Partly allowed

Sat order in the matter of Dr.Vijay Mallya

SAT1 Aug 2003

Case brief

AI extract

What is this about?

The Tribunal held that SEBI could not direct disinvestment for acquisitions made before the 1994 Regulations commenced or via exempted amalgamations. It also found no 'person acting in concert' relationship where common acquisition objective was absent. The direction to disinvest was set aside.

What did the court decide?

Impugned order directing Appellant to disinvest shares was quashed; direction to initiate adjudication proceedings under Sections 15A and 15H of SEBI Act was upheld.

Sat order in the matter of Dr.Vijay Mallya — Securities and Capital Markets | SAT (2003)

Partly allowed

Sat order in the matter of Dr.Vijay Mallya

SAT1 Aug 2003

Download

Case brief

AI extract

What is this about?

What did the court decide?

Impugned order directing Appellant to disinvest shares was quashed; direction to initiate adjudication proceedings under Sections 15A and 15H of SEBI Act was upheld.

¶55

shares; (C)196300 shares. Shares referred to at (A) were acquired prior to the notification of the 1994 Regulations. The shares referred to at (B) and ( C) were acquired during the currency of the 1994 Regulations. Since shares referred to at (A) were acquired before the notification of the 1994 Regulations, the 1994 Regulations has no application to the said acquisition. With reference to the alleged breach of clauses 40A and 40B of the Listing Agreement, it was submitted that Clause 40A was not attracted, as the same would apply only if the acquirer held less than 5% or less than 10% in the Target Company’s capital, that UBL held more than 10%. Mc Dowell’s holding in the Target Company in 1994 never exceeded 5%. Clause 40B applies in cases of takeover of management and control, that in the present case UBL and Mc Dowell were at all material times in management and control of the Target Company, and accordingly clause 40B is inapplicable. In terms of clause 40B(2)(b) a public announcement of a take over offer is required to be made both by the offeror company and the offeree company when the acquirer secures control of management of a company, by acquiring or agreeing to acquire, irrespective of the percentage of the voting capital, the securities of the directors or other members who, by virtue of their shareholdings together with the shareholding of their relatives, nominees, family interest and group, control or manage the company, that clause 40B(2)(b) relates to acquisition of control by acquiring shares of controlling group. It is not the Respondent’s charge that the Appellant had acquired shares of the controlling group. The text of clause 40(B)(2)(a) was referred to and submitted that the said clause applies only if any person acquires in his own name or in the name of any other person, securities carrying 10% or more of the total voting rights of the offeree company. Thus the clause would apply if any person and his benamies acquire 10% or more of the total voting rights, that the Respondent has also stated in its order that if the shares were acquired by the Appellant in other names, the same will be covered under this clause. The question is whether the Appellant was holding shares through benamies. A benami is a name lender, a person who has not paid consideration for acquiring the property and who has no beneficial interest in the property, that in the case of a benami purchase, the purchase consideration flows not from the benami, but from the real owner and the property is acquired by such real owner in the name of the benami, that the concept of benami acquisition under clause 40B(2)

¶61

With reference to the acquisition of 2,49,950 shares, the fact that these shares were acquired by UBL is undisputed. It was submitted that the four companies i.e. East Coast., Endeavour, Golden and Consolidated, held shares in Sona Distilleries Ltd. In 1992, Sona Distilleries merged with the Target Company, pursuant to a Scheme of Amalgamation approved by the Hon’ble Bombay High Court under section 391/394 of the Companies Act, that under the Scheme the erstwhile shareholders of Sona Distilleries got in lieu of one share of Sona Distilleries, five equity shares of the Target Company and 10 Fully Convertible Debentures (FCD) of Rs.75/- each which were automatically and compulsorily convertible into five shares of the Target Company after three years – i.e. in August 1995. In 1994 and 1995 (prior to August 1995) the said four companies merged with UBL pursuant to a Scheme of Amalgamation approved by the Hon’ble High Court of Karnataka and the Hon’ble High Court of Tamil Nadu under section 391/ 394 of the Companies Act, that under the said Scheme of Amalgamation all the assets including the entitlement to the shares of the Target Company on conversion of FCDs and liabilities of the said four companies were statutorily vested in UBL, and accordingly in August 1995 UBL received 2,49,950 shares against conversion of the said FCDs. It is not in dispute that UBL received the FCDs and on their conversion the said shares, pursuant to the said Scheme of Amalgamation approved by the said High Courts under section 391/394 of the Companies Act. The shares so received are therefore, entitled to exemption in terms of clause 3(e) of the 1994 Regulations which gives exemption to acquisition of shares "pursuant to a scheme of amalgamation under section 391/394 of the Companies Act". Countering the Respondent’s contention that the acquisition was not an exempted one under clause 3(e) as the said clause only covered acquisition through amalgamations "involving the target company" it was submitted that the Respondent by giving such an interpretation is seeking to add words to and alter/limit the ambit and content of the plain language meaning of clause 3(e), that the Respondent is seeking to radically alter and restrict the plain language of clause 3(e) only on

¶64

the Respondent as loan were in fact the amounts standing in the running account with LKP Group. Prasam had also informed the Respondent in response to a query that it had not acted in concert, that there was no understanding or agreement between Prasam, Mallya or UBL to acquire shares of the Target Company, further that it had bought and sold shares of the Target company by way of its own investments and in the usual course of its business. In support of the submission that it was buying, selling shares by way of its own investment, sale of 1,57,200 shares of the Target Company in 1995-96 was cited. According to the Appellant the Respondent has not taken into consideration the submission the Appellant made before SEBI’s Chairman, that it was not open for SEBI to come to any finding without considering or dealing with the same. The fact that Prasam had during the relevant period sold 1,57,200 shares of the Target Company totally negated any question of Prasam having acted in concert with the Appellant or UBL to acquire shares of the Target Company. In such circumstances merely because Prasam belonged to the LKP Group, and the LKP group had long standing business relationship with UBL could not lead to any inference/finding of Prasam having acted in concert with them. Respondent’s finding in this regard is contrary to the facts and evidence on record and is without any basis, that in fact the conclusion arrived at by the Respondent is negated by the undisputed facts on record. The Respondent has not rebutted any of the versions of the Appellant but relied only on the fact that the amount outstanding in the said running account was interest free, ignoring that outstandings in running accounts by their very nature do not bear interest. The Respondent had admitted that the Appellant or UBL had no control over Prasam, that the allegation being only that Prasam had acted in concert, a direction to disinvest shares acquired by Prasam could not be given in the absence of Prasam in the proceedings and that it would be impossible for the Appellant to disinvest the shares acquired by Prasam.

¶218

action, if any, taken under the said section 23 (2). For non compliance if any, of the provisions of the SCRA, SEBI cannot invoke the provisions of section 11(h)(2) or section 11B of the SEBI Act and direct disinvestment of shares. The Respondent’s reliance on the decision in U.P. State Electricity Board (supra) and Surinder Singh (supra)in support of the proposition that when Regulations are not framed the Act is applicable, is of no support to the present case in view of the facts of the case. Shri Rohit Kapadia had cited the two authorities in the context that even prior to the bringing into force of the 1994 Regulations, action could have been taken under Section 11(2)(h) of the SEBI Act. The Hon’ble Supreme Court had held in the said cases that "where a statute confers powers on an authority to do certain acts or exercise of power in respect of matters, subject to rules, the exercise of power conferred by the statute expressly provides for the same. Framing of the rules is not a condition precedent to the exercise of the power expressly and unconditionally conferred by the statute" Hon’ble Court had in the said order, relied on its earlier decision in U.P. State Electricity Board. It is noted that under section 30 of the SEBI Act, SEBI is empowered to make regulations for the purposes of the SEBI Act. SEBI Act does not provide for making regulations for the purposes of SCRA. Section 11(2)(h) is therefore, not available to take action for a matter coming under the purview of SCRA. The allegation is that the Appellant breached the Listing Agreement. Listing Agreement being in the domain of SCRA, for breach of the same, applicable provisions of SCRA are to be resorted to and not the provisions of SEBI Act. The observation made by the Hon’ble Delhi High Court in M.Z. Khan (supra) is of no support to the Respondent’s submission that under section 11 it has ample powers to issue the impugned order. The observation made by the Hon’ble High Court cited by the Respondent is in the context of the SEBI’s powers to issue interim order. The Court did not hold that section 11 can be used to deal with the violation of the provisions of other statutes like SCRA. The context in which the Hon’ble Court made the said observation is clear from the following paragraph in the order:

	No. of shares allotted	No. of CDS allotted
Endeavour	4,995	9,990
East Coast	10,000	20,000
Golden	5,000	10,000
Consolidated	5,000	10,000
Total	24,995	49,990

Sat order in the matter of Dr.Vijay Mallya

Case brief

What is this about?

What did the court decide?

Issues for consideration

Cases cited

Parties & counsel

Coram

Case details

Similar cases

Sat order in the matter of Dr.Vijay Mallya

Case brief

What is this about?

What did the court decide?

Issues for consideration

Cases cited

Parties & counsel

Coram

Case details

Similar cases

What the court decided

A compact analysis

Statutes considered