Securities & Exchange Board of India v. Burren Energy India Ltd. & Ors. - (Supreme Court) (02 Dec 2016)

A concluded agreement is not contemplated to be the starting point of offer period

MANU/SC/1553/2016

Capital Market

Challenge in present appeal is to an order of Securities Appellate Tribunal, reversing order of Adjudicating Officer holding Respondents guilty of contravening provisions of Regulation 22(7) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. Tribunal held that, under Regulation 2(1)(f) of the Regulations 'offer period' is clearly defined as period of time between date of entering into Memorandum of Understanding or public announcement, as case may be, and date of completion of offer formalities. Further, when there was no ambiguity or uncertainty in provisions of the Regulations the definition of 'offer period' has to be literally interpreted. Tribunal went into dictionary meaning of expression 'Memorandum of Understanding' and held that, same falls short of a concluded contract. As there was no Memorandum of Understanding between parties, it is the date of public announcement that would trigger of the commencement of the 'offer period'. As appointment of Directors in Target Company was made on 14th February, 2005 and public announcement was made on 15th February, 2005, Tribunal was of view that Respondents cannot be held liable for violating Regulation 22(7) of Regulations, as found by Adjudicating Officer.

In present case, while Burren was acquirer, UBL was person acting in concert. This is evident from letter of offer (public announcement) dated 15th February, 2005. Embargo under Section 22(7) is both on acquirer and a person acting in concert. The expression 'person acting in concert' includes a corporate entity [Regulation 2(1)(e)(2)(i) of the Regulations] and also its directors and associates [Regulation 2(1)(e)(2)(iii) of the Regulations]. In definition of 'offer period' contained in Regulation 2(1)(f) of the Regulations, relevant for present case, a concluded agreement is not contemplated to be the starting point of offer period. But such a consequence must naturally follow once the offer period commences from date of entering into a Memorandum of Understanding which, in most cases would reflect an agreement in principle falling short of a binding contract.

Tribunal was incorrect in reaching its impugned conclusions and in reversing order of Adjudicating Officer. Consequently, order of Tribunal is set aside and that of Adjudicating Officer is restored. Penalty awarded by Adjudicating Officer by order dated 25th August, 2006 shall be deposited in the manner directed within two months.

Relevant : Regulation 22(7), 2(1)(f) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997

Tags : CONTRAVENTION PENALTY REVERSAL OF ORDER