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

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’.
Civil Appeal No. 8249 of 2013 & Anr. Page 3 of 85
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
Civil Appeal No. 8249 of 2013 & Anr. Page 5 of 85
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.”
Civil Appeal No. 8249 of 2013 & Anr. Page 6 of 85
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.
Civil Appeal No. 8249 of 2013 & Anr. Page 7 of 85
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”.
Civil Appeal No. 8249 of 2013 & Anr. Page 8 of 85
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.
Civil Appeal No. 8249 of 2013 & Anr. Page 9 of 85
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.
11
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.
12
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
Civil Appeal No. 8249 of 2013 & Anr. Page 13 of 85
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.
Civil Appeal No. 8249 of 2013 & Anr. Page 14 of 85
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.
17
15 (2004) 8 SCC 1
16 (2006) 5 SCC 361
17 (2009) 7 SCC 432
Civil Appeal No. 8249 of 2013 & Anr. Page 15 of 85
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.
18
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
Civil Appeal No. 8249 of 2013 & Anr. Page 16 of 85
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.
Civil Appeal No. 8249 of 2013 & Anr. Page 17 of 85
(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”.
24
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)
“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,
33
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:
54
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;
(c) directing the target company or depository to cancel
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;
(c) directions under the provisions of section 11B of the
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;
or
(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
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;
(c) the repetitive nature 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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