Dismissed

Wimco

SAT18 Feb 2003

Case brief

AI extract

What is this about?

Swedish Match appealed SEBI's order mandating a public offer after it acquired shares from joint controllers. The Tribunal held that the acquisition of additional shares attracted Regulation 11(1), as the inter-se transfer did not negate the requirement for a public announcement to protect minority shareholders.

What did the court decide?

Appeal dismissed; direction to make public announcement sustained.

What the court decided

AI extract

Outcome

Appeal dismissed; direction to make public announcement sustained.

Issue for consideration

Whether the transfer of shares between persons previously in joint control, resulting in a shift to sole control, attracts Regulation 11(1) requiring a public offer despite an exemption under Regulati +2 more

A compact analysis

This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.

Wimco — Securities and Capital Markets | SAT (2003)

Dismissed

Wimco

SAT18 Feb 2003

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Case brief

AI extract

What is this about?

What did the court decide?

Appeal dismissed; direction to make public announcement sustained.

What the court decided

AI extract

Outcome

Appeal dismissed; direction to make public announcement sustained.

Issue for consideration

A compact analysis

¶39

	Perce	ntage holding
Shareholders’ category	Pre Acquisition	Post Acquisition
Foreign Promoters (Acquirers Swedish Match AB Group)	52.11%	74%
Indian Promoters (Jatia Group)	24.11% 23.78%	2.22% 2.78%
Public Total	100%	100%

¶49

Learned Counsel submitted that whether acquisition of shares in a case would attract the provisions of regulations 10 or 11 is a question of fact. He referred to the provisions of regulations 10 and 11 and submitted that regulation 10 is on acquisition of shares or voting rights of a listed company beyond a specified limit whereas regulation 11 is on consolidation of holding by the existing holders of shares or voting rights. In this context referring to the finding in the impugned order that the Appellants had increased their existing share holding by about 22% i.e. from 52.11% to 74% as a result of the acquisition, and the said acquisition being above the 5% limit prescribed in regulation 11, the requirement of making public announcement to acquire further shares of the target company in accordance with the regulations was to be complied with, learned Counsel submitted that the said finding has been arrived at by ignoring the factual position and the provisions of regulation 12. He submitted that what has happened in the instant case is a change of control from joint control to sole control and regulation 12 exempts such a change in control from the purview of regulation 12 and therefore, a public offer to acquire further shares from the other share holders is not required to be made. Learned Counsel submitted that the Respondent has clearly admitted in its order that "from the admitted facts of the case it is observed that pre-acquisition, both the Acquirers and Jatia Group were in control of the target company. The Acquirers (through Swedish Match Singapore Pte. Ltd.) acquired 11382800 shares representing 21.89% of the target company from the Jatia Group on 27.9.2000 in pursuance of the resolution passed by the Board of Directors of the target company approving the transfer of shares in favour of the Acquirers. The Acquirers paid Rs.35/- per share (being more than the market value of the shares) as the consideration to the Jatia Group for transfer of 21.89% of the Target company. Pursuant to the aforesaid, there was a change in control from joint control to sole

¶57

of statutes relating to the subject matter". Countering the Respondent’s contention that the Jatia Group and the Appellants were not persons acting in concert as far as acquisition involving 21.89% of the capital of the target company is concerned, learned Counsel referred to the following observation made by the Hon’ble Bombay High Court (DB) in Shirish finance and Investment P. Ltd. V M Sreenivasulu Reddy (2002) 35 SCL 27 (Bom) – that "We are satisfied that the circumstances established on record prima facie do lead to the inference that the defendant Nos.1 and 11 acting in concert with defendant Nos. 2 to 10 acquired the shares of the Herbertsons Ltd. over a period of time. Since they were acting in concert the acquisition by each one of them must be considered to be the acquisition of the other as well." He submitted that the said view supports the fact that the Appellants and the Jatia Group who had acquired shares in the target company were acting in concert. He also referred to the Hon’ble Court’s observation that the argument that "the use of the words "with" in regulation 2(1)(b) means that the acquirer must acquire the shares with the persons acting in concert with him, does not impress us. It is not necessary that if two persons act in concert with the common objective to purchase shares in a company, they can not be said to have acted in concert with each other unless the shares are acquired either in their joint names or by each of them during the period in question. Such an interpretation would completely defeat the very purpose of the regulations as it would amount to saying that unless the name of a person appears as a share holder, he can not be said to have acted in concert with the other. In our view, concerted action must relate to their effort to acquire shares." Learned Counsel submitted that the observation made by this Tribunal in Modipon Vs SEBI & others (2001 33 SCL 85) have no application to the present case as "Modipon" was not an acquirer sharing commonality of objective with the other acquirers of Modi Rubber Ltd.,’s shares.

¶109

The argument that since the Appellants were already entitled to exercise more than 51% of the voting rights, further acquisition of shares did not attract the requirements of making public offer as provided in regulation 11(2) is not supported by the regulation. Any further addition to the voting right beyond 51% would attract regulation 11(2) as is clear from the wording of the regulation that ‘no acquirer shall acquire shares…………. which entitle such acquirer to exercise more than 51% of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company….". It is an absurd proposition that public offer is required to be made only when the acquisition is in the range of 10 % and 51% and on crossing 51% the acquirer is free to acquire shares without making public offer. Admitting such a proposition would be endorsing the view that the benefit proposed to be extended to the shareholders, will not be available to those public share holders holding 49% in a company where the acquirers held 51% shares. In this context one has to remember the objective of the regulation and the general principles laid down by the Committee discussed in this order above. The Regulation should operate principally to ensure fair and equal treatment of all shareholders in relation to substantial acquisition of shares and takeovers. The fact that the regulation was redrafted in 1998 making the intention clear, does not mean that the pre-amended regulation 11(2) provided acquisition of shares without making public offer, once the 51% bench mark is crossed. As the Adjudicating officer rightly pointed out the words "more than 51%" in the regulation need be interpreted in a purposive manner. The Appellants contention that 51% bench mark can be crossed only once and repeated crossing is not possible is unsustainable in view of the scope of the regulation as could be gathered in the light of clarification provided by SEBI and the recommendations of Justice Bhagwati Committee. It is thus obvious that regulations 10 and 11 are put in position with different objectives."

¶213

interpreted following the ejusdem generis rule of interpretation. The reference to "such other cases" obviously should be to the cases involving shares referred to in the clauses preceding clause (l). Precisely that is why a specific exception exclusively for the purpose of regulation 12 has been carved out and provided in the proviso to regulation 12 i.e. "provided that nothing contained herein shall apply to any change in control which takes place in pursuance to a resolution passed by the shareholders in a general meeting." The explanation is confined to the substantive provision in regulation 12 and restricted only to the said regulation. The words "For the purpose of this Regulation" in the regulation strengthens the view point that the specific exception is available only for the purpose of Regulation 12 and to none else. . The argument that since a resolution has been passed and the shareholders being the best judge of their interest, their decision approving the change of control has to be accepted is not very relevant to the issue under consideration. In fact the said proviso goes to show that compliance of regulation 12 is attracted only with reference to change in control independent of acquisition of shares. If acquisition of shares and consequential change in control was to be exempted from making public offer , the regulation would not have provided for a resolution for the purpose, as getting a resolution passed by those holding majority of shares in the company being a certainty. In fact if an interpretation is given to regulation 12 that even substantial acquisition of shares resulting in change in control is also attracted by regulation 12, the requirement of regulations 10 and 11 would be easily circumvented by passing a resolution as provided for in regulation 12 and thereby the benefit of public offer to the shareholders otherwise available would be denied. Such an interpretation of a beneficial legislation is not proper as it would defeat the very purpose for which the Regulations have been framed. In fact enlarging the scope of regulation 12 even to cover substantial acquisition of shares would in effect be bidding goodbye to the principle which Bhagwati Committee recommended to follow while interpreting the regulations. The Committee had observed that "the Regulations for substantial acquisition of shares and takeovers should operate principally to ensure fair and equal treatment of all shareholders in relation to substantial acquisition of shares and takeovers….they should ensure that such processes do not take place in a clandestine manner without protecting

¶214

the interest of the shareholders." Investor protection is the underlying principle of the Regulations. In my view the exception carved out in regulation 12 can not be extended to acquisition of shares attracting regulation 10 or 11 and thereby give exemption to the acquirer from complying with the requirements of the said regulation. No doubt change in control attracts the provisions of regulation 12. But those factors which cause change in control do not attract the provisions of regulation 12. There are other regulations dealing with such factors and there is no escape but to comply with the requirements of those relevant regulations. Since regulations 10 and 11 provide for substantial acquisition of shares and consolidation of holding, the cases involving substantial acquisition of shares/consolidation of holding would attract the said regulations and compliance of the requirements as provided in those regulations has to be adhered to. In the instant case, the only material available on record to show that the Jatia Group was in control of the target company with Swedish Match Group was their shareholding in the target company, and the control ceded on the Swedish Match Singapore group acquiring the shares held by the Jatia Group. It is true that as a result thereof change in control took place from joint control to sole control. It is not that the control ceased and as a result the Jatia Group sold the shares held by it to the Swedish Match Group. In this context Swedish Match AB’s statement in its letter dated 28.9.2000 to the Respondent is worth noting. It has been stated therein that "We wish to inform you that we have through our wholly owned subsidiary Swedish Match Singapore Pte. Ltd and pursuant to the requisite approvals acquired an additional 11382800 equity shares from the aforesaid Indian companies, such that we are now in sole control of WIMCO Ltd.," Sequence has been mentioned correctly thus that they acquired additional shares and thereby acquired sole control of WIMCO Ltd. As the control is relatable to the shareholding in the instant case and to nothing else, and cessation of control was due to divesting of the said ownership of shares, in the absence of any other evidence to the contrary it can be safely concluded that the Acquirers acquired shares from the Jatia Group and consequently Jatia Group ceased to be in joint control of the target company. Assuming that if the Jatia Group had been in joint control due to some other factors, then section 11 would not have attracted. In the instant case it is a clear case of acquisition of shares and cessation of control consequential to

Wimco

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Wimco

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Parties & counsel

Coram

Case details

Similar cases

Statutes considered