SECURITIES AND EXCHANGE BOARD OF INDIA VS SUNIL KRISHNA KHAITAN AND OTHERS

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

Civil Appeal No. 8249 of 2013 & Anr. Page 1 of 85

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8249 OF 2013

SECURITIES AND EXCHANGE BOARD OF INDIA ... APPELLANT

VERSUS

SUNIL KRISHNA KHAITAN AND OTHERS ... RESPONDENTS

W I T H

CIVIL APPEAL NO. 1762 OF 2014

J U D G M E N T

SANJIV KHANNA, J.

This common judgment would decide the aforesaid two

appeals preferred by the Securities and Exchange Board of India1

whereby it has challenged the order of the Securities Appellate

Tribunal2 dated 19th June 2013 in Appeal No. 23 of 2013 titled ‘Sunil

Krishna Khaitan and Others v. Securities and Exchange Board of

India’; and the order dated 31st October 2013 in Appeal No. 2 of

2013 titled ‘Smt. Madhuri S. Pitti and Others v. Securities and

Exchange Board of India’.

1 The ‘Board’, for short.

2 The ‘Appellate Tribunal’, for short.

Civil Appeal No. 8249 of 2013 & Anr. Page 2 of 85

2. Primary questions of law raised in these appeals relates to the

interpretation of Regulation 10 of the SEBI (Substantial Acquisition

of Shares and Takeovers) Regulations, 1997;3

the power and

exercise of the power by the Board under Regulations 44 read with

45 of the Takeover Regulations, 1997; and the power and

jurisdiction of the Appellate Tribunal under Section 15T of the

Securities and Exchange Board of India Act, 1992.4

A. Background facts:

I) Appeal No. 23 of 2013 (Sunil Krishna Khaitan’s case)

3. Khaitan Electrical Limited,5 a company incorporated in 1975, listed

on BSE Limited and National Stock Exchange Limited, is engaged

in the business of manufacturing and marketing of electrical goods.

4. KEL was founded by late Shri Krishna Khaitan (R12 in the appeal),

who had passed away on 04th November 2012 and is represented

by his legal representatives. The promoter group consists of his

family member/relative and associate entities, which include other

respondents in the appeal, namely Sunil Krishna Khaitan, M/s.

3 Hereinafter referred to as ‘Takeover Regulations 1997’.

4 For short, the ‘Act’.

5 For short, ‘KEL’.

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Khaitan Lefin Limited and M/s. The Oriental Mercantile Company

Limited (R11

st, R13

rd and R14

th respectively).

5. In the Extraordinary General Meeting held on 23rd March 2006, the

shareholders of KEL had approved issuance of 10,00,000 equity

share warrants with the face value of Rs. 10/- each at a premium of

Rs. 50/- each on preferential basis to the respondents. The

warrants were to be converted into equity shares within a period of

eighteen months from the date of allotment.

6. In the Extraordinary General Meeting held on 29th November 2006,

the shareholders had approved issuance of 10,00,000 warrants

with face value of Rs. 10/- each with premium of Rs. 121/- each on

preferential basis to M/s. Khaitan Lefin Limited (R13),6 an identified

member of the promoter group, to be converted into equity shares

within a period of eighteen months. This Extraordinary General

Meeting had also approved issuance of 25,00,000 equity shares of

face value of Rs. 10/- each at a premium of Rs. 125/- each on

preferential basis to strategic investors. However, in this appeal, we

are not concerned with the issue of shares to the strategic

investors.

6 For short, ‘KLL’.

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7. On 12th March 2007, the respondents acquired 13,00,000 shares in

KEL in two tranches i.e., 5,00,000 in one transaction and 8,00,000

shares in the other. Upon receipt of the full consideration in terms

of the warrants, KEL had issued shares to the respondents

consequent to which the shareholdings of the respondents and the

promoter group underwent a change, which are required to be

noted and are reproduced :

8. The respondents were served with the show-cause notice dated

26th March 2012 issued by the Board with respect to violation of

Regulations 10 and 11(1) of the Takeover Regulations 1997, calling

upon them to show cause why suitable directions under Sections

11 and 11B of the Act and Regulations 44 and 45 of the Takeover

Regulations 1997 read with corresponding provisions of

Regulations 33 and 35 of the SEBI (Substantial Acquisition of

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Shares and Takeover) Regulations, 20117 should not be issued

against them. Violation of Regulation 10 was predicated on the

ground that on 12th March 2007, shareholding of KLL (R13) had

individually increased from 10.52% to 17.16% and thereby it was

mandatory for KLL to make a public announcement in accordance

with the provisions of Regulation 10 read with Regulation 14(1) of

the Takeover Regulations 1997 within four working days from 12th

March 2007. Further, on 12th March 2007, the collective

shareholding of the promoter group, including the acquirers, had

increased from 25.83% to 34.21% and, therefore, the acquirers

collectively were required to make a public announcement in

accordance with the provisions of Regulation 11(1) read with

Regulations 14(1) of the Takeover Regulations 1997 within four

working days from 12th March 2007.

9. The respondents contested the show-cause notice on various

grounds, which we will be canvassing subsequently.

10. The Whole Time Member8 of the Board did not agree with the

submissions made by the respondents and vide his order dated 31st

December 2012 held that there was violation of Regulations 10 and

7 Hereinafter referred to as the ‘Takeover Regulations 2011’.

8 See Section 4(1)(d) of the Act:

“The Board shall consist of the following members, namely:

(d) five other members of whom at least three shall be the whole-time members.”

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11(1) of the Takeover Regulations 1997 and, therefore, the

respondents shall make a combined public announcement to

acquire shares of the target company,9 namely KEL, in terms of

Regulations 10 and 11(1) of the Takeover Regulations 1997 within

forty-five days of the order. Further the respondent, along with the

consideration amount, shall pay interest @ 10% per annum from

16th June 2007 till the date of payment to the shareholders who

were holding shares in KEL on the date of violation, and whose

shares shall be accepted in the open offer, albeit after adjustment

of dividend, if any, paid. The effect of the aforesaid direction in the

order dated 31st December 2012 would be examined by us

subsequently.

11. The respondents preferred an appeal before the Appellate Tribunal,

which by the impugned order has been partly allowed. The

Appellate Tribunal has held that Regulation 10 was not violated, but

Regulation 11(1) was violated albeit the direction with regard to

issue of public announcement and open offer was not sustainable

at a belated stage. There was a delay of about 5 years in issuing

show-cause notice relating to acquisition/incidents which pertain to

the year 2006-07, and as the impugned order came to be passed

9 Regulation 2(1)(o): “target company” means a listed company whose shares or voting rights or control

is directly or indirectly acquired or is being acquired.

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only on 31st December 2012, the directions of the Whole Time

Member for issue of public announcement and open offer were set

aside. However, monetary penalty of Rs. 25,000,00/- has been

imposed.

II) Appeal No. 2 of 2013 (Madhuri S. Pitti’s case)

12. Pitti Laminations Ltd.10 was incorporated in the year 1983 under the

Companies Act, 1956 and its six promoters, namely, Mr. Sharad B.

Pitti, Ms. Madhuri Pitti (R21), Mr. Akshay S. Pitti (R23), Pitti Electrical

Equipment Pvt. Ltd (R22), Mrs. Shanti B. Pitti and Mr. Sharad B.

Pitti have been controlling the affairs of PLL since its inception.

13. On 22nd June 2005, PLL allotted 3,90,000 shares and 4,10,000

warrants convertible into equity shares to R23. On 26th April 2006,

R23 converted some warrants into equity shares which increased

his individual shareholding in PLL from 11.87% to 16.25%.

14. On 11th April 2007, R23 converted the remaining warrants into

equity shares of PLL, which again increased his individual

shareholding in PLL from 14.88% to 15.77%.

15. At the Annual General Meeting of PLL on 11th August 2011, a

preferential allotment of 40,50,000 equity shares to R21 and R22

10 Hereinafter referred to as “PLL”.

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was authorised by the shareholders of PLL. This resulted in

increase in the total shareholding of the three respondents (R21,

R22 and R23) with that of Mr. Sharad Pitti from 41.70% to 59.21%.

16. Accordingly, a public announcement was made on 09

th September

2011 and simultaneously, a Draft Letter of Offer was filed before

the Board for its approval on 19th September 2011.

17. On a query by the Board, R23 on 28th November 2011, wrote a letter

denying his failures to make public announcement at the time of

acquisition of shares by him on 22nd June 2005, and 26th April 2006.

Subsequently, on 19th March 2012 a hearing was afforded to him in

this regard. Thereafter, R23 had submitted replies on three

occasions on the respect of his purported failure to make public

announcement at the time of acquisition of the shares in 2005 and

2006.

18. After a lapse of more than one year, the Board through Assistant

General Manager, Corporate Finance Department, Division of

Corporate Restructuring issued the letter dated 17th December

2012, mandating the Merchant Banker of the respondents to inter

alia revise the schedule of the offer by taking into account the

acquisitions made by R23 on 26th April, 2006 and 11th April, 2007

and thereby, revise the offer price to the shareholders.

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19. The respondents challenged the letter before the Appellate

Tribunal, which vide impugned order dated 31st October 2013

allowed the appeal and permitted the respondents to continue with

their offer excluding the Board’s directions relating to the

acquisitions by R23 in the years 2006 and 2007. The impugned

order observes that the Board by such letters could not issue

directions to listed companies, by terming it as a mere advice

without giving any choice in the matter. Further, placing reliance on

the impugned order herein in Sunil Khaitan v. SEBI, Appeal No. 23

of 2013 decided on 19th June 2013, the Appellate Tribunal observed

that to determine whether or not the limit under Regulation 10 has

been crossed, shareholdings of all members of the group of

persons acting in concert would have to be reckoned as a whole.

B. Contentions of the appellant/Board:

20. On 12th March 2007, individual shareholding of KLL (R13) in KEL

had increased from 10.52% to 17.16%, whereas shareholding of

the promoter group had collectively increased from 25.83% to

11 In Appeal No. 2 of 2013 (Madhuri S. Pitti’s case), there is no specific order under Regulation 44 by

the Whole Time Member, albeit, as noticed above, directions were issued by the Board to amend the

draft letter of offer submitted by PLL for the Board’s approval on 19th September 2011, vide the Board’s

letter dated 17th December 2012. The Appellate Tribunal has adversely commented on the Board’s

conduct in issuing the said direction by directing amendment of the draft letter of offer. During the

course of arguments, the Board has not specifically challenged the observations and the adverse

finding of the Appellate Tribunal that such directions could not have been issued by the Board vide

letter dated 17th December 2012. We will not make any comments or give findings in this regard.

Civil Appeal No. 8249 of 2013 & Anr. Page 10 of 85

34.21%. Thus, there was a violation of both Regulation 10 and

Regulation 11(1) of the Takeover Regulations 1997.

21. On 26th April 2006, shareholding of R23 in PLL had increased from

11.87% to 16.25%. Again, on 11th April 2007, shareholding of R23

had increased from 14.88% to 15.77%. However, no public

announcement for open offer was made by R23 or by the acquirer

group within the period of four days from the respective dates.

22. The objective of the Takeover Regulations 1997 is to bring to the

knowledge of the shareholders of the company any change in

substantial ownership of the company and to provide an exit

opportunity through an open offer in case of such substantial

change.

23. Regulations 10 and 11(1) have to be read accordingly and in line

with the objective of the Takeover Regulations 1997.

24. Regulations 10, 11 and 12 operate in three distinct fields in which

the acquirer of shares or voting rights of the company is required to

make a public announcement and make an open offer to acquire

shares of existing shareholders. These Regulations may overlap in

some cases as in the present case, but are not mutually exclusive,

Civil Appeal No. 8249 of 2013 & Anr. Page 11 of 85

as has been held by this Court in Swedish Match AB and Another

v. Securities & Exchange Board of India and Another.

25. Impugned judgment and reasoning given by the Appellate Tribunal

is contrary to the objective of Regulation 10, which is to ensure that

an exit option is provided to the existing shareholders once any

person, whether individually, and or along with any another person

acting in concert with each other, acquires shares that cross the

15% threshold. Such acquirer or group, as the case may be, would

be able to exercise sufficient degree of control over the

management of the company, which may not be in the interest of

the company and, therefore, exit option should be given to the

existing shareholders.

26. In contrast, the objective of Regulation 11 is to provide an

opportunity to the shareholders to exit in case an acquirer of shares,

having 15% or more but less than 55% of the shares or voting

rights, either individually or with persons acting in concert,

increases their shareholding or voting rights over 5% at any given

point in a financial year. As such acquisition enables the individual

or the person acting in concert with others to yield greater influence

over management of the company, and Regulations 11(1) of the

12 (2004) 11 SCC 641.

Civil Appeal No. 8249 of 2013 & Anr. Page 12 of 85

Takeover Regulations 1997 provides for an exit option to the

existing shareholders.

27. Regulation 3(3) of the Takeover Regulations 2011 makes explicit

what was already implicit in the Takeover Regulations 1997, that in

a case an individual within the group crosses the stipulated

minimum shareholding threshold, such an individual shall make a

public offer even when there is no change in aggregate

shareholdings of the group, that is, persons acting in concert.

Reference is made to the report of the Takeover Regulation

Advisory Committee headed by Mr. C. Achuthan, which exhibits

that Regulation 3(3) is to clarify the requirement that was already

existing in the Takeover Regulations 1997.

28. There is no estoppel against a statute and, therefore, the

respondents in appeals herein cannot take any advantage and

plead that the Board is deviating from its earlier stance. Reference

is made to Sanjiv Coke Manufacturing Company v. M/s. Bharat

Coking Coal Limited and Another.

13 In fact, the interpretation

given by the Board in these appeals has been accepted by the

Appellate Tribunal in certain cases.

13 (1983) 1 SCC 147

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29. The Board has been conferred with powers under the Act in terms

of Section 11 thereof to issue appropriate direction for protection of

interest of the shareholders; under Section 15-H read with Section

15-I to impose monetary penalty on the defaulter; and under

Section 24 to criminally prosecute the defaulter for contravention of

the provisions of the Act or regulations thereunder. These are

separate powers vested with the Board with distinct objectives,

which can sometimes be overlapping but are not identical, as has

been held by this Court in Prakash Gupta v. Securities &

Exchange Board of India.

14 The Board being an expert body is

entitled to exercise the aforesaid powers to subserve the interest of

the investors as well as to promote orderly and healthy growth of

the securities market.

30. The Appellate Tribunal should not have interfered with the

directions to make an open offer, which are in line with the objective

of Sections 11 and 11-B of the Act read with Regulation 44 of the

Takeover Regulations 1997. The order passed by the Whole Time

Member directing making of public announcement for open offer

along with paying interest to the shareholders of the target

company, was made with the larger objective of protecting interests

14 2021 SCC OnLine SC 485.

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of the shareholders who have a right and expectation to be provided

with the opportunity to exit the company in case the

shareholding/voting rights of a person and/or persons acting in

concert crosses the stipulated threshold at any point of time.

31. Scope of power of the Appellate Tribunal enumerated in Section

15-T does not extend to substituting directions issued under

Sections 11 and 11B of the Act with monetary penalty under

Section 15-H of the Act. The scope of power of the Appellate

Tribunal is wide but cannot be exercised in a manner which is

inconsistent with the scheme of the Act. Further, the directions

issued for public announcement and open offer are in line with the

objectives of the Act which states that as soon as the contravention

of the statutory obligation is established, penalties must follow. This

is a distinct objective envisaged in Sections 11 and 11B of the Act

read with Regulation 44 of the Takeover Regulations 1997, as has

been held in several decisions of this Court in Zile Singh v. State

of Haryana and Others,

15 Chairman, SEBI v. Shriram Mutual

Funds and Another16

and Securities and Exchange Board of

India v. Saikala Associates Limited.

15 (2004) 8 SCC 1

16 (2006) 5 SCC 361

17 (2009) 7 SCC 432

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32. The Appellate Tribunal does not exercise jurisdiction under Article

226 of the Constitution of India and is a creation of the statute and,

therefore, cannot pass any order inconsistent with the scheme of

the Act. Thus, imposition of monetary penalty for violation of

Regulation 11(1) of the Takeover Regulations 1997, as directed by

the Appellate Tribunal, is contrary to law and would also result in

weakening of investor confidence in securities market as defaulters

would be able to escape the obligation.

33. Lastly, the delay in issue of show-cause notice itself would not

exonerate the defaulters under the Act and the relevant

Regulations, as has been held in Adjudicating Officer, Securities

and Exchange Board of India v. Bhavesh Pabari.

34. For brevity, we are not reproducing the submissions made by the

respondents as they would be noticed subsequently and are

inferable from our reasoning, which upholds the orders by the

Appellate Tribunal on the interpretation of Regulation 10 of the

Takeover Regulations 1997. Secondly, we have upheld the order

of the Appellate Tribunal setting aside the directions of public

announcement with open offer given by the Whole Time Member

under Regulation 44 for violation of Regulation 11(1) of the

18 (2019) 5 SCC 90

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Takeover Regulation,1997 in the case of Sunil Kumar Khaitan in

Appeal No. 8249 of 2013. However on the aspect of the power of

Appellate Tribunal under Section 15T of the Act, we have

expressed our reservation and disagreed with the Appellate

Tribunal for the reasons set out below.

C. Relevant Provisions:

35. We begin by reproducing the relevant provisions of the Takeover

Regulations 1997 which are as under:

“2. Definitions.

2. (1) In these Regulations, unless the context

otherwise requires:

xx xx xx

(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;

xx xx xx

(e) “person acting in concert” comprises—

(1) persons who, for a common objective or purpose of

substantial acquisition of shares or voting rights or

gaining control over the target company, pursuant to an

agreement or understanding (formal or informal),

directly or indirectly co-operate by acquiring or agreeing

to acquire shares or voting rights in the target company

or control over the target company.

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(2) Without prejudice to the generality of this definition,

the following persons will be deemed to be persons

acting in concert with other persons in the same

category, unless the contrary is established:

(i) a company, its holding company, or subsidiary or

such company or company under the same

management either individually or together with

each other;

(ii) a company with any of its directors, or any

person entrusted with the management of the funds

of the company;

(iii) directors of companies referred to in sub-clause

(i) of clause (2) and their associates;

(iv)mutual fund with sponsor or trustee or asset

management company;

(v) foreign institutional investors with subaccount(s);

(vi) merchant bankers with their client(s) as

acquirer;

(vii) portfolio managers with their client(s) as

acquirer;

(viii) venture capital funds with sponsors;

(ix) banks with financial advisers, stock brokers of

the acquirer, or any company which is a holding

company, subsidiary or relative of the acquirer :

Provided that sub-clause (ix) shall not apply

to a bank whose sole relationship with the acquirer

or with any company, which is a holding company

or a subsidiary of the acquirer or with a relative of

the acquirer, is by way of providing normal

commercial banking services or such activities in

connection with the offer such as confirming

availability of funds, handling acceptances and

other registration work;

Civil Appeal No. 8249 of 2013 & Anr. Page 18 of 85

(x) any investment company with any person who

has an interest as director, fund manager, trustee,

or as a shareholder having not less than 2 per cent

of the paid-up capital of that company or with any

other investment company in which such person or

his associate holds not less than 2 per cent of the

paid-up capital of the latter company.

Note : For the purposes of this clause ―associate‖

means,— (a) any relative of that person within the

meaning of section 6 of the Companies Act, 1956 (1 of

1956); and (b) family trusts and Hindu undivided

families;

xx xx xx

6. Transitional provision.

(1) Any person, who holds more than five per cent

shares or voting rights in any company, shall within two

months of notification of these regulations disclose his

aggregate shareholding in that company, to the

company.

(2) Every company whose shares are held by the

persons referred to in subregulation (1) shall, within

three months from the date of notification of these

regulations, disclose to all the stock exchanges on

which the shares of the company are listed, the

aggregate number of shares held by each person.

(3) A promoter or any person having control over a

company shall within two months of notification of these

regulations disclose the number and percentage of

shares or voting rights held by him and by person(s)

acting in concert with him in that company, to the

company.

(4) Every company, whose shares are listed on a stock

exchange shall within three months of notification of

these regulations, disclose to all the stock exchanges

on which the shares of the company are listed, the

names and addresses of promoters and/or person(s)

Civil Appeal No. 8249 of 2013 & Anr. Page 19 of 85

having control over the company, and the number and

percentage of shares or voting rights held by each such

person.

7. Acquisition of 5 per cent and more shares or

voting rights of a company.

(1) Any acquirer, who acquires shares or voting rights

which (taken together with shares or voting rights, if

any, held by him) would entitle him to more than five per

cent or ten per cent or fourteen per cent 2 [or fifty four

per cent or seventy four per cent] shares or voting rights

in a company, in any manner whatsoever, shall disclose

at every stage the aggregate of his shareholding or

voting rights in that company to the company and to the

stock exchanges where shares of the target company

are listed.

(1A) Any acquirer who has acquired shares or voting

rights of a company under sub-regulation (1) of

regulation 11, 1 [or under second proviso to subregulation (2) of regulation 11] shall disclose purchase

or sale aggregating two per cent or more of the share

capital of the target company to the target company,

and the stock exchanges where shares of the target

company are listed within two days of such purchase or

sale along with the aggregate shareholding after such

acquisition or sale.

Explanation.—For the purposes of sub-regulations

(1) and (1A), the term ‗acquirer‘ shall include a

pledgee, other than a bank or a financial institution and

such pledgee shall make disclosure to the target

company and the stock exchange within two days of

creation of pledge.

(2) The disclosures mentioned in sub-regulations (1)

and (1A) shall be made within two days of — (a) the

receipt of intimation of allotment of shares; or (b) the

acquisition of shares or voting rights, as the case may

be.

(2A) The stock exchange shall immediately display the

information received from the acquirer under sub-

Civil Appeal No. 8249 of 2013 & Anr. Page 20 of 85

regulations (1) and (1A) on the trading screen, the

notice board and also on its website.

(3) Every company, whose shares are acquired in a

manner referred to in subregulations (1) and (1A), shall

disclose to all the stock exchanges on which the shares

of the said company are listed the aggregate number of

shares held by each of such persons referred above

within seven days of receipt of information under subregulations (1) and (1A).

8. Continual disclosures.

(1) Every person, including a person mentioned in

regulation 6 who holds more than fifteen per cent

shares or voting rights in any company, shall, within 21

days from the financial year ending March 31, make

yearly disclosures to the company, in respect of his

holdings as on 31st March.

(2) A promoter or every person having control over a

company shall, within 21 days from the financial year

ending March 31, as well as the record date of the

company for the purposes of declaration of dividend,

disclose the number and percentage of shares or voting

rights held by him and by persons acting in concert with

him, in that company to the company.

(3) Every company whose shares are listed on a stock

exchange, shall within 30 days from the financial year

ending March 31, as well as the record date of the

company for the purposes of declaration of dividend,

make yearly disclosures to all the stock exchanges on

which the shares of the company are listed, the

changes, if any, in respect of the holdings of the

persons referred to under subregulation (1) and also

holdings of promoters or person(s) having control over

the company as on 31st March.

(4) Every company whose shares are listed on a stock

exchange shall maintain a register in the specified

format to record the information received under

subregulation (3) of regulation 6, sub-regulation (1) of

regulation 7 and subregulation (2) of regulation 8.

Civil Appeal No. 8249 of 2013 & Anr. Page 21 of 85

xx xx xx

10. Acquisition of fifteen per cent or more of the

shares or voting rights of any company.

No acquirer shall acquire shares or voting rights which

(taken together with shares or voting rights, if any, held

by him or by persons acting in concert with him), entitle

such acquirer to exercise fifteen per cent or more of the

voting rights in a company, unless such acquirer makes

a public announcement to acquire shares of such

company in accordance with the regulations.

11. Consolidation of holdings.

(1) No acquirer who, together with persons acting in

concert with him, has acquired, in accordance with the

provisions of law, 15 per cent or more but less than fifty

five per cent (55%) of the shares or voting rights in a

company, shall acquire, either by himself or through or

with persons acting in concert with him, additional

shares or voting rights entitling him to exercise more

than 5% of the voting rights, with post acquisition

shareholding or voting rights not exceeding fifty five per

cent., in any financial year ending on 31st March unless

such acquirer makes a public announcement to acquire

shares in accordance with the regulations.

(2) No acquirer, who together with persons acting in

concert with him holds, fifty-five per cent (55%) or more

but less than seventy-five per cent (75%) of the shares

or voting rights in a target company, shall acquire either

by himself or through or with persons acting in concert

with him any additional shares entitling him to exercise

voting rights or voting rights therein, unless he makes a

public announcement to acquire shares in accordance

with these Regulations:

Provided that in a case where the target company

had obtained listing of its shares by making an offer of

at least ten per cent (10%) of issue size to the public in

terms of clause (b) of sub-rule (2) of rule 19 of the

Securities Contracts (Regulation) Rules, 1957, or in

Civil Appeal No. 8249 of 2013 & Anr. Page 22 of 85

terms of any relaxation granted from strict enforcement

of the said rule, this sub-regulation shall apply as if for

the words and figures seventy-five per cent (75%), the

words and figures ninety per cent (90%) were

substituted.

Provided further that such acquirer may,

notwithstanding the acquisition made under regulation

10 or sub-regulation (1) of regulation 11, without making

a public announcement under these Regulations,

acquire, either by himself or through or with persons

acting in concert with him, additional shares or voting

rights entitling him upto five per cent. (5%) voting rights

in the target company subject to the following:

(i) the acquisition is made through open market

purchase in normal segment on the stock exchange

but not through bulk deal /block deal/ negotiated

deal/ preferential allotment; or the increase in the

shareholding or voting rights of the acquirer is

pursuant to a buyback of shares by the target

company;

(ii) the post-acquisition shareholding of the acquirer

together with persons acting in concert with him

shall not increase beyond seventy five percent.

(75%).

(2A) Where an acquirer who (together with persons

acting in concert with him) holds fifty-five per cent (55%)

or more but less than seventy-five per cent (75%) of the

shares or voting rights in a target company, is desirous

of consolidating his holding while ensuring that the

public shareholding in the target company does not fall

below the minimum level permitted by the Listing

Agreement, he may do so by making a public

announcement in accordance with these regulations:

Provided that in a case where the target company

had obtained listing of its shares by making an offer of

at least ten per cent (10%) of issue size to the public in

terms of clause (b) of sub-rule (2) of rule 19 of the

Securities Contracts (Regulation) Rules, 1957, or in

terms of any relaxation granted from strict enforcement

Civil Appeal No. 8249 of 2013 & Anr. Page 23 of 85

of the said rule, this sub-regulation shall apply as if for

the words and figures seventy-five per cent (75%), the

words and figures ninety per cent (90%) were

substituted.

(3) Notwithstanding anything contained in regulations

10, 11 and 12, in case of disinvestment of a Public

Sector Undertaking, an acquirer who together with

persons acting in concert with him, has made a public

announcement, shall not be required to make another

public announcement at the subsequent stage of further

acquisition of shares or voting rights or control of the

Public Sector Undertaking provided:— (i) both the

acquirer and the seller are the same at all the stages of

acquisition, and (ii) disclosures regarding all the stages

of acquisition, if any, are made in the letter of offer

issued in terms of regulation 18 and in the first public

announcement.

Explanation. — For the purposes of regulation 10

and regulation 11, acquisition shall mean and include

— (a) direct acquisition in a listed company to which the

regulations apply; (b) indirect acquisition by virtue of

acquisition of companies, whether listed or unlisted,

whether in India or abroad.

12. Acquisition of control over a company.

Irrespective of whether or not there has been any

acquisition of shares or voting rights in a company, no

acquirer shall acquire control over the target company,

unless such person makes a public announcement to

acquire shares and acquires such shares in accordance

with the regulations:

Provided that nothing contained herein shall apply to

any change in control which takes place in pursuance to

a special resolution passed by the shareholders in a

general meeting:

Provided further that for passing of the special

resolution facility of voting through postal ballot as

specified under the Companies (Passing of the

Civil Appeal No. 8249 of 2013 & Anr. Page 24 of 85

Resolutions by Postal Ballot) Rules, 2001 shall also be

provided.

Explanation — For the purposes of this regulation,

acquisition shall include direct or indirect acquisition of

control of target company by virtue of acquisition of

companies, whether listed or unlisted and whether in

India or abroad.”

D. Interpretation of Regulation 10 of the Takeover Regulations,

1997:

36. Regulation 6, a transitional provision, states that any person who

holds more than 5% shares or voting rights in a company shall,

within two months of the notification of the Takeover Regulations

1997, disclose the aggregate shareholding to the company.19 Every

company is required to, within three months of the notification of the

Takeover Regulations 1997, disclose, to all stock exchanges in

which the shares of the company are listed, the aggregate number

of shares held by such person.20 A promoter or person having

control over the company is required to, within two months, disclose

the number and percentage of voting rights held by him and the

persons acting in concert with him to the company.21 In turn, the

company is, within three months, required to disclose to all stock

exchanges in which the shares of the company are listed, the

names and addresses of the promoters or the persons having

19 Regulation 6(1) of the Takeover Regulations, 1997.

20 Ibid Regulation 6(2).

21 Ibid Regulation 6(3).

Civil Appeal No. 8249 of 2013 & Anr. Page 25 of 85

control of the company, the number and percentage of shares or

voting rights held by each such person.22

37. Regulation 7 states that any acquirer who acquires shares or voting

rights, taken together with the shares or voting rights already held

by him, which would entitle him to more than 5% or 10% or 14% or

54% or 74% shares or voting rights of the company in any manner

whatsoever, disclose at every stage, aggregate of his shareholding

or voting rights to the company and to the stock exchanges where

the shares are listed.23 Sub-regulation 1A to Regulation 7 states that

any acquirer who has acquired shares or voting rights of the

company, under sub-regulation 1 to Regulation 11 or under second

proviso to sub-regulation 2 to Regulation 11, shall disclose the

purchase or sale aggregating 2% or more of the share capital of the

target company to the target company, and to the stock exchanges

where the shares of the target company are listed within two days

of such purchase or sale along with aggregate of shareholding after

such acquisition or sale. The explanation to Regulation 7(1) and

(1A) states that the term ‘acquirer’ for sub-regulation (1) and (1A)

shall include a pledgee, other than a bank or financial institution.

Such pledgee shall make a disclosure to the target company and

22 Ibid Regulation 6(4).

23 Ibid Regulation 7(1).

Civil Appeal No. 8249 of 2013 & Anr. Page 26 of 85

the stock exchange within two days of creation of the pledge. Subregulation (2A) to Regulation 7 states that the stock exchange shall

immediately display the information received from the acquirer

under sub-regulation (1) and (1A) on the trading screen, the notice

board and also on its website. Sub-regulation (3) requires every

company whose shares are acquired in the manner referred to in

sub-regulation (1) and (1A) to disclose to all stock exchanges, on

which the shares of the said company are listed, the aggregate

number of shares held by such persons referred above, within

seven days of receipt of information under sub-regulation (1) and

(1A) of Regulation 7 of the Takeover Regulations 1997.

38. Regulation 6 exposits transparency and openness which is required

in the form of disclosure to be made by the shareholders, promoters

or a person having control over the company, as well as the

company in which they hold the shares. The information is not only

given to the stock exchanges where the shares of the company are

listed but are also put in the public domain so as to inform the

shareholders and others. Similar transparency and openness is

mandated by Regulation 7 which uses the expression ‘acquirer’,

and applies when the ‘acquirer’ acquires shares or voting rights of

the specified percentage in the company. Regulation 6 consciously

uses the terms ‘person’, ‘promoter’, or ‘a person having control over

Civil Appeal No. 8249 of 2013 & Anr. Page 27 of 85

the company’, and does not use the term ‘acquirer’, as the term

‘acquirer’ has been given, as noticed below, a specific legal

meaning by the Takeover Regulations 1997. Regulation 7, on the

other hand, expressly uses the term ‘acquirer’.

39. When we turn to Regulation 8 which deals with ‘continuous

disclosures’, the regulation uses the term ‘person’, ‘promoter’, and

‘every person having control over the company’, which are the

terms used in Regulation 6. Regulation 8 stipulates every person,

which includes the person mentioned in Regulation 6, who hold

more than 15% shares of voting rights as on 31st March shall make

a disclosure to the company within 21 days from the end of the

financial year. There is a similar stipulation in sub-regulation (2) to

regulation 8 which requires a promoter or every person having

control over a company to make a disclosure within 21 days from

the end of the financial year, as well as the record date of the

company for declaration of dividend, to make a disclosure of the

number and percentage of shares or voting rights held by him and

by persons acting in concert with him in that company to the

company. The expression ‘person acting in concert’ has been

defined in clause (e) to Section 2(1) of the Regulation, which clause

has been examined and interpreted by us subsequently, also finds

reference in the expression ‘acquirer’ defined by clause (b) in

Civil Appeal No. 8249 of 2013 & Anr. Page 28 of 85

Regulation 2 to the Takeover Regulations 1997. Every company

whose shares are listed in the stock exchange is mandated by

Regulation 8(3) to make a disclosure to all stock exchanges where

their shares are listed, within 30 days of the end of the financial year

as well as the record date for the purpose of declaration of dividend

as to the holdings of the persons covered by sub-regulations (1)

and (2) of Regulation 8. Regulation 8(4) states that every company,

whose shares are listed, shall maintain a register in the specified

format to record the information received under sub-regulation (3)

to Regulation 6, sub-regulation (1) to Regulation 7 and subregulation (2) to Regulation 8.

40. The expression ‘acquirer’, as defined in the Takeover Regulations

1997, is broad, wide and is given an expansive definition. An

‘acquirer’ is a person who directly or indirectly acquires or agrees

to acquire shares or control over the target company by himself or

with any person acting in concert with him. The phrase ‘directly or

indirectly’ as well as the expressions ‘acquired shares or voting

rights’ and ‘with any person acting in concert with the acquirer’

underlines the extensive and widespread ambit of the term

‘acquirer’. The term ‘acquirer’ is not restricted to the person or

individual shareholder as it encompasses any other person acting

in concert with the ‘acquirer’.

Civil Appeal No. 8249 of 2013 & Anr. Page 29 of 85

41. The expression ‘person acting in concert’ as defined in clause (e)

to Section 2(1) is again broad and expansive. The expression

‘person acting in concert’ as per sub-clause (1) to Clause (e)

includes a person, who for a common object or for purpose of

substantial acquisition of shares, voting rights, gaining control over

the company, pursuant to an agreement or understanding formal or

informal, directly or indirectly, cooperate by acquiring or agreeing to

acquire shares or voting rights in a target company or to take control

over a target company. Sub-clause 2 to clause (e) to Section 2(1)

incorporates legal fiction as it states that the persons enumerated

in clauses (i) to (x) shall be deemed to be persons acting in concert

with other persons in the same category. The note to sub-clause

(e) to Clause 2(1) explains the expression ‘associate’ as a relative

of the person within the meaning of Section 6 of the Companies

Act, 1956, family trust and Hindu Undivided Families. However, the

presumption raised vide sub-clause (2) to Regulation 2(1)(e) is

qualified and subject to - ‘unless the contrary is established’.

Therefore, if the contrary is established, the presumption raised

vide clauses (i) to (x) may not apply in enterity or only apply in part

limited to specific shareholder(s) or the persons mentioned in

clauses (i) to (x) who in concert acquire shares or voting rights of a

target company. The factual matrix is determinative as clause (e)

Civil Appeal No. 8249 of 2013 & Anr. Page 30 of 85

vide sub-clause (1) to Regulation 2(1) of the Takeover Regulations

1997 lays down a derivative or spin-off rule of interpretation, and

even when the presumption under sub-clause (2) arises, the

adjudicator will not apply the presumption when the fact to the

contrary are established. The presumption is to be looked as “the

bats of law, flitting in the sunlight but disappearing in the sunshine

of fact”.

42. The object of the aforesaid wide definitions is to ensure that no one

is able to dribble past and defeat the Takeover Regulations 1997

by resorting to camouflage and subterfuge.

43. Interpreting Regulation 10 the Appellate Tribunal in the case of

Madhuri S. Pitti, by referring to their earlier decision in the case of

Sunil Krishna Khaitan, has opined:

“21. The first ingredient of the regulation in question is

“acquirer”, the second is “shares or voting rights, if any,

held by him or by persons acting in concert with him”;

and the third is “entitle such acquire to exercise fifteen

percent or more of the voting rights in a company”. The

definitions of “acquirer” and “persons acting in concert”

as given in the Code of Conduct, 1997 are reproduced

below for the sake of convenience”:

“2(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,

24 Words from the Full Bench decision of the Andhra Pradesh High Court in G. Vasu v. Syed Yaseen

Sifuddin Quadri, AIR 1987 AP 139.

Civil Appeal No. 8249 of 2013 & Anr. Page 31 of 85

either by himself or with any person acting in

concert with the acquirer;

2(e) "person acting in concert" comprises, -

(1) persons who, for a common objective or purpose

of substantial acquisition of shares or voting rights

or gaining control over the target company,

pursuant to an agreement or understanding (formal

or informal), directly or indirectly cooperate by

acquiring or agreeing to acquire shares or voting

rights in the target company or control over the

target company.

(2) Without prejudice to the generality of this

definition, the following persons will be deemed to

be persons acting in concert with other persons in

the same category, unless the contrary is

established:……”

22. A simple reading of the definition of the word

“acquirer” makes it clear that an acquirer may act alone

or as part of a group of persons acting in concert. On

the other hand, the definition of “persons acting in

concert” reveals that people who cooperate with each

other in order to acquire substantial voting rights in a

particular company would be considered persons acting

in concert. At this point, we find it necessary to quote

paragraph 31 from Sunil Khaitan vs SEBI (Appeal No.

23 of 2013 decided on 19.06. 2013) mentioned herein

below:

“31. In this connection, it may also be pertinently

noted that the SAST Regulations, 1997 allow

certain persons/ entities to act in concert for the

purpose of acquisition. Even the definition of

“persons acting in concert” as provided in

Regulation 2 (e)(1) clearly provides that this

expression includes persons who agree to

cooperate with each other to acquire shares/voting

rights in a target company or control over the target

company pursuant to a formal or informal

understanding between them, directly or indirectly.

Thus, the definition is wide enough and gives ample

scope to persons to act in concert as one unit for

the purpose of acquisition of shares/voting rights.

Civil Appeal No. 8249 of 2013 & Anr. Page 32 of 85

Further, Regulation 2(e)(2) also enumerates

various persons who could act in concert and they,

inter alia, include a company, its holding company,

a subsidiary, directors, mutual fund with sponsor or

trustee, foreign institutional investors, merchant

bankers, so on and so forth. In this context, if we

look at the new SAST Regulations, 2011, we note

that Regulation 3(3) specifically provides that

acquisition of shares by any person within the

meaning of sub-regulations 3(1) and 3(2) would be

attracting the obligation to make an open offer for

acquiring shares of the target company irrespective

of its aggregate shareholding with persons acting in

concert if the shareholding of such individual person

exceeds the threshold limit prescribed by regulation

10. It is pertinent to note that such a specific and

unambiguous provision making an individual liable

to make a public offer in case the individual

shareholding increases during the course of the

acquisition even while acting in concert with other

persons is conspicuously missing in the SAST

Regulations, 1997. KLL was, therefore, not required

to make a public offer and the finding in the

Impugned Order qua appellant no. 3, i.e., KLL is

hereby set aside. At any rate, since the amendment

of the Takeover Code and the inclusion of regulation

3(3) in the SAST Regulations, 2011 the discussion

regarding the applicability of regulation 10 of the

SAST Regulations, 1997 has been rendered

academic. Having said that, in the facts and

circumstances of the present case, KLL cannot be

called upon to make an open offer by applying

regulation 3(3) of the new Takeover Code

retrospectively.”

23. Therefore, it is evident that the framers of the

Takeover Regulation, 1997 intended to bring out a clear

distinction between individual acquiring of shares on

one hand and shares acquired by persons acting in

concert on the other. The benchmark of 15% would,

thus, apply to an individual when the individual is

acquiring shares/voting rights on his behalf alone.

Similarly, when we attempt to determine whether or not

the said limit has been crossed, shareholdings of all

members of the group of persons acting in concert

would have to be reckoned as a whole. Any other

Civil Appeal No. 8249 of 2013 & Anr. Page 33 of 85

interpretation which would serve to dilute the distinction

between an individual acquirer and a group of “persons

acting in concert” as an acquirer. It would, indeed, make

the concept of “persons acting in concert” nugatory,

which could never have been the intention of the law

makers. We, therefore, find Appellant No. 3 free of any

blame with respect to provisions of regulation 10 of the

SAST Regulations, 1997 regarding his acquisitions in

the years 2006 and 2007.”

(Emphasis Added)

44. We agree with the interpretation. Regulation 10 states that no

‘acquirer’ shall acquire voting rights, which taken together with the

shares or voting rights held by him or by a ‘person acting in concert’

would entitle the ‘acquirer’ to exercise 15% or more of the voting

rights in the company, unless such ‘acquirer’ makes public

announcement to acquire shares in accordance with the

regulations. The word ‘acquirer’ used in Regulation 10 takes its

meaning from the definition clause (b) to Regulation 2(1), which

refers to the shareholder as an individual and also ‘person acting in

concert’ with the him, which expression has been very widely

defined vide clause (e) to Regulation 2(1) of the Takeover

Regulations 1997. The Appellate Tribunal has, therefore, rightly

held that the word ‘acquirer’, which is a term of art,25 should not be

restricted to shares or voting rights of the individual shareholder as

the term as defined includes the ‘person acting in concert’ with the

25 Lord Nicholls has defined the phrase ‘term of art’ in a legal sense as a term with one specific and

precise meaning for the purposes of the enactment- see Brooks Vs. Brooks (1995) 3 All ER 257.

Civil Appeal No. 8249 of 2013 & Anr. Page 34 of 85

shareholder. The shareholding/voting rights of the ‘acquirer’, that is

the individual shareholder together with the ‘person acting in

concert’ decides whether the ‘acquirer’ is required to make a public

offer/announcement in terms of Regulation 10, which applies when

the voting rights of the ‘acquirer’ before acquisition were less than

15 %, but on fresh acquisition exceed 15% of the voting rights in

the company. Regulation 10 does not apply when the collective

voting rights of the individual shareholder and the ‘person acting in

concert’, taken together is 15% or more on the date when fresh

shares or voting rights are acquired. The bracketed portion of

Regulation 10, namely “taken together with shares or voting rights,

if any, held by him or by persons acting in concert with him” affirms

and endorses this interpretation.

45. When a word/term has been defined in a statute in a particular

manner then the interpreter can assume the word/term must be

understood in the stipulated sense. The principle applies with

greater vigour when the definition of the word/term is given a legal

and substantive meaning, different from the common meaning, as

then the writer demands that the reader should understand the

term/word in the sense defined. When the content and meaning

given is technical, the interpreter is entitled to infer that the intention

of the draftsmen is to deviate and depart from the ordinary, literal

Civil Appeal No. 8249 of 2013 & Anr. Page 35 of 85

or customary meaning. Therefore, when a statutory enactment

consciously defines a word or expression by enlarging or restricting

the ordinary meaning, in the absence of clear indication to the

contrary, the term as defined shall cover what is proposed,

authorised, done or referred to in the enactment.26 This principle can

be also discarded when the definition read and applied would not

agree with the subject and context thereby making the provision

unworkable or otiose.

46. In the context of Regulation 10, we do not think that the draftsmen

had committed a mistake or had forgotten the definition clauses

while wording Regulation 10, wherein they have consciously used

the expression ‘acquirer’, after having defined the same, instead of

the word a ‘person’, which word has been used in Regulations 6

and 8 of the Takeover Regulations 1997. To accept the

interpretation given by the Board, we would have to stretch the

language of Regulation 10 and not read it as it reads, by assuming

that the intent is to apply Regulation 10 in two situations (i) when

the acquirer as a single entity, without taking into consideration the

shareholding or voting rights of the person(s) acting in concert; as

well as (ii) when the single entity together with the person(s) acting

26 Lord Lowry, Wyre Forest District Council v. The Secretary of State for Environment, 1990 2 AC 357.

Civil Appeal No. 8249 of 2013 & Anr. Page 36 of 85

in concert, acquire voting rights, and in either case to cross the

stipulation of 15% of the voting rights. But this would require us to

ignore or rewrite the word ‘acquirer’ which as defined includes the

‘person(s) acting in concert’. It defeats the object and purpose

behind the ‘term of art’ definition. Regulation 10 applies to the

‘acquirer’ acquiring voting rights, with reference to the existing

holding as a person and in concert with other persons, because the

acquisition is to be “taken together with shares or voting rights held

by the acquirer himself or by person acting in concert with him”. The

combined holding of the person and the ‘person acting in concert’

determines application of Regulation 10. If an ‘acquirer’ already

holds more than 15 % shares or voting rights in concert with other

persons, such holding is not be fragmented to calculate the shares

or voting rights of the ‘acquirer’ in his personal capacity under

Regulation 10.

47. The language and the wording of Regulation 10 clearly differs from

the language and wording of Regulation 11(1) of the Takeover

Regulations 1997. In Regulation 11(1), an acquirer, either himself

or through or with any person acting in concert with him, has 15%

or more but less than 55% shares/voting rights, is required to make

a public announcement in accordance with the Regulation when he,

either by himself or through or with persons acting in concert with

Civil Appeal No. 8249 of 2013 & Anr. Page 37 of 85

him, acquire additional shares or voting rights entitling him to

exercise more than 5% of the voting shares in addition to already

acquired shares/voting rights.

48. Thus Regulation 10 does not apply when the ‘acquirer’ already

holds more than 15% shares or voting rights in the target company.

The ‘acquirer’, for the purpose of the said Regulation, not only

means the individual person but also the ‘person acting in concert’

with the individual person. In such cases, Regulation 11(1) may

apply when the ‘acquirer’ who hold between 15% to 55% of shares

or voting rights, post the acquisition of the additional shares or

voting rights is entitled to exercise more than 5% of the voting rights.

49. The contention of the Board that the interpretation by the Appellate

Tribunal defeats the object and purpose of the Takeover

Regulations 1997 is a feeble and evanescent argument. The

interpretation, does not render Regulation 10 ineffective to deal with

cases where an individual, parts ways with the ‘person(s) acting in

concert’ to acquire shares beyond the threshold of 15% with the

intend to gain control or stake in the target company. The argument

overlooks the wording of Regulations 2(1)(b) and (e). A ‘person

acting in concert’ as defined in clause (e) to Regulation 2(1) is a

fluctuating and not a fixed body of persons. When there are

Civil Appeal No. 8249 of 2013 & Anr. Page 38 of 85

divisions and differences between or amongst the ‘person acting in

concert’, or even otherwise, an acquirer acts at his own behest or

in concert with a different persons or group, Regulation 10 may

catch up. Definitions of the terms, ‘acquirer’ and ‘person acting in

concert’ are situation and fact specific. The legal fiction vide subclause 2 to Section 2(1)(e), specifically stipulates - unless contrary

is established. Yes, there could be situations when the ‘person(s)

acting in concert’ holding more than 15% voting rights post the said

acquisition may part ways, but Regulation 10 is not attracted and

applicable to such situations. To argue that public shareholders can

predict such events and therefore the Board’s interpretation is more

acceptable is imaginative but an uncompelling and a weak

argument. Risk taking is essential to an an active market, and in

fact the secruties market thrives on legitimate changes in

management, flexibility and willingness to accept change, which

may not predicitable. Good regulation, it is said, should promote

and allow for the effective management of risk and not striffle risk

taking. Regulator should ensure that capital and other prudential

requirements are sufficient to address appropriate risk taking, and

check excessive risk taking.27 Therefore, the apprehension of the

27 See Objectives and Principles of Securties Regulation- Objectives of Securities Regulation 4.2.3

International Organisation of Securities Commissions,- May,2003.

Civil Appeal No. 8249 of 2013 & Anr. Page 39 of 85

Board, which is more in the nature of skepticism and qualm, is

misconceived and should be rejected.

50. There is ample material, and it is accepted by the Board that they

had read the expression ‘acquirer’ in Regulation 10 to mean and

include the shareholder along with ‘person acting in concert’.

Meaning thereby, there would not be any violation of Regulation 10

if the ‘acquirer’, which would include the ‘person acting in concert’,

acquires new shares or voting rights when he individually or along

with the ‘person in concert’, already hold more than 15% shares in

the target company. This interpretation was accepted and even

communicated by the Board to third parties. Adjudicating Officer(s)

have accepted this interpretation and dropped penalty proceedings,

which orders have attained finality and accepted by the Board.

Relevant portions of some communications/orders passed are

reproduced below:

1. Letter dated 22nd

February 2006 to

Nagreeka Exports Ltd.

(CFD/DCR/AK/IG/609

50/2006)

“3.0 Without necessarily agreeing with your

analysis, our views on the proposed transactions

as mentioned in para 2.0 above are as under –

……………

(iii) Regulation 10 of the Takeover Regulations

applies in case of acquisition of shares or voting

rights which taken together with shares rights, if

any, held by the acquirer or by persons acting in

concert with him, entitle such acquirer to

exercise 15°/o or more of the voting target

company. Where the shareholding of the

promoters is already more than 15°/o, this

regulation will not be triggered by acq (sic.)

additional shares by such promoters. In your

case, the promoters' shareholding in the

company is stated to be 41.95°/o. Therefore, if a

Civil Appeal No. 8249 of 2013 & Anr. Page 40 of 85

of conversion of warrants into equity shares by

promoters of the company, regulation 10 as it

exists today prevails, it will not app (sic.)

acquisition of additional equity shares.”

2. Letter dated 03rd

December 2004

written to Kanishk

Steel Industries

Limited

(CFD/DCR/AK/IG/200

“4. Without necessarily agreeing with your

analysis, the following is stated in response to

your clarifications;

a) Since the promoters of Kanishk Steel

Industries Limited and persons acting in concert

are already holding 69.55% shares regulation 10

of SEBI (Substantial Acquisition o (sic.) and

Takeover) Regulations, 1997, (said Regulations)

shall not be applicable. After the preferential

allotment of 80,00,000 shares, the shareholding

of the promoters and a (sic.) (who will also be

Persons Acting in Concerts) shall increase to

74.02%, of the post paid capital of the said

company, an increase of 4.47% which is less

than the creep (sic.) specified under regulation

11(1) of the said Regulations. Hence, regulation

11(1) of the said Regulations shall also not be

applicable.”

3. Adjudication Order

No. DSR/AO-19/2008

in the case of Jamnalal

Sons Private Ltd.

wherein the

adjudicating authority

had dropped

proceedings for

violation of Regulation

10 inter alia recording

as under:

“12. Further, upon careful examination of the

definition of acquirer as provided under SAST, it

is evident that acquisition of shares by the

acquirer means acquisition by the acquirer along

with other persons acting in concert. In the instant

case, as the acquirer admittedly belongs to the

promoter group, therefore, for determining the

triggering of

provisions of SAST, the acquisition made by the

whole promoter group should be taken into

consideration. I also note that the promoter

group's total holding increased only by 4.45% (i.e

from 40.56% to 45.01%) subsequent to the rights

issue. This increase in the promoter group's

holding is within the creeping acquisition limit (i.e

5%) as specified under

Regulation 11(1) of SAST. Therefore, the

question of claiming exemption by the acquirer

from the applicability of Regulation 11(1) of SAST

does not arise. Consequently, the question of

filing of report by the acquirer, in the facts and·

circumstances of this case, does not arise. Thus,

the allegation that the acquirer had filed the report

with a delay of 900 days is untenable and the

allegation against the acquirer does not stand

established.”

4. In the case of Himmat S. Sonewal (HUF) the adjudicating officer vide order

dated 4.2.2002 had held that the said acquirer was not guilty of violating

Regulation 10 as the acquirer with the person acting in concert were

already holding more than the prescribed percentage of shares/voting

rights in the target company.

Civil Appeal No. 8249 of 2013 & Anr. Page 41 of 85

51. Thus, the Board as well as the Adjudicating Officer have treated the

expression ‘acquirer’, for the purpose of Regulation 10, to include a

‘person acting in concert’ and the combined shareholding were

taken into consideration for deciding whether there was a breach of

Regulation 10. Where the ‘acquirer’, including the ‘person acting in

concert’, already had shares or voting rights in excess of the

prescribed limit, they were not held guilty of violating Regulation

1028

52. It is important for the regulator to be consistent and predictable.

Further regulations must be clear as ambiguous regulations cause

confusion and uncertainty. Regularity and predictability, along with

certainty, are hallmarks of good regulation and governance. These

principles underpin the ‘rule of law’, check arbitrariness and are

read as the intent of the legislation, which the Courts, if need be,

will enforce as a principle of interpretation. The Board is entrusted

to preform legislative, executive, investigative and adjudicatory

functions. A regulator when it executes statutory functions

interprets the enactment and gives meaning and, in that sense, lays

28 Under sub-section (3) to Section 15-I, the Board has the power to call for and examine records of

any proceedings if it considers the order passed by the adjudicating officer is erroneous to the extent

it is not in the interests of the securities market and after causing or making an inquiry pass an order

enhancing the quantum of penalty if the circumstances of the case so justify. The second proviso states

that an order under sub-section (3) can be passed by the Board after expiry of period of three months

from the date of the order passed by the adjudicating officer or disposal of the appeal under Section

15-T, whichever is earlier.

Civil Appeal No. 8249 of 2013 & Anr. Page 42 of 85

down what is believes is the rule. As a legislator who constructs and

states at the first instance what is the rule, the Board tacitly

promises and prophecies the interpretation that appeals to them.

Any good regulatory system must promote and adhere to principle

of certainty and consistency, providing assurance to the individual

as to the consequence of transactions forming part of his daily

affairs.

29 Lord Diplock has aptly said “unless men know what the rule

of conduct is they cannot regulate their actions to confirm to it.”

Otherwise the regulator “fails in its primary function as a rule”

maker.

30 This does not mean that the regulator/authorities cannot

deviate from the past practice, albeit any such deviation or change

must be predicated on greater public interest or harm. This is the

mandate of Article 14 of the Constitution of India which requires

fairness in action by the State, and non-arbitrariness in essence

and substance. Therefore to examine the question of inconsistency,

the analysis is to ascertain the need and functional value of the

change, as consistency is a matter of operational effectiveness.

Sometimes changes are desiable and necessary. Referring to

29 Union of India v. Raghubir Singh, (1989) 2 SCC 754. Also see, The Nature of the Judicial Process,

Benjamin N. Cardozo, page 33: “I am not to mar the symmetry of the legal structure by the introduction

of inconsistencies and irrelevancies and artificial exceptions unless for some sufficient reason, which

will commonly be some consideration of history or custom or policy or justice. Lacking such a reason,

I must be logical just as I must be impartial, and upon like grounds. It will not do to decide the same

question one way between one set of litigants and the opposite way between another.”

30 Franics Bennion, Bennion on Statutory Interpretation, Fifth Edition (Indian reprint), Section 266 at

page 801.

Civil Appeal No. 8249 of 2013 & Anr. Page 43 of 85

these aspects, in some cases, the Indian courts have applied the

doctrine of substantive legitimate expectation31 observing that the

change in policy should not be irrational or perverse or one which

no reasonable person could have made. In other words, principles

of Wednesbury’s reasonableness would apply. Such a principle

stems, but is somewhat different from the foundational idea of

procedural legitimate expectation, which applies where a particular

mode is prescribed for doing an act and there is no impediment in

adopting the procedure, the deviation to act in similar manner

without any reasonable principle, can be labelled as arbitrary.32

53. In Punjab Communications Ltd. v. Union of India and Others,

it is observed that for a legitimate expectation to arise, the decisions

of the administrative authority must affect the person by depriving

him of some benefit or advantage which he had in the past been

permitted by the decision-maker to enjoy, and which he can

legitimately expect to be permitted to continue to do until he has

been communicated some rational grounds for withdrawing it and

31 See, Council of Civil Service Unions v. Minister for the Civil Service, 1985 AC 374, wherein it was

observed in that case that for a legitimate expectation to arise, the decisions of the administrative

authority must affect the person by depriving him of some benefit or advantage which either (i) he had

in the past been permitted by the decision-maker to enjoy and which he can legitimately expect to be

permitted to continue to do until there has been communicated to him some rational grounds for

withdrawing it on which he has been given an opportunity to comment; or (ii) he has received assurance

from the decision-maker that they will not be withdrawn without giving him first an opportunity of

advancing reasons for contending that they should not be withdrawn.

32 Bannari Amman Sugars Ltd. v. Comercial Tax Officers and Others, (2005) 1 SCC 625.

33 (1999) 4 SCC 727

Civil Appeal No. 8249 of 2013 & Anr. Page 44 of 85

he has been given an opportunity to comment. It also means that

the assurance given by the decision maker will not be withdrawn,

without giving him an opportunity of advancing reasons to contend

that they should not be withdrawn. Reference can also be made to

a recent decision of this Court in State of Jharkhand and Others

v. Brahmputra Metallics Ltd., Ranchi and Another 34 wherein

reference was made to earlier judgment in National Buildings

Construction Corporation v. S. Raghunathan and Others 35 to

reiterate that claims based on legitimate expectations have been

held to acquire reliance on the representations and resulting

detriment to the complainant in the same way as claims based on

promissory estoppel.

54. In the context of the present case, it is to be noted that the Board is

the draftsman of the legislation having enacted the Takeover

Regulations 1997 and hence, their interpretation and

understanding of the Regulations is of importance and relevance.

In the context of the present case, the Board, nearly five years after

the transactions, had issued the show-cause notice and then

passed an order taking a view on interpretation of Regulation 10,

which was contrary to the view expressed by it in several

34 (2020) SCC Online SC 968

35 (1998) 7 SCC 66

Civil Appeal No. 8249 of 2013 & Anr. Page 45 of 85

communications as also orders passed by the adjudicating

authority.Past is passe and not present, and by giving ‘retroactive’

operation without good reason and ground36, the direction violates

fundamental notions of predictability and legal stability.37

55. We also feel that the principle of doubtful penalisation would be

applicable in the present case. Way back in 1955, this Court in

Tolaram Relumal and Another v. State of Bombay38 had held

that it is a well settled rule of construction of penal statutes that if

two views and reasonable constructions can be put on a provision,

the court must lean in favour of construction which exempts the

subject from penalty rather than one which imposes penalty.39 In

Bipinchandra Parshottamdas Patel (Vakil) v. State of Gujarat

and Others,

40 a three Judges’ Bench of this Court had referred to

this principle and quoted the following passage from Mohammad

36 See our findings below.

37 Methew P. Harrington: Foreward: The Dual Dichotomy of Retroactive Lawmaking.

38 (1955) 1 SCR 158

39 Ibid, para 8: “The question that needs our determination in such a situation is whether Section 18(1)

makes punishable receipt of money at a moment of time when the lease had not come into existence,

and when there was a possibility that the contemplated lease might never come into existence. It may

be here observed that the provisions of Section 18(1) are penal in nature and it is a well-settled rule of

construction of penal statutes that if two possible and reasonable constructions can be put upon a

penal provision, the court must lean towards that construction which exempts the subject from penalty

rather than the one which imposes penalty. It is not competent to the court to stretch the meaning of

an expression used by the legislature in order to carry out the intention of the legislature. As pointed

out by Lord Macmillan in London and North Eastern Railway Co. v. Berriman [1946 AC 278, 295]

“where penalties for infringement are imposed it is not legitimate to stretch the language of a rule,

however, beneficient its intention, beyond the fair and ordinary meaning of its language”.

40 (2003) 4 SCC 642

Civil Appeal No. 8249 of 2013 & Anr. Page 46 of 85

Ali Khan and Others v. Commissioner of Wealth Tax, New

Delhi,

41 which reads:

“6. It is a cardinal principle of construction that the words

of a statute are first understood in their natural, ordinary

or popular sense and phrases and sentences are

construed according to their grammatical meaning

unless that leads to some absurdity or unless there is

something in the context or in the object of the statute

to suggest the contrary. It has been often held that the

intention of the legislature is primarily to be gathered

from the language used, which means that attention

should be paid to what has been said as also to what

has not been said. As a consequence a construction

which requires for its support addition or substitution of

words or which results in rejection of words as

meaningless has to be avoided. Obviously the

aforesaid rule of construction is subject to exceptions.

Just as it is not permissible to add words or to fill in a

gap or lacuna, similarly it is of universal application that

effort should be made to give meaning to each and

every word used by the legislature.”

Reference was thereafter made to Francis Bennion’s

Statutory Interpretation which observes that the principle of doubtful

penalisation, often limited to criminal statutes, in fact, extends to

any form of detriment. The jurist has opined that it is a principle of

legal policy that a person should not be penalised except under

clear law. We, when considering in relation to the facts of the instant

case, wherein the opposing constructions of the enactment is

possible, should presume that the legislature intended to observe

this principle. The courts, therefore, try to avoid adopting a

41 (1997) 3 SCC 511

Civil Appeal No. 8249 of 2013 & Anr. Page 47 of 85

construction which penalises a person where the legislature’s

intention to do so is doubtful.

56. We would quote Section 278 from the Bennion on Statutory

Interpretation, 5th Edition, Indian Reprint, which reads as under:

“Section 278. Statutory interference with economic

interests

One aspect of the principle against doubtful

penalisation is that by the exercise of state power the

property or other economic interests of a person should

not be taken away, impaired or endangered, except

under clear authority of law.”

In the comments in Section 278 of the treatise, it is stated that

the presumption against imposition of statutory detriment to a

person’s property or other economic interest has been recognised

and explained in Entick v. Carrington42 by Brat C.J. in the following

words:

“The great end for which men entered into society was

to secure their property. That right is preserved sacred

and incommunicable in all instances where it has not

been abridged by some public law for the good of the

whole.”

57. The principle of doubtful penalisation has limited value when

interpreting beneficial or remedial statutes where the adjudicator

may adopt a liberal and a purposive interpretation.43 The principle

42 (1765) 19 State Tr 1029 at 1060.

43 Franics Bennion, Bennion on Statutory Interpretation, Fifth Edition (Indian reprint), Section 271 at

page 827.

Civil Appeal No. 8249 of 2013 & Anr. Page 48 of 85

can be ignored when other interpretative factors, like interest of

public law and good of the society, weigh heavily to tilt the scales

against application of the principle.44 The law of interpretation and

court decisions applying the law of interpretation recognise

pluralism in interpretation.45 Legal meaning of the enactment/

provision in question often involves applications of divergent

principles, rules, cannons and presumptions, which are resolved by

weighing and balancing the conflicting interpretative criteria and

factors.46 Clearly, a straitjacket approach should not be adopted

without reference to the context, the subject matter and the object

of the provision. Only then the court can interpret and give meaning

which the legislature wanted to achieve and convey.

58. We have already, while referring to the principle of legitimate

expectation, referred to the exceptions when the court may not

apply the said principle.

44 See Her Majesty The Queen ex rel. Linda Merk v. International Association of Bridge, Structural,

Ornamental and Reinforcing Iron Workers, Local 771, 2005 SCC 70; R. v. Hasslewander, [1993] 2

S.C.R. 398; R. v. Goulis (1981), 125 D.L.R. (3d) 137; Sullivan, Ruth. Sullivan and Driedger on the

Construction of Statutes, 4th ed. Markham, Ont.: Butterworths, 2002 at page 387: “The rule [of strict

construction] is difficult to reconcile with federal and provincial Interpretation Acts which provide that

all legislation is to be deemed remedial and given a liberal and purposive interpretation. In the clearest

possible language, this statutory directive requires doubts and ambiguities in penal legislation to be

resolved in a manner that promotes the purpose of the legislation, regardless of the impact on accused

persons.”; Côté, Pierre‑André. The Interpretation of Legislation in Canada, 3rd ed. Scarborough, Ont.:

Carswell, 2000 at page 477; Graham, Randal N. Statutory Interpretation: Theory and Practice.

Toronto: Emond Montgomery, 2001. at pp. 210-15.

45 Franics Bennion, Bennion on Statutory Interpretation, Fifth Edition (Indian reprint).

46 Ibid.

Civil Appeal No. 8249 of 2013 & Anr. Page 49 of 85

59. The Board has drawn our attention to the decision of this Court in

Swedish Match (supra) wherein Mr. Justice S.B. Sinha, who is also

the author of the judgment in Bipinchandra (supra), had not

applied the principle of doubtful penalisation with reference to

Regulation 11 of the Takeover Regulations 1997. The Hon’ble

Judge in Swedish Match (supra) has explained that in the said

case there was a clear violation and failure on the part of the

persons statutorily obliged to comply with the imperative statutory

provisions. With reference to this decision, the Board had referred

to one line in paragraph 7747 which refers to Regulation 10 and

states that the same would apply as no public announcement was

made in its compliance. It is to be noted that Regulation 10 was not

invoked by the Board in Swedish Match (supra) and its violation

was not alleged. In the subject appeal before this Court in Swedish

47 “77. With a view to advert to the question, the admitted facts may be noticed: Swedish Match

Singapore agreed to acquire majority shareholding in Haravon and Seed subsequent to 17-12-1997

wherefor the public offer was made. SMS comprising Haravon and Seed had 28.28% and 10.33%

whereas the Jatia Group comprising AVP and Plash had 5% and 15% respectively whereas

public/others had 41.39% shares. In concert with each other the two groups acquired shares from

public. On or about 25-8-1999 by acquiring preferential shares the Swedish Match Group obtained

52.11% and the Jatia Group obtained 24.11% as a result whereof in Wimco the shares held by

public/others came down to 23.78%. Both the Swedish Group and the Jatia Group were exercising

joint control. By reason of the Jatia Group opting out of the joint control by transfer of shares in favour

of Swedish Match Singapore, a subsidiary of Swedish Match AB (a part of the Swedish Match Group)

obtained 74% of shares whereas Haravon — 46.18%, Seed — 5.93% and SMS — 21.89%. Thus, the

extent of shares of the Jatia Group came down to 2.22%. The Jatia Group sold its shares to the public

as a result whereof shares of the public became 23.78%. SMS is a subsidiary of the Singapore Match

Group. Swedish Match is the holding company being the owner of 100% shares of SMS. It stands

categorically admitted by the appellants herein that acquisition of shares from the Jatia Group in favour

of SMS was done by the Swedish company as a group and not as an individual company. Factually,

therefore, it is not correct to contend, although in its notice dated 28-1-2002, SEBI had given indication

thereof, that SMS had acquired 21.89% shares of its own. Even if SMS had done so, Regulation 10

would apply as no public announcement was made therefor.”

Civil Appeal No. 8249 of 2013 & Anr. Page 50 of 85

Match (supra), reliance was placed on Regulation 12 to get over

the mandate of Regulation 11, which contention was rejected. One

stray sentence in paragraph 77 that Regulation 10 would apply

should not be read as ratio decidendi of the said decision and as a

finding on the interpretation of Regulation 10.48 Decision dated 25th

July 2012 of the Appellate Tribunal in Hanumesh Realtors Private

Limited v. Securities and Exchange Board of India49 is per

incuriam as it has referred to the decision in Swedish Match

(supra), which decision relates to and interprets Regulation 11(1).

In the present reasoning, we are not dealing and interpreting

Regulation 11(1) but Regulation 10 of the Takeover

Regulations,1997.

60. Contention of the Board that there is no estoppel against law is well

known, but the said principle is not applicable for several reasons.

First, the interpretation accepted by the Appellate Tribunal is not

only plausible but more acceptable than the interpretation

propounded by the Board. Secondly, the Board, which has the

48 See Natural Resources Allocation, In re, Special Reference No. 1 of 2012, (2012) 10 SCC 1:

“70. Each case entails a different set of facts and a decision is a precedent on its own facts; not

everything said by a Judge while giving a judgment can be ascribed precedential value. The essence

of a decision that binds the parties to the case is the principle upon which the case is decided and for

this reason, it is important to analyse a decision and cull out from it the ratio decidendi……..

73. It is also important to read a judgment as a whole keeping in mind that it is not an abstract academic

discourse with universal applicability, but heavily grounded in the facts and circumstances of the case.

Every part of a judgment is intricately linked to others constituting a larger whole and thus, must be

read keeping the logical thread intact……….”

49 Before Securities Appellate Tribunal, Mumbai, Appeal No. 66 of 2012, Date of Decision: 25.07.2012.

Civil Appeal No. 8249 of 2013 & Anr. Page 51 of 85

power to enact the Regulations, interpret and apply them,

adjudicate and also pass a penalty order in case of violation for

good and substantial reasons had interpreted regulations in the

same manner in earlier instances as interpreted by the Appellate

Tribunal. Thirdly, the adjudication orders in the present case were

passed well after the Takeover Regulations 1997 were repealed

with the enactment and enforcement of the Takeover Regulations

2011. In the present case, therefore, we are dealing with a legacy

issue. Regulation 10 of the Takeover Regulations 1997, as

interpreted and applied by the Board for over ten years, is sought

to be overturned by the Board, thereby, creating penal

consequences. This should not be permitted and is hardly

acceptable when we apply the principle of good governance and

regulation.

61. The argument of the Board that Takeover Regulations 2011 are

retrospective is to be only noted and rejected. The impugned order

passed by the Appellate Tribunal in the case of Madhur S Pitti

(Appeal No. 2 of 2013) specifically records that the Board had

conceded that Takeover Regulations 2011 do not have any

retrospective application.50 The contention that Takeover

50 “27. We agree with the Respondent to the extent that the SEBI Act is certainly a social welfare

legislation. But this does not take away from the undeniable fact that Regulations 3(3) of the SAST

Regulations, 2011 introduced the provision stating that even in case of an individual’s shareholding

Civil Appeal No. 8249 of 2013 & Anr. Page 52 of 85

Regulations 2011 are clarificatory and, therefore, retrospective is

ex facie fallacious and untenable. Regulation 3(3) of Takeover

Regulations 2011 specifically postulate as under:

“3. Substantial acquisition of shares or voting rights.

xx xx Xx

(3) For the purposes of sub-regulation (1) and subregulation (2), acquisition of shares by any person, such

that the individual shareholding of such person

acquiring shares exceeds the stipulated thresholds,

shall also be attracting the obligation to make an open

offer for acquiring shares of the target company

irrespective of whether there is a change in the

aggregate shareholding with persons acting in concert.”

62. In the aforesaid background, on the enforcement of Takeover

Regulations 2011, it is clear that Regulation 10 will apply on an

acquirer who crosses the threshold of 15%, which under the

Takeover Regulations 2011, has been increased to 25%. Further,

Regulation 10 would apply both when an individual acquirer or an

acquirer in concert with others acquires shares or voting rights

beyond the threshold level and such an acquirer would have to

comply with the applicable regulation. Takeover Regulations 1997

and Takeover Regulations 2011, therefore, postulate different

crossing the stipulated threshold, which is now 25%, the need to make a public offer shall arise. The

Respondent has in all fairness has agreed that the new Takeover Code of 2011 does not apply

retrospectively.”

We may observe that SEBI Act is not a social welfare legislation but an eco-legal legislation and,

therefore, must be interpreted pragmatically taking into account the commercial practices, interest of

the investors/shareholders and also without ignoring the difficulties of the persons in control of the

company. Competing interests, rights and obligations have to be balanced.

Civil Appeal No. 8249 of 2013 & Anr. Page 53 of 85

preconditions and thresholds. Reliance placed upon the Takeover

Regulatory Advisory Committee Report would show that there was

a rethought and re-examination of Regulation 10 pursuant to which

Regulation 3(3) was enacted and made a part of the regulatory

mechanism under the Takeover Regulations 2011.

63. It is a general rule of law of interpretation that unless explicitly

mentioned, a law cannot be presumed to be retrospective. In

Commissioner of Income Tax, (Central) -I, New Delhi v. Vatika

Township Private Ltd.,

51 a constitution bench decision, this court

observed that:

“31. Of the various rules guiding how a legislation has

to be interpreted, one established rule is that unless a

contrary intention appears, a legislation is presumed

not to be intended to have a retrospective operation.

The idea behind the rule is that a current law should

govern current activities. Law passed today cannot

apply to the events of the past. If we do something

today, we do it keeping in view the law of today and in

force and not tomorrow’s backward adjustment of it……

32. The obvious basis of the principle against

retrospectivity is the principle of 'fairness’, which must

be the basis of every legal rule as was observed in the

decision reported in L’Office Cherifien des Phosphates

v. Yamashita-Shinnihon Steamship Co. Ltd. Thus,

legislations which modified accrued rights or which

impose obligations or impose new duties or attach a

new disability have to be treated as prospective unless

the legislative intent is clearly to give the enactment a

retrospective effect; unless the legislation is for purpose

of supplying an obvious omission in a former legislation

or to explain a former legislation….”

51 (2015) 1 SCC 1.

Civil Appeal No. 8249 of 2013 & Anr. Page 54 of 85

Further, in the absence of express statutory authorisation,

delegated legislation in the form of rules or regulations, cannot

operate retrospectively.

52 Certainly, Regulation 3(3) in the Takeover

Regulations 2011 clarified and possibly removed the shortcoming

of the 1997 Regulations. However, the language of Regulation 3(3)

as reproduced above is apparently not of clarificatory or declaratory

nature.53

E. Regulation 11 and the penalty under Regulations 44 and 45 of

the Takeover Regulations 1997:

64. The impugned order in Appeal No. 23 of 2013 (Sunil Krishna

Khaitan case) dismisses the appeal preferred by the respondents

and thereby affirms the order holding the respondents guilty of

violation of Regulation 11(1) of the Takeover Regulations 1997. The

respondents have not filed appeals or cross objections challenging

the said finding of the Appellate Tribunal. Hence, we are not

required to and would not comment on the findings recorded by the

Appellate Tribunal on violation of Regulation 11(1) of the Takeover

52 Assitant Excise Commr, Kottayam and Others. v. Esthappan Cherian and Another, (2021) 10 SCC

210. Also see, Income Tax Officer, Alleppey v M.C. Ponnose and Others, 1970 SCR (1) 678; Hukum

Chand Etc. v Union of India and Others, (1973) 1 SCR 896; Regional Transport Officer,Chittoor and

Others v. Associated Transport Madras (P) Ltd. and Others, (1980) 4 SCC 597; Federation of Indian

Mineral Industries and Others v Union of India and Another, (2017) 16 SCC 186 and Union of India

and Others v G.S. Chatha Rice Millsand Another, (2021) 2 SCC 209.

53 See L.R. Brothers Indo Flora Ltd. v. Commissioner of Central Excise, 2020 SCC OnLine SC 705,

Commissioner of Income Tax (Central)-I, New DelhiI v. Vatika Township (P) Ltd., (2015) 1 SCC 1 and

Union of India and Another v. Indusind Bank Ltd. and Another, (2016) 9 SCC 720.

54 In Civil Appeal No. 1762 of 2014 (Madhuri S. Pitti’s case), as per the findings recorded by the

Appellate Tribunal, violation of Regulation 11(1) was not alleged and made the basis of the letter dated

17th December 2012.

Civil Appeal No. 8249 of 2013 & Anr. Page 55 of 85

Regulations 1997. We proceed on the basis that the respondents

are guilty and have failed to make public announcement within

stipulated timeline as per the Takeover Regulations 1997.

65. As noticed above, the contention of the Board is that the Appellate

Tribunal should not have modified the direction given by the Whole

Time Member obligating public announcement with the monetary

penalty of Rs. 25,00,000/-.

66. Regulations 44 and 45 of the Takeover Regulations 1997 read thus:

“44. Directions by the Board.

Without prejudice to its right to initiate action under

Chapter VIA and section 24 of the Act, the Board may,

in the interest of securities market or for protection of

interest of investors, issue such directions as it deems

fit including:

(a) directing appointment of a merchant banker for the

purpose of causing disinvestment of shares acquired in

breach of regulation 10, 11 or 12 either through public

auction or market mechanism, in its entirety or in small

lots or through offer for sale;

(b) directing transfer of any proceeds or securities to the

Investors Protection Fund of a recognised stock

exchange;

the shares where an acquisition of shares pursuant to

an allotment is in breach of regulation 10, 11 or 12;

(d) directing the target company or the depository not to

give effect to transfer or further freeze the transfer of

any such shares and not to permit the acquirer or any

nominee or any proxy of the acquirer to exercise any

Civil Appeal No. 8249 of 2013 & Anr. Page 56 of 85

voting or other rights attached to such shares acquired

in violation of regulation 10, 11 or 12;

(e) debarring any person concerned from accessing the

capital market or dealing in securities for such period as

may be determined by the Board;

(f) directing the person concerned to make public offer

to the shareholders of the target company to acquire

such number of shares at such offer price as

determined by the Board;

(g) directing disinvestment of such shares as are in

excess of the percentage of the shareholding or voting

rights specified for disclosure requirement under

regulation 6, 7 or 8;

(h) directing the person concerned not to dispose of

assets of the target company contrary to the

undertaking given in the letter of offer;

(i) directing the person concerned, who has failed to

make a public offer or delayed the making of a public

offer in terms of these regulations, to pay to the

shareholders, whose shares have been accepted in the

public offer made after the delay, the consideration

amount along with interest at the rate not less than the

applicable rate of interest payable by banks on fixed

deposits.

45. Penalties for non-compliance.

(1) Any person violating any provisions of the

regulations shall be liable for action in terms of the

regulations and the Act.

(2) If the acquirer or any person acting in concert with

him, fails to carry out the obligations under the

regulations, the entire or a part of the sum in the escrow

account shall be liable to be forfeited and the acquirer

or such a person shall also be liable for action in terms

of the regulations and the Act.

Civil Appeal No. 8249 of 2013 & Anr. Page 57 of 85

(3) The board of directors of the target company failing

to carry out the obligations under the regulations shall

be liable for action in terms of the regulations and the

Act.

(4) The Board may, for failure to carry out the

requirements of the regulations by an intermediary,

initiate action for suspension or cancellation of

registration of an intermediary holding a certificate of

registration under section 12 of the Act: Provided that

no such certificate of registration shall be suspended or

cancelled unless the procedure specified in the

regulations applicable to such intermediary is complied

with.

(5) For any mis-statement to the shareholders or for

concealment of material information required to be

disclosed to the shareholders, the acquirers or the

directors where the acquirer is a body corporate, the

directors of the target company, the merchant banker to

the public offer and the merchant banker engaged by

the target company for independent advice would be

liable for action in terms of the regulations and the Act.

(6) The penalties referred to in sub-regulations (1) to (5)

may include:—

(a) criminal prosecution under section 24 of the Act;

(b) monetary penalties under section 15H of the Act;

Act;

(d) directions under section 11(4) of the Act;

(e) cease and desist order in proceedings under section

11D of the Act;

(f) adjudication proceedings under section 15HB of the

Act.”

Civil Appeal No. 8249 of 2013 & Anr. Page 58 of 85

67. It may be also relevant to reproduce here Sections 15-H and 15-I,

which form part of Chapter-VIA, of the Act, which read thus:55

“15H. Penalty for non-disclosure of acquisition of

shares and take-overs -

If any person, who is required under this Act or any rules

or regulations made thereunder, fails to,-

(i) disclose the aggregate of his shareholding in the

body corporate before he acquires any shares of that

body corporate; or

(ii) make a public announcement to acquire shares at a

minimum price;

(iii) make a public offer by sending letter of offer to the

shareholders of the concerned company; or

(iv) make payment of consideration to the shareholders

who sold their shares pursuant to letter of offer,

he shall be liable to a penalty twenty-five crore rupees

or three times the amount of profits made out of such

failure, whichever is higher.

15I. Power to adjudicate -

(1) For the purpose of adjudging under sections 15A,

15B, 15C, 15D, 15E, 15F, 15G, 15H, 15HA and 15HB,

the Board shall appoint any of its officers not below the

rank of a Division Chief to be an adjudicating officer for

holding an inquiry in the prescribed manner after giving

any person concerned a reasonable opportunity of

being heard for the purpose of imposing any penalty.

(2) While holding an inquiry, the adjudicating officer

shall have power to summon and enforce the

attendance of any person acquainted with the facts and

circumstances of the case to give evidence or to

produce any document which in the opinion of the

55 As they existed during the relevant time period for this case.

Civil Appeal No. 8249 of 2013 & Anr. Page 59 of 85

adjudicating officer, may be useful for or relevant to the

subject matter of the inquiry and if, on such inquiry, he

is satisfied that the person has failed to comply with the

provisions of any of the sections specified in subsection (1), he may impose such penalty as he thinks fit

in accordance with the provisions of any of those

sections.”

68. Regulation 44 states that the Board, without prejudice to their rights

to initiate action under Chapter VI-A56 and Section 2457 of the Act,

may in the interest of the securities market or for protection of the

interests of the investors, issue such directions as it may deem fit.

Thereafter, it specifies certain directions in clauses (a) to (i), using

the word ‘including’, which implies that the directions issued by the

Board can include the directions given in clauses (a) to (i), albeit

the Board may issue directions even beyond what is stated in

clauses (a) to (i). Thus, the Board’s power to give directions is wide.

This is also clear from the relevant provisions of the Act, namely,

Section 11 and 11B and Sections 11(2)(h), which read:

“11. Functions of Board. – (1) Subject to the provisions

of this Act, it shall be the duty of the Board to protect the

interest of investors in securities and to promote the

development of, and to regulate the securities market,

by such measures as it thinks fit.

xx xx Xx

11-B. Power to issue directions. – Save as otherwise

provided in section 11, if after making or causing to be

56 Chapter VI-A: “Penalties and Adjudication” (Section 15A to 15JA)

57 Section 24: “Offences”

Civil Appeal No. 8249 of 2013 & Anr. Page 60 of 85

made an enquiry, the Board is satisfied that it is

necessary –

(i) in the interest of investors, or orderly development of

securities market; or

(ii) to prevent the affairs of any intermediary or other

persons referred to in section 12 being conducted in a

manner detrimental to the interest of investors of

securities market; or

(iii) to secure the proper management of any such

intermediary or person, it may issue such directions –

(a) to any person or class of persons referred to in

section 12, or associated with the securities market;

(b) to any company in respect of matter specified in

section 11-A, As may be appropriate in the interests

of investors in securities and the securities market.

xx xx Xx

11(2) Without prejudice to the generality of the foregoing

provisions, the measures referred to therein may provide

for:

(h) Regulating substantial acquisition of shares and takeover of companies;”

69. The use of the word ‘may’ in Regulation 44 and the wording of

Sections 11(1), 11B and 11(2)(h) reflect that the Board has been

conferred a discretion, which in turn also means and should be

interpreted as imposing a duty, an aspect which we will elucidate in

the subsequent paragraphs. Use of the word ‘may’ over the years

is normally construed as permissive and not imperative. The words

‘may’ or ‘shall’ by their very etymological foundation denote

Civil Appeal No. 8249 of 2013 & Anr. Page 61 of 85

discretion and mandatory nature of an act respectively. This Court

has, therefore, held that the courts should not readily interpret the

word ‘may’ as ‘shall’ unless such interpretation is necessary to

avoid absurdity, inconvenient consequences or as mandated by the

intent of the legislature which is gathered from the other parts of the

statute.58

70. Use of the word ‘may’ and not ‘shall’ in Regulation 44 is significant.

It is not mandatory that in case of every violation and breach of

Regulations 10, 11 and 12, direction under Regulation 44 shall be

issued. The interpretation gets fortified in view of the words and

object of the Regulation 44 which empowers the Board to issue

directions as it deems fit. Section 11(1), while broadly defining the

functions of the Board, states that it is the duty of the Board to

protect interest of investors in securities and to promote the

development of, and regulate the securities market by such

measures as it thinks fit. Section 11B, which deals with the power

of the Board to give directions, states that the Board, after making

or causing an inquiry, may issue directions if it is satisfied that it is

necessary in the interest of the investors, or orderly development of

58 See Official Liquidator v. Dharti Dhan (P) Ltd., (1977) 2 SCC 166; Dinesh Chandra Pandey v. High

Court of Madhya Pradesh and Another, (2010) 11 SCC 500; Mohan Singh and Others v. International

Airport Authority of India and Others, (1997) 9 SCC 132. Also see, Rajender Mohan Rana and Others

v. Prem Prakash Chaudhary and Others, 2011 SCC OnLine Del 3684.

Civil Appeal No. 8249 of 2013 & Anr. Page 62 of 85

the securities market; to prevent the affairs of any intermediary or

other persons referred to in Section 12 from conducting affairs in a

manner detrimental to the interest of the investors or to secure

proper management of such intermediary or persons. Section

11(2)(h) provides that the Board is entitled to take measures for

regulating substantial acquisition of shares and takeover of

companies. Regulation 44 states that the Board while issuing

directions, has to keep in mind the interest of the securities market

and its role as a protector of interest of investors. We will read the

word ‘or’ between the expression ‘in the interest of securities market

or protection of investors’ as ‘and’. The Board, therefore, when it

decides to exercise its power under Regulation 44 and issues

directions under the said Regulation has to keep the two facets in

mind, namely, (i) interest of the securities market; and (ii) protection

of interest of the investors. The exercise of discretion of the Board,

in fact, would not be restricted to the two facets mentioned above

as the power and functions of the Board are far broader as they

include promotion, development and regulation of securities market

as a whole and regulating substantial acquisition of shares and

takeover of companies.

71. Discretion is an effective and an important tool which the legislature

confers and vests with the executive for effective and good

Civil Appeal No. 8249 of 2013 & Anr. Page 63 of 85

governance, administration, and in the present case – regulation,

of the securities market which has complex commercial and

economic facets. Therefore, the law provides an option to the Board

and the authorities to adopt one or the other alternatives. However,

this does not mean that the Board or the authorities enjoy

unfettered and unchecked discretionary jurisdiction to act according

to private or personal opinion in a vague and fanciful manner.59

Discretion, when of wide amplitude, and when it can have civil and

penal consequences, must be exercised in a legal and regular

manner.60 Exercise of discretion is always governed by rules, which

means that the exercise of discretion should be fair and reasonable

as the legislature while conferring discretion never intends that the

authorities would not act whimsically, arbitrarily, but on the precept

that they shall act only when it appears to be necessary in public

interest.61 Legal exercise of discretion is one, where the authority

examines and ascertains the facts, is aware of the law, and then

decides objectively and rationally what serves the interest better.

This is true even when the statutes are silent and only the power is

conferred to act in one way or the other. Reasonableness as a

59 Sharpe v. Wakefield, [1891 AC 173]. Also see, Sant Raj and Another v. O.P. Singla and Another,

(1985) 2 SCC 349 at para 4 and S.G. Jaisinghani v. Union of India and Others, AIR 1967 SC 1427.

60 Clariant International Ltd. and Another v. Securities and Exchange Board of India, (2004) 8 SCC 524

at para 26.

61 Banglore Medical Trust v. B.S. Muddappa and Others, (1991) 4 SCC 54 at para 46 and 48.

Civil Appeal No. 8249 of 2013 & Anr. Page 64 of 85

standard is tested by reference to the community standards at the

time of exercise of discretion. This means that discretion should be

exercised within the limit to which an honest man competent to

discharge his office ought to confine himself.62 It will be also true to

state that the greater the harm or penal consequences, greater is

the duty and obligation of the public authority to ensure that

discretion is used as an effective tool in regulation or administration

but does not cause confusion, chaos and instability.

72. In the context of Regulations 44 and 45, it implies that the Board

has the power to make a choice between different courses of action

or inaction. This choice is not unfettered but is always held subject

to implied limitations inherent in every statute, limitations set by the

common law and the constitutional mandate of rule of law. The

underlying rationale of giving discretion is to ensure that the Board

exercises the discretion in consonance with legitimate values of

public law, which include need to maintain legal certainty and

consistency which are at the heart of the principle of rule of law.63

These have to be balanced with other equally legitimate public law

62 Sharpe v. Wakefield, [1891 AC 173]: “according to the rules of reason and justice, not according to

private opinion;…according to law and not humor. It is to be, not arbitrary, vague and fanciful, but legal

and regular. And it must be exercised within the limit, to which an honest man competent to the

discharge of his office ought to confine himself.”

63 De Smith’s Judicial Review, 7th Edition, Sweet and Maxwell (South Asian Edition) at Heading 9-005

on page 515.

Civil Appeal No. 8249 of 2013 & Anr. Page 65 of 85

value, which is the object and purpose of the enactment. The need

for the said flexibility is given and is necessary to meet unusual and

practical situations and to do justice in a particular case.64 The

remedial order passed by the Board as the regulator must also

meet the said parameters in addition to meeting the requirements

of the enactment.

73. Clearly, therefore, Regulation 44 differs from Section 15-H, which

is somewhat a strict liability provision that applies if a person fails

to comply with the clauses (i) to (iv). It may be, however, noted that

Section 15-H prescribes the lower as well as the higher monetary

penalty limits. These stipulations have undergone modifications

and changes from time to time. As per the amendments made by

Act No. 59 of 2002, with retrospective effect from 29th October 2002,

the penalty which can be imposed is not to be less than Rs.

10,00,000/- but may extend up to Rs. 25,00,00,000/- or three times

the amount of profits made out of such failure, whichever is higher.

The phase ‘profits made out of such failure’ in Section 15-H

indicates that while imposing quantum of penalty the authority

should consider the profit made by the acquirer on account of failure

64 C. Hilson, ‘Judicial Review, Policies and the Fettering of Discretion” [2002] P.L. 111; D. Galligan,

‘The Nature and Functions of Policy Within Discretionary Power’ [1976] P.L. 332.

Civil Appeal No. 8249 of 2013 & Anr. Page 66 of 85

to comply with the requirements mentioned in clauses (i) to (iv) of

Section 15-H.

74. Reference in this regard is also to be made to Section 15-I, which

has been quoted above. It states that the person concerned has to

be given a reasonable opportunity of being heard for the purpose

of imposing any penalty. The adjudicating officer has the power to

summon and enforce attendance of any person acquainted with the

facts and circumstances of the case to give evidence or produce

documents which, in the opinion of the adjudicating officer, would

be useful or relevant to the subject matter of enquiry. Lastly, the

adjudicating authority should be satisfied that the person has failed

to comply with the provisions of the section specified in sub-section

(1).65

75. In this context, reliance placed by the Board on the judgments

which relate to and arise from the orders passed by the adjudicating

officer under Chapter VI-A of the Act are of no relevance, as

Regulation 44 is a discretionary power and not mandatory in nature.

Not only this, the directions under Regulation 44 are required to be

65 Sub-section (3) empowers the Board to call for and examine records of any proceedings under this

Section and if it considers the order passed by the adjudicating authority is erroneous to the extent it

is not in the interest of the securities market, it may, after making or causing an inquiry to be made,

pass an order enhancing the quantum of penalty. The order under sub-section (3) can be passed within

a period of three months from the date of order passed by the adjudicating authority or disposal of the

appeal under Section 15-T, whichever is earlier.

Civil Appeal No. 8249 of 2013 & Anr. Page 67 of 85

issued considering relevant factors, including, interest of the

securities market and protection of the investors in mind.

Regulation 44 is not a strict liablity provision.

76. The above position in law gets fortified from Regulation 45 which

stipulates that any person violating a provision of the regulations

shall be liable in terms of the Regulation, that is, the Takeover

Regulations 1997 and the Act. Sub-regulation (6) to Regulation 45,

with reference to the penalties, states that it would include monetary

penalties under Section 15-H of the Act. It may also include

directions under the provisions of Section 11B and 11(4) of the Act.

Further, there is power to issue cease and desist order in

proceedings under Section 11D of the Act. Criminal prosecution

under Section 24 of the Act can also be initiated. Lastly,

adjudicating proceedings under Section 15-H of the Act can be

held. Therefore, the authorities have a right to take recourse to

multiple proceedings which have been loosely classified and

referred to as ‘penalties’ in Regulation 45(6). Nowhere, however,

Regulation 45 stipulates that in case of violation of Regulations 10,

11 or 12 of the Takeover Regulations 1997, the Board must initiate

action and issue directions in terms of Regulation 44. The Board, in

appropriate case, may take action under Regulation 44 and issue

directions, but when it issues such directions, it must keep in mind

Civil Appeal No. 8249 of 2013 & Anr. Page 68 of 85

the interest of securities market and to the protect the interests of

the investors. Existence and conferment of power, and reasonable

and legilimate exercise of the power in accordance with law are two

different facets.

77. We will now reproduce the order passed by the Whole Time

Member recording the reasons for issuing directions:

“31. In my view, the facts and circumstance of the case,

do not suggest any reason to deviate from the normal

rule of requirement of making public announcement in

accordance with the Takeover Regulations, 1997 as the

same would be in the interest of the public shareholders

of the Target Company.

32. In this case, since requisite public announcement

has not been made by the noticees, KLL has

contravened regulation 10 and the promoter group has

contravened regulation 11(1) as discussed above. I

note that the Takeover Regulations, 1997 have been

repealed by the Takeover Regulations, 2011. In terms

of regulation 35(2)(b) of the Takeover Regulations,

2011, the obligation or liability acquired, accrued or

incurred under the repealed regulations, shall remain

unaffected as if the repealed regulations has never

been repealed. In the present case, the noticees

triggered the obligation under regulation 10 and 11(1)

of the Takeover Regulations, 1997 on March 12, 2007

and in terms of regulation 14(1) thereof they were

obligated to make requisite public announcement within

4 days from March 12, 2007. Thus, the noticees had

incurred this obligation prior to repeal of Takeover

Regulations, 1997 and the obligation has to be

completed under Takeover Regulations, 1997.

33. Since obligation under regulations 10 and 11 both

have overlapped in this case, as observed by Hon'ble

Supreme Court in 'Swedish Mach' case, the noticees

shall make a combined public announcement under

Civil Appeal No. 8249 of 2013 & Anr. Page 69 of 85

regulations 10 and 11 read with regulation 14(1) of the

Takeover Regulations, 1997.

34. Had the noticees made the public announcement in

accordance with the Takeover Regulations, 1997

regulations and complied all related activities within the

timelines specified under the Takeover Regulations,

1997, all formalities with respect to their public

announcement and the open offer would 7 have been

completed on June 15, 2007. Since the noticees have

failed to make the public announcement within the

stipulated time and the public announcement in

compliance with this order would be after delay, the

noticees shall pay interest on consideration amount as

provided under the Takeover Regulations, 1997 to the

shareholders who tender their shares in the open offer

and who are eligible for interest as per law.

35. I, therefore, in exercise of powers conferred upon

me under sections 19, 11 and 11B of the SEBI Act,

1992 and regulations 44 and 45 of the SEBI

(Substantial Acquisition of Shares and Takeovers)

Regulations, 1997 read with regulation 32(1)(h) of the

SEBI (Substantial Acquisition of Shares and

Takeovers) Regulations, 2011, hereby issue the

following directions:

(a) The noticees, Mr. Sunil Krishan Khaitan, Mr.

Krishan Khaitan, Khaitan Lefin Limited and The

Orientale Mercantile Company Limited shall

make a combined public announcement to

acquire shares of the Target Company, Khaitan

Electricals Limited, in terms of regulations 10

and 11(1) of the SEBI (Substantial Acquisition

of Shares and Takeovers) Regulations, 1997,

within a period of 45 days from the date of this

Order.

(b) The noticees shall, along with consideration

amount, pay interest at the rate of 10% per

annum, from June 16, 2007 to the date of

payment of consideration, to the shareholders

who were holding shares in the target company

on the date of violation and whose shares have

Civil Appeal No. 8249 of 2013 & Anr. Page 70 of 85

been accepted in the open offer, after

adjustment of dividend, if any, paid.”

78. The Appellate Tribunal, on the other hand, has given the following

reasons why the aforesaid directions were unacceptable and

should be set aside:

“35. In the instant case too, as a matter of undisputed

fact, the promoter group has been in control of the

Company since its very establishment in the year 1975.

The Appellants seem to have been aware of the

implication of the limit of creeping acquisition of 5% and,

hence, did not breach regulation 11 by letting some

warrants lapse and not converting them into shares. In

fact, the Tribunal notes that during the relevant period

there were about 7 acquisitions but at no point of time

did the Appellants violate the provisions of any law but

for the two conversions on March 12, 2007. We also

note from the records that the Appellants have

invariably acted in a bonafide manner by keeping the

concerned stock exchanges and the Respondent

informed regarding the true happenings with respect to

the acquisitions of shares and the corresponding

changes in the shareholding pattern. In this connection,

the Tribunal has perused various corporate

announcements made by the Company to the stock

exchanges informing them about the allotment of equity

shares as well as shareholding pattern as of March

2006, June 2006, September 2006 and December

2006. Letters dated April 10, 2006, October 13, 2006

and April 11, 2007 etc. are on record and have been

perused by the Tribunal.

36. Similarly, it is noted that the two conversions of

warrants on March 12, 2007, which were different

transactions, in as much as the shares in the first

tranche pertaining to 5 lac shares allotted to the

promoter group were allotted pursuant to conversion of

warrants at the rate of Rs.60 per share, and the shares

in the second transaction consisting of 8 lac warrants

were converted at the rate of Rs.131 per share.

Civil Appeal No. 8249 of 2013 & Anr. Page 71 of 85

Although, the two spells were different, they were

executed on the same date and the creeping acquisition

limit of 5% was clearly crossed in respect of the

acquisition by the promoter group. Therefore,

technically there is violation of Regulation 11(1) of the

Takeover Code of 1997. For this violation, we are of the

opinion that a suitable monetary penalty, must be

imposed instead of calling upon the Appellants to make

a combined public announcement to acquire shares of

the Company at this belated stage. The requirement of

making a public announcement would be totally

superfluous in the facts and circumstances of the case

and would not beget any good. The objective of the

preferential allotment of shares in question was only to

address the working capital requirements of the

Company for its smooth day to day functioning.

Therefore, a stable, low-cost funding-source, such as

preferential allotment, was undertaken in the larger

interests of the Company and, in effect, its

shareholders. In this connection, it is pertinent to note

that the allotment of preferential shares in question was

made after seeking approval of the shareholders of the

Company in two duly convened EGM’s held on March

23, 2006 and November 29, 2006.

37. Lastly, the acquisitions/ incidents pertain to the year

2006-2007. The show cause notice was issued by the

Respondent on March 26, 2012. After holding

proceedings against the Appellants, the Impugned

Order came to be passed only on December 31, 2012.

We note that there is an inordinate delay of about 5

years even in issuing the show cause notice and no

explanation has been offered for the same. The

Respondent was kept duly informed by the Appellants

of all the transactions/acquisitions in the year 2006-

2007 along with information to other concerned

authorities like various stock exchanges but no action

was taken for the alleged violation for years together.

Also, the point to be borne in mind while modifying the

penalty imposed upon the Appellants is that the

securities market is a volatile and pulsating structure

wherein events unfold at a staggeringly fast pace. We

feel that to compel the Appellants to make a combined

public announcement to acquire shares today would be

Civil Appeal No. 8249 of 2013 & Anr. Page 72 of 85

iniquitous and would lead to more harm than good for a

mere technical fault, which in our opinion is remissible.

Indeed, this Tribunal has taken a view consistently that

in such cases of technical violation a monetary penalty

could be imposed to serve the ends of justice keeping

in view the factuality of a given situation.”

79. We entirely agree with the reasoning given by the Appellate

Tribunal for setting aside the directions given in the penultimate

paragraph of the orders passed by the Whole Time Member. As

noticed above, the violation alleged in Appeal No. 23 of 2013 in the

case of Sunil Krishna Khaitan relates to the years 2006-2007. The

order issuing the directions was passed on 31st December 2012,

nearly eight years after the alleged violation. The direction given is

that the shareholders should be given an option to sell the shares

held by them on 16th June 2007 by directing the respondents to

make a public announcement to acquire the shares. Direction has

also been given to pay interest @ 10% per annum from 16th June

2007 till shares have been accepted in the open offer. The dividend

paid, if any, would be adjusted. We are not stating that this direction

can never be issued, but the exercise of discretion to issue the said

directions has to be predicated and based upon good grounds and

reasons. The directions of this nature are not automatic and are to

be issued only when they are warranted and justified. The

incongruities and absurdities of the directions issued have been

Civil Appeal No. 8249 of 2013 & Anr. Page 73 of 85

highlighted and noticed in the order passed by the Appellate

Tribunal.

80. The direction given by the Board vide letter dated 17th December

2012 in the case of Madhuri S. Pitti in the form of direction to modify

the draft letter of offer submitted to the Board for approval on 19th

September 2011 pursuant to the public announcement made by

PLL on 9th September 2011, it must be stated, is rather odd and

defies objectivity and logic. The Appellate Tribunal is right in

noticing that there was lack of clarity on the part of the Board as to

the provision under which the power has been exercised, as the

Board’s power under Regulation 18 of the Takeover Regulations

1997 is to specify changes, if any, in the letter of offer, without there

being any obligation on the part of the Board to do so, and

thereupon the merchant banker and the ‘acquirer’ are required to

carry out such changes before the letter of offer is despatched to

the shareholders. As per sub-regulation (2), the letter of offer is to

be despatched to the shareholder not earlier than 21 days from the

date of submission of the letter of offer to the Board in terms of subregulation (1). In this case, directions of the Board for amendment

of the letter of offer was issued after a lapse of more than one year

as the draft letter of offer was submitted on 19th September 2011

and the directions were issued vide letter dated 17th December

Civil Appeal No. 8249 of 2013 & Anr. Page 74 of 85

2012. Further, these directions were for the reason that the acquirer

had failed to comply with Regulation 10 of the Takeover

Regulations 1997 in the remote past, that is, in the year 2006 and

2007. Clearly, this is whimsical and arbitrary exercise of discretion

by the Board which would have led to chaos and confusion.

81. This Court in the judgment authored by one of us (Sanjiv Khanna,

J.) in Bhavesh Pabari (supra) had examined the question of delay

and laches in initiating proceedings under Chapter VI-A of the Act

and the principle of law that when no limitation period is prescribed

proceedings should be initiated within a reasonable time and what

would be reasonable time would depend upon facts and

circumstances of each case. In this regard, it was held as under:

“35. The appellants have also contended that in the

absence of any prescribed limitation period, SEBI should

have issued show-cause notice within a reasonable time

and there being a delay of about 8 years in issuance of

show-cause notice in 2014, the proceedings should have

been dropped. This contention was not raised before the

adjudicating officer in the written submissions or the reply

furnished. It is not clear whether this contention was

argued before the Appellate Tribunal. There are

judgments which hold that when the period of limitation

is not prescribed, such power must be exercised within a

reasonable time. What would be reasonable time, would

depend upon the facts and circumstances of the case,

nature of the default/statute, prejudice caused, whether

the third-party rights had been created, etc. The showcause notice in the present case had specifically referred

to the respective dates of default and the date of

compliance, which was made between 30-8-2011 to 29-

11-2011 (delay was between 927 days to 1897 days).

Only upon compliance being made that the defaults had

Civil Appeal No. 8249 of 2013 & Anr. Page 75 of 85

come to notice. In the aforesaid background, and so

noticing the quantum of fine/penalty imposed, we do not

find good ground and reason to interfere.”

82. The directions given in the aforesaid quotation should not be

understood as empowering the authorities/Board to initiate action

at any time. In the absence of any period of time and limitation

prescribed by the enactment, every authority is to exercise power

within a reasonable period. What would be the reasonable period

would depend upon facts of each case, such as whether the

violation was hidden and camouflaged and thereby the Board or the

authorities did not have any knowledge. Though, no hard and fast

rules can be laid down in this regard as determination of the

question will depend on the facts of each case, the nature of the

statute, the rights and liabilities thereunder and other

consequences, including prejudice caused and whether third party

rights have been created are relevant factors. Whenever a question

with regard to inordinate delay in issuance of a show-cause notice

is made, it is open to the noticee to contend that the show-cause

notice is bad on the ground of delay and it is the duty of the

authority/officer to consider the question objectively, fairly and in a

rational manner. There is public interest involved in not taking up

and spending time on stale matters and, therefore, exercise of

power, even when no time is specified, should be done within

Civil Appeal No. 8249 of 2013 & Anr. Page 76 of 85

reasonable time.66 This prevents miscarriage of justice, misuse and

abuse of the power as well as ensures that the violation of the

provisions are checked and penalised without delay, thereby

effectuating the purpose behind the enactment.

83. We have already referred to Regulations 6, 7 and 8 of Takeover

Regulations 1997 which requires the acquirer/shareholders to

make disclosures to the company as well as to the stock exchange

where the shares are listed. Violation of Regulations 6, 7 and 8 is

not alleged. While it is true that the said disclosures and public

notice of the disclosures cannot be treated as disclosure to the

Board or authorities under the Act, the Board and the authorities,

as a good regulator, cannot also claim complete ignorance.

Significantly, in the present case, the investors of the target

company have not raised any objection. The impugned order

passed by the Whole Time Member does not refer to any market

manipulation or fluctuation in share price, which was detrimental to

the interests of the investors. It is not the case of the Board that any

windfall gains or profits have been made by the respondents on

account of violation of Regulation 11(1) of Takeover Regulations

66 See State of Gujarat v. Patil Raghav Natha and Others, (1969) 2 SCC 187 at para 11; Mansaram v.

S.P. Pathak and Others, (1984) 1 SCC 125 at para 12; Government of India v. Citedal Fine

Pharmaceuticals, Madras and Others, (1989) 3 SCC 483 at para 6; State of Orissaand Others v.

Brundaban Sharma and Another, 1995 Supp (3) SCC 249 at para 16; State of Punjab and Others v.

Bhatinda District Coop. Milk Producers Union Ltd., (2007) 11 SCC 363.

Civil Appeal No. 8249 of 2013 & Anr. Page 77 of 85

1997. The order passed by the Whole Time Member, in fact, does

not take into account the impact of the order on the securities

market in case the investors/shareholders in the target company as

on 16th June 2007 are given an option to sell their shares on or after

31st December 2012, possibity of distruption on the functioning

market place, detrimental impact on the market place/investor

confidence, qualitative impact of the retroactive directions on the

law’s santity predicated on predicibilty and legal stability, as well as

undermining of the people’s faith and trust on the Board as the

protector of law. The directions, therefore, cannot be sustained.

84. There is, as noticed and held below, some merit in the contention

of the Board that the Appellate Tribunal could not have imposed

penalty under Section 15-H when proceedings under the said

Section had not been invoked by the Board and there is no order

passed by the adjudicating authority imposing penalty under

Section 15-H of the Act. However, the effect of the argument raised

by the Board would be that the order passed by the Whole Time

Member under Regulation 44 giving directions would be quashed

and set aside. The respondents would have, therefore, escaped

without having to pay any penalty for violation of Regulation 11(1)

of the Takeover Regulations 1997. It is in this factual background

we have to decide the present appeals. As noticed above, the

Civil Appeal No. 8249 of 2013 & Anr. Page 78 of 85

respondents have not filed appeals or cross objections challenging

the penalty imposed by the Appellate Tribunal for violation of

Regulation 11(1) of the Takeover Regulations 1997.

F. Power of the Appellate Tribunal under section 15T of the Act:

85. The last aspect of the present appeals relates to the power of the

Appellate Tribunal.67 Sections 15-T of the Act read as under:68

“15T. Appeal to the Securities Appellate Tribunal.

(1) Save as provided in subsection (2), any person

aggrieved,-

(a) by an order of the Board made, on and after the

commencement of the Securities Laws (Second

Amendment) Act, 1999, under this Act, or the rules or

regulations made thereunder; or

(b) by an order made by an adjudicating officer under

this Act, may prefer an appeal to a Securities Appellate

Tribunal having jurisdiction in the matter.

(2) No appeal shall lie to the Securities Appellate

Tribunal from an order made –

(a) by the Board on and after the commencement of the

Securities Laws (Second Amendment) Act, 1999;

(b) by an adjudicating officer, with the consent of the

parties.

(3) Every appeal under sub-section (1) shall be filed

within a period of forty-five days from the date on which

a copy of the order made by the Board or the

adjudicating officer, as the case may be, is received by

67 In reference to impugned judgment in Appeal No. 23 of 2012.

68 As it existed pre-2014 and 2017 amendment.

Civil Appeal No. 8249 of 2013 & Anr. Page 79 of 85

him and it shall be in such form and be accompanied by

such fee as may be prescribed:

Provided that the Securities Appellate Tribunal may

entertain an appeal after the expiry of the said period of

forty-five days if it is satisfied that there was sufficient

cause for not filing it within that period.

(4) On receipt of an appeal under sub-section (1), the

Securities Appellate Tribunal may, after giving the

parties to the appeal, an opportunity of being heard,

pass such orders thereon as it thinks fit, confirming,

modifying or setting aside the order appealed against.

(5) The Securities Appellate Tribunal shall send a copy

of every order made by it to the Board, the parties to the

appeal and to the concerned Adjudicating Officer.

(6) The appeal filed before the Securities Appellate

Tribunal under sub-section (1) shall be dealt with by it

as expeditiously as possible and endeavour shall be

made by it to dispose of the appeal finally within six

months from the date of receipt of the appeal.”

86. The Board has contended that the Appellate Tribunal, in the

exercise of power under Section 15-T and while considering

appeals against proceedings under Section 11 and 11B of the Act

and Regulation 44 of the Takeover Regulation, 1997, could not

have converted the directions of the Board with monetary penalty

under Section 15-H. Thus, the impugned order could not have

substituted the direction of the Board against respondents to: (a)

make a public offer in terms of Regulation 11; and (b) pay

consideration amount along with interest at the rate of 10% per

annum from June 16, 2007 to the date of payment of consideration

Civil Appeal No. 8249 of 2013 & Anr. Page 80 of 85

to the shareholders, with the direction to pay a monetary penalty of

Rs. 25,00,000 for the breach of Regulation 11(1) of Takeover

Regulation 1997. We have briefly referred to the reasoning in the

earlier paragraphs, and commented on the same. We have also

reproduced the reasoning given by the Appellate Tribunal to

substitute the direction of the Whole Time Member with that of the

penalty.

87. The appeal before the Appellate Tribunal under Section 15T, is the

first appeal against the decision of the Board or the adjudicating

officer. First appeal is a continuation or is co-terminus with the

proceedings of the original adjudicating authority.69 The first appeal

is a valuable right of the party aggrieved, and all questions of fact

and law decided by the Board or the adjudicating authority,

including exercise of discretion whether within the law, are open for

full consideration and examination.

70 The Appellate Tribunal, in the

69 See, Commissioner of Income Tax, U.P., Lucknow v. Kanpur Coal Syndicate, Kanpur, AIR 1965 SC

325; Jute Corpn. of India Ltd. v. Commissioner of Income Tax and Another, 1991 Supp (2) SCC 744;

Commissioner of Income Tax, M.P., Bhopal v. Nirbheram Daluram, (1997) 10 SCC 373; National

Thermal Power Co. Ltd. v. Commissioner of Income Tax, (1997) 7 SCC 489.

70 Clariant International Ltd. and Another v. Securities & Exchange Board of India, (2004) 8 SCC 524:

“74. The jurisdiction of the Appellate Tribunal under the Act is not in any

way fettered by the statute and, thus, it exercises all the jurisdiction as that

of the Board. It can exercise its discretionary jurisdiction in the same

manner as the Board.

……………..

77. The Board exercises its legislative power by making regulations,

executive power by administering the regulations framed by it and taking

action against any entity violating these regulations and judicial power by

adjudicating disputes in the implementation thereof. The only check upon

exercise of such wide-ranging powers is that it must comply with the

Constitution and the Act. In that view of the matter. where an expert

Tribunal has been constituted, the scrutiny at its end must be held to be

Civil Appeal No. 8249 of 2013 & Anr. Page 81 of 85

absence of any limit, has plenary powers in disposing of an

appeal.71 It can do what the Board/authorities can do and also direct

them to do what they have failed to do. The position as to the power

of the Appellate Tribunal has been appropriately summarised in

Swedish Match (supra), wherein it has been held:

“84. It may be true that the Board in its impugned order

dated 4-6-2002 proceeded on a wrong premise that

having regard to the proviso appended to Regulation 12,

Regulation 12 would be attracted. But SAT, in our

opinion, rightly construed the provisions of Regulations

11 and 12 in arriving at a finding that Regulation 11 would

be attracted and Regulation 12 would not be. The

Tribunal was entitled to take a different view of the matter

from that of the Board with a view to sustain the ultimate

result in the appeal in exercise of its appellate power.

Such a power in the appellate court/tribunal is akin to or

analogous to the principles contained in Order 41 Rule

33 of the Code of Civil Procedure. Even otherwise,

before us the judgment of the Tribunal is in question, this

Court is required to consider the correctness or

otherwise of the Tribunal. In any event, the reasoning of

the Tribunal shall prevail over the Board.”

(Emphasis Supplied)

of wide import. The Tribunal. another expert body, must, thus, be allowed

to exercise its own jurisdiction conferred on it by the statute without any

limitation."

(Emphasis Supplied)

71 Securities and Exchange Board of India v. Opee Stock-Link Ltd. and Another, (2016) 14 SCC 134:

“15. Upon perusal of the impugned order passed by SAT, we do not find

any specific conclusion arrived at by SAT to the effect that the findings

recorded by the WholeTime Member as well as the Adjudicating Officer of

SEBI were incorrect. The appeals before SAT were in the nature of first

appeal and therefore, it was open to SAT to reappreciate the evidence

after looking at the facts of the case but upon perusal of the impugned

order, we do not find any such finding to the effect that the findings arrived

at by the Whole-Time Member as well as the Adjudicating Officer of SEBI

were incorrect or perverse for a particular reason.”

(Emphasis Supplied)

Civil Appeal No. 8249 of 2013 & Anr. Page 82 of 85

88. In the context of the present appeal, it is to be noted that in the case

of Sunil Krishna Khaitan, an order in the form of directions under

Regulation 44 of the Takeover Regulations 1997 was issued. It was

this order which was made subject matter of challenge before the

Appellate Tribunal.Thus we do not accept the contention of the

Board that the Appellate Tribunal while exercising appellate power

could not have set aside and quashed the directions given in the

appeal.

89. At the sametime, in Sunil Krishna Khaitan’s case proceedings

under Section 15-H for levy of penalty were not initiated and no

order of penalty under 15-H was passed by the adjudicating

authority. The Appellate Tribunal, therefore, was not hearing an

appeal against imposition of penalty under Section 15-H of the Act.

Further, an order under Section 15-H of the Act is passed by an

adjudicating authority which, while imposing penalty, is required to

take into consideration the factors mentioned in Section 15-J.

72 15J.Factors to be taken into account by the adjudicating officer.-

While adjudging quantum of penalty under section 15-I, the adjudicating officer shall have due regard

to the following factors, namely:

(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result

of the default;

(b) the amount of loss caused to an investor or group of investors as a result of the default;

Civil Appeal No. 8249 of 2013 & Anr. Page 83 of 85

90. We have also referred to Regulation 45 which in sub-regulation (6)

refers to different types of penalties which can be imposed on a

person violating any of the provisions of the Regulations. The

Appellate Tribunal does not have the power for the first time to

initiate and thereupon, impose penalty for non-compliance of the

provisions of the Regulations under Chapter VI-A of the Act while

deciding an appeal against directions issued under Regulation 44

of the Takeover Regulations, 1997. That power is vested with the

authority specified in the Act or the Regulations. The Appellate

Tribunal is an appellate forum and not the authority empowered to

initiate penalty proceedings under Section 15-H or suo moto issue

directions under Section 11, 11B or 11(4)(d) of the Act. It can uphold

or set aside the direction issued, or modify and substitute the

direction issued under Regulation 44 of the Takeover Regulations

1997 read with Sections 11, 11B and 11(4)(d) of the Act. Similarly,

Appellate Tribunal can uphold, set aside, modify and even

substitute the order of penalty under Chapter VI-A of the Act. The

power to initiate and levy penalty in terms of Section 15-I

73 is vested

73 15-I. Power to adjudicate:

(1) For the purpose of adjudging under sections 15A, 15B, 15C, 15D, 15E, 15F, 15G,15H, 15HA and

15HB, the Board shall appoint any officer not below the rank of a Division Chief to be an adjudicating

officer for holding an inquiry in the prescribed manner after giving any person concerned a reasonable

opportunity of being heard for the purpose of imposing any penalty.

(2) While holding an inquiry the adjudicating officer shall have power to summon and enforce the

attendance of any person acquainted with the facts and circumstances of the case to give evidence or

Civil Appeal No. 8249 of 2013 & Anr. Page 84 of 85

with an officer to be appointed by the Board, not below the rank of

Divisional Commissioner, to act as an adjudicating officer. The

adjudicating officer is required to hold an inquiry in the prescribed

manner after giving the person a reasonable opportunity of being

heard for the purpose of imposing any penalty. Powers are vested

with the adjudicating officer to summon and enforce attendance of

any person acquainted with the facts and circumstances of the case

to give evidence or to produce any document.

91. Thus, the Appellate Tribunal in Appeal No. 23 of 2013 in the case

of Sunil Krishna Khaitan, could not have substituted the penalty

imposed by the Board under Regulation 44 with that of penalty

under Section 15-H. An appropriate view, in our opinion, would be

that when the Appellate Tribunal holds that the order passed by the

Whole Time member on violation of Regulations 10, 11 and 12 is

sustainable, but the directions given in the order under Regulation

to produce any document which in the opinion of the adjudicating officer, may be useful for or relevant

to the subject-matter of the inquiry and if, on such inquiry, he is satisfied that the person has failed to

comply with the provisions of any of the sections specified in subsection (1), he may impose such

penalty as he thinks fit in accordance with the provisions of any of those sections.

(3) The Board may call for and examine the record of any proceedings under this section and if it

considers that the order passed by the adjudicating officer is erroneous to the extent it is not in the

interests of the securities market, it may, after making or causing to be made such inquiry as it deems

necessary, pass an order enhancing the quantum of penalty, if the circumstances of the case so justify:

Provided that no such order shall be passed unless the person concerned has been given an

opportunity of being heard in the matter:

Provided further that nothing contained in this sub-section shall be applicable after an expiry of a period

of three months from the date of the order passed by the adjudicating officer or disposal of the appeal

under section 15T, whichever is earlier.

Civil Appeal No. 8249 of 2013 & Anr. Page 85 of 85

44 are not sustainable, it should leave it open to the Board to initiate

proceedings and pass an order under Chapter VI-A of the Act.

92. However, as held above, in the absence of any cross-appeal or

cross-objection by the respondent in Appeal No. 23 of 2013 (Sunil

Krishna Khaitan’s case), we are not interfering with the order

imposing penalty of Rs.25,00,000/- for the violation of Regulation

11(1) of the Takeover Regulations 1997. The said direction has

attained finality. At the same time, we are inclined to direct that the

Board would give quietus to the matter and should not initiate

proceedings under Chapter VI-A of the Act.

93. For the aforesaid reasons and grounds, the Civil Appeals preferred

by the Board are dismissed with the clarification as to the power of

the Appellate Tribunal under Section 15-T of Chapter VI-A of the

Act, which is confined to examination of correctness and legality of

the order under challenge.

94. There will be no order as to costs.

......................................J.

(SANJIV KHANNA)

......................................J.

(BELA M. TRIVEDI)

NEW DELHI;

JULY 11, 2022.

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SECURITIES AND EXCHANGE BOARD OF INDIA VS SUNIL KRISHNA KHAITAN AND OTHERS

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