Pramod Jain and Ors. v. Securities and Exchange Board of India - (Supreme Court) (07 Nov 2016)

Public offer, once made, can only be permitted to be withdrawn in circumstances which make it impossible to perform the same

MANU/SC/1421/2016

Capital Market

Present appeal has been preferred under Section 15 Z of Securities and Exchange Board of India Act, 1992 against order dated 6th August, 2014 passed by Securities Appellate Tribunal, Mumbai (the SAT). The SAT upheld order of Securities and Exchange Board of India (SEBI) dated 13th April, 2012 rejecting application of Appellants for withdrawal of public offer to acquire shares of the Golden Tobacco Ltd. in terms of public announcement (PA) dated November 12, 2009 under provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the Takeover Regulations).

There was undue delay on part of the SEBI in dealing with the Draft Letter of Offer (DLO). No doubt, in a given case, timeline prescribed under Regulations may not be adhered to when SEBI justifiably takes time in dealing with the complaints, in present case, stand of SEBI itself is that it could not go into complaints for which right forum was CLB. As regards time taken in dealing with complaints against acquirers, SEBI could have promptly proceeded with the matter. However, mere upholding of finding of SAT on aspect of delay by SEBI is not enough to hold that, Appellants are entitled to withdrawal of public offer. Withdrawal has to be dealt with under Regulation 27, as held by this Court. The general principle is that public offer once made cannot be withdrawn. Exception to the rule is the specified situations under the Regulation as laid down by this Court in decisions particularly in Nirma Industries Limited. In the present case, though SEBI was not justified in causing delay in giving its comments on public offer, this by itself is not enough to justify withdrawal from public offer so long as case does not fall under Regulation 27.

Under scheme of Regulations, public offer has to be made after due diligence (Regulation 22). Obligation of board of directors under Regulation 23 against alienation of assets, issuance of unissued securities carrying voting rights or entering into material contracts is applicable only if approval of general body of shareholders is not obtained. It is clear that under scheme of Regulation 23, there is no bar to a decision with approval of general body of shareholders, if otherwise valid. Question whether unilateral decisions of target company have rendered carrying out of public offer possible, is a question to be decided on facts of each case. In present case, SEBI as well as SAT have concurrently held that, public offer is capable of being carried out and has not become impossible. Assets are available with the target company. Finding has also been recorded about circumstances preceding the public offer and conduct of acquirer which is based on record. The steps for development of the Vile Parle property had already been initiated and acquirer had taken remedies before the CLB against decision of target company and had settled the matter with the target company. It is clear from the scheme of regulations that there is no absolute bar for target company to take decision about its assets, subject to compliance with statutory procedure and subject to decision being otherwise valid. Against any mala fide, illegal or unjustified decision of the target company, remedies at appropriate fora are available to the aggrieved parties. Thus, there is no justification for automatic withdrawal from public offer without clear prejudice to acquirer to extent of rendering carrying out of public offer impossible. Supreme Court upheld concurrent finding of SEBI and SAT that request for withdrawal from public offer was not justified.

Relevant : Nirma Industries Limited vs. Securities and Exchange Board of India, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997

Tags : PUBLIC OFFER WITHDRAWAL REQUEST