Allowed

Sms Holdings Pvt. Ltd.

SAT27 Oct 2003

Case brief

AI extract

What is this about?

The Tribunal set aside SEBI's order which fixed 3.7.2001 as the reference date for the offer price. It held that Technip, ISIS and IFP acted in concert and acquired control of the target company's holding company on 12.4.2000, thus the offer price must be calculated based on that earlier date.

What did the court decide?

Technip directed to pay the differential amount and interest to SEAMEC shareholders based on the reference date of 12.4.2000.

Sms Holdings Pvt. Ltd. — Securities and Capital Markets | SAT (2003)

Allowed

Sms Holdings Pvt. Ltd.

SAT27 Oct 2003

Download

Case brief

AI extract

What is this about?

What did the court decide?

Technip directed to pay the differential amount and interest to SEAMEC shareholders based on the reference date of 12.4.2000.

¶39

Vikram Rathi Appellant
Vs.
1. Securities and Exchange Board of India
2. Technip-Coflexip
3. ISIS
4. Institut Francais du Petrole (IFP) Respondents
Appeal No. 01/2003
Umesh kumar G. Mehta Appellant
Vs.
1. Securities and Exchange Board of India
2. J. P. Morgan India Pvt. Ltd.,
3. Technip Coflexip
4. Coflexip Stena Offshore (Mauritius) Ltd., Respondents
Appearance :
Shri. S.P. Chinoy,
Sr.Advocate for Appellant in appeal No.79/2002
Shri. S.M. Mukherjee
Advocate
Shri M. P. Bharucha, for Appellants
Advocate appeal No.80, 85, 91 & 104/2002
Shri Chirag Balsara,

Shri. Raghenth
Advocate	for Respondent J. P. Morgan India P. Ltd

¶113

Shri Chinoy referring to SEBI’s observation in the impugned order (para 3.2.3) that though ISIS companies i.e. Coflexip and Technip and had nominated directors in both the said companies, it was control of either of the two companies, submitted that the said observation of SEBI is contrary to the p the Shareholders Agreement dated 2.11.1994. In this context he specifically referred to clause 7 Agreement that “the parties agree that they are hereby acting in concert (action de concert) with respect in the company and …………..” He submitted that while dealing with ‘intent of the parties’, the cr important and SEBI has ignored this aspect while arriving at the conclusion. Learned Senior Counse relevant point of time IFP was holding 52.76% of the shares of ISIS, that it is also to be noted that so Technip acquired the entire shares held by Stena representing 29.68% of the capital of Coflexip. In thi the requirement of the French Company law and the compliance thereunder by Technip as stated in Section 355-I of the French Companies Act provides that a company holds control over another(the T cases – (i)the company holds directly or indirectly, title to a number of shares granting to such holder a m in the general meetings of shareholders of the Target (ii) the company holds the majority of voting right to an agreement with a third party (iii) the company in effect determines, through the votes it holds th general meetings of shareholders of the Target [what is known as defacto control]. Learned Senior Cou not the case that Technip acquired numerically majority of the shares or voting rights in Coflexip in April ‘defacto control’ which is relevant to the instant case, and that defacto control is required to be deci entirely on legality, that SEBI has failed to realise the reality of gaining defacto control over Coflexip by though the attendant factors already demonstrated so. He submitted that once the control of Coflexip i control over its subsidiary companies is automatic for the purpose of triggering the Takeover Reg submitted that SEBI has blindly accepted the version of Technip that on 3.7.2001, it had made a publi

¶293

Statement of Intent is to be issued on crossing the 10% and 20% limits of shareholding or vot company. On crossing 1/3 of the shares or voting rights (whether acting alone or in concert) it is m Market Authorities and a public offer has to be filed for all the shares or any other kind of security (whic of shares or confer voting rights) under Article 433.3.1 of the Commercial Code and Article 5-5-2 (1^s Conseil des Marches Financiers Regulations. The terms of the public offer have to be acceptable to Failure to make the relevant disclosures would result in penal sanction including fine and prosecution. F offer on crossing the threshold mentioned above would result in the Market Authorities passing orders which would be enforceable in law. (Section 5-5-5 of the CMF General Regulations). Learned Senior the Notification for crossing legal threshold and the Statement of Intent were filed with the French Mark des Marches Financiers”) which made them public on May 4, 2000 and with the Stock exchange Com des Operations de Bourse”). The Conseil des Marches Financiers thereafter issued a public notice recording and accepting the statements. Technip had complied with the above-mentioned Statement period Technip had only 4 directors out of 12 in the Board of Coflexip. Technip was not acting in con IFP. There was no shareholders agreement between Technip and ISIS with respect to Coflexip, that pri a shareholders’ agreement relating to Coflexip dated 2^nd November, 1994 entered into between Stena shareholders of Coflexip, the parties therein had whilst acting in concert with one another agreed to cer being granted to one another, consultation and control on appointment of the Chairman and managing D representation on the Board of Directors. The said agreement was valid till June 2000. After April 2000 agreement continued between ISIS and Compagnie Financiere Atochem, (part of the ELF group), but Te the said shareholders agreement nor was it an assignee or transferee thereunder nor did it act or agree to party whilst acquiring the shareholding of Stena International B.V. in Coflexip. Even after Technip acqu Stena in Coflexip, Technip did not step into its shoes nor was it bound by the agreement. The fact of always been disclosed in the Annual Report published in France and in Form 20F filed with the US S commission, that the Market Authorities also did not think that Technip was a party to or an assignee any public offer was required to be made or that Technip was acting in concert with any party.

¶305

said statement Coflexip had clearly disclosed the basic details, past contracts, tr negotiations and agreements. In this context he referred to the Solicitation or R made by Coflexip in the context of the Technip’s exchange offer and submitted had made it clear therein that “following a proposal made by Pierre Marie Vale Chairman and Chief Executive Officer of the company, near the end of 1999 to the Chairman and Chief Executive Officer of Technip to examine the merit of a between the Company and Technip, the board of directors of Technip determin continuing strategic review undertaken by Technip in December 1999 that offs production was a sector of particular interest to it and identified the company a opportunity within that sector”. He submitted that thus it is clear that the intent a complementary basis and certainly not to take over Coflexip by Technip, that view in September and October 2000, representatives of the company’s and Te management and their respective financial and legal advisors met on several oc discuss the possibility of a combination of the Company and Technip to be effe an exchange offer by the company for Technip shares. Shri Setalvad submitte had taken over control over Coflexip there was no question of Coflexip conside possibility of Coflexip making an exchange offer for Technip’s shares. He sub early January 2001, representatives of Gimar Finance and Cie, an investment b Technip to inform it that IFP had indicated a potential interest in selling its enti ISIS. He submitted that on January 4, 2001 at the request of Mr. Claude Mand of IFP and Chairman of ISIS, Messrs Valot and Burlin met with Mr. Mandil an Picard, the Chief Financial Officer of IFP. On January 15, 2001 representative of the company and Technip and their respective financial and legal advisors m review possible transaction structures for a combination between the company Shri Setalvad submitted that ISIS and IFP came to the scene only in January 20 year 2000, i.e. after Technip acquired 29% shares on Coflexip. He also referre on May 9, 2001 at the request of Mr. Valentin Mr. Valot met with Mr. Valentin Mr. Claire Grant, Senior Executive Vice President, Finance (CFO) and Commu company. Mr. Valot described his views regarding the strategic benefits of a c Technip and the Company. He also expressed his interest in reaching a mutual regarding a transaction and his intention if a combination were effected to supp company’s growth strategy and to establish a supervisory board management b with a balanced representation of the Company’s and Technip’s executives. W participants agreed that a combination between the Company and Technip wou Mr. Valentin indicated that he would not make any commitment regarding any before receiving a detailed proposal from Technip and that in any event such a should not be explored before September 2001 in order to allow the company advance the integration of the recently acquired Deepwater Division. Meetings

¶345

statutory sets under the French law and their action has to be recognised. He submitted that it is part of control the purchase and sale of shares which are listed, as well as the exercise of the voting rights attache analyze whether such transaction and actions are done in accordance with the rules. The COB is in accuracy of the financial and finance related information given by the players on the stock exchange m that the Market Authorities agree to the publication of a statement or a notice or a financial publication accuracy of the contents of such communications is guaranteed by them. But it does however mean independent bodies have professionally verified the contents of such communications and have be accuracy. If following the issuance of such communications, it is discovered that inaccurate facts wer behaviour of the relevant persons was not in line with their communications, the Market Authorities w right to step in and for instance, express an opinion that there has been or become a concert ac correct to hold that the CMF would merely be, a “publishing” or a “printing” body which would any study or review, the communications and notices received from companies. Learned C particulars submitted to CMF are not automatically accepted. He stated that there are cases where CMF statements, that in fact CMF had even rebutted the filing. By way of example he referred to a decision n which the CMF refused a company called Olipar exemption from the obligations of filing a compulso result that the company Olipar be deprived from its voting rights in excess of one-third in the capital Lucia that by a decision number 197 CO 241, the CMF dealt with the situation of the Company International BV. Teknecomp had acquired the control of a company Santavaleria. Santavalarai owned 6 a French company called Sediver. Taking in particular into account the fact that there was full consolid Sediver into the accounts of Santavalaria, the CMF directed that a compulsory bid be launched by Tekne prior decision no.197 CO 139, the CMF had taken note of the proposed acquisition and had reque Teknecomp pending its final decision.

¶399

Learned Senior Counsel submitted that IFP’s shareholding through associate companies in Techn control over Technip, that IFP, Technip and ISIS belong to one group and they have interest in the sa they wanted Coflexip to further advance their business activities. ISIS was already holding 18.17% voti but Stena was holding 29.68%. ISIS, IFP, Technip combine wanted to control Coflexip and for th Stena’s shareholding in Coflexip and made the acquisition through Technip, as it was not possible for shares and ISIS also could not acquire that much shares as the acquisition would have resulted in cros 30% bench mark warranting public offer under French law. Shri Choudhary referred to the shareho 2.9.1994 between Stena and ISIS and other major shareholders of Coflexip and submitted that since Ste need for such a written agreement, as the control came to Technip, ISIS and IFP combine. Learned Sen that SEBI has failed to investigate into these aspects, and since SEBI having failed now the Appella acquisition of control by Technip ISIS and IFP combine. Shri Choudhary submitted that SEBI kne correctly described the same in its show cause notice dated 19.2.2002 and it has also stated clearly acquisition of shares of Coflexip held by Stena on 12.4.2000, Technip along with person acting in co control over 100% subsidiary of Coflexip namely Coflexip Stena Offshore (Mauritius) Ltd. which ow capital in SEMEC. As a result of the aforesaid acquisition, Technip acquired 58.23% voting capital of over SEAMEC and triggered the provisions of regulations 10 and 12”. He submitted that thus SEBI h the conclusion that Technip acquired 58.23% of voting capital of SEAMEC and control over SEAMEC v of regulations 10 and 12. He submitted that the impugned order and the show cause notice admi ownership and control. However in the order SEBI has come to the conclusion that the change took plac not on 12.4.2000, though the correct date of change is 12.4.2000 as is evident from the facts of the c submitted that in the show cause notice the factual position has been correctly stated that Stena along collectively 47.85% in Coflexip as on 12.4.2000, out of which 29.68% was held by Stena and 18.17% b Technip had purchased all the shares held by Stena (single largest shareholder of Coflexip) in Cofle acquisition of 29.68% shares of Coflexip held by Stena, Technip along with person acting in concert i.e voting rights in Coflexip and with their 6 directors on the Board of Coflexip out of the total 11 directors a position to control Coflexip. The holding of 47% voting capital by Technip with ISIS is more than

¶429

The Appellant submitted that in the public announcement made on behalf of Technip etc.on purchase 20% shares of SEAMEC the offer price has been wrongly calculated as Rs.43.12 by taking 3. date ignoring 11.11.2002. In this context he referred to the interim order passed by the Tribunal on 25 that the Tribunal, subject to the outcome of the appeal, had allowed the acquirer to comply with the direc 9.9.2002 subject to certain conditions and one of such conditions was that the offer price be decided as p submitted that the acquirer did not follow the regulations for the purpose of calculating the price. The provisions of regulation 20(2) (d) according to which the average of the weekly high and low of the clos company as quoted on the stock exchange where the shares of the company are most frequently trade preceding the Public Announcement was to be provided, and that the relevant public announcement on t was made on 11.11.2002 that the date of 3.7.2001 is the offer date relating to the global acquisition. I mischief of delay in public offer by the acquirers and to give the benefit of best price to the sharehold Regulations 1997, has clearly dealt with this by providing regulation 20(2)(d) which puts the condition price by taking actual Public Announcement date vide amendment effected on 9.9.2002. Thus in acquisitions whenever there is delay in public offer, higher of two prices has to be offered taking actua and parent acquisition dates. This principle of higher of two prices has been directed by SEBI in its num acquisition viz. Castrol India Ltd., Foseco India Ltd. Albright & Wilson Ltd., Caprihans India International Ltd., and others. In the instant case, the parent acquisition date was July 3, 2001 Announcement in India ought to have been made in the month of July, 2001, and price would hav shareholders taking July 3, 2001 as the reference date. But 16 months latter the acquirers came to Indian to acquire the shares stating that price will be calculated only by taking July 3, 2001 as the reference date Public Announcement made 16 months later on November 11, 2002 to the Indian minority shareholder

¶476

amendment became effective; such liabilities are kept alive. In support of this he cited P. V. Mohamm of Enforcement. A.I.R. 1993 S.C. 1188, 1192. The rights of the parties are concerned by the law as it proceedings were commenced and amendment of the law during the currency thereof is irrelevant. This clear in Bakor Moti Pagi vs Iswar Thakur A.I.R. 1935 Bom 257. Thus amended Regulation 20 Regulations cannot be applied to the present case. In so far as the contentions of the Appellants are conc was required even under the unamended regulation to take the higher of the two prices, namely, that calcu 3^rd July, 2001 and that calculated with reference to11th November, 2002 the same are clearly fallacious same are contrary to the Order dated 9^th September, 2002 passed by the SEBI and the Order dated 25^th O this Hon’ble Tribunal that there was no provision under the unamended regulation requiring any acquir the two prices, namely, the price calculated with reference to the date of the global announcement announcement. It has been held by both the Tribunal as also the Hon’ble High Court in the case of B reference date for the purpose of determining the price of the open offer is the date on which the public have been made under Regulation 14 i.e. the date of the global public announcement. Thus, the price has to be calculated taking 3^rd July, 2001 as the reference date that the shareholders have been duly compe delay in making the public announcement by requiring Technip-Coflexip to pay 15% interest for the peri till the date of actual payment. Accordingly, interest has been paid in compliance with order of SEBI thus no prejudice is caused to any shareholders as the same has been suitably compensated. It was submi relied upon by the Appellants in respect of the earlier orders passed by SEBI requiring the acquirer to ma higher of the two prices are clearly misleading as the same are either orders passed before the decisio Court in BP plc relating to the determination of the reference date and the decision of the Bombay High plc. upholding the levy of interest. The case of Aventis Crop Science (MA. Sumathi) referred to by the where the acquirer voluntarily chose to make an offer at a higher price although its was not statutorily re from a mere reading of its letter of offer. The same is wholly irrelevant to the facts of the present case. I sofar as the SEBI Act being beneficial to the shareholders is concerned, when the shareholders have bee by payment of interest, the Act or the Regulation cannot be interpreted in a manner as that would b Regulation only so as to justify a higher price. Insofar as the directions of SEBI requiring Technip Regulation 22(5A) is concerned, Technip though not bound to comply with it agreed to do so as it was a and an investor friendly measure, not having any adverse financial implications, that the same canno

¶705

groups were in control of Coflexip. In this context it is also to be noted that C considerable interest in the petroleum sector. Technip also had interest in the s evident from the material on record that Technip and Coflexip were interested t move forward. It was in that context Technip acquired 29.68% shares held by Coflexip. 29.68% is not an insignificant portion in the share capital of Coflexip capital was with the public widely dispersed. It is also to be noted that Technip shares to begin with beyond 30%, because such acquisition would have require make a public offer to the shareholders of Coflexip in terms of the French law i itself. It is also noted from the shareholding pattern of Technip, Coflexip and I having common interest. In Coflexip, ISIS the subsidiary of IFP held 18.17% s Technip ISIS held 11.8%, with two associate companies of ISIS i.e. Gas de Fra Fina ELF, ISIS’s holding was around 29.1% of Technip’s capital. Again, it is coincidence that the holding rested at 29.1%. It was capped a shade below 30% avoid the requirement of public offer under French law. It is noted that in ISIS holding 52.76% as against the public holding of 47.34%. It is also to be noted was formed in the year 1958 by IFP. Coflexip was also promoted by IFP in the ISIS was also promoted by IFP in the year 1975. In fact when ISIS was floated owned subsidiary of IFP. Whether these companies belonged to one “group” o “companies under the same management” may be in dispute. But no one can d belonged to one family in the real sense. The “affinity” of these entities is ve context it is also to be noted that IFP, though created under a decree of the Fren and not a profit motivated commercial set up by itself, is interested in developin sector. Coflexip and Technip are having interest in the Petroleum sector. Obvi be interested in these 2 entities joining together and forming a combine strong the competition in the field. It is in this context the observation made by Justic Committee be noted –“implicit in the concerted action of these persons must be co-operation”. “The Committee also recognized that the process of takeover is inter related to the dynamics of the market place. It would therefore be imprac regulations in such detail as to cover the entire range of situations which could process of substantial acquisition of shares and takeovers” In my view the spir regulation has to be recognised. It is not technicalities, but realities that should stone while deciding as to a person was acting in concert with another. It is suf regard to their common interest, it may be inferred that they must be acting tog relationship of the parties is a pointer in the normal course towards their comm this context the following observation in Guinners relied on by Shri Mukherjee very relevant:

¶717

The Respondents had submitted that the shareholders agreement dated 2.9.1994 operative with the exit of Stena, and as a result the agreement providing for con also ceased. But this in my view is only partially correct. Stena ceased to be a controlling group. In the absence of any evidence brought on record to show t assigned its right and obligations under the agreement it is difficult to accept th agreement continued to operate after Stena’s exit. But after Stena’s exit no suc agreement as such was required, as Technip, ISIS and IFP had one lineage – th parenthood in IFP. ISIS/IFP’s participation in shareholding, management, com the petroleum sector etc. clearly demonstrates their invovement in the process o from day one i.e. 12.4.2000 to the final act on 3.7.2001. Mr. Daniel Valot in hi 14.10.2001 had rightly stated that “for a year now we have been working on th passing through a number of necessary stages, the acquisition 30% of Coflexip the setting up in the summer of 2000 of a strategic alliance.” The process of acquisition started with Technip acquiring 29.68% shares. It is ISIS group had not exercised its pre emptive right to block Technip’s entry. In 4 directors and ISIS had 3 directors on the Board of Coflexip and the total hold companies were around 47%, sufficient enough to control Coflexip in view of i widely held by public. It is also noted that in fact in the annual general meeting in May 2000 and May 2001 (before the merger effected on 3.7.2001) Technip h 54% and 57% of the voting rights, that this itself is indicative of the fact that Te than 50% voting rights at its command, even though on record it was holding o Daniel Valot in his letter dated 14.10.2001 referred to above, has acknowledge “IFP which was at the origin of the creation of the two companies and which ha through ISIS a major shareholder of both of them, acted as a catalizer in their u deciding to commit its majority stake in ISIS to Technip, it greatly facilitated t between Technip and Coflexip” He had also acknowledged the support from G and Total Fina Elf – both associated with IFP family. The whole idea as coul make Technip, the controller of Coflexip and ISIS rendered full co-operation i Technip to acquire the shares. It is to be noted that ISIS, one time shareholder merged with Technip, on Coflexip merging with Technip in July, 2001. ISIS’s Technip is not a coincidence. It was because by that time Technip had acquuir

¶719

The Respondent had argued that if Technip and ISIS were acting togeth question of ISIS voting in favour of setting up a committee to revise the offer p Technip while making the public offer to the shareholders, that Technip would subjected several restrictions on undertaking new business etc. without the app Coflexip. In this connection it is to be noted that Coflexip is a public company legal entity. ISIS has investment in it. ISIS objecting to the setting up of a com the offer price, is but natural as an increase in offer price was to its advantage it was not in any way acting against its objective of helping Technip to acquire Coflexip. It is to be noted that supporting Technip to acquire control of Coflex acquisition of shares, does not mean that ISIS should forego the monetary gain otherwise accrue to it in the transaction. It is an admitted fact that ISIS is a com and as such it was but natural that it would bargain for a higher price for the sh But this does not mean that ISIS was acting against Technip. Technip is not a w subsidiary of ISIS. Adding a little more financial burden on Technip by asking price can not be viewed as a hostile action from ISIS or as evidence of non co-o Respondent has stated that at one point of time Coflexip was mooting takeover that such a proposal would not have come from Coflexip, if it had been under t Technip, as is being alleged. The Respondents have not produced any evidenc the proposal was made and why it was not pursued and given up. Even otherwi can not be viewed as to indicate that on 12.4.2000 Technip had not acquired sh Coflexip. The fact is that on 3.7.2001 it was Technip which acquired 99% shar About the several binding covenants on Technip it is to be noted that in the cor such binding terms and conditions in contracts entered between even holding c subsidiaries are common from the commercial angle and legal angle. . As long remaianed two separate legal entities, inter se agreements/contracts would be n be noted that ultimately Technip had acquired 98% of the shares in Coflexip in Further that it acquired 99% shares in ISIS is also an important factor. The Res posed a query as to in case Technip had acquired control on 12.4.2000 what wa for it to spend huge sum of money to acquire further shares on 3.7.2001. It is n

¶723

An argument was advanced that even if it is assumed that Technip had ac control over coflexip SA, there was no change in the ownership of SEAMEC o SEAMEC as a result of the alleged acquisition. This argument in my view is fe context it is to be noted that regulation 12 even though does not speak of indire that it covers indirect acquisition as well is implicit from the scheme of the reg especially when viewed from the objective of the Regulations. In this context i that the incidence for making public offer under regulation 12 is acquisition o obligation to make public offer in terms of regulation 12 is on the acquirer. Wh “Acquirer” in terms of regulation 2(b) means “any person who directly or indir agrees to acquire shares or voting rights in the target company or acquires or ag control over the target company, either by himself or with any person acting in acquirer.” This definition clears the doubt, if any, as to on indirect acquisition to make public offer under regulation 12 would attract or not. It is to be noted t Takeover Regulations is to protect the interest of shareholders. Regulations 10 substantial acquisition of shares/voting rights takes care of direct and indirect a that context there is no reason to believe that if it is acquisition of control then acquisition is to be taken cognizance. It is in this context one has to remembe Regulations is a beneficial legislation and it has to be interpreted in a manner s shareholders. In fact, the intent of the regulation 12 has now been made clear explanation added vide amendment effected on 9.9.2002 stating that regulation or indirect acquisition of control. This is only an explanation – an explanation nature. It does not stand to reason that the investors’ interest requires protectio acquisition is direct and if it is an indirect acquisition no such protection is requ The Respondent had advanced an argument that Takeover Regulations as 9.9.2002 should be applicable to the case, as the impugned order is dated 9.9.20 view of the fact that the Public Announcement in India was issued on 11.11.20 considered the authorities cited by them in support of the same. Shri Setalvad had rightly pointed out that the SEBI Regulations can not be retrospectively ap has not been empowered to make regulations with retrospective effect and in th clear specific power empowering to make regulations with retrospective effect, not be brought in to force with retrospective effect. It is not the date on which order that matters. It is the date of the cause of action that decides the applicab Regulation. Cause of action in this case is acquisition of shares/control of Cofl on 12.4.2000. Therefore, in my view , the applicable regulations having a beari and obligations on Technip should be the one in position on 12.4.2000 and not

Sms Holdings Pvt. Ltd.

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