ORDER
G.N. Bajpai, Chairman
1. Shri A.R. Dahiya & Associates (hereinafter referred to as ‘the Acquirer’ ) entered into a Memorandum of Understanding (MOU) with V P Garg and Associates(hereinafter referred to as “the erstwhile promoters”) on April 20, 1999 to acquire 9,54,450 shares representing 28.09% shares of the equity capital of Polo Hotels Ltd. (hereinafter referred to as ‘the Target company’) @ Rs.8.50 per share. The shares of the Target company are listed at The Stock Exchange, Mumbai, Delhi Stock Exchange and Ludhiana Stock Exchange.
2. On April 24, 1999 the Acquirer made a public announcement to acquire 20% shares @ Rs.8.75 per share of the Target company pursuant to the MOU dated April 20, 1999 with the erstwhile co-promoters of the Target company in terms of Regulation 10 of SEBI (Substantial Acquisition of Shares and Takeovers ) Regulations,1997(hereinafter referred to as “the Regulations” ).
3. On May 05,1999 the Acquirer submitted the draft letter of offer to Securities and Exchange Board of India ( hereinafter referred to as “SEBI”) through its Merchant Banker , Master Capital Services Limited (hereinafter referred to as “MCSIL”) . In the draft offer document the Acquirer, inter alia, made the disclosure about the financial collaboration agreement entered into between the Acquirer , erstwhile promoter and the Haryana State Industrial Development Corporation (HSIDC) on April 19, 1999 and the details of how the price will be determined at the time of buy-back of shares from HSIDC by the Acquirer. It was also mentioned that the transfer of shares from HSIDC to the Acquirer would be inter-se promoter transfer and hence exempted from an obligation of making Public Offer in terms of the Regulations.
4. SEBI finally cleared the documents vide its letter dated September 30, 1999 advising the Acquirer, inter alia, that the mention of exemption from the Regulations, of transfer of shares from HSIDC to the Acquirer be deleted and it be disclosed in the Letter of offer that the acquisition of shares under the Financial Collaboration Agreement will be governed by the provisions of Regulations in force at that point of time when the acquisition actually takes place.
5. Accordingly, letter of offer was sent to the shareholders of the Target company by the Acquirer containing the disclosures as advised by SEBI. The said offer opened on October 15, 1999 and closed on November 13, 1999. The offer received response from 254 shareholders for 82,400 shares forming 2.42% of the equity capital of the Target company.
6. On 5/11/99, 9/11/99 & 10/11/99 SEBI received complaints from Komlam Sardana inter alia, alleging/ stating :
i) That Acquirer on April 15, 1999 has acquired 3,00,000 Equity Shares of HSIDC for Rs.71,25,466/- i.e. at the rate of Rs.23.75/- per share. Vide letter dated April 15, 1999 the Acquirer acquired the shares from HSIDC and paid the consideration by way of post dated account payee cheques.
ii) That the Acquirer vide its letter dated September 15, 1999 requested HSIDC that due to insufficient cash flow he is not able to make the payment against shares on due dates as stated on post dated cheques but proposed to make the payment in monthly instalment of Rs.5.00 lacs and proposed to submit the revised cheques in case the proposal is accepted.
iii) That under Regulation 20(2)(b) the minimum acquisition prices to acquire the 20% shareholding of public should have been Rs.23.75/- per shares and not Rs.8.75/- as offered by the Acquirer being the minimum price paid for any acquisition.
iv) That the above cheques of Rs 71,25,466 were dishonoured and criminal proceedings were initiated by HSIDC against the Acquirer and the Summons of the Court were intentionally avoided by the Acquirer and the Chief Judicial Magistrate, Chandigarh was constrained to issue warrant against the Acquirer.
v) That the Acquirer has fraudulently concealed all these facts from the public shareholders and has made fraudulent mis-statement as stated elsewhere in the letter of offer. The Acquirer has done so that he can acquire the shares of the public at Rs.8.50/- per share than at Rs.23.75/- as required under the Regulation.
7. Pursuant to the aforesaid complaint received by SEBI, a letter dated 17.11.99 was written by SEBI to MCSIL forwarding the complaint, and seeking its comments on the same.
8. On 2.12.99, SEBI received the application dated 25.11.99 from the Acquirer seeking exemption under Regulation 3(1)(i) in respect of acquisition of shares by the Acquirer from HSIDC. As the said application of the Acquirer was incomplete in so far as the date and price of acquisition was not mentioned and in view of the complaints / court matter, SEBI vide its letter dated 15.12.99 inter alia advised the Acquirer to furnish the details regarding acquisition and not to proceed further with the open offer till further clearance from SEBI.
9. MCSIL vide letter dated 18.12.99 submitted the reply to SEBI’s letter dated 17.11.99 and , inter alia, confirmed that shares from HSIDC have not yet been acquired by the Acquirer.
10. On 29.2.2000, SEBI sought clarifications from MCSIL , inter alia, regarding the non-disclosure of submission of post dated cheques of Rs.71,25,466 by the Acquirer with HSIDC.
11. MCSIL vide letter dated 13.4.2000, inter alia replied that post dated cheques were not issued by the Acquirer to HSIDC as consideration. Further, the fact of post dated cheques having been issued to HSIDC was not brought to its notice by the Acquirers and the due diligence certificates issued by them were in order.
12. On 2.6.2000, SEBI advised HSIDC to clarify as to whether letter dated April 15, 1999 pertains to the buy-back of shares and whether the post dated cheques amounting to Rs.71,25,466/- were deposited with HSIDC as comfort / security for the buy back obligations or towards the purchase consideration of 3,00,000 shares held by HSIDC in the Target company.
13. On 20.7.2000, the Acquirer wrote a letter to SEBI seeking exemption under Regulation 3(1)(i) for acquisition of shares of the Target company from HSIDC in terms of financial collaboration agreement dated 19/4/99 . SEBI vide its letter dated 1.8.2000, inter alia reiterated its earlier decision that the acquisition under financial collaboration agreement by the Acquirer from HSIDC would not be covered under Regulation 3(1)(i) .The Acquirer was further advised that if it so desired, it may seek exemption under Regulation 3(1)(l) read with Regulation 4.
14. HSIDC vide its letter dated 1.08.2000 stated inter alia that the post dated cheques of Rs.71,25,466/- submitted by the Acquirer vide letter dated 15.4.99 were issued strictly towards the purchase consideration of the buy back of 3,00,000 shares held by HSIDC in the Target Company.
15. On 18.8.2000, the Acquirer made an application under sub-regulation (2) of regulation 4 of the Regulations seeking exemption from making public announcement under regulation 10 of the Regulations for the proposed acquisition of 8.83% equity shares of the Target company from HSIDC.
16. In the aforesaid application, the Acquirer, inter alia , submitted that the final approval of HSIDC was obtained on April 19, 1999 and also Financial Collaboration Agreement dated April 19, 1999 was entered into with HSIDC on the same lines and principles as was entered into by HSIDC on January 23, 1993 with erstwhile promoters and the Acquirer categorically being placed in the footing of the erstwhile promoter. Further the Acquirer became the promoters as soon as they signed the Financial Collaboration Agreement dated April 19, 1999 and the position taken by SEBI that inter-se transfer between HSIDC and the Acquirer in terms of Financial Collaboration Agreement dated April 19, 1999 is not covered by Regulation 3(1) (i) is only a technical issue.
17. PANEL RECOMMENDATION
The said application dated 18.8.2000 alongwith letter dated Nil from the Acquirer were forwarded to the Takeover Panel on 31.8.2000 and 5.9.2000 respectively, in terms of sub-regulation(4) of regulation 4 of the Regulations. The Takeover Panel vide its report dated 11.9.2000 recommended, inter alia, as under:
“Taking the totality of circumstances into consideration, though strictly the Acquirers cannot be said to the promoters of the company at par with Vikas Garg & Associates, in view of the facts that –
(i) The Acquirers have undertaken entire responsibilities and obligations of the said Vikas Garg & Associates under the Financial Collaboration Agreement dated January 04, 1993 entered by and between Vikas Garg & Associates and HSIDC;
(ii) The Acquirers have been accepted as 'Promoters' of the Company by HSIDC; (iii) In the offer Documents making Public Announcement for acquisition of 20% of the Share Capital in voting rights of the Company, the Acquirers have made disclosure of the said tripartite Financial Collaboration Agreement dated April 19, 1999 entered with HSIDC; and (iv) The Acquirers are in Control of the Company The Acquirers are to be treated as 'Promoters' and as such, the grant of exemption as sought by the Acquirers is recommended."
18. In view of the following facts which were brought to Takeover Panel’s attention , SEBI vide letter dated 2.11.2000, remitted the exemption application of the Acquirer to the Panel and brought to the attention of Panel for reconsideration:
? While clarifying the queries, raised by SEBI ,the Acquirer claimed that the acquisition in terms of the agreement dated 19.4.99 is a futuristic one.
? HSIDC vide its letter dated 29.6.99 addressed to SEBI, reiterated the aforesaid position regarding the futuristic nature of the agreement. The said agreement was considered by SEBI to be a futuristic agreement for which no margin money deposit or money was paid. The same was, therefore, not considered for the purpose of determination of offer price.
? HSIDC vide its letter dated 1.8.2000 while responding to SEBI’s letter dated 21.6.2000 contrary to its earlier stand, stated that the cheques of Rs.71,25,466/- submitted by the Acquirer vide letter dated 15.4.99 were issued strictly towards the purchase consideration of the buy back of 3,00,000 shares held by HSIDC in the Target company and that they were in no way submitted as ‘comfort’ towards the buy back obligations of the Acquirers.
??Earlier, neither the Acquirer nor the Merchant Banker or HSIDC, informed SEBI about the issuance / existence of the aforesaid post dated cheques or the letter dated 15.4.99.
19. Pursuant to SEBI’s letter dated 2/11/2000, the Panel advised SEBI to seek confirmation from HSIDC regarding issue of post dated cheques being consideration for buyback or comfort / security. Accordingly, letter dated 22/11/2000 was written to HSIDC seeking confirmation as advised by the Takeover Panel.
20. SHOW CAUSE NOTICE
20.1 SEBI vide its letter dated 22.6.2001 has issued a show cause notice to the Acquirer , stating inter alia that :
? the Acquirer has not disclosed the fact of existence of the letter dated 15.4.99 addressed to HSIDC. Moreover the fact of existence of such letter and cheques was also not disclosed to SEBI by the Acquirer while the draft letter of offer in regard to above referred open offer was examined by SEBI, despite protracted correspondence exchanged between SEBI and Acquirer.
? The act of issuance of letter dated 15.4.99 alongwith the post dated cheques reportedly towards purchase consideration for the acquisition of 3,00,000 equity shares of the Target company representing 8.83% of the voting capital of the Target company from HSIDC read with the definition of Acquirer in terms of Regulation 2(1)(b) of the Regulations would be deemed to be an acquisition in terms of the Regulations and the exemption as sought may not be available to the Acquirer.
? The said non disclosure of letter dated 15.4.99 has resulted in violation of Regulation 16(viii) of the Regulations. ? The shares of the Target company being frequently traded in terms of explanation (i) to Regulation 20(3), the price of Rs.23.75/- per share paid for the acquisition of 3,00,000 shares from HSIDC ought to have been considered while determining the price in terms of Regulation 20(2)(b) in regard to the open offer made by the Acquirer. The same has not been considered which has resulted in violation of Regulation 20(2)(b). ? The issuance of letter dated 15.4.99 and post dated cheques amounting to Rs.71,25,466 /-is a material information. The same was concealed from the shareholders by the Acquirer for which he is liable for action in terms of Regulation 45(5) of the Regulations. ? The Acquirer has violated the provisions of Regulation 16(viii), Regulation 20(2)(b) and Regulation 45(5) of the Regulations ? The Acquirer was required to show cause as to why one or more or all actions under Regulation 44 and 45(6) of the Regulations, read with Sections 11B and 24 of SEBI Act, 1992, should not be initiated against him for the violation(s) specified above, including directions under Section 11B of the SEBI Act, such as to make an open offer for 20% of the voting capital of the Target company at a minimum offer price of Rs.23.75/- per share alongwith interest @ 15% p.a. for the period form 15.4.99 to the actual date of payment of consideration in the open offer to be made and to pay the balance amount i.e. Rs.23.75/- plus interest as calculated above minus Rs.8.75/- (already paid) to all the shareholders whose shares have been accepted in the offer made in 1999
21. Pursuant to issuance of Show cause notice by SEBI to the Acquirer, the Acquirer filed a writ petition inter alia praying for stay of operation of Show Cause Notice issued by SEBI. The Hon’ble Punjab and Haryana High Court vide its order dated 3.08.01 stayed the operation of the Show Cause Notice issued by SEBI.
22. Thereafter the Hon’ble Punjab and Haryana High Court vide its order dated May 23, 2003 in C.W.P. Nos. 18085 of 1999, 63, 5462 and 11410 of 2001, inter alia , directed SEBI to hear the petitioners and all other parties including HSIDC. Further, the court also directed that SEBI after the hearing the parties concerned and examining their records, if it so chooses, shall pass final order on or before July 03, 2003.
23. Pursuant to the aforesaid SEBI filed an application for extension of time for passing of order in terms of Hon’ble Courts order dated May 23,2003. Hon’ble Punjab and Haryana High Court vide its order dated 3/07/2003 extended the time for passing of the Order by SEBI upto 3/08/2003.
24. CHAIRMAN HEARING
24.1 Pursuant to the above, the Acquirer vide letter dated 10/06/2003 submitted his reply to the Show cause notice. Thereafter , the Acquirer, HSIDC, MCSIL, R K Gupta (Nominee Director of HSIDC on the Board of Target company) and Komalam Sardana (Complainant) were called by SEBI for hearing on 25/06/03 at its Head Office in Mumbai, in accordance with the Order of the Hon’ble Punjab and Haryana High Court .
24.2 The hearing was held before the Chairman, SEBI. The Acquirer, HSIDC, MCSIL, and R K Gupta (Nominee Director of HSIDC on the Board of Target company) appeared for the said hearing and made their submissions. Ms Komalam Sardana did not appear for the hearing .
25. SUBMISSIONS OF THE ACQUIRER
25.1 The Acquirer vide letters dated nil received on 10/06/2003 & 27/06/2003 inter alia stated that pursuant to the Order dated May 23, 2003 passed by the Hon. High Court of Punjab and Haryana in Civil Writ petition no. 11410 of 2001, the reply is submitted without prejudice to the exemption application being separately submitted under Regulation 3(1) (i) of the Regulations . The Acquirer inter alia made the following submissions :
25.2 The Acquirer had issued post dated cheques to HSIDC not for acquisition of shares from them but as a collateral security for confirming the intentions of the Acquirer to fulfill the buy back guarantee of erstwhile promoters and the same should not be construed as payment towards buy back of shares. The aforesaid observation has arisen on account of mis-representation of facts by HSIDC and Komlam Sardana & ors.
25.3 A cumulative reading of the letter dated 31.03.1999, 15.04.1999 and letter dated 19.04.1999 would reveal that the only intention between the parties was to substitute the personal guarantee rendered by erstwhile promoters for buy-back obligation. The letter dated 19.04.1999 written by HSIDC is categorical to the effect that the HSIDC was accepting the guarantee of the Acquirer and had decided to absolve erstwhile promoters from the obligation of buy-back of equity subject to execution of Assisted Sector Agreement /Financial Collaboration Agreement.
25.4 As a consequence of the deposit of Post dated cheques as collateral security, the Financial Collaboration Agreement dated 19.04.1999 was executed between the parties in which there was no mention of handing over of the post dated cheques by the Acquirer.
25.5 The Financial Collaboration Agreement was futuristic and open ended with first option to the Acquirer to buyback the equity, however, still granting liberty to HSIDC to off load in its equity in open market, in the eventuality of the Acquirer failing to fulfill the buy back obligation.
25.6 In the event of the Acquirer deciding not to exercise the first option of buy back, HSIDC is free to dispose off the shares in a manner it thinks appropriate.
25.7 The price of the equity of the HSIDC was to be determined as on the date of its transfer as per the formula given in Clause 15(a) of Financial Collaboration Agreement. HSIDC in its letter dated 01.06.1999 had specifically admitted that the purchase consideration of the shares under buyback agreement cannot be established as on date. The equity is to be bought back by the promoters at a purchase consideration to be calculated as per the terms contained in Clause 15 of the Financial Collaboration Agreement.
25.8 HSIDC in its letter dated 09.12.1999 itself termed the Post Dated Cheques as security. The letter dated 09.12.1999 read as “In furtherance of the Agreement, you had deposited post dated cheques as security for the said buyback obligation”.
25.9 Even as per the HSIDC the price of the equity of the HSIDC as on 30.11.1999 was 73,65,483 whereas the post dated cheques being handed over as substitution of personal guarantee were only to the extent of 71,25,466.
25.10 The substitution of personal guarantee by deposit of post dated cheques was only an interim measure till the execution of Financial Collaboration Agreement. All the interim measure stood superseded with the execution of the Financial Collaboration Agreement dated 19.04.1999 necessitating the conduct of the parties strictly in terms of the provisions contained in the Financial Collaboration Agreement dated 19.04.1999. The rights of the parties came to be defined by the terms of the Financial Collaboration Agreement and as per the said Financial Collaboration Agreement, the Acquirer and Associates had only the first right to buy-back the equity share holding of HSIDC. Had the post dated cheques been treated as the payment of purchases consideration, there would have been no such clause in the Financial Collaboration Agreement giving an option to the Acquirer for the buy-back. The very fact that the buy-back was “optional” and at a purchase consideration to be determined at the time of transfer of the equity goes to show that post dated cheques were given only a security and not as consideration.
25.11 Even the HSIDC in its communication dated 11.01.2001 admitted that the acquisition of equity HSIDC was not complete and the shares were still existing in the name of HSIDC and lying with HSIDC. The buy-back transaction being an exempt transaction between the Acquirer and State Financial Corporation, the pricing of the buy-back cannot be applied to the pricing of the public offer as the earlier transaction is an exempt transaction. Otherwise the very purpose of Regulation 3 is being defeated.
25.12 The letter dated 15.04.1999 stood superseded and did not find any mention in the offer letter. The existence of the Financial Collaboration Agreement dated 19.04.1999 and the agreement between erstwhile promoters and the Acquirer dated 20.04.1999 has been fully disclosed in the offer letter. The non-mention of the letter dated 15.04.1999 and the issuance of the post dated cheques as security was an act preceding the execution of the Financial Collaboration Agreement and the entire act was rendered redundant subsequently and void and no cognizance of the same need to be taken as it was redundant.
25.13 The highest price paid by the Acquirer is under the agreement dated 20.04.1999 @ Rs 8.75/- and the same very price has been paid in the public offer. The pricing of buy-back, which is yet to be completed, is an exempt transaction and can have no effect to fix the minimum offer price.
25.14 It is denied that the non-disclosure of the letter dated 15.04.1999 and the post dated cheques issued under the said letter violates Regulation 16 (viii) of the Regulations. The buy back transactions of Shares of HSIDC by the Incoming promoters is still pending and accordingly cannot be included in calculating the average price. The said letter did not have any bearing on the Offer and accordingly it was not disclosed and should not be treated as violation of provisions of Regulation 16(viii).
25.15 The letter dated 11.01.2001 has been issued by HSIDC for reasons best known to them and is contradicting their earlier letters and stand and the same is in material deviation from its earlier stand communicated vide letter dated 19.04.1999 and 09.12.1999. It was the case of HSIDC itself that the post dated cheques were given as Security and not towards purchase consideration.
25.16 It is denied that the pricing of buy-back would determine the minimum offer price as per Regulation 20(2) (b) of the Regulations. The buy back transactions between HSIDC and the Acquirer is yet to be completed and the same shall be governed by the provisions of Financial Collaboration Agreement and in the event buy back of shares by the Acquirer from HSIDC, provisions of amended regulation 3(1) (i) will apply and will accordingly be a treated as exempt transaction.
25.17 As per the Financial Collaboration agreement dated 19.04.1999, the buy back was to be completed on or before 30.11.1999. HSIDC started insisting upon us to fulfill the buy back obligations before the expiry of 30.11.1999 and also submit a Proposal for effecting the same. The Acquirer was given to understand that in the event of failure to submit a Proposal for Buy back, HSIDC shall present the Post Dated Cheques for realization, which were lying with them as Security.
25.18 Faced with the above position, the Acquirer submitted a Proposal vide our above letters and requested HSIDC to accept payments in installments of Rs 5 lakhs each as payment towards Buy Back Obligation each starting from Nov. 1999. Still further, since the earlier cheques had been given as Security & that too prior to the execution of the Financial Collaboration agreement dated 19.4.1999 by way of abundant caution, and fear of any adverse or untoward action the Acquirer had requested the HSIDC not to present the Cheques.
25.19 HSIDC having realized that the cheques had been furnished as security and that too prior to the execution of the Financial Collaboration agreement, specifically wrote in their letter dated 9.12.1999 that the cheques had been furnished as security. Further, the Letter dated 9th Dec. 1999 is much after our letters of Sept 1999 and also during the course of Personal hearing the Representative of HSIDC has accepted expressly the contents of letter dated 9th December 1999 and also acknowledged the fact that the Cheques deposited by us were Security as the obligation for buy back was on or before 30th Nov. 1999 and HSIDC was unable to determine the Price as on the date of submission of Cheques.
25.20 As per HSIDC’s admission the Price for shares could not be determined as on 19th April 1999 , ( the date on which the Cheques were submitted by the Acquirer as Security) as the transaction of Buy Back was futuristic and depending on the date of actual conclusion of Buy back, the price had to be determined, which again was on the basis of the Provisions contained in Financial Collaboration agreement.
25.21 The Nominee of HSIDC also admitted that they were unable to determine price at which buy back had to be undertaken and that the Acquirer had paid a tentative price of Rs. 71,25,466 towards the purchase of 3,00,000 shares. They further claimed that they are entitled to recover / claim differential price in terms of Clause 15 (a) of the Financial Collaboration agreement dated 19.4.1999 as on 30.11.1999.
25.22 The contention as raised is self serving as under regulation 16 of SEBI regulations, the contents of public document of offer should contain the price actually paid and not an Obligation to pay a `tentative price payable at a future date and not determinate’. The expression used in the regulation specifically is `paid’ & `not agreed to be paid’ or ‘payable’. Therefore, any price to be determined in future & which cannot be ascertained as on 15.4.1999, cannot be construed as the `price paid’ in terms of the Regulations. It is the conceded case of HSIDC in letters dated 1.6.1999 & 29.6.1999 that the price of Buy back cannot be determined. The post dated cheques which is an event prior to these letters thus cannot be taken as `price paid’. Further, the offer letter specifically stated that the Acquirers had not purchased any shares from HSIDC and this document was available with HSIDC in October 1999.
25.23 The casual attitude and contention of HSIDC, one of the Premier development institute of Country is not capable of being believed and in any case accepted in the eyes of Law and the same if accepted will be a serious breach of principals of natural law and justice. Both the parties to this agreement are governed and bound by the mutually agreed terms and conditions of the Financial Collaboration Agreement and draw their rights title and interest from the interpretation of the conditions. Further, none of the parties can travel beyond the mutually agreed terms.
25.24 The furnishing of guarantee in the form of post dated cheques vide letter dated 15.4.1999 was Subject to execution of Financial Collaboration agreement & not independent of Financial Collaboration agreement nor the Financial Collaboration agreement was in continuance of the letter dated 15.4.1999.
25.25 It is not open for the party to the agreement to contend before any Statutory Body or otherwise that since the agreement is in a Standard format the interpretation of the same may vary at different point of time. The admission of HSIDC that the Financial Collaboration Agreement was in a Standard Format does not by any stretch of imagination alter the contents and the rights, titles and interests thereon .In light of this, we reiterate that the Buy back and transactions related to it are and will be governed by the Financial Collaboration Agreement in general and Clause 15 in particular.
25.26 Attention is invited to the notification dated September 09, 2002 issued by SEBI, wherein an “Acquirer” is exempt from the applicability of Regulations 10, 11 and 12 under the Regulation 3(1) (i) of the Regulations.
25.27 In the case of our Company, the Exemption Application submitted by the Acquirer dated August 18, 2000 before SEBI is still pending disposal.
25.28 The amendment notification dated September 09, 2000 in Clause (i) of Regulation 3 wherein it is provided that the Co-Promoters of the Company or their successors or assignees or an Acquirer who has substituted an erstwhile promoter shall be exempt from the applicability of provisions of Regulation 10, 11 and 12.
25.29 In the instant case, the buy back transaction between Co-Promoter / Acquirer and HSIDC, a Financial Institution, is an exempt transaction under Regulation 3 and has no bearing on the price paid or payable for Open offer for acquisition.
25.30 Further, the pricing of the transfer of shares from a State level institution to a Co promoter/Acquirer is to be determined based on provisions and formula contained in the agreement entered inter-se. The equity contribution of state financial institution is in the form of a Quasi Loan and the pricing thereof cannot be considered as the benchmark for Offer price for the public.
26. ISSUE
26.1 I have taken into consideration, inter alia, the application dated 18/08/2000, the submissions made by the Acquirer during the hearing dated 25/06/03 , submissions made vide letters dated nil received on 10/06/2003 & 27/06/2003 ,the facts of the case and documents available on record and also the recommendations of Takeover Panel.
26.2 In the facts of the case, the following issue arises which needs consideration:
Whether the issue of post dated cheques to HSIDC should have been considered while arriving at the offer price in the public offer made by the Acquirer on 24/4/99 in terms of provisions of Regulation 20.
27. CONSIDERATION OF ISSUE
Whether the issue of post dated cheques to HSIDC should have been considered while arriving at offer price in the public offer made by the Acquirer on 24/4/99 in terms of provisions of regulation 20.
28. At the outset, it will be pertinent to advert to the relevant dates as available :
31/3/99
The erstwhile promoters
wrote to HSIDC for replacement of personal guarantee for buy-back of shares
from HSIDC. In the letter, it was inter-alia stated that the Acquirer has
agreed to furnish his personal guarantee for buy-back of 3.00 lac equity
shares of the Target company held by HSIDC.
15/4/99
The Acquirer wrote a
letter to HSIDC stating, inter-alia that they are taking over the complete
management of the Target company and they confirm that they are prepared to
buy-back the equity holding of HSIDC as stated under Assisted Sector
Agreement in place of erstwhile promoters on similar terms and conditions. However,
since the buy-back is due only in April, 1999 and due to tight liquidity
position, they requested HSIDC to allow them to make the payment in respect
of buy-back in monthly instalments of Rs.20.00 lacs each starting from
September 1999. Postdated cheques in respect of buy-back obligation were enclosed
as detailed below:
Cheque No.
Date
Amount
Bank’s Name
206835
25.9.99
20,00,000
Canara Bank, Panchkula
206836
25.10.99
20,00,000
Canara Bank, Panchkula
206837
25.11.99
20,00,000
Canara Bank, Panchkula
062424
25.11.99
11,25,466
Bank of Punjab Ltd
The Acquirer requested HSIDC
to absolve the original promoters from the buy-back obligation and to allow
the change in management in their favour for which they shall be signing a
fresh Assisted Sector Agreement. They also confirmed that they shall make the
balance payment at the time of final settlement.
19/4/99
A Financial Collaboration
Agreement was entered into between HSIDC , the Acquirer and the erstwhile
promoters wherein the Acquirers stepped into the shoes of the erstwhile
promoters and took-over their
rights and obligations as stated in the Original Assisted Sector Agreement dated
4/1/93.
Further the agreement also
provided for buy-back of shares held by HSIDC in the Target company on or
before 30th November 1999 by the Acquirer and the discharge of
erstwhile promoters from the buy-back obligation arising out of original Assisted
Sector Agreement dated 4/1/93.
19/4/99
HSIDC wrote a letter to
the erstwhile promoters in reply their letter dated 31/3/99 stating, inter-alia
that HSIDC has considered the request of the erstwhile promoters and are
agreeable in principle for the change of management and absolving the
erstwhile promoters from the obligation for buy-back of equity shares subject
to the Assisted Sector Agreement / Financial Collaboration Agreement being
signed by the Acquirers.
19/4/99
The Associates of the
Acquirer viz Amardeep Singh Dahiya, Pankaj Dahiya & S B Rathee in
consideration of HSIDC having agreed to allow transfer of management /
shareholding held by the erstwhile promoter in the
Target company agreed and undertook to abide by and be bound by all the terms
and conditions stipulated in the Financial Collaboration Agreement dated
19/4/99. The associates of the Acquirer also undertook that they shall be
jointly and severally bound to purchase the equity shares of the face value
of Rs.30.00 lacs subscribed by HSIDC in the Target company in accordance with
clause 15 of the Financial Collaboration Agreement.
20/4/99
The Acquirer entered into agreement with the erstwhile
promoter for acquisition of 9,54,450 fully paid equity shares constituting
28.09% of the paid-up capital of the Target company at Rs.8.50 per equity
share.
20/4/99
The Acquirer made a public announcement to the
public shareholders of the Target company for acquisition of 20% shares
pursuant to Memorandum of Understanding dated 20/4/1999 entered into by the
Acquirer with the erstwhile promoter of the Target company in terms and
regulation 10 of the regulations.
5/5/1999
The Acquirer submitted
draft letter of offer with SEBI. In the draft letter of offer while giving
the features of the Financial Collaboration Agreement it was disclosed that inter
se transfer of shares from State level financial institution is exempt from obligation
of making public offer under Regulations .
26/5/99
SEBI , inter alia,
advised the Acquirer to disclose the price at which the Acquirer proposes to acquire
the shares from HSIDC as per the Financial Collaboration Agreement and if
this price is higher than the offer price ,to justify the offer price in terms
of Regulation 20(6) .
29/6/99
HSIDC wrote a letter to
SEBI wherein it was, interalia, stated that the disinvestment as well as consideration
amount payable by the Acquirer can be decided only on the date of actual
transfer of shares as the financial collaboration agreement is futuristic,
open ended with first buy back option with the Acquirer.
31/5/99
Reply of MCSIL inter
alia stating that the price to be paid to HSIDC cannot be determined today,
it cannot be considered
for pricing under Regulation 20.
15/9/99
(copy of letter forwarded by the complainant Komal
Saldhana vide letter dated 23/1/2001), the Acquirer wrote a letter to HSIDC,
inter-alia, stating that due to general recession in the market their
cashflow at present is not sufficient to make the payments as proposed
earlier for buying back the equity shares of the Target company. However,
they have reworked anticipated cashflow and proposed to make monthly payments
of Rs.5.00 lac each starting from the month of Nov’99. In case, the proposal
is approved, the Acquirer shall submit the revised cheques to HSIDC. The
Acquirer also requested HSIDC not to present the cheque dated 25/9/99 and
other cheques issued to HSIDC pending the approval of the revised proposal as
the Acquirer shall not be able to mobilize the funds immediately.
30/09/1999
In view of the futuristic nature of Financial
Collaboration Agreement entered into between the HSIDC ,SEBI conveyed its
comments on the draft letter of offer and advised the Merchant Banker to the
offer, inter-alia, to incorporate a
statement that acquisition under the Financial
Collaboration Agreement would be governed by the provisions of the Takeover
Regulations in force at that point of time.
9/12/99
HSIDC wrote a letter to the Acquirer wherein, it
was, inter-alia, stated that the post dated cheques were deposited by the
Acquirer in furtherance of the financial collaboration agreement dated
19/4/99 as security for the said buy back obligation.
2/6/2000
SEBI wrote a letter to HSIDC advising it to
clarify whether a letter dated 15/4/99 pertain to the buy-back of shares and
whether the postdated cheques amounting to Rs.71,25,466/-were deposited with
HSIDC as comfort / security by the buy-back obligations or towards the
purchase consideration of 3.00 lac shares held by HSIDC in the Target
company.
1/8/2000
HSIDC replied to SEBI’s letter dated 2/6/2000 and
it was, interalia, stated that the cheques of Rs 71,25,466/-submitted by the
Acquirer vide letter dated 15/4/99 were issued strictly towards the purchase
consideration of the buy back of 300000 shares held by HSIDC in the Target
company.
The purchase consideration was arrived at in
accordance with assisted sector agreement dated 4/1/1993 and the details of
the calculations are as follows :
Due date
19.4.99
Amount due on 19.4.99
65,57,081/-
Detail of PDC’s :-
Calculation of Amount & interest after
deducation of PDC”s:-
Due as on 19.4.99
65,57,081.00
20% interest on 65,57,081/- from 20.4.99 to
24.6.99=66 days
2.37.133.00
67,94,214.00
Less : PDCNo. 206824 dated 25.6.99 drawn on Canara
Bank*
10,00,000.00
57,94,214.00
20% intt. On 57,94,214/- from 25.6.99 to 24.7.99 =
30 days
95,247.00
58,89,461.00
Less : PDC No. 206825 dated 25.7.99 drawn
10,00,000.00
on Canara Bank*
48,89,461.00
20% intt. On 48,89,461/- from
25.7.99 to 24.8.99 = 31 days
83.054.00
49,72,515.00
Less : PDC No.206826 dated
25.8.99 drawn on Canara Bank*
10.00.000.00
39,72,515.00
20% intt. On 39,72,515/- from
25.8.99 to 24.9.99 = 31 days
67,478.00
40,39,993.00
Less : PDC No.206827 dated
25.9.99 drawn on Canara Bank*
10,00.000.00
30,39,993.00
20% intt. On 30,39,993/- from
25.9.99 to 24.10.99 = 30 days
49.972.00
30,89,965.00
Less : PDC No.206828 dated
25.10.99 drawn on Canara Bank*
10,00.000.00
20,89,965.00
20% intt. On 20,89,965/- from
25.10.99 to 24.11.99 = 31 days
35,501.00
21,25,466.00
Less : PDC No.206829 dated
25.11.99 drawn on Canara Bank*
10.00.000.00
11,25,466.00
Less : PDC No.062424 dated
25.11.99 drawn on Canara Bank*
11,25.466.00
NIL
* Panchkula
** Chandigarh
This is evident from the fact
that the last cheque dated 25/11/1995 for Rs. 11,25,466 was submitted by the
Acquirer keeping in view the time to be taken for clearing of the last cheque
as the extension given for the period of buy-back of equity was up to 30./11/99
as set out in the tripartite agreement. As such these cheques were nowhere
submitted for the buy-back obligation which was rather mandatory on
the part of the Acquirer. It
can be seen from the letter dated 15/4/99 of the Acquirer that the cheques
were not given as security but as payment of purchase consideration. The
calculation of buy-back amount towards which the Acquirer had earlier
deposited postdated cheques were made as per the actual amount of buy-back as
on 25/11/99 which is the
issue date of the last cheque.
22/11/2000
SEBI advised HSIDC to inform
its final stand on the issue of postdated cheques in view of the fact that
HSIDC has been taking different stand regarding the said acquisition, i.e .
first it has stated that the acquisition is futuristic and the price of the said
acquisition could be decided only at the time of actual transfer : then it
has stated that post dated cheques (for Rs 71.25 lacs @ Rs 23.75 per share
for 300000 shares) were issued as Security and in the last letter dated
1/8/00, HSIDC has categorically stated that the post dated cheques given on
15/4/99 were towards purchase consideration of 300000 shares and not as
security/comfort.
11/1/2001
In reply to SEBI’s letter dated
22/11/00, HSIDC, inter-alia,
stated that the cheques of Rs.
71,25,466, submitted by the Acquirer vide its letter dated 15/4/99 were
issued strictly towards the purchase consideration of buy-back of
shareholding held by HSIDC in the equity of Target company as setout in the
tripartite agreement dated 19/4/99(i.e. the cut-off date of buy-back as
extended upto 30/11/00) when read with the Assisted Sector Agreement dated
4/1/93 executed between the erstwhile promoter and HSIDC. HSIDC categorically
denied that the cheques in question submitted by the Acquirer on 15/4/99 were
given as comforts and as such it again reiterated its stand that these
cheques were deposited with HSIDC towards the purchase consideration of the
shareholding, held by HSIDC in the Target company. Further, HSIDC also informed
that on dishonoring of all the cheques and after following the due procedure,
HSIDC has initiated criminal suits against the Acquirer which are pending in
the court of law. Besides, HSIDC also invoked clause 15(d) of the tripartite
agreement regarding the appointment of MD of HSIDC’s choice vide its
show-cause notice dated 9/12/99 because of the Acquirer having gone defaulter
with respect to the buy-back dues. It also submitted that while staying the
operation of the said show-cause notice the court has directed the Acquirer
to deposit Rs.36.50 lacs being 50% of the total amount payable towards
purchase consideration of the buyback of equity held by HSIDC. However, the
transfer of shares to the Acquirer would be effected only on receipt of the
balance amount plus interest thereon.
28.1 Before dealing with the issues it will be pertinent to advert to the relevant provisions of the Regulations.
28.2 Regulation 2(1) (b) “Acquirer means any person who directly or indirectly acquires or agrees to acquire shares or voting rights in the Target company or acquires or agrees to acquire control over the Target company either by himself or with any person acting in concert with the Acquirer.”
28.3 Regulation 16 – The public announcement referred to in Regulation 10, 11 or 12 shall contain the following particulars :
(i) ………
(viii) the highest and the average price paid by the Acquirer or persons acting in concert with him for acquisition if any, of shares of the Target company made by him during the twelve months period prior to the date of public announcement.
28.4 Regulation 20(2) (b) For the purpose of sub-regulation (1), the minimum offer price shall be the highest of –
(a) …………………..
(b) Highest price paid by the Acquirer or persons acting in concert with him for any acquisitions, including by way of allotment in a public of rights issue, if any, during the 26 week period prior to the date of public announcement.
29. I have carefully considered the submissions of the Acquirer and my findings are as given hereunder.
30. The Acquirer contended that it had issued post dated cheques to HSIDC not for acquisition of shares from them but as a collateral security for confirming the intentions of the Acquirer to fulfill the buy back guarantee of erstwhile promoters and the same should not be construed as cheques issued for payment towards buy back of shares. Further the only intention between the parties was to substitute the personal guarantee rendered by erstwhile promoters for buy-back obligation.
30.1 In this context, it is observed that letter dated 15/4/1999 as reproduced hereinbefore speaks otherwise. As per the aforesaid letter the Acquirer had requested HSIDC to allow it to make payment in respect of buy back in monthly instalments of Rs.20.00 lac each starting from September 1999. Further, the Acquirer had also deposited the postdated cheques in respect of its buy back obligation for an amount of Rs.71.25 lacs . It is also observed that the aforesaid letter nowhere states that the postdated cheques are given as collateral security for confirming the intention of the Acquirer for the buy back obligation . On the contrary the Acquirer has clearly stated that the postdated cheques for an amount of Rs 71.25 lacs are towards their buy back obligation. Further, I find, there is no mention in the aforesaid letter, of substitution of the personal guarantee rendered by the erstwhile promoters by the Acquirer, for buy back obligation by way of depositing of postdated cheques by the Acquirer as contended. It is also observed that the buy back obligation was already due in terms of original Assisted Sector Agreement dated 4/1/93 and it was only due to tight liquidity position of the Acquirer, that the Acquirer requested HSIDC that the consideration amount be paid by it from September 1999 onwards. It is also observed that the HSIDC , during the hearing on 25/6/03 stated that there was no substitution of personal guarantee of erstwhile promoter by the Acquirer when it submitted post dated cheques vide letter dated 15/4/99. Further, the Associates of the Acquirer had given buy back undertakings vide letter dated 19/4/99 and these undertakings were supplemental to the financial collaboration agreement signed on 19/4/99. Further, it was also stated that the buy back undertakings were akin to a guarantee and were in substitution to the similar undertakings from the erstwhile promoter and therefore the contention of the Acquirer that the postdated cheques submitted on 15/4/99 were as guarantee is totally false as HSIDC obtained undertakings/guarantees on 19/4/99. Further HSIDC has also stated that the post dated cheques were accounted for in its books as advance towards buy back consideration for the equity shares of the Target company. From the aforesaid it is clear that the post dated cheques were not given as collateral security but were given towards the payment of consideration amount. Further if these cheques were given as collateral security to HSIDC as interim measure till the execution of the Financial Collaboration Agreement why these cheques were not taken back by the Acquirer from HSIDC after 19/4/99.
30.2 In view of the contents of letter dated 15/4/99 wherein no mention of post dated cheques being given as collateral security is stated and undertaking/guarantee given by the Associates of the Acquirer dated 19/4/99, I do not find merit in the submission of the Acquirer that the postdated cheques were given as collateral security and were in substitution of personal guarantee of erstwhile promoters.
31. I have noted the contention of the Acquirer that not only the Financial Collaboration Agreement was silent with regard to handing over of cheques, but also the Financial Collaboration Agreement was futuristic and open ended with first option to the Acquirer to buyback the equity . Further, the price of the equity of the HSIDC was to be determined as on the date of its transfer as per the formula given in Clause 15(a) of Financial Collaboration Agreement .
31.1 I find that the consideration amount of Rs.71.25 lacs was already arrived at between the parties i.e. the Acquirer and HSIDC. HSIDC vide its letter dated 1/8/2000 has submitted to SEBI the elaborate calculations of the consideration amount as submitted by. I also find that the letter dated 15/4/1999 also referred to payment of consideration by the Acquirer to HSIDC for the amount of Rs.71.25 lac which is the amount calculated by HSIDC also. From the submission of post dated cheques for an amount of
Rs.71.25 lacs by the Acquirer with HSIDC and in view of the fact that the said cheques cannot be considered as collateral security for the reasons stated hereinbefore , it is clear that the amount of consideration to be paid by the Acquirer was already worked out and agreed to between the parties. Therefore, I find no merit in the contention of the Acquirer that the Financial Collaboration Agreement was futuristic in nature and open ended. Further from the facts of the case before me, consideration amount was already arrived at and the same was agreed to be paid by the Acquirer from Sep 99 onwards by way of post dated cheques. I agree that the Financial Collaboration was silent about the issue of post dated cheques, but from the chronology of events as stated hereinbefore it is evident that the Financial Collaboration Agreement was in continuation of the letter dated 15/4/99 and both are to be read together. Further in light of contents of letter dated 15/4/99 and specific assertions of HSIDC vide its letter dated 1/8/2000 supported by elaborate calculation for arriving at the figure of 71.25 lacs , I find that the consideration amount was already arrived at between HSIDC and the Acquirer.
32. The Acquirer argued that the substitution of personal guarantee by deposit of post dated cheques was only an interim measure till the execution of Financial Collaboration Agreement. Further all the interim measure stood superseded with the execution of the Financial Collaboration Agreement dated 19.04.1999 necessitating the conduct of the parties strictly in terms of the provisions contained in the Financial Collaboration Agreement dated 19.04.1999. Further, the furnishing of guarantee in the form of post dated cheques vide letter dated 15.4.1999, by the Acquirer was subject to execution of Financial Collaboration Agreement & not independent of Financial Collaboration agreement nor the Financial Collaboration agreement was in continuance of the letter dated 15.4.1999.
32.1 It is observed that the postdated cheques issued vide letter dated 15/4/1999 were not in substitution of personal guarantee of the erstwhile promoters as contended by the Acquirer. The same is evident from the undertaking/guarantee given by the Associates of the Acquirer to HSIDC on 19/4/1999. Further, it is also not true that the postdated cheques were given as interim measure till the execution of Financial Collaboration Agreement and that on execution of the Financial Collaboration Agreement on 19/4/1999 the interim measures stood superseded. It is stated that if the postdated cheques were given as interim measure as contended by the Acquirer then why were these postdated cheques not taken back by the Acquirer from HSIDC. Further, why did the Acquirer request HSIDC for submitting the revised post dated cheques vide its letter dated 15/9/99. From the contents of the letter dated 15/9/99 written by the Acquirer to HSIDC , I observe that the stand taken by the Acquirer that the postdated cheques were superseded on execution of Financial Collaboration Agreement is an afterthought. In terms of the aforesaid letter the Acquirer then stated that if the proposal as suggested by the Acquirer is approved by HSIDC then he shall submit the revised cheques to HSIDC. From the aforesaid contents of the letter dated 15/9/99, it is evident that the issue of submission of postdated cheques, by way of buy back consideration, was not superseded after signing of the Financial Collaboration Agreement as contended now and both the parties viz. the Acquirer and HSIDC were of the same understanding and in continuation of the letter dated 15/4/99, the letter dated 15/9/99was written by the Acquirer to HSIDC. Therefore, the contention of the Acquirer is baseless and misleading and is contrary to the facts and material available on record. Further the Financial Collaboration Agreement has to be read along with letter dated 15/4/99 which provides for payment of buy back consideration by the Acquirer to HSIDC and the Financial Collaboration Agreement cannot be read independently dehors of letter dated 15/4/99. Further in the letter dated 15/4/1999 there is nothing which states that the post dated cheques were given by way of guarantee by the Acquirer and that the submission of postdated cheques is subject to execution of Financial Collaboration Agreement. The letter dated 15/4/1999 simply states that the Acquirer requested HSIDC to allow the Acquirer to make the payment in respect of buy back in monthly instalments and to absolve the erstwhile promoter and to allow the change in management of the Target company in Acquirers favour for which the Acquirer shall be signing a fresh Assisted Sector Agreement.
32.2 From the collective reading of letters dated 15/4/99, Financial Collaboration Agreement dated 19/4/99 and letter dated 15/9/99 , it is clear that the postdated cheques issued vide letter dated 15/4/99 were not given as an interim measure and were not to be superseded on execution of the Financial Collaboration Agreement.
33. It has been stated by the Acquirer that the acquisition of equity shares held by HSIDC was not complete as the shares were still existing in the name of HSIDC and lying with HSIDC. Thus the post dated cheques cannot be termed as payment towards purchase consideration.
33.1 However, irrespective of the facts that whether the acquisition of equity shares of the Target company held by HSIDC was complete or not, the fact that the Acquirer and HSIDC had already ascertained the consideration amount of Rs.71.25 lacs towards the buy back obligation of the Acquirer is evident from letter dated 15/4/99 and also from the subsequent submission of calculation chart as reproduced hereinbefore for arriving at the consideration amount by HSIDC vide its letter dated 1/8/2000.
33.2 Further it is also to be noted that the question here is not whether the shares were transferred in name of Acquirer or not but whether the consideration amount was ascertained by both the parties towards the buy back obligation for acquisition of shares. From the facts available on record, it is clear that the consideration amount had already been arrived at between the parties and only the actual payment was agreed upon to be paid after a lapse of some months i.e. from September 1999 onwards instead April 1999 (the month when the amount was actually due in terms of the original Assisted Sector Agreement dated 4/1/93 ) , owing to the tight liquidity position of the Acquirer
34. The Acquirer maintained that the non-mention of the letter dated 15.04.1999 and the issuance of the post dated cheques as security , in the letter of offer, was an act preceding the execution of the Financial Collaboration Agreement and the entire act was rendered redundant subsequently and no cognizance of the same need to be taken as it was redundant. Further it was in these circumstances that the letter dated 15/04/1999 and the issuance of post dated cheques was not mentioned in the offer letter. Further , that the non-disclosure of the letter dated 15/04/1999 and the post dated cheques issued under the said letter did not violate Regulation 16 (viii) of the Regulations and also the buy back of shares of HSIDC by the Acquirer is still pending and accordingly cannot be included in calculating the average price.
34.1 I find that as stated herein before the letter dated 15/4/99 cannot become redundant on execution of Financial Collaboration Agreement. From the facts available on record it is observed that SEBI had while vetting the draft letter of offer vide its letter dated 26/5/99 advised MCSIL to disclose the price at which the Acquirer proposes to acquire the shares from HSIDC as per the Financial Collaboration Agreement and if this price is higher than the offer price ,to justify the offer price in terms of Regulation 20(6) . The rationale for such query was that if any price for purchase of shares by the Acquirer was already fixed by the parties for transfer which was to take place on or before 30/11/99, then such purchase price, if it was higher than the offer price, should be made payable to the shareholders of the Target company also in consonance with the provisions of the Regulation 20(2)(b).
34.2 But in reply MCSIL vide letter dated 31/5/99 inter alia stated that the price to be paid to HSIDC cannot be determined today, it cannot be considered for pricing under Regulation 20. Further, HSIDC also vide its letter dated 29/6/99 to SEBI , inter alia, stated that the disinvestment as well as consideration amount payable by the Acquirer can be decided only on the date of actual transfer of shares as the financial collaboration agreement is futuristic, open ended with first buy back option with the Acquirer.
34.3 Now, as per the facts available on record, it is apparent that the Acquirer has not disclosed about the submission of post dated cheques for Rs. 71.25 lacs with HSIDC as payment towards consideration. Such crucial non-disclosure by the Acquirer has impinged upon the rights of the shareholders of the Target company as such nondisclosure has seriously impacted the offer price.
34.4 It is observed that the public offer made by the Acquirer to the shareholders of the Target company on 24/4/99 was at Rs.8.75/- per share whereas on 15/4/99 the Acquirer had paid Rs.23.75/- per share to HSIDC towards consideration for meeting its buy back obligations. Had this fact been disclosed to SEBI when the draft letter of offer was sent to SEBI, then the offer price to the public shareholders would have been Rs.23.75/- per share instead Rs.8.75 /-per share. It is also observed that in the public offer made by the Acquirer on 24/4/1999 only 2.42% of the shareholders of the Target company participated. Further, the non-disclosure of the letter dated 15/4/1999 despite the specific query by SEBI regarding the same results in serious violation of the provision of the regulations and amounts to misleading by the Acquirer. It may also be stated that if at all it was the understanding of the Acquirer that the letter dated 15/4/99 has become redundant on execution of Financial Collaboration Agreement, the same could have been submitted by the Acquirer before SEBI and SEBI would have decided accordingly. But by choosing not to disclose to SEBI such an important disclosure knowing full well its consequent impact on the offer price the Acquirer has deliberately withheld the information regarding submission of post dated cheques as consideration to HSIDC and misled SEBI. Further, the Acquirer has violated regulation 16(viii) and has denied the shareholders of the Target company a right to take an informed decision in the public offer dated 24.4.99 and to participate in the offer and avail the exit opportunity.
34.5 Further, I find that in view of such non-disclosure by the Acquirer, the public offer made by the Acquirer on 24.4.99 was not in accordance with the provisions of the Regulations and suffered from grave infirmity as the offer price was not correct as stated hereinbefore.
34.6 I do not find merit in the submission of the Acquirer that the buy back of shares of HSIDC is still pending and the same cannot be included in calculating the offer price. In terms of Regulation 2(1)(b), the Acquirer is defined as any person who acquires or agrees to acquire shares/ voting rights in the Target company either by himself or with any person acting in concert with him. Thus, the issuance of post dated cheques by the Acquirer to HSIDC towards payment of consideration for acquisition of shares of Target company would be deemed to be an acquisition in terms of the Regulations, and it was incumbent upon the Acquirer to disclose the same in the public announcement dated April 24, 1999.
35. The Acquirer has alleged that HSIDC is contradicting their earlier letters and stand and the same is in material deviation from its earlier stand communicated vide letter dated 19.04.1999 and 09.12.1999.
35.1 In this context, I find that deviation in stand by HSIDC cannot change the facts as is evident from the correspondence / material available on record. On the independent examination by the SEBI of the correspondence exchanged, inter alia, between Acquirer and HSIDC, it is evident that the consideration amount was already agreed upon between the parties and the same was not disclosed to SEBI despite the specific queries made by SEBI to both the parties. Consequently, both the Acquirer and HSIDC are guilty of suppressing the material facts pertaining to the buy back and misguiding SEBI and in the process both the parties have jeoparadised the interest of shareholders of the Target company as the offer price of Rs.8.75/- per share offered to the shareholders of the Target company for exiting from the Target company was much below the price of Rs.23.75/- per share in accordance with Regulation 20 ( which would have been payable to the shareholders of the Target company in the public offer dated 24/4/99 had the letter dated 15/4/99 been disclosed to SEBI) agreed to be paid by the Acquirer to HSIDC for enabling it to exit from the Target company.
36. Further the Acquirer contended that under regulation 16 of SEBI regulations, the contents of public document of offer should contain the price actually paid and not an Obligation to pay a `tentative price payable at a future date and not determinate’. The expression used in the regulation specifically is `paid’ & `not agreed to be paid’ or `payable’. Therefore, any price to be determined in future & which cannot be ascertained as on 15.4.1999, cannot be construed as the `price paid’ in terms of the regulations.
36.1 In this context, I am of the view that the contention of the Acquirer that the price was not ascertained or determined on 15/4/1999 and the same cannot be construed as the price paid in terms of the regulations is not tenable in view of the fact that on 15/4/1999 the Acquirer and HSIDC had already ascertained the consideration amount of Rs.71.25 lacs payable by the Acquirer in consonance with the calculation arrived at by HSIDC and agreed to by the Acquirer as stated hereinbefore. Further, the letters dated 15/4/1999 and 15/9/1999 of the Acquirer and the letters dated 1/8/2000 & 11/1/2001 of HSIDC clearly fortifies this stand. In view of the aforesaid, there was nothing as far as price was concerned, which remained to be determined in future.
36.2 Further, I do not find merit in the submission of the Acquirer that the word used in Regulation 16 is ‘paid’ and not ‘agreed to be paid’. The words used in the regulations are to be given a purposive interpretation in consonance with the legislative intent behind the framing of the Regulations. It may be stated that Regulation 16 which pertains to the contents of the public announcement of offer inter alia states the disclosures which are required to be made by the Acquirer. The legislative intent behind such disclosures by the Acquirer in the public announcement is to enable the shareholders of the Target company to take an informed decision in terms of availing the exit opportunity from the Target company. Further, it is incumbent upon the Acquirer to disclose the details viz. price, quantum, etc. regarding the acquisition of shares of the Target company by the Acquirer during the twelve months period prior to the date of public announcement. The aforesaid disclosure is very crucial since the exit opportunity to be provided to the shareholders of the Target company should not be at a price which is less than the price paid by the Acquirer for the acquisition of shares of the Target company so as to place the shareholders of the Target company in a disadvantageous position vis-a-vis the Acquirer. Further, in terms of regulation 2(1)(b) a person comes within the ambit of the term Acquirer when he agrees to acquire the shares of the Target company. For the purpose of Regulations it is not necessary that the actual acquisition of shares / voting rights should take place by any person to make him an Acquirer in terms of Regulations. Therefore, wherever any person has agreed to acquire shares/ voting rights of a Target company he comes within the definition of the term Acquirer. Consequently, such a person who is an Acquirer has to comply with the applicable provisions of the Regulations.
36.3 In terms of Regulation 16(viii), it is not only the ‘price actually paid’ which is to be disclosed, but also the ‘price agreed to be paid’ which has also to be disclosed by the Acquirer in the public offer. In this context, it is stated that the aforesaid disclosure is required because it has a consequent impact on the determination of offer price under Regulation 20 .
36.4 It may be stated that Regulation 20 inter alia provides for parameters for calculation of offer price. It is a beneficial provision in favour of shareholders as it provides for the payment of highest price, amongst all the parameters, to the shareholders of the Target company. In terms of Regulation 20(2), one of the parameters for calculation of offer price is a highest price paid by the Acquirer for acquisition of shares of the Target company 26 weeks prior to the date of making of public announcement.
36.5 In the instant case the Acquirer was obligated to take into account the price of Rs23.75 per share agreed to be paid towards consideration for acquisition of 8.83% shares from HSIDC as one of the prices under Regulation 20(2)(b) for ascertaining the highest price under Regulation 20(2) to be offered as the offer price to the shareholders of the Target company in the public announcement dated 24.04.1999.
36.6 Thus, from the collective reading of Regulations 2(1) (b), Regulation 16(viii) and Regulation 20(2) (b) it is implicit that the term “paid” as used in Regulation 16 (viii) and Regulation 20(2) (b) would also include the term “agreed to be paid.”
37. I have noted the contention of the Acquirer that the pricing of buy-back would not determine the minimum offer price as per Regulation 20(2) (b) of the Regulations. The buy back transactions between HSIDC and the Acquirer is yet to be completed and the same shall be governed by the provisions of Financial Collaboration Agreement and in the event buy back of shares by the Acquirer from HSIDC, provisions of amended regulation 3(1) (i) will apply and will accordingly be a treated as exempt transaction. Further, the Acquirer should be treated at par as per the amended provisions of Section 3(1)(i) and the benefit of exemption of buy back transaction be available to them.
37.1 In this regard it may be noted that Regulation 3 provides for exemption from applicability of Regulations 10, 11 and 12 for certain categories of acquisitions which includes inter alia clause (i) which provides for interse transfer of shares from State level financial institutions including their subsidiaries to co promoters of the company pursuant to an agreement between such financial institutions and such co promoter. Further in case if the acquisition of the Acquirer is not covered by any of the exemptions as stated in Sub Clause (a) to Sub Clause (k) of Clause 1 of Regulation 3, the Acquirer can apply for exemption under Regulation 3(1)(l) read with Regulation 4(2). In this context it is stated that in terms of Regulation 4(2) , application for exemption can be made by the Acquirer only in cases of proposed acquisitions.
37.2 In the instant case, I find that by virtue of acquisition of 8.83% shares of the Target company by the Acquirer from HSIDC on 15/4/99 the Acquirer has not crossed the threshold limit as provided for in Regulations and the said acquisition also did not result in change in control so as to attract Regulation 12.
37.3 In view of the aforesaid, it is observed that the exemption application of the Acquirer made to the Takeover Panel vide letter dated 18/8/2000 is not maintainable as on 15/4/1999 when the Acquirer agreed to acquire the shares from HSIDC to the tune of 8.83% and paid the consideration amount of Rs.71.25 lacs by way of post dated cheques starting from September 1999 did not trigger the provision Regulation 10, 11 and 12 and hence, there was no question of exemption.
37.4 Further , the contention of the Acquirer that the pricing of the buy back would not determine the minimum offer price of the public offer as per Regulation 20(2)(b) is not tenable since even if the acquisition falls under exempted category the same will be exempt only from the provisions of Regulations 10,11 & 12 and that will not take the acquisition out of the ambit of the applicability of other regulations viz. Regulation 20 etc.
38. CONCLUSION
38.1 From the aforesaid, I find that :
i) the issue of post dated cheques should have been considered by the Acquirer while determining the offer price in terms of Regulation 20(2)(b) in the public announcement made on 24.4.99. In view of the non consideration of the same, the Acquirer has violated the provisions of Regulation 20(2)(b) as the price of Rs.23.75 per share paid by the Acquirer for the acquisition of 3,00,000 equity shares from HSIDC has not been considered
ii) the Acquirer has violated the provisions of Regulation 16(viii) by not disclosing the issuance of letter dated 15.4.99 alongwith the post dated cheques towards purchase consideration for the acquisition of 3,00,000 equity shares of the Target company in the public announcement made on 24/4/99 as the same has amounted to concealment of material information required to be disclosed to the shareholders, of the Target company.
iii) in view of (i) & (ii) above the public announcement made by the Acquirer on 24/4/99 under Regulation 10 was not made in accordance with the provisions of the Regulations and the same has affected the interests of the shareholders of the Target company.
iv) the application dated 18.8.2000 made by the Acquirer for seeking exemption from the applicability of the Regulations regarding the acquisition of 3,00,000 shares of the Target company by the Acquirer from HSIDC in terms of Regulation 4(2) is not maintainable for the reasons stated hereinbefore.
39. ORDER
39.1 In light of the findings made above and in exercise of the powers conferred upon me under sub-section (3) of Section 4 read with Section 11B SEBI Act 1992 read with regulations 44 and 45 of the said Regulations, I hereby direct the Acquirer to make public announcement for 20% shares as required under Chapter III of the said Regulations in terms of regulation 10 to the shareholders of the Target company and to pay the shareholders whose shares are accepted in the offer, the price at the rate of Rs.23.75/- per share alongwith interest @ 15% p.a. for the period from 16/11/99 to the actual date of payment of consideration. The public announcement shall be made within 45 days of coming into effect of this order.
39.2 I also direct the Acquirer to pay the balance amount to all the shareholders whose shares have been accepted in the public offer made on 24.4.99, the balance amount being Rs.15 [Rs.23.75/- minus Rs.8.75/- {already paid}] plus interest @ 15% p.a. for the period from 16.11.99 (date of actual payment of Rs.8.75/-being 15/11/99) to actual date of payment of balance consideration. The aforesaid payment shall be made within 45 days of coming into effect of this order.
39.3 This order shall come into effect from 16.08.2003 in terms of directions issued by Hon'ble Punjab & Haryana High Court.