts the banks

and financial institutions from making a public offer where an

acquisition of shares is made in the ordinary course of business, in

pursuance of the pledge of shares made in its favour. It is

submitted that the objective underlying the said provision appears

to be to give an exemption to the creditors who acquire shares to

secure the loan/credit and then invoke the pledge to recover such

credit from the defaulting parties, but not to take over the

management of the target companies. On similar reasoning, the

said objective, as put forward by the learned senior, would be

taken to apply in the case of a private company which gives credit

and acquires shares as pledged in course of the business, since

the object of such private companies is also not to takeover the

management but to secure their loan. It is also submitted that

Regulation 27(1) (d) of the Takeover Code ought to be interpreted

with such latitude to further the said objective of the Takeover

Code.

53

Page 54 53.We are unable to accept the aforesaid submission of Mr. Shyam

Divan. Rather we find merit in the submission of Mr. Venugopal

that Regulation 3(1) (f) (iv) (which exempts the acquisition of

shares by banks and public financial institutions as pledgees, from

the provisions of the Takeover Regulations), does not advance the

case of the appellants any further. Under this regulation, exemption

is provided to certain entities that acquire shares in the ordinary

course of business. The regulation provides exemption from

Regulation 10, 11 and 12 to Scheduled Commercial Banks or

Public Financial Institutions acting as pledgees in the ordinary

course of business, in order to facilitate their business operations.

Such acquisition of shares in normal circumstances is not with the

intention of taking over the target company. The shares are

acquired to protect the economic interest of the banks and public

financial institutions by securing repayment of the loan. Such

acquisitions of shares have nothing in common with acquisition of

shares by an acquirer company such as the appellants seeking to

gain control in the affairs of the target company.

Powers of Respondent under SEBI Act:

54

Page 55 54.Mr. Shyam Divan has further submitted that de hors the Takeover

Regulations/Code, SEBI has wide powers to allow withdrawal of

offer under Sections 11 & 11B of the SEBI Act. To safeguard the

interest of the investors in securities, and also, to regulate the

securities market, SEBI has the power to take whatever steps it

considers appropriate. In this context, the learned senior counsel

relied upon the case of Sahara India Real Estate Corporation

Limited & Ors v. Securities and Exchange Board of India &

Anr.

13

55.We are not inclined to accept the aforesaid submission. In the

aforesaid judgment in Sahara India Real Estate Corporation

Limited (supra) this Court observed as under:

“From a collective perusal of Sections 11, 11A, 11B and

11C of the SEBI Act, the conclusions drawn by the SAT,

that on the subject of regulating the securities market

and protecting interest of investors in securities, the

SEBI Act is a stand alone enactment, and the SEBI’s

powers thereunder are not fettered by any other law

including the Companies Act, is fully justified.

13

(2012) 8 SCALE 101

55

Page 56 56.These observations have been made by this Court to emphasise

that SEBI has all the powers to protect the interests of investors in

securities and also to ensure orderly, regulated, and transparent

functioning of the stock markets. The aforesaid observations would

be of no assistance to the appellants herein who is seeking to walk

away from public offer merely to avoid economic loses. Rather we

agree with the submission of Mr. Venugopal that permitting such a

withdrawal would lead to encouragement of unscrupulous

elements to speculate in the stock market. Encouraging such a

practice of an offer being withdrawn which has become

uneconomical would have a destabilizing effect in the securities

market. This would be destructive of the purpose for which the

Takeover Code was enacted.

Fraud:

57.It is submitted that since fraud vitiates every solemn act, the

withdrawal of the public offer by the appellants ought to have been

allowed. In this regard, reliance is placed upon Ram Chandra v.

Savitri Devi (2003) 8 SCC 319 (Paras 15-30 ).

56

Page 57 58.This submission of Mr. Shyam Divan is wholly misconceived in

the facts and circumstances of this case. In the case of Ram

Chandra (supra), this Court has reiterated the principle laid down

in the case of S.P.Chengalvaraya Naidu (dead) by LRs. vs.

Jagannath (Dead) by LRs. and Ors .

14

The principle was

explained by Kuldip Singh, J. in the following words:

“Fraud avoids all judicial acts, ecclesiastical or

temporal” observed Chief Justice Edward Coke of

England about three centuries ago. It is the settled

proposition of law that a judgment or decree obtained by

playing fraud on the court is a nullity and non est in the

eyes of law. Such a judgment/decree — by the first

court or by the highest court — has to be treated as a

nullity by every court, whether superior or inferior. It can

be challenged in any court even in collateral

proceedings.”

59.It was further held in paragraph 5, as follows:-

“5. The High Court, in our view, fell into patent error.

The short question before the High Court was whether

in the facts and circumstances of this case, Jagannath

obtained the preliminary decree by playing fraud on the

court. The High Court, however, went haywire and

made observations which are wholly perverse. We do

not agree with the High Court that “there is no legal duty

cast upon the plaintiff to come to court with a true case

and prove it by true evidence”. The principle of “finality

of litigation” cannot be pressed to the extent of such an

absurdity that it becomes an engine of fraud in the

hands of dishonest litigants. The courts of law are

meant for imparting justice between the parties. One

who comes to the court, must come with clean hands.

We are constrained to say that more often than not,

14

(1994) 1 SCC 1

57

Page 58 process of the court is being abused. Property-

grabbers, tax-evaders, bank-loan-dodgers and other

unscrupulous persons from all walks of life find the

court-process a convenient lever to retain the illegal

gains indefinitely. We have no hesitation to say that a

person, who's case is based on falsehood, has no right

to approach the court. He can be summarily thrown out

at any stage of the litigation.”

60.In the present case, no fraud has been played on the appellants

as such. The shares were acquired by the appellants on the basis

of an informed business decision. The appellants cannot be

permitted to take advantage of its own laxity to justify seeking

withdrawal of the public offer.

61.Mr. Shyam Divan submitted that SEBI has wrongly concluded

that the fact of the large scale embezzlement in the target

company were existent prior to the exercise of the pledge by the

appellants and, therefore, were “known” or “could have been

known” by the appellants, if the appellants had exercised proper

“due diligence”. He points out that the entire basis and/or the

special circumstances in which the appellants made an application

for permission to withdraw the public offer was on the basis of

certain facts which came to light subsequently i.e. facts which

came in the public domain and/or the knowledge of the appellants,

58

Page 59 only after the appellants exercised its right of pledge and after the

appellants made consequential public announcement. According to

the learned senior counsel, the Sharma Report, which came in

public domain after the public announcement, for the first time

informed the public that through fraudulent transactions, Rs.326

Crores were siphoned off/embezzled by erstwhile promoters of

SRMTL. As soon as the Sharma Report was made public, the

market price of the shares of the target company fell from Rs.18.60

to Rs.8.56. He also emphasised that the Sharma Report also

brought to public notice the Kalyaniwala Report and Sharp Report.

These reports were submitted to the erstwhile Board of Directors of

the target company in 2002. However, these reports were not

made public and in fact were deliberately withheld from the public

in spite of the same being price sensitive. Therefore, according to

Mr. Shyam Divan, the appellants, or for that matter, any person

exercising due diligence and care, could not have and did not know

the existence and nature of the fraud and embezzlements by the

erstwhile promoters of the target company. If the SEBI, the capital

market regulator, with all its infrastructure did not become aware of

the damning indictment of a listed company permitting its

controlling promoters to abuse, misuse and embezzle funds

belonging to investors in the securities market, it cannot rationally

59

Page 60 be accepted that the appellants would have discovered the same

by exercise of due diligence. Mr. Shyam Divan further brought to

our notice the facts which were known at the time of public

announcement and the facts which could not have been known

even after due diligence since the same did not reflect in the

balance sheet and/or financial statement of the target company.

The known facts at the time of public announcement are listed as

under:

“SRMTL had negative net worth;

SRMTL Company was recently faced with poor

financial performance;

Stated reasons for the aforesaid poor performance

and negative net worth was:

(i) Low volume of sales and products;

(ii) Reduced price and lower realization;

(iii) Working capital constraints;

(iv) Higher unabsorbed fixed costs.

Certain Litigations as stated in the Letter of Offer were

pending.”

62.The facts which could not have been known even after due

diligence are stated to be as under:

“Finding of special investigative audit by M/s.

R.C.Sharma & Co., Chartered Accountants as

contained in the three reports;

Unexplained shortfall of cash – cash being siphoned by

those in management.

60

Page 61 Issuance of warrants to Pan Emami Cosmed Ltd in

concert with Emami’s promoters with a view to

fraudulently siphon Rs.2.74 Crores.

Promoters fraudulently appropriating money by sale of

goods to Emami Ltd by creating charge on trade

receivables.

Siphoning of Rs.50 Crores by promoters/directors of

SRMTL through related party transactions “by creating a

fictitious asset procurement case and subsequently

creating false grounds of writing off the same amount in

the books of the Company”.

Rs. 143 Crores of “huge contingent liability is not

disclosed in Balance Sheet as on 31.03.2005.

Systematic embezzlement and siphoning of funds by

promoters director of more than 326 Crores by

fraudulent transactions.”

63.On the basis of the aforesaid, Mr. Shyam Divan submitted that

the conclusion recorded by the SEBI which has been upheld and

approved by SAT is without any factual basis.

64.Mr. Shyam Divan, relying on Regulation 3A which prohibits

dealing in securities of a target company if a person has access to

price sensitive information, submitted that if the appellants were

privy to the contents of the Kalyaniwala and Sharp Reports it would

have been precluded from invoking the pledges, as such action

would constitute “dealing in securities”. It is also submitted by Mr.

Shyam Divan that the expression “due diligence” does not mean

61

Page 62 that the party has to assume the role of amateur detective, nor is

the party obliged to make any enquiries unless it can be

established that there existed any circumstances which should

have aroused any suspicion. It is also submitted that the law laid

down in Marfani and Co. Ltd. vs. Midland Bank Ltd.

15

and Indian

Overseas Bank vs. Industrial Chain Concern

16

which

enumerates the benchmark or standards accepted from a party

while performing the due diligence should be taken into account.

65.We are not much impressed by any of the submissions made by

Mr. Shyam Divan on this issue. Admittedly, the appellants were

aware of the litigation against Shree Ram Multi Tech Limited and

its Directors. The litigation commenced in the year 2003 i.e. before

the public announcement made by the appellants. In fact, the letter

of offer itself refers to the pending litigation by and against the

target company and its directors.

66.In Paragraph 4.17 of the said letter, the appellants mentioned the

cases filed by Banks and Financial Institutions; Cases/Appeals

filed by SRMTL against Banks and financial Institutions; Cases

15

1968 (2) All E.R. 573]

16

1990 1 SCC 484

62

Page 63 filed by the Registrar of Companies in the Court of Additional Chief

Metropolitan Magistrate, Ahmedabad in the matter of non payment

of dividend under Section 205 of the Companies Act, 1956 and the

application filed by the company against Registrar of Companies,

Gujarat in Gujarat High Court in this matter under Section 482 of

the Criminal Procedure Code. The list also mentions a case filed in

the City Civil Court, Ahmedabad by two commercial entities

involving a sum of Rs.14275.47 lacs in the matter of recovery of

dues and alleged claim for damages. The litany of cases also

includes an appeal of SRMTL and its directors before the SAT

against an order of SEBI dated 6

th

September, 2004

restraining the company and few of its directors from accessing the

securities market and prohibiting from buying, selling and dealing

in securities, directly or indirectly, for a period of five years on the

charge of having violated sections 11 and 13 of the SEBI

Regulations, 2003. There were six cases pending against the

target company in the Labour Court, Kalol, (Gujarat) by ex-

employees of the Company in the matter of their dues and

compensation. There were cases pending in relation to Central

Excise. In one case, CEGAT had passed an order on 25

th

February, 2004 claiming duty of Rs.101.81 lacs, fine of Rs.2 lacs

and penalty of Rs.0.20 lacs. Excise duty authorities have in various

63

Page 64 cases raised a demand on target company for an aggregate sum

of Rs.145.90 lacs towards excise duty and Rs.97.02 lacs towards

penalty for various offences. Similarly, excise duty of Rs.1317.65

lacs was demanded as a result of a raid by the Intelligence Officer,

Central Excise, Ahmedabad for non-accounted raw materials.

Undoubtedly, the appeals were pending in the higher fora in a

number of cases. Nonetheless any reasonable investor/group of

investors/consortium would have come to a conclusion that

investing in this entity would not be a prudent decision.

67.Taking into account the aforesaid state of affairs, SAT has

concluded as follows:-

“The above facts would seem to be enough to provide

the appellants a correct prognosis regarding the

financial health and prospects of the target company.

Clearly, the appellants decided on invoking the pledge

on the shares of the target company with open eyes and

sufficient knowledge about the affairs of the target

company. It is not as if the appellants were innocent and

were caught napping in an unexpected turn of events.

We are not, therefore, inclined to accept at its face

value the argument of the appellants that they had no

prior clue about the adverse financial information

relating to the target company and were contained in

the later reports of the Chartered Accountants. In this

view of the matter, the Board was justified in

characterizing the situation that the appellants are faced

with as the result of lack of due diligence and/or sheer

business misfortune. They are only trying to wriggle out

of a bad bargain which is not permissible under

Regulation 27(1) (d) of the takeover code.”

64

Page 65 68.The aforesaid conclusion reached by SAT, in our opinion, does

not call for any interference. ]

69.We are inclined to agree with the submission made by Mr.

Venugopal that the appellants cannot be permitted to wriggle out of

the obligation of a public offer under the Takeover Regulation.

Permitting them to do so would deprive the ordinary shareholders

of their valuable right to have an exit option under the aforesaid

regulations. The SEBI Regulations are designed to ensure that

public announcement is not made by way of speculation and to

protect the interest of the other shareholders. Very solemn

obligations are cast on the merchant banker under Regulation

24(1) to ensure that –

(a) the acquirer is able to implement the offer;

(b) the provision relating to Escrow account referred to in

Regulation 28 has been made;

(c) firm arrangements for funds and money for payment

through verifiable means to fulfil the obligations under the offer

are in place;

65

Page 66 (d) the public announcement of offer is made in terms of the

Regulations;

(e) his shareholding, if any in the target company is disclosed

in the public announcement and the letter of offer.

70.Regulation 24(2) mandates that the merchant banker shall

furnish to the Board a due diligence certificate which shall

accompany the draft letter of offer. The aforesaid regulation clearly

indicates that any enquiries and any due diligence that has to be

made by the acquirer have to be made prior to the public

announcement. It is, therefore, not possible to accept the

submission of Mr. Shyam Divan that the appellants are to be

permitted to withdraw the public announcement based on the

discovery of certain facts subsequent to the making of the public

announcement. In such circumstances, in our opinion, the

judgments cited by Mr. Shyam Divan are of no relevance.

Delay:

71.Mr. Shyam Divan has also indicated that it was because of the

unexplained delay of 8 months on the part of SEBI to process the

Letter of Offer of the appellants that the prices for the shares of the

66

Page 67 target company went down from Rs. 18.60 to Rs. 8.56, during this

period. This would impose huge financial liability on the appellants.

This submission is also wholly misconceived. The submission was

not made before SAT and it has been raised for the first time, in

the submissions made by Mr. Shyam Divan. In fact, the ground is

not even pleaded in the grounds of appeal. The submission is

mentioned only in the list of dates. Since, we are considering a

statutory appeal under Section 15Z of the SEBI Act, the same

cannot be permitted to be raised in this Court for the first time,

unless the submission goes to the very root of the matter. This

apart, even on merit, we find that the submission is misconceived.

Regulation 18(1) and (2) of the SEBI Takeover Code reads thus:-

18. Submission of letter of offer to the Board -

(1) Within fourteen days from the date of public

announcement made under regulation 10, 11 or 12 as the

case may be, the acquirer shall, through its merchant

banker, file with the Board, the draft of the letter of offer

containing disclosures as specified by the Board.

(2) The letter of offer shall be dispatched to the

shareholders not earlier than 21 days from its submission

to the Board under sub-regulation (1):

Provided that if, within 21 days from the date of

submission of the letter of offer, the Board specifies

changes, if any, in the letter of offer (without being under

any obligation to do so), the merchant banker and the

acquirer shall carry out such changes before the letter of

offer is dispatched to the shareholders :

67

Page 68 [Provided further that 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.]”

72.A perusal of the aforesaid regulation clearly shows that the

acquirer is required to file the draft letter of offer containing

disclosures as specified by the Board within a period of 14 days

from the date of public announcement. Thereafter, letter of offer

has to be dispatched to the shareholders not earlier than 21 days

from its submission to the Board. Within 21 days, the Board is

required to specify changes if any, that ought to be made in the

letter of offer. The merchant banker and the acquirer have then to

carry out such changes before the letter of offer is dispatched to

the shareholders. But there is no obligation to do so. Under the

second proviso, the Board may call for revised letter of offer in

case it finds that 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. It

is important to notice that in the first proviso the Board does not

have any obligation to specify any change in the draft letter of offer

68

Page 69 within a period of 21 days. In the present case, in fact, the Board

had not specified any changes within 21 days. We have already

noticed earlier that the letter of offer was lacking and deficient in

detail. The appellants themselves were taking time to submit

details called for, by their merchant bankers through various letters

between 08.08.2005 to 20.3.2006. We have already noticed the

repeated advice given by the merchant banker to enhance the

issue size of the open offer and to comply with other requirements

of the Takeover Regulations. The appellants, in fact, were

prevaricating and did not agree with the interpretation placed on

Regulation 27(1) (d) by the Merchant Banker. We, therefore, reject

the submission of Mr. Shyam Divan that there was delay on the

part of SEBI in approving the draft letter of offer.

Court may direct fresh valuation:

73.Lastly, Mr. Shyam Divan has submitted that even if the appellants

were not to be permitted to withdraw the public offer, the Court

ought to appoint an independent valuer and direct a fresh valuation

to be made on the basis of principles contained in Regulation 20(5)

of the Takeover Regulations. Such a valuation, according to Mr.

Shyam Divan, would be justified in the light of the foregoing

69

Page 70 submissions. We are not at all impressed by the aforesaid

submission. The formula given in Regulation 20 would have no

applicability in the facts and circumstances of this case. The

determination of the lowest price under Regulation 20 would be at

a stage prior to the making of the public announcement and not

thereafter.

74.In view of the aforesaid, we find no merit in the appeal and it is

accordingly dismissed.

……..….………………… J.

[Surinder Singh Nijjar]

………………………… .J.

[Anil R. Dave]

New Delhi;

May 09, 2013.

70