ORDER
G.N. Bajpai, Chairman
1. BACKGROUND
1.1 In respect of the open offer made by Sterlite Industries (India) Pvt. Ltd. ( SIIL ) and Eastern Galvanising Pvt. Ltd. (hereinafter collectively referred to as Acquirers) to the shareholders of Indian Aluminum Co. Ltd. ( Indal ) in terms of the provisions of Securities and Exchange Board of India ( Substantial Acquisition of Shares and Takeovers ) Regulations, 1997 ( hereinafter referred to as the Regulations), Chairman, Securities and Exchange Board of India (hereinafter referred to as SEBI ) vide his order dated October 28, 1998 directed the acquirers to make payment to the shareholders of Indal who had tendered the shares in the offer at the offer price of Rs. 221/- in cash along with the interest @ 15% from July 02, 1998 .i.e., the date by which payment ought to have been made. Pursuant to the passing of the order of SEBI, SIIL went in appeal against the said order before the Appellate Authority in the Government of India wherein the Appellate Authority rejected the appeal and upheld SEBI’s order.
1.2 SIIL thereafter filed a civil writ petition, No. 1598/1999 before the Hon’ble High Court of Delhi, wherein also SEBI’s order was upheld, subject to the modification that the benefit of the direction will only go to those shareholders of Indal whose shares were still with SIIL, either on their own or through their Merchant Banker or anyone else on their behalf. Thereafter, SIIL on 26.07.02 moved an application, being C M No. 7487 of 2002 in C W P No 1598 of 1999 seeking amongst others, the permission to deduct the past dividends declared on the shares comprised in the open offer by Indal during the period the shares of Indal were with SIIL. The said application was, however, dismissed by the Hon,ble High court for non-prosecution. Thereafter, another application was preferred by SIIL, being no. 8188 of 2002 in C W P no. 1598 of 1999 seeking amongst others, the permission to adjust dividend declared. The said application was dismissed as withdrawn vide court’s order dated 09.08.2002.
1.3 SIIL also filed an SLP in Supreme Court which was dismissed on 23.09.02 and SEBI’s order dated 28.10.1998 became final and binding. After the said sequence of events, SIIL on 24.09.02 made the final payment to the eligible shareholders of Indal in terms of SEBI’s order and subsequent directions by the courts. However, while making the said payment, dividends declared (Rs19.50 per share) by Indal on or after 02.07.98 were deducted. Further, the shareholders were advised by Karvy Consultants Ltd., the registrar to the open offer, to approach Indal in case they have not received any of the said dividends.
2. Complaint Received by SEBI
2.1 SEBI received a complaint dated 27.08.2003 from Shri Sanjay Soni and Shri Sumeet Soni stating, inter alia, as under:
a. SIIL is liable to pay the said sum of Rs.19.50 per share illegally retained by it with interest on the said sum @ 15% p.a from 26.9.2002 till payment to all the shareholders of Indal to whom the said sum of Rs.221/- per share was payable in terms of SEBI’s Order dated 28.10.98.
b. In the case of Shri Sanjay Soni the sum amounts to Rs.5850/- on 300 shares and in the case of Shri Sumit Soni the sum amounts to Rs.3000.50 on 159 shares. In addition they are also entitled to receive interest @15% p.a. on the said sums from 26.09.2002 till the date of payment.
c. A notice dated 09.10.2002 was sent to SIIL in this regard and subsequently, a civil contempt petition No.571 of 2002 was filed in the Delhi High Court.
d. In their reply to the Contempt Notice issued by the Delhi Hight Court, SIIL had relied upon letter No. TO/RC/20567/2002 dated 21.10.2002 and No. TO/RC/24840/2002 dated 19.12.2002 for the said deduction of Rs.19.50.
e. SEBI officer has no authority to authorize such deduction, when SEBI Order dated 28.10.98 as modified by the Hon’ble Delhi High Court, had become final and all issues relating to the controversy became res judicata. Authorizing such deduction is even more regrettable in view of the fact that SIIL’s two applications for the same had earlier been dismissed by Hon’ble Delhi High Court and that Section 27 of SC(R) A relating to the issue is against SIIL.
f. By such illegal deduction SIIL would be denying to small shareholders of Indal Rs.19.50 per share thereby enriching itself by a whopping sum of more than 55 lacs.
g. SEBI may direct SIIL to implement its Order dated 28.10.98 as modified by Hon’ble Delhi High Court and pay to all the shareholders of Indal the said sum of Rs. 19.50 per share with interest from 26.9.2002 till the date of payment.
3. Direction by High Court of Delhi
3.1 A PIL writ petition was filed in the Hon’ble Delhi High Court by Sanjay Kumar Soni (CWP No 6884/2003 – Sanjay Kumar Soni and Ors Vs UOI). While disposing the PIL, holding that it had no jurisdiction and public interest did not lie, the Delhi High Court vide its Order dated 29.10.2003 observed that, “Therefore, it would be just and proper to direct the Chairman, SEBI to examine the letter dated 27.8.03 and to record a finding and if the offence is committed by not following the directions, obviously it would be incumbent upon the Chairman to place the matter before the Board to take appropriate proceedings against the defaulters”.
4. Correspondence and Hearing Before the Chairman
4.1 The letter dated 27.08.03 of Sanjay Soni was forwarded to Enam Financial Consultants Pvt. Ltd. (Enam), Merchant banker to the offer made by SIIL, for its comments. Enam vide their letter dated February 06, 2004 submitted that:
a. In terms of explanation (ii) of Section 27 of SCRA, the period of 15 days available for transfer of shares for claiming dividend shall be extended in case of, inter-alia, cause beyond the control of transferee.
b. Since the open offer was being litigated it was beyond the control of SIIL as a transferee to lodge the necessary documents with the company for transfer of the shares in its name and thereby claim the dividend.
c. Immediately upon settlement of the above litigation, SIIL took the necessary steps dispatching the open offer consideration thereby complying with their obligations as an acquirer under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and after which they proceeded to do the needful to transfer the shares in their name.
4.2 A letter was also sent to Indal on February 05, 2004 seeking information related payment of dividend. Based on the information received from Indal, it is observed that:
a. Sanjay Kumar Soni who did not register the shares in his name and tendered the same in the open offer has not received the dividend since 1998. The dividend has been paid by Indal to the registered shareholders.
b. However, Sumeet Soni who was a registered shareholder received all the dividends declared on or after July 2, 1998. The dividend warrants issued to him have also been encashed.
4.3 Comments were also sought from SIIL. SIIL vide its letter dated 19.06.2004 gave a para wise comment to the letter dated 27.08.03 written by Mr. Soni stating, inter alia, that:
a. Filing of the two applications before High Court regarding clarification on dividend deduction clearly demonstrates that there was no malafide intentions for deducting past dividends from the payment made to the shareholders of Indal. The intention of the company was to simply take an endorsement from High Court by way of a clarificatory order to the effect that past dividends can be deducted from the payments which were to be made to the shareholders of Indal.
b. The dividend deduction is not illegal. The said deduction of past dividends @19.50 per share has been done by the company as per normal practice and norms provide under the company rules and other relevant statutes. Moreover it has been held in numerous court decisions that where transferor by reason of shares standing in his name has received any dividend, bonus and other benefit, the transferee being the person lawfully entitled, can recover the same from the transferor. The transferor holds all benefits received on these shares in trust on behalf of the transferee. Since SIIL had become the owner of the shares w.e.f. 2.7.1998, it was legally entitled to recover the said dividend amount @19.50 per share from the shareholders of Indal which were declared and paid subsequent to the aforesaid date i.e. 2.7.1998.
4.4 After the aforesaid correspondences and seeking necessary clarification from the concerned parties, it was decided to give an opportunity of personal hearing to the parties before me. SEBI received a reply dated 12.08.04 from Shri M G Kapoor, Advocates for Shri Soni stating that his clients have received the sum owing to them. He has proposed that he would prefer to be present in person for small investors’ case if the hearing is held in Delhi or if to and fro travel expenses, boarding and lodging is paid out of Investor Protection Fund. Alternatively, written submissions annexed with the letter may be taken on record and considered before passing any order.
4.5 Hearing before me took place on December 07, 2004 at 3.30 pm, which was attended by Shri Somasekhar Sundaresan and Ms. Madhuri Joshi of J.Sagar Associates and Shri A S Khandwala, Company Secretary of SIIL. Submissions made by SIIL earlier were reiterated at the hearing and the judgment of Hon’ble Supreme Court in Civil Appeal No. 3183 of 2003 was also quoted in support of their submissions. Parties were further given 7 days time to file written submissions in the said matter.
5. Consideration of Issues
5.1 I have thoroughly gone through the written and oral submissions made and the directions passed by the Hon’ble court during the series of appeals/petitions filed by SIIL and Shri Soni.
5.2 While examining the complaint filed by Shri Soni before SEBI, I note that a contempt proceedings, CCP No. 572 of 2002, against CMD, SIIL was launched before the Hon’ble High Court, New Delhi for non-compliance of the order dated 31.05.02. The Delhi High Court while passing the order on 12.03.2004 stated that it is not inclined to interfere in the proceedings and no contempt has been committed by the respondent. The statement made by the senior counsel of the respondent, Mr. Sundaram, was taken on record that a total sum of Rs. 11,500/- shall be paid to the petitioner within a week to put an end to the petition. I note that the payment of the said amount has been accepted by the advocate of Shri Soni and the same has been intimated to SEBI vide letter dated 09.08.04. I observe and find that Shri Soni has no individual grievance against SIIL or SEBI, but is claiming to represent the interest of other shareholders. To this effect Shri Soni’s PIL before the Hon’ble High court of Delhi was disposed off on 29.10.03. The hon’ble court while disposing the appeal held that it had no jurisdiction and public interest did not lie. The Hon’ble court directed me to examine the letter dated 27.08.03 and to record the findings and to place the matter before the Board to take the appropriate proceedings against the defaulters, in case any offence is committed by not following SEBI’s order dated 28.10.98.
5.3 SEBI had directed SIIL to pay Rs. 221/- cash to shareholders of Indal along with interest @15% per annum from 2.7.1998 till payment. However, the said order was silent about any deductions with respect to the amount of dividends paid by Indal. As such the payment was to be made as per the normal practice and also as per the provisions of law. Moreover, order of SEBI and the subsequent directions of the Hon’ble court were silent on the aspect of the deduction/adjustment of the past dividends. While making the payment SIIL deducted the amount of dividend already paid by Indal on the shares held by the shareholders, since the shares had continued to remain in the name of the shareholders and could not be transferred to the acquirers for the interim period from 02.07.98 to 24.09.02 due to protracted litigation. SIIL paid interest to eligible Indal shareholders for the said period thereby complying with SEBI’s direction and Hon’ble High Court’s order. This also resulted in SIIL being entitled to ownership of the said shares during the interim period for which shareholders were compensated for loss of interest, entitling SIIL to the receipt of the benefits accrued on the said shares during the said period.
5.4 I further refer and rely on the recent judgment of the Hon’ble Supreme Court of India in Civil Appeal No. 3183 of 2003 in the matter of Clariant International Ltd. & Anr. Vs SEBI, which was delivered on August 25, 2004. The judgment of the Hon’ble court assumes importance in the present matter by reason of the fact that the issue related to the payment of dividend and the effect thereof has been elaborately discussed therein. The Hon’ble Court observed that,
“Dividend : Effect of
In view of our findings aforementioned, we are of the opinion that while calculating the amount of interest, the amount of dividend paid to the shareholders should be excluded. The shareholders who by reason of default on the part of acquirer have been deprived of interest payable on the difference of the offer price and market price would be entitled to interest as direction to pay interest being not penal in nature, they cannot make double gains. The Tribunal, in our opinion, has committed an error in holding that the dividend being a participatory benefit available to a shareholder and being distinct from interest, the same should not be taken into consideration. The regulation fixes a benchmark as regard rate of interest. If any amount has been received by the shareholders by keeping the shares till a public offer was made, the amounts so received by him by way of dividend should be set off. We would reiterate that the shareholders did not have any right to get interest and in effect and substance they were only to be compensated for the loss of interest and nothing more. On the same analogy, if they had received some gains by holding the shares fairly for a long period of five years, the amount of dividend cannot be permitted to be retained by them. The amount of dividend should thus be adjusted towards the interest payable to them.”
In the light of the aforesaid judgment of the Supreme Court, there is no ambiguity in the current position of law. The above stated observation of the Supreme Court endorses and vindicates the stand taken by SIIL regarding the adjustment of dividend.
6. ORDER
6.1 In the light of the foregoing discussion and Supreme Court’s decision in Clariant International Ltd. case, I, after through deliberation and examining the letter dated 27.08.03, come to the conclusion that there is no non-compliance of any direction by SIIL. I, therefore, hold that SIIL has complied with the order dated 28.10.98 and the subsequent modification of the same vide order dated 31.05.02 by the Hon’ble High Court of Delhi in Civil Petition No. 1598/99.
6.2 Pursuant to the Hon’ble High Court of Delhi’s direction in C W P 6884 of 2003, I come to the conclusion that there has been no violation of SEBI’s order dated 28.10.98 and hence no further proceedings are warranted in this case. I, in exercise of the powers conferred upon me by virtue of the provisions of Section 4(3) of the SEBI Act, 1992 dispose of the said complaint dated 27.08.03 lodged by Shri Sanjay Soni and Shri Sumeet Soni with SEBI.