Allowed

Modi Spinning v. SEBI & Others

SAT9 Nov 2001

Case brief

AI extract

What is this about?

The SAT allowed an appeal by a company seeking to participate in a public offer to sell shares. The Tribunal held the appellant was a promoter but not a person acting in concert with acquirers. It set aside SEBI's order debarring participation in the open offer.

What did the court decide?

SEBI's direction debarring the appellant from participating in the public offer made by acquirers was set aside.

What the court decided

Modi Spinning Vs. SEBI & Others — Securities and Capital Markets | SAT (2001)

Allowed

Modi Spinning v. SEBI & Others

SAT9 Nov 2001

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Case brief

AI extract

What is this about?

What did the court decide?

SEBI's direction debarring the appellant from participating in the public offer made by acquirers was set aside.

What the court decided

¶19

The present management of MRL decided to consolidate their holding in MRL by acquiring about 35% capital, through a public offer. On 31.3.2001 the Respondent No.7 issued a public announcement for the purpose, as per the requirements of the SEBI(Substantial Acquisition of Shares and Takeovers) Regulation, 1997 ( the 1997 Regulations), on behalf of Shri V.K.Modi, Dr. B.K.Modi, Modi Fashions and Securities P.Ltd and Modiken Ltd (Respondents 3, 4, 5 & 6 respectively) (collectively called the acquirers), for acquisition of 87, 64, 186 shares at the rate of Rs.80/- per share from the shareholders of MRL. The acquirers thereafter submitted draft letter of offer to SEBI, therein inter alia stating that the offer to the shareholders of MRL is made in accordance with regulation 11(1) – i.e. to consolidate the holdings of present management of MRL, that certain companies specifically stated, including the Appellant, are persons deemed to be acting in concert with the acquirers/ promoters and the response is expected in the open offer from the total share holding of 76% held by financial institutions/mutual funds/public etc. As a result of holding the Appellant as a person deemed to be acting in concert with the acquirers, the Appellant was disqualified from participating in the public offer. The Appellant represented to SEBI in this regard. However, SEBI vide its letter dated 25.5.2001 stated inter alia that as per the 1997 Regulations, the Appellant being part of the promoter group of MRL and a person deemed to be acting in concert with the acquirers is not eligible to participate in the open offer made by the acquirers. On 19^th June, 2001 Modipon Ltd filed a Writ Petition bearing No.1536/2001 in the Hon’ble Bombay High Court inter alia challenging SEBI’s letter dated 25.5.2001. The Division Bench of the Hon’ble High Court vide its order dated 2^nd /3^rd July, 2001 disposed of the petition directing SEBI to grant personal hearing to the petitioners (the Appellant herein) and the concerned Respondents and their merchant bankers and pass a fresh order in accordance with the law by 16^th July, 2001 . The impugned order was made in compliance with the said direction of the Hon’ble High Court. Modipon filed an appeal (appeal No.34/2001) in the Tribunal challenging the said order. Tribunal allowed the appeal on 31.7.2001.

¶52

1	Acquirers(Respondents No.3 to 6)	12.53%
2	Persons Deemed to be Acting in concert	3.68%
3	Modi Spinning & Weaving Mills Co.Ltd	2.66%
4	Modipon Ltd	4.53%
5	Financial Institutions/Insurance Companies	44.25%
6	Mutual Funds/Banks/FIIs/SFIs	6.85%

¶57

It is a settled principle of interpretation that a statute must be read as it is and its provisions cannot be given a different meaning than what is provided for on the extraneous grounds such as "public interest". When there is no provision in the Regulations for exclusion of any shareholder from a public offer, it is not permissible to read into the Regulations any supposed prohibition for excluding the Appellant from the said public offer. Therefore, even of participation of the Appellant in the public offer results in proportionate reduction of shares held by public in the offer, even then such reduction cannot be a ground for excluding the Appellant from the public offer. SEBI misread the provisions of regulation 3(1) (e) (iii) and erred in holding that the availability of alternate "exit route" to relatives, promoters etc. without triggering public offer further justifies exclusion of persons belonging to the promoter group from the offer. The said regulation does not envisage any "exit route" as held in the impugned order. The said regulation neither prescribes a compulsory mode of transfer of shares amongst promoters nor does it provide an alternative to the public offer. The said regulation merely provides exemption from the formalities of a public offer in cases where there is an inter se transfer of shares amongst the promoters of a company. Such an exemption would be made use of only in cases where the promoters are agreeable for such inter se transfer. In the present case Sh. V.K. Modi and Sh. B.K. Modi had clearly stated during the hearing before the Chairman it is entirely their discretion whether they would purchase the shares held by the Appellant and also the price at which they will purchase the shares if offered under the terms of regulation 3. The Appellant thus cannot be compelled to sell its shares at the mercy of the acquirers as it has all the rights of a shareholder of MRL like any other shareholders . The provisions of regulation 3 are no justification for excluding the Appellant from the present public offer".

Modi Spinning v. SEBI & Others

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Modi Spinning v. SEBI & Others

Case brief

What is this about?

What did the court decide?

What the court decided

Issues for consideration

Statutes considered

Parties & counsel

Case details

Similar cases

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