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The expression 'person acting in concert' includes a corporate entity [Regulation 2(1)(e)(2)(i) of the Regulations] and also its directors and associates [Regulation 2(1)(e)(2)(iii) of the Regulations].= SECURITIES & EXCHANGE BD.OF INDIA Vs. BURREN ENERGY INDIA LTD.& ANR.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 361 OF 2007


SECURITIES & EXCHANGE BOARD
OF INDIA                                ...APPELLANT

                            VERSUS

BURREN ENERGY INDIA LTD.
& ORS.                                ...RESPONDENTS




                                  JUDGMENT


RANJAN GOGOI, J.


1.          The challenge in this appeal is  to  an  order  of  the  learned
Securities Appellate Tribunal,  Mumbai  (hereinafter  referred  to  as  “the
Tribunal”) reversing the  order  of  the  Adjudicating  Officer  dated  25th
August, 2006 holding the respondents guilty of contravening  the  provisions
of  Regulation  22(7)  of  the  Securities  and  Exchange  Board  of   India
(Substantial  Acquisition  of  Shares  and  Takeovers)   Regulations,   1997
(hereinafter referred to as “the Regulations”). A  penalty  of  Rs.25  lakhs
has been imposed on  each  on  the  respondents  herein  for  the  aforesaid
violation.  Aggrieved by  the  aforesaid  reversal,  Securities  &  Exchange
Board of India  (hereinafter referred to as “SEBI”) is in appeal before us.

2.          The relevant facts are not in  dispute.   The  first  respondent
herein – Burren Energy India Ltd. (hereinafter referred to as “Burren”)  was
incorporated in December, 2004 under the laws of England and Wales with  its
registered office in London. Burren was formed to acquire the entire of  the
equity share capital of one Unocal Bharat Limited (hereinafter  referred  to
as “UBL”), incorporated in Mauritius in  July,  1996.   The  shares  of  the
aforesaid UBL were acquired in September, 1996 by one  Unocal  International
Corporation (for short “UIC”) incorporated in California in USA.

3.          Admittedly, UBL did not carry out any business activity but,  at
the relevant time, held 26.01% of the issued share capital of Hindustan  Oil
Exploration Co. Ltd. (hereinafter referred  to as “the target company”).

4.          Burren entered into a share purchase agreement with UIC on  14th
February, 2005 to acquire the entire  equity  share  capital  of  UBL.  This
agreement was entered into in England and by virtue thereof all  the  shares
of UBL were registered in the name of Burren on the  same  day  itself  i.e.
14th February, 2005.  On account of this transformation Burren came to  hold
26.01% of the share capital in the target company.  As the  acquisition  was
beyond the stipulated 15% of the equity share capital of the target  company
the Regulations got attracted making it obligatory on the  part  of   Burren
to make a public announcement in  accordance  with  the  Regulations.   Such
public announcement in the form of a public offer for sale/purchase  of  20%
of the shares of the target company at a determined price  of  Rs.92.41  per
fully paid up equity share was made on 15th February,  2005  by  Burren  and
UBL acting as a person acting in concert.

5.          On 14th February, 2005 i.e. date  of   execution  of  the  share
purchase agreement  Burren  appointed  two  of  its  Directors  (Mr.  Finian
O'Sullivan and Mr. Atul Gupta) on the board of UBL  and  on  the  same  date
UBL, which is a person acting in concert with  Burren,  appointed  the  same
persons on the board of directors of the target company.    This,  according
to SEBI, amounted violation of Regulation 22(7) of the Regulations  inasmuch
as the  said  appointment  was  made  during  the  offer  period  which  had
commenced on and from 14th February, 2005 i.e.  date  of  execution  of  the
share purchase agreement.

6.          To appreciate the issue the provisions of Regulation 2(1)(f)  of
the Regulations which defines 'offer period' and  Regulation  22(7)  of  the
Regulations alleged  to  have  been  violated  by  the  respondents  may  be
extracted below:

“2(1)(f)    “Offer period” means the period between  the  date  of  entering
into Memorandum of Understanding or the public  announcement,  as  the  case
may be and the date of completion  of  offer  formalities  relating  to  the
offer made under these regulations”


22.   General obligations of the acquirer.-(1)...................
(2) ............................
................................
(7)   During the offer period, the acquirer or  persons  acting  in  concert
with him shall not be entitled to be appointed on the Board of Directors  of
the target company:

      Provided that in case of acquisition of shares  or  voting  rights  or
control of a  Public Sector Undertaking pursuant to  a  public  announcement
made  under  the  proviso  to  sub-regulation  (1)  of  Regulation  14,  the
provisions of sub-regulation (8) of Regulation 23 shall be applicable:


      Provided further that where the acquirer, other than the acquirer  who
has made an offer under regulation 21A,  after  assuming  full  acceptances,
has deposited in the escrow account hundred per cent  of  the  consideration
payable in cash where the consideration payable is in cash and in  the  form
of securities where the consideration payable is by way of  issue,  exchange
or transfer of securities or combination thereof, he may be entitled  to  be
appointed on the Board of Directors of the target company after a period  of
twenty-one days from the date of public announcement.


7.          The Tribunal hearing the matter in appeal  took  the  view  that
under Regulation  2(1)(f) of  the  Regulations  'offer  period'  is  clearly
defined as the period of time between the date of entering  into  Memorandum
of Understanding or the public announcement, as the case  may  be,  and  the
date of completion of offer formalities. The learned  Tribunal  was  of  the
view that when there was no ambiguity or uncertainty in  the  provisions  of
the Regulations the  definition  of  'offer  period'  has  to  be  literally
interpreted.  The learned Tribunal went into the dictionary meaning  of  the
expression 'Memorandum of Understanding' and went on to hold that  the  same
falls short of  a  concluded  contract.   As  there  was  no  Memorandum  of
Understanding between the parties it is  the  date  of  public  announcement
that would trigger of  the  commencement  of  the  'offer  period'.  As  the
appointment of the  Directors  in  the  target  company  was  made  on  14th
February, 2005 and the public announcement was made on 15th  February,  2005
the learned Tribunal was  of  the  view  that  the  respondents  (appellants
before it) cannot be held liable  for  violating  Regulation  22(7)  of  the
Regulations, as found by the Adjudicating Officer.
8.          The main thrust of the contentions advanced  on  behalf  of  the
appellant  before  us  appears  to  be  that  the   words   'Memorandum   of
Understanding' are not  words of Art conveying  a  single  meaning.   In  an
appropriate situation a 'Memorandum of Understanding'  may  also  include  a
concluded agreement between the parties.  Even  in  a  given  case  where  a
Memorandum of Understanding is to fall short of a concluded  agreement  and,
in fact, the  concluded  agreement  is  executed  subsequently,  the  'offer
period'  would  still  commence  from  the  date  of   the   Memorandum   of
understanding.  If  the  offer  period  commences  from  the  date  of  such
Memorandum of Understanding, according to the learned counsel, there  is  no
reason why the same should not commence from the date of the share  purchase
agreement when the parties had not executed a Memorandum  of  Understanding.
It is also submitted that the commencement of the ‘offer  period’  from  the
date of public announcement would primarily have relevance to a  case  where
acquisition of shares is from the market  and  there  is  no  Memorandum  of
Understanding or a concluded agreement pursuant thereto.
9.          In reply, Shri Shyam Divan,  learned  Senior  Counsel  appearing
for the respondents has urged that Regulation 22(7) of the  Regulations  can
have no application to the present case  inasmuch  as  the  disqualification
from appointment on the board  of  directors  of  the  target  company  will
operate only when the acquirer or persons acting in concert are  individuals
and not a corporate entity.  This  is  because  under  Section  253  of  the
Companies Act, 1956 (corresponding to Section  149  of  the  Companies  Act,
2013) there is an embargo on a body corporate  from  being  appointed  as  a
director. Shri Divan has also drawn  the  attention  of  the  Court  to  the
provisions of Regulation 22(7) of the Regulations as it originally  existed;
its amendment in  the  year  2002  (which  provision  is  relevant  for  the
purposes of the present case) and the subsequent amendment effected  in  the
year 2011. Shri Divan has submitted that meaning sought to be attributed  to
the Regulations relevant to the present case i.e. 2002 Regulations has  been
specifically incorporated in the  Regulations  amended  in  the  year  2011.
That the concluded share purchase agreement would be the starting  point  of
the 'offer period' is mandated under the 2011 Regulations and not under  the
2002 Regulations.

10.         We have considered the submissions of the parties.

11.         In the present case, while Burren was the acquirer, UBL was  the
person acting in concert. This is evident from the letter of  offer  (public
announcement) dated 15th February, 2005.  The embargo  under  Section  22(7)
is both on the acquirer and a person  acting  in  concert.   The  expression
'person  acting  in  concert'  includes  a  corporate   entity   [Regulation
2(1)(e)(2)(i) of the Regulations] and  also  its  directors  and  associates
[Regulation  2(1)(e)(2)(iii)  of  the  Regulations].  If  this  is  what  is
contemplated under the Regulations we do not  see  how  the  first  argument
advanced  by  Shri  Divan  on  behalf  of  the  respondents  can  have   our
acceptance.

12.         Insofar as  the  second  argument  advanced  by  Shri  Divan  is
concerned it is correct that in the definition of 'offer  period'  contained
in Regulation 2(1)(f) of the Regulations, relevant for the present  case,  a
concluded agreement is not contemplated to be  the  starting  point  of  the
offer period. But such a consequence must naturally follow  once  the  offer
period  commences  from  the  date  of  entering  into   a   Memorandum   of
Understanding which, in most cases would reflect an agreement  in  principle
falling short of a binding contract. If the offer period  can  be  triggered
of by an understanding that is yet to fructify into an agreement, we do  not
see how the same can be said not to have commenced/started from the date  of
a concluded agreement i.e. share purchase agreement as in the present  case.


13.         On the view that we have taken we will have  to  hold  that  the
learned Tribunal was incorrect in reaching its impugned conclusions  and  in
reversing the order of the Adjudicating Officer.  Consequently the order  of
the learned Tribunal is set aside and that of the  Adjudicating  Officer  is
restored.  The penalty awarded by the Adjudicating Officer  by  order  dated
25th August, 2006 shall be deposited  in  the  manner  directed  within  two
months from today.

14.          The  appeal  consequently  is  allowed  in  the  above   terms.


                                                     ....................,J.
                                          (RANJAN GOGOI)




                                                     ....................,J.
                                                               (N.V. RAMANA)

NEW DELHI
DECEMBER 2, 2016