G.L. Sultania vs SEBI - Supreme Court Case
G.L. Sultania vs SEBI - Supreme Court Case Summary of Leading Case -
On 16th May, 2007, a two Judges Bench in G.L. Sultania and another vs The Securities and Exchange Board of India and others [Civil Appeal No.1672 of 2006] held that “when a public offer made under the Securities & Exchange Board of India (Substantial Acquisition of Shares & Takeovers) Regulations, 1997 is challenged on the ground that the shares had not been properly valued and the price offered in the public offer document does not represent the fair price of the share in question, the Court must examine whether the provisions of the Regulations have been scrupulously observed, and whether the Securities & Exchange Board as the regulatory authority has exercised its authority and discretion in a proper manner so as to ensure fairness to the shareholders.”
The Bench held that the “Board as the regulator is not bound to accept the offer price which is required to be incorporated in the public offer, if it suspects that the offer price does not truly represent the fair value of the shares determined in accordance with Regulation 20(5)” and “if considered necessary the Board may require valuation of such shares by an independent merchant banker.”
“The purpose is only to ensure that the valuation arrived at is a fair valuation after taking into consideration all the enumerated factors in Regulation 20(5). In doing so the Board has to act prudently and within the limits of its jurisdiction. It cannot object to the price offered by the acquirer unless it has reasons to suspect that the price offered has not been determined fairly taking into account the enumerated factors”, the Bench said.
The Bench held that “the scheme of the Regulations is to permit an intending acquirer to make his offer to the shareholders whose shares are sought to be acquired. Despite the regulatory powers of the Board, the offer still remains that of the acquirer and not the Board. The Board has only to be satisfied that the offer made is reasonable and fair and in the interest of the shareholders. In case of doubt it may seek the opinion of another expert valuer which impliedly supports the contention that it is not expected to act as an expert valuer. If there is material on record to show that the Board applied its mind to the offer made and considered it in the light of the relevant provisions of the Regulations and all factors enumerated therein, its decision to approve the offer price to be incorporated in the letter of offer cannot be faulted on the ground that it has not passed a reasoned order.”
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