Securities Appellate Tribunal
Swedish Match Ab And Swedish Match ... vs Securities And Exchange Board Of India on 18 February, 2003
ORDER C. Achuthan, J.
1. Wimco Ltd., is a public limited company incorporated in India. It is mainly engaged in the business of manufacture and sale of a broad range of safety matches.
2. The shares of the company are listed on the stock exchanges at Mumbai, Delhi, Calcutta, Kanpur and also on the National Stock Exchange Singapore. Swedish Match AB ( Appellant No.1), a company incorporated in the Kingdom of Sweden, is the holding company of Swedish Match Singapore Pte. Ltd. (Appellant No.2). The entire paid up capital of Swedish Match Singapore Pte. Ltd. is held by Swedish Match AB. It is a private limited company incorporated in Singapore. The said Swedish Match Singapore Pte. Ltd. in turn is the holding company of two other Singapore companies viz. Haravon Investments Pte. Ltd. (Haravon) and Seed Trading Pte. Ltd (Seed). These companies viz. Swedish Match AB, Swedish Match Singapore Pte. Ltd. Haravon and Seed are described as Swedish Match Group (the Acquirers). The Acquirers held 52.11% shares (i.e. 46.18% by Haravon and 5.93% by Seed) in Wimco Ltd. (the target company) Two companies viz. AVP Trading P. Ltd. (AVP) and Plash Foods P. Ltd. (Plash) are stated to be the Indian promoters of the target company. These two companies incoporated in India, reportedly belong to one Jatia Group (Jatia group companies). They together held 24.11% of the share capital of the target company. (i.e. AVP holding 6.03% and Plash holding 18.08%) The Acquirers and the Jatia Group, were thus holding 76.22% shares of the target company. It has been stated that these two groups were in joint control of the target company.
3. The Acquirers (through Swedish Match Singapore Pte. Ltd.) acquired 1,13,82,800 shares representing 21.89% of the share capital of the target company from the Jatia Group (.e. 16.41% from Plash and 5.48% from AVP) in September, 2000 at a price of Rs.35/- per share of the face value of Rs.10/-. With the aforesaid acquisition the Acquirers' holding in the target company increased from 52.11% to 74% and the Jatia Group's holding reduced from 24.11% to 2.22%. The public shareholding remained unchanged at 23.78%.
4. The Respondent on noticing that the Acquirers acquired 21.89% shares of the target company , over and above their holding of 52.11% shares issued a show cause notice to them 28.1.2002. In the show cause notice it was alleged, inter alia, Act). They were called upon to show cause as to why one or more or all action (s) under regulations 44 and 45(6) of the 1997 Regulations and section 11B of the Act, should not be initiated against them. The Appellants answered the show cause notice. They also made oral and written submissions before the Chairman, Securities and Exchange Board of India (the Chairman). The Chairman, thereafter made the impugned order on 4.6.2002. By the impugned order, it was held that by acquiring 21.89% shares of the target company without making a public announcement the Acquirers had violated regulation 11(1). In the said context the Acquirers were directed to make a public announcement in terms of regulation 11(1) within 45 days of the passing of the impugned order, taking 27.9.2000 as the reference date for calculation of offer price. The Acquirers were also directed to pay interest @ 15% per annum on the offer price to the shareholders from 27.1.2001 till the actual payment of consideration for the shares to be tendered in the offer. The Appellants, claiming to be aggrieved by the said order have filed the present appeal praying to set aside the order. The Appellants had also sought an interim order staying the operation of the impugned order pending final decision on the appeal.
5. After hearing Counsel for the parties and taking into consideration all the relevant factors, this Tribunal vide its order dated 02.07.2002 allowed the Appellants' prayer for interim stay. Operation of the impugned order was stayed during the pendency of the appeal.
6. Shri K. G. Raghavan, learned Counsel appearing for the Appellants submitted that the impugned order is based on an incorrect interpretation of the 1997 shares through AVP (6.03%) and Plash (18.08%, ), that it is an admitted fact that the Swedish Match Group and the Jatia Group were in joint control of the target company. In this context learned Counsel referred to the ownership background of the target company with reference to its share holding pattern. According to the learned Counsel, Swedish Match AB held shares in the target company to the extent of over 53% till 1977, which was reduced to below 40% to be in tune with the requirements of the provisions of the then existing Foreign Exchange Regulations Act, 1973, that in the year 1992 Swedish Match AB sold its holding in the target company to Haravon and Seed which were then under the control of the Jatia Group, that in December 1997, Swedish Match AB and the Jatia Group entered into an agreement whereby the Swedish Match AB through Swedish Match Singapore Pte. Ltd. agreed to purchase the share holding in Haravon and Seed from the Jatia Group, and the Jatia Group through its two Indian Companies AVP and Plash agreed to acquire 20% share holding in the target company from the public, that in this regard a public offer was made in the year 1998. Learned Counsel submitted that in the letter of offer issued in the said context, Swedish Match Singapore Pte. Ltd. AVP and Plash were named as acquirers who were acting in concert, that Swedish Match AB being the ultimate parent company of the Swedish Match Singapore, information about the said company was also disclosed. He further submitted that since by the date of such letter of offer, Haravon and Seed having become subsidiaries of Swedish Match Singapore Pte. Ltd. those companies were also deemed to be persons acting in concert as per the provisions of the 1997 Regulations. He further submitted that the letter of offer also specified that the acquisition and offer was being made as part of an arrangement of Swedish Match Singapore Pte. Ltd. acquiring control over the management of the target company in joint participation with the Jatia Group.
and Plash, to Swedish Match Singapore Pte. Ltd. According to the learned Counsel since the transfer of shares was between persons acting in concert, as a result thereof, there was no increase by way of acquisition of shares or voting rights in the combined share holding of the persons acting in concert. In this context Shri Raghavan, referred to the following disclosure made in the letter of offer that "This Acquisition and offer is being made as part of an arrangement of SMS (Swedish Match Singapore Pte. Ltd.) acquiring control over the management of the company in joint participation with the Jatia Group." Learned Counsel also referred to the letter dated 28.9.2000 from Swedish Match AB addressed to the Respondent informing that the said Swedish Match AB through its wholly owned subsidiary Swedish Match Singapore Pte. Ltd. acquired an additional 1,13,82,800 equity shares from the Jatia Group who have been persons in joint control of the target company and as a result of the said acquisition they were are now in sole control of the target company. In this context he referred to the pre acquisition and post acquisition share holding of the "foreign promoters" and "Indian promoters" in the target company as disclosed in the order.
Percentage holding Shareholders' category Pre Acquisition Post Acquisition Foreign Promoters Indian Promoters Public Total (Acquirers Swedish Match AB Group) (Jatia Group) 52.11% 24.11% 23.78% 100% 74% 2.22% 2.78% 100% being an exempted one by regulation 12 did not attract the requirements of making public offer as provided under chapter III of the Regulations, a notice was issued to the Appellants on 28.1.2002 alleging that the said acquisition attracted the provisions of regulations 10 and 11 (1) and the consequences that would visit on non compliance of the same as provided under the Act and the Regulations. In this context he referred to the Appellants' detailed reply thereto dated 12.2.2002 explaining the factual and the legal conspectus, stating that the Swedish Match Group and the Jatia Group were in joint control of the target company and that the acquisition by the Swedish Group was from Jatia the Group and that in the light of the admitted facts, the provisions of regulations 10 and 11 did not attract to the transaction.
7. With reference to the alleged applicability of regulation 10, learned Counsel reiterated the submission made in the said reply that the said regulation is applicable only to the instances where the acquirer together with persons acting in concert with him or by himself seeks to acquire 15% or more of the shares or voting rights of a listed company, that in the instant case the Swedish Match Group and the Jatia Group, who were acting in concert and in joint control of the target company held more than 15% of the shares and voting rights at the relevant point of time.
8. Shri Raghavan submitted that, regulation 10 assumes greater significance in the context of widely held companies, wherein holding of 15% or more of shares or voting rights may enable the holders thereof to significantly influence management control over the concerned company, that it is in this context that regulation appears to suggest that a person whether together with persons acting in concert with him or by himself, seeks to acquire shares and/or voting rights which represent more With reference to the applicability of regulation 11(1) learned Counsel referred to the reply to the show cause notice that sub regulation (1) of regulation 11 is applicable wherein an acquirer who together with persons acting in concert with him holding in excess of 15% but less than 75% of the shares of a listed company seeks to acquire in a period of one year additional shares or voting rights entitling him to exercise more than 5% voting rights. Learned Counsel submitted that the regulation applies only in respect of circumstances wherein the acquirer together with persons acting in concert with him seeks to acquire shares or voting rights in excess of the aggregate of shares and voting rights then held by the acquirer and the persons acting in concert with him, that the regulation has no application in respect of transfer of shareholding interse the persons acting in concert, as thereby there is no acquisition of additional shares or voting rights in the company and the word "shall acquire" in the regulation should be construed contextually as not including mere transfer among the persons in control of the target company. Learned Counsel submitted that the purpose of regulation 11 (1) is to regulate consolidation of share holding by significant share holders to acquire control over the affairs of the concerned company, that any acquisition in excess of the 15% bench mark should be construed as an effort towards consolidation of share holdings to acquire control, that the references to "shall acquire" or "additional shares or voting rights" in regulation 11 must be read in such a context to exclude a circumstance wherein a person in joint control is ceding his participation in the exercise of joint control over a company in favour of the other person in joint control who would subsequent to such cessation be in sole control of the concerned company.
9. He further submitted that regulation 12 specifies that nothing contained therein would be applicable to a change in control which takes place in pursuance to a resolution passed by the shareholders in a general meeting, that the target company's share holders in a general meeting held on 27.9.2000 had passed such a resolution.
10. Learned Counsel submitted that to the extent regulations 10, 11 and 12 do not address a proposed acquisition of shares or specifically permit an acquisition of shares, regulations 10, 11 and 12 would no longer be applicable to the said acquisition of shares, that therefore, the acquirer in such a transaction would not be required to make any application for an exemption under regulation 3(1)(l) from the applicability of regulations 10, 11 and 12 that under regulation 4(2) the take over panel would not be in a position to consider or make recommendation on any such application seeking exemption and therefore, SEBI would not, under the Regulations, be in a position to issue an order in this respect. Learned Counsel submitted that the acquisition of 21.89% shares by the Appellants from the Jatia Group is an acquisition specifically permitted under regulation 12 and hence outside the purview of regulations 10 and 11 as well. Shri Raghavan submitted that the Respondent in the impugned order has admitted that the "Acquirers were holding 52.11% shares of the target company and the Jatia Group was holding 24.11% shares of the target company. The Acquirers and the Jatia Group were in joint control of target company and were together holding 76.22% shares of the target company." 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 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.
11. 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 control and post acquisition, the acquirers acquired the sole control of the Target Company". The learned Counsel submitted that the Respondent have come to the conclusion that it was a case of change of control from joint control to sole control rightly observed that "as the said change from joint to sole control took place in pursuance to a resolution passed by the shareholders in general meeting, the same would not trigger Regulation 12, same being covered under proviso to Regulation 12". He submitted that having reached at such a categorical conclusion that the acquisition attracted regulation 12 but a public offer was not required to be made in view of the compliance of the first proviso to regulation 12, the Respondent wrongly concluded that the transaction attracted regulation 11 (1). Learned Counsel submitted that the Respondent's reasoning that 12 is to be dealt with under regulation 12, that the Respondent's approach that if not regulation 12 apply regulation 11 and if not regulation 11 apply regulation 10 has no legal support. In this context Shri Raghavan referred to the provisions of regulations 10, 11 and 12 and stated that these regulations are in position to meet different eventualities but the common objective is to protect the interest of investors. He submitted that investor is the best judge of his interests, that the resolution contemplated under regulation 12 has to be seen in that context. Learned Counsel submitted that the situation wherein two persons are in joint control of a company and as a part of cessation of the other's participation in joint control, one of such persons acquiring the shares held by the other person in joint control, has been recognised in Regulation 12. He submitted that the Explanation to regulation 12 carves out an exception to the acquisition of control by a person and such exception must operate to the exclusion of regulations 10, 11 and 12 failing which such Explanation would be rendered meaningless. He submitted that though paragraph (i) of the Explanation to regulation 12 seeks to limit itself to the cessation of control, the various references in the proviso thereto indicate that Regulation 12 specifically contemplates a cessation of control accompanied by way of a sale of shares, that even in case of cessation of joint control, the same may be accompanied by way of transfer of shares from one party to the other in control. He further submitted that regulation 12 permits the acquisition by a party in joint control, of the shares held by the other party in joint control which relinquishes such joint control, without mandating on such acquirer any obligation to make a public announcement of offer, as is evidenced by the tenor and implication of paragraph (ii) of the Explanation to regulation 12. He submitted that since there is no change in control over the company, that on a person in joint control purchasing the shareholding of where regulation 12 is applicable, transactions falling within the proviso to the Explanation must be deemed to be exempted from the requirements of the other regulations also and in the said context shares acquired by the Appellants from the Jatia Group is an exempted acquisition.
12. Learned Counsel submitted that the provisions of regulations 10, 11 and 12 must be read harmoniously so that a facility or exemption offered by one regulation is not rendered superfluous on account of a suggestion that such facility or exemption must be subjected to the rigors of the other regulations which warrant a public announcement of offer. He submitted that in the context of the transaction specifically provided for and addressed by a particular regulation, the governing regulation is that specific regulation and the other regulations have no application.
13. He submitted that control, the cessation thereof and the acquisition or sale of shares in connection therewith is covered in regulation 12 and not in regulation 11 and the provisions of these two regulations should be so interpreted to avoid inconsistencies, and therefore, any interpretation of regulation 11(1) should be such that it excludes a transaction involving a transfer of shares as part of cessation of participation in joint control particularly where such persons in joint control acquired shares as persons acting in concert for the purposes of exercising joint control over the concerned company.
14. Shri Raghavan submitted that the Respondent's contention that the Swedish Match Group and the Jatia Group are not persons acting in concert as far as the acquisition of 21.89% of the shares of the target company is concerned is untenable as the definition of the expression "persons acting in concert" as provided in regulation 2 (e)(1) of the 1997 Regulations provide that where, inter alia, two Shri Raghavan in support of his argument that regulations 11 and 12 should be read harmoniously, referred to the views expressed by Justice G. P. Singh (Retd.) in his authoritative commentary on "Principles of Statutory Interpretation" (7th Edn. Pages 112 to 114) that "it is the duty of the Courts to avoid a "head on clash"
between two sections of the same Act and, when ever it is possible to do so, to construe provisions which appear to conflict so that they harmonise. It should not be lightly assumed that Parliament had given with one hand what it took away with the other". In this context Shri Raghavan referred to the observation made by the Hon'ble Supreme Court in South India Corpn. P. Ltd. V. Secretary Board of Revenue (AIR 1964 SC 207) that "It is settled law that a special provision should be given effect to the extent of its scope, leaving general provision to control cases where the special provision does not apply" and submitted that regulation 12 is a specific provision dealing with acquisition of control and that the instant case being a case of acquisition of sole control by the Appellants, regulation 12 is the applicable regulation and not regulation 11. Learned Counsel also referred to Sultan Begum V Prem chand Jain(AIR 1997 S C 1006) therein the Hon'ble Supreme Court had observed that the "statute has to be read as a whole to find out the intention of the legislature; and that every clause of a statute should be construed with reference to the context and other clauses of the Act, so as, as far as possible, to make a consistent enactment of the whole statute or series 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 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.
15. Shri Raghavan referred to the history of introducing regulation 12 in the 1997 Regulations and submitted that the reason for incorporating regulation 12 has been stated by the expert Committee in its report based on which the 1997 Regulation was framed, that in the report it has been stated that "the Committee felt that change in control of a company, as opposed to change in management of a company should be made a condition requiring a public offer to be made. Where there is a change in control, the shareholders must be afforded an opportunity to exit from the company if they do not want to continue under the new acquirers... ... The Committee, therefore, agreed to define control. The Committee also felt that concept of joint control which is often seen in practice should also be recognised. The Regulations 14 "4.1 The Committee was informed that though the intent of the Regulations is to provide the share holders an opportunity to exit in case of change in control, the purpose is not achieved because the proviso and the explanation to Regulation 12 provide for certain exceptions. Further, change in control brought about through interse transfers and/or preferential allotments are exempt automatically under Regulation 3 and the investors have complained about lack of exit opportunity. An issue has been raised from time to time as to what constitutes change in control. It has been suggested that control should be more precisely defined, which may be in terms of a specific percentage of holdings.
The decisions of the Committee with reference to issues regarding 'control' and the rationale therefor is as follows:
4.2 Acquisition of control The Committee noted that the Regulation 12 was introduced to include change in control even when there is no acquisition of shares. The Committee also noted that so far hardly any offer has been made under this Regulation possibly in view of the fact that the proviso and the explanation to the said Regulation has provided certain exceptions. The Committee also noted that bringing about change in control requires passing of a simple resolution in terms of the Companies Act, which does not provide for adequate safeguard. The Committee considered alternatives such as requiring the passing of a special resolution debarring the interested parties from voting on the resolution, postal ballot and deletion of the proviso and explanation to Regulation 12 etc. The Committee was of the opinion that having regard to corporate and share holders democracy, it may not be appropriate to totally disallow change in management brought about after due The Committees recommends that change in control can be brought about only pursuant to a special resolution passed by the share holders in a General Meeting and postal ballot should be allowed in respect of such meetings.
4.3 The Committee feels that the explanation as to what constitutes change in control which is presently appearing under Regulation 12 and modified as under may be shifted to Regulation 2 which contains the definition of the word "control".
16. The Committee recommends that the modified explanation to the word "control" which should appear in Regulation 2 shall read as under:
? Where there are two or more persons in control over the target company, the cessor of any one such person from such control shall not be deemed to be a change in control of management nor shall any change in the nature and quantum of control amongst them constitute change in control of management.
? Provided that a transfer from joint to sole control shall not constitute change of control subject to such transfers being effected in accordance with regulation 3(1)(e) relating to inter se transfer.
? Where any person or persons are given joint control such control shall not be deemed to be a change in control -
(a) if the control given is, equal or to or less than the control exercised by person(s) presently having control over the company.
(b) Such change in control is effected in accordance with Regulation 3.
17. Shri Raghavan submitted that the Committee has clearly explained in paras 4.1 and 4.2 of its report as to what the existing regulation is and also the modification required to regulations 12, 2 ( c ) and 3 (1)(e) (iii). He submitted that the Shri Kumar Desai, learned Counsel for the Respondent briefly referred to the background of the case in particular the changes undergone in the share holding pattern of the target company and also the manner in which the shares were acquired/divested by the parties. He submitted that Haravon was holding 46.18% and Seed was holding 5.93% in the share capital of the target company, that the Appellants, Haravon and Seed belonged to the Swedish Match Group. He further submitted that AVP and Plash were holding 6.03% and 18.08% respectively in the target company, that these two companies belonged to the Jatia Group and thus the total holding of the Jatia Group in the target company was to the tune of 24.11% of its paid up capital. Shri Desai submitted that the Swedish Match Group acquired 1,13,82,800 shares representing 21.89% of the target company's share capital from the Jatia Group on 27.9.2000 that the said acquisition was made without complying with the requirements of making public offer as required by regulation 11(1). Shri Desai submitted that Swedish Match Singapore was not a share holder of the target Company till September 2000, that it became a share holder for the first time on acquisition of 1,13,82,800 shares (21.89%) from the two Jatia Group companies on 27.9.2000. He referred to the letter dated 28.9.2000 from Swedish Match AB, informing the Respondent of the acquisition of 1,13,82,800 shares by the said Swedish Match Singapore Pte. Ltd. In this context he also referred to the charge against the Appellants levelled in the show cause notice dated 28.1.2002 and stated that in the notice it was stated that "with the acquisition of 1,13,82,800 shares representing 21.89% of the share capital of the target company from Plash Goods Private Ltd. and AVP Trading Ltd. (companies belonging to the Jatia Group), the share holding of Swedish Match Singapore in the target company increased from NIL to 21.89% individually, and the Swedish Match Group's total holding increased another as they address different types of acquisitions. He submitted that regulation 10 attracts acquisition of shares or voting rights on crossing the threshold limit of 15% or more of the shares or voting rights in any company, that regulation 11 dealing with "consolidation of holdings" is attracted on acquisition of 5% or more of the shares or voting rights by persons holding 15% to 75% of the shares or voting rights in a company and regulation 12 dealing with "acquisition of control of a company" is attracted to acquisition of control over a company irrespective of whether or not there has been any acquisition of shares or voting rights in a company. Shri Desai submitted that specific exemption from the applicability of the provisions of a particular regulation provided in the regulations is available only to that particular regulation and not to the other regulations. In this context he referred to regulation 3(1) and submitted that only the exemptions covered therein are applicable to regulations 10, 11 and 12 in general.
Shri Desai referred to the 'powers and functions of the Board" under Chapter IV of the Act and stated that as per section 11 (2) (h) the Respondent is empowered not only to regulate take over of companies but also to regulate substantial acquisition of shares, that this requirement has been taken note of by the Respondent and appropriate specific provisions for the purpose have been provided in the 1997 Regulations. In this context he referred to Bhagwati Committee Report, based on which the 1997 Regulations was framed.
18. Shri Desai submitted that the Regulations cover every kind of substantial acquisition of shares and also acquisition of control. Learned Counsel submitted that the scope and reach of each of the regulations should be properly interpreted and in harmony with each regulations, that in case of any conflict, the Regulations should Countering the Appellants' contention that though the impugned acquisition is one falling under regulation 12, requirement of making a public offer is not warranted, as the acquisition is exempted in terms of the proviso and Explanation thereto, learned Counsel submitted that the substantive regulations applicable to the impugned acquisition are regulation 10 and 11 for the reason that Swedish Match Singapore Pte. Ltd. in one go acquired 21.89% shares of the target company as against the threshold limit of exemption of holding upto 15% of the shares or voting rights of a company stipulated in regulation 10 and that Regulation 11(1) also attracted as the said acquisition resulted in increasing the holding of the acquirer with persons acting in concert by 21.89% i.e. from 52.11% to 74%, in the target company's capital. According to Shri Desai, since the Appellants acquired shares over and above the limit prescribed in regulations 10 and 11, compliance of the requirements as provided in those regulations can not be avoided. Shri Desai submitted that the exception created under regulation 12 is specific to cases covered by regulation 12 only and it is not a general exception applicable to the entire Chapter III of the Regulations. In this context referring to explanation (i) to regulation 12, Learned Counsel submitted that the said explanation clearly states that it is for the purpose of regulation 12 and that where there are two or more persons in control over the target company, the cesser of any one such person from such control shall not be deemed to be a change in control of management nor shall any change in the nature and quantum of control amongst them constitute change in control of management. Learned Counsel submitted that this explanation has to be seen in the context of the general exception under regulation 3(1) available to acquisition of shares as a result of interse transfer of shares amongst the entities stated therein, that the Explanation to regulation 12 provides similar exception to not available. In this context he also referred to the scope of the expression "promoter" as defined in regulation 3(1)(h). He submitted that the Appellants have not claimed exemption under regulation 3(1) as they know that the exemption under the said regulation is not available to them.
19. Shri Desai submitted that on a perusal of regulation 12 it could be seen that the regulation is on acquisition of control over a company and that control need not necessarily be vested only on account of the shares held by a person, that as per the definition of the expression 'control' in regulation 2(1) ( c ) control shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their share holding or management rights or shareholders agreements or voting agreements or in any other manner. He submitted that regulation 12 itself is self explanatory in this regard as the regulation states "irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company unless such person makes a public announcement... ." He submitted that there could be instances where a person may acquire control even without acquiring substantial number of shares/voting rights, and in that case also regulation 12 would be attracted, that the regulation is only on the 'control' aspect and not on substantial acquisition of shares that substantial acquisition of shares is dealt with in specific regulations 10 and 11. He further submitted that it is also possible that there may be cases of substantial acquisition of shares and resultant acquisition of control that in such cases one can not ignore the regulation governing substantial acquisition of shares and act as per regulation 12 dealing in acquisition of control. Shri Desai submitted that interpretation of the regulations for avoidance of compliance of the context he referred to this Tribunal's following observation in Nagraj Ganeshmal Jain V P. Sri Sai Ram (2001) 33 SCL 295:
"... .. it does not stand to reason to believe that regulation 11(2) is redundant or superfluous in view of the provisions of regulation 10 that a case to which regulation 10 is not attracted regulation 11 (2) also would not attract . In this context it is necessary to find out the object of incorporating these two regulations. It is not proper or possible to jump to the conclusion that framers of the regulation had inadvertently put a regulation over looking the scope of another regulation. Attempt should be to find out the reason to incorporate those regulations rather than holding them redundant or superfluous. It is a settled principle of interpretations that the court should adopt a construction which advances the policy of the legislation to extend the benefit rather than one which curtails the benefit (Union of India Vs. Pradeep Kumari. (1995)2 SCC 736) . It is no body's case that the provision for making public offer in the cases of substantial acquisition and takeovers is not meant for the benefit of the public share holders. In this context the observation made by Supreme court in Keshoram and Co v. UOI (1989) 3 SCC 151 is to be noted. In the said case the apex court while considering the validity of section 3 of the East Punjab Urban Rent Restriction Act 1949 and the notification dated Sept. 24, 1974, granting exemption from section 13 of the Act to buildings constructed in the urban area, observed as follows:
"Interpretation of the Act and the impugned notification as suggested on behalf of the tenants if accepted would defeat the purpose of the beneficial social legislation. It is a settled rule of harmonious construction of statute that a construction which would advance the object and purpose of the legislation should In this context yet another decision of the Supreme Court (Sultana Begum V Premchand Jain (1997) 1 SCC 373) is also referred to- "... the rule of interpretation requires that while interpreting two inconsistent or obviously repugnant provisions of the Act the court should make an effort to so interpret the provisions as to harmonise them so that the purpose of the Act may be given effect to and both provisions may be allowed to operate with out rendering either of them otiose"
20. In para 15 of the said judgment the court further viewed:
"On a conspectus of the case law indicated above, the following principles are clearly discernible (1) It is the duty of the courts to avoid a head on clash between two sections of the Act and to construe the provisions which appear to be in conflict with each other in such a manner as to harmonise them.
(2) The provisions of one section of a statute cannot be used to defeat the other provisions unless the court, inspite of its efforts, finds it impossible to effect reconciliation between them (3) It has to be borne in mind all the courts all the time that when there are two conflicting provisions in an Act, which cannot be reconciled with each other, they should be so interpreted that, if possible, effect should be given to both. This is the essence of the rule of "harmonious construction".
(4) The courts have also to keep in mind that an interpretation which reduces one of the provisions as a "dead letter" or "useless lumber" is not harmonious construction.
(5) To harmonise is not to destroy any statutory provision or to render it otiose"
in the Regulations. The Committee has stated that " it was felt that under Indian conditions hardly any person as investor would invest in more than 10% in any company unless he has an intention of taking over the company at some point of time and the committee therefore decided to retain the existing threshold limit of 10%".
21. Thus regulation 10 is on the "beginning of the beginning". Regulation 11 is for a different purpose. It is on consolidation of holdings. In this context the clarification given by SEBI vide its press release dated 30.1.1997 while adopting the Bhagwati committee report is considered relevant. According to the said press report "for the purpose of consolidation of holdings, acquirers holding not less than 10% but not more than 51% are allowed creeping acquisition up to 2% in any period of 12 months. Any purchase by a person holding more than 51% would have to be in a transparent manner through a public tender offer". In this context observation made by the Bhagwati committee in para 6.2 of its report is also relevant, as based on the said recommendation regulation 11(2) was redrafted.
" The committee noted that the existing Regulations do not give any scope for consolidation of holdings by person(s) who already hold more than 10% of the shares or voting rights of the company without attracting the mandatory public offer. The Committee appreciated the fact that in a competitive environment, it may become necessary for person(s) in control of the company to consolidate their holdings either suo moto or to build their defences against takeover threats.
The Committee also recognised the need to harmonise consolidation of holdings by persons already holding substantial shares with the need to protect the interest of shareholders in a competitive, free market environment . Indeed for the same reason, Regulations of other The draft Report had proposed a graduated limit of acquisition - depending upon whether the acquirers existing holding was between 10% and 25% or between 25% and 50%. The Committee felt that introducing such differential limit would not be in the interest of the shareholders and more over would not be justifiable on any rational basis. It was therefore decided to remove this differentiation and permit acquisition upto 2% in any 12 month period, to all persons who holds shares above the threshold limit of 10%.
The draft report had also contained a proposal for clarification to the effect that the provisions of regulations will not be applicable to any person who holds 50% or more. But reservations were expressed from some quarters about this exclusion clause on the ground that if the regulations are intended to safeguard shareholders interest even in the event of substantial acquisition of shares not involving a takeover, there is no justification for excluding substantial acquisition by acquirers holding more than 50%. The question which arose in this regard is upto what point of time substantial acquisitions not involving takeovers need to be regulated., The committee decided that substantial acquisition till an acquirer gains absolute control lever of 75% may be brought within the scope of the Regulations".
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22. 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 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.
23. 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." Shri Desai submitted that principle stated in the above case is in equal force applicable to the present case as the acquisition in question is attracted by the substantive provisions of regulation 11(1). In this connection he referred to the observations made by the Hon'ble Court in the three decisions referred to in the above order.
24. Shri Desai with reference to the Appellants' version of persons acting in lead to a take-over. That is why it insists on public announcement being made when the shareholding and, consequently, the voting power is increased beyond the extent contemplated by regulations 9 and 10. By obliging the acquirer to make a public announcement or a public offer, it ensures that a member of the company or an investor is able to take an informed decision on such public announcement/offer. The particulars which are required to be disclosed in the public announcement/offer are intended to give a clear picture to a member of the company or a prospective investor, as the case may be, as to the purpose for which such shares are being acquired and by whom. It also ensures to existing shareholders a fair return on their investment, and permits any other person to make a matching bid which may ultimately benefit the shareholders of the company. On the basis of the particulars furnished, the shareholder is enabled to take a decision as to whether he should retain his holding or dispose of them for the price offered. Thus, transparency in dealings as well as fairness to the shareholders of the company are ensured. It is trite to say that the statute must be construed according to the intent of its framers, and it is the duty of the Court to act upon the true intent of the Legislature.
25. Cannons of interpretation lend a guide, without affording a strait jacket formula. It is often said that the function of the courts is only to expound and not to legislate, a theory which has in the recent past invited dissents in the sense that the gaps in the legislation may call for a judicial filling up with a view to dealing with situations and circumstances that may emerge after enacting a statute, not within the imagination of the Legislature, when its application may be called for. If the words are plain and clear, no difficulties arise, but where a statutory provision is open to more than one interpretation, it becomes the duty of the Court to so interpret the provision that without doing any violence to the language of the statute, it is given its true meaning as may have been intended by the Legislature, having regard to its context, the object narrow the definition. The process of construction therefore, combines both literal and purposive approaches.
26. We are tempted to quote from the judgment in RBI v. Peerless General Finance & Investment Co. Ltd. AIR 1987 SC 1023, where Justice O. Chinnappa Reddy, speaking for the Court observed:-
"Interpretation must depend on the text of the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when statute is looked at without the glasses provided by the context. With those glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place. It is by looking at the definition as a whole in the setting of the entire Act and by reference to what preceded the enactment and the reasons for it that the Court construed the expression 'Prize Chit' in Srinivasa and we find no reason to depart from the Court's construction." (p.1042)"
Learned Counsel submitted that each of the regulations 10, 11 and 12 is of equal relevance in the scheme of the Regulations and that it can not be said that one regulation is a special one and the other regulations are general. He submitted that one regulation is attracted to a transaction, but a public offer cannot be denied if any one of the applicable regulations require such a public offer to be made. Shri Desai referred to the submission made by the Appellants' Counsel that regulations 10 and 11 can not be telescoped to regulation 12 and submitted that similarly regulation 12 can not be telescoped to regulations 10 and 11. He submitted that the Appellants' contention that the proviso to the Explanation to regulation 12 operates as an exemption from the requirements of regulation 12 and therefore that exemption be deemed to be available to the cases covered under regulation 11 and 12 also is legally untenable, that the Appellants want the Tribunal to read into regulation 11 an exemption which is not there, that the exemption provided in regulation 12 is available only to the situation covered in the said regulation 12.
I have very carefully considered the submissions made by learned Counsel for the parties. I have also carefully perused the factual position giving rise to the dispute.
There is no dispute as to the fact that Haravon and Seed belonging to the Swedish Match Group, held 52.11% of the shares in the capital of the target company and the share holding by the Swedish Match Group was increased to 74% on acquiring 21.89% shares by another company viz. Swedish Match Singapore Pte. Ltd. belonging to the same group. Acquisition of 21.89% shareholding in the target company by Swedish Match Singapore Pte. Ltd. was made on 27.9.2000. The shares were acquired from the companies belonging to one Jatia Group. The said Jatia Group along with the Swedish Match Group reportedly was in joint control of the the acquisition is in the context of change in control i.e. from joint control to sole control and therefore falling under the exemption provided in regulation 12, and as such public announcement is not required to be made. But the Respondent does not share the said view. According to the Respondent, the said acquisition attracted the provisions of regulation 11(1) and as such a public announcement to acquire shares was warranted and the Appellants failed to comply with the said requirements. It is on the basis of the said view the Respondent directed the Appellants to make a public announcement to acquire shares of the target company from the public in accordance with the Regulations. The basic question which requires to be addressed therefore is as to whether the Appellants are required to make a public offer, in the light of the facts of the case. In my view a proper answer to this would depend on the proper interpretation of the relevant regulations and the applicability of the same with reference to the facts specific to the case. It is in this context the object of the Regulations assumes importance, as "a statute" as the Hon'ble Supreme Court held in Peerless General Finance's case ( (1987) 1 SCC 424) "is best interpreted when we know why it was enacted."
27. The Respondent is mandated to protect the interests of investors in securities and to promote the development of and to regulate the securities market by such measures as it thinks fit. One of such specific measures is regulating substantial acquisition of shares and take over of companies (Section 11(2)(h)) . To accomplish this mission, the Respondent had put in position a set of regulations titled the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 through a notification dated 4.11.1994. Since this Regulation was found wanting in several aspects, an expert Committee under the Chairmanship of Justice P.N. Bhagwati was constituted in November, 1995 " to examine the areas of deficiencies in the 1994 Regulations; and to suggest shareholders in relation to substantial acquisition of shares and takeovers. In the Committee's words "The Committee also recognised that the process of take over is complex and is inter related to the dynamics of the market place. It would therefore be impracticable to devise regulations in such detail as to cover the entire range of situations, which could arise in the process of substantial acquisition of shares and takeovers . Instead there should be a set of General Principles which should guide the interpretation and operation of the Regulations , especially in circumstances which are not explicitly covered by the Regulations. These principles are:
(i) Equality of treatment and opportunity to all the shareholders
(ii) Protection of interests of share holders ... ... ... ... .
... ... ... ... ... ... .."
28. The Committee further stated that " in the event of any ambiguity or doubt as to the interpretation of the regulation, the concerned authority shall pay adequate attention to and be guided by any one or more of the aforesaid general principles having a bearing on the matter"
After taking into consideration the recommendations of the Committee a new set of regulations namely Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 was brought in position with effect from 20.2.1997 repealing the 1994 Regulations. The Regulation was amended again thereafter based on the recommendations subsequently made by the Bhagwati Committee."
29. From the scheme of the Regulations and the background of the same, it is clear that it is a piece of beneficial legislation directed to protect the interests of In this context it is to be noted that as per the preamble to the Act, it is "an Act to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto." The Respondent herein is the Board established for the said purpose The functions of the Respondent have been set out in the following words in sub section (1) of section 11 of the Act.
"Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of the investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit." Without prejudice to the generality of the provisions in sub section (1) certain specific measures have been provided in sub section (2) which includes "regulating substantial acquisition of shares and takeovers." The object of the legislation and the role of the Respondent as an authority to protect the interests of the investors, need be kept in mind while considering the scope and reach of each one of the regulations contained in the 1997 Regulations.
30. Before proceeding further in the matter it is felt that it would be advantageous to have a look at some of the provisions of the Regulations as they stood at the relevant point of time, having a bearing on the issue under consideration. These provisions are extracted below:
Reg.2(1)(b) "Acquirer" means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer."
informal), directly or indirectly co-operate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company, (2) without prejudice to the generality of this definition, the following persons will be deemed to be persons acting in concert with other persons in the same category, unless the contrary is established:
(i) a company, its holding company, or subsidiary of such company or company under the same management either individually or together with each other;
(ii) a company with any of its directors, or any person entrusted with the management of the funds of the company;
(iii) directors of companies referred to in sub-clause (i) of clause (2) and their associates;
(iv) mutual fund with sponsor or trustee or asset management company;
(v) foreign institutional investors with sub-account(s);
(vi) merchant bankers with their client (s) as acquirer;
(vii) portfolio managers with their client(s) as acquirer;
(viii) venture capital funds with sponsors;
(ix) banks with financial advisers, stock brokers of the acquirer, or any company which is a holding company, subsidiary or relative of the acquirer;
Provided that sub-clause (ix) shall not apply to a bank whose sole relationship with the acquirer or with any company, which is a holding company or a subsidiary of the acquirer or with a relative of the acquirer, is by way of providing normal less than 2 % of the paid-up capital of that company or with any other investment company in which such person or his associate holds not less than 2 % of the paid-up capital of the latter company.
Note: For the purposes of this clause "associate", means,--
(a) any relative of that person within the meaning of section 6 of the Companies Act, 1956 (1 of 1956); and
(b) family trusts and Hindu undivided families;
Reg2(1)(c): "control" shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner;
Reg.2(1)(o)"Target company" means a listed company whose shares or voting rights or control is directly or indirectly acquired or is being acquired"
31. Regulations 10: Reg.10. Acquisition of 15% or more of the shares or voting rights of any company.- No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise fifteen per cent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the Regulations.
11. Consolidation of holdings.-
(1) No acquirer who, together with persons acquirer makes a public announcement to acquire shares in accordance with the Regulations.
(2) No acquirer who, together with persons acting in concert with him has acquired, in accordance with the provisions of law, 75% of the shares or voting rights in a company, shall acquire either by himself or through persons acting in concert with him any additional shares or voting rights, unless such acquirer makes a public announcement to acquire shares in accordance with the regulations."
Explanation. - For the purposes of Regulation 10 and Regulation 11 acquisition shall mean and include, -
(a) direct acquisition in a listed company to which the Regulations apply;
(b) indirect acquisition by virtue of acquisition of holding companies, whether listed or unlisted, whether in India or abroad.
Reg.12: Acquisition of control over a company - Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company, unless such person makes a public announcement to acquire shares and acquires such shares in accordance with the Regulations.
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.
Explanation: (i) For the purposes of this Regulation, where there are two or more persons in control over the target company, the cessor of any one such person from such control shall not be deemed to be a change in control of management nor shall any change in the nature and quantum of control amongst them constitute change in control of management:
decision passed by a special resolution. Market value in such cases shall be determined in accordance with Regulation 20.
(ii) where any person or persons are given joint control, such control shall not be deemed to be a change in control so long as the control given is equal to or less than the control exercised by person(s) presently having control over the company.
32. On a perusal of the definition of the expression "acquirer" extracted above it is clear that any person who acquires or agrees to acquire shares or voting rights/control of the target company is an acquirer. The expression "any person" is of wide amplitude. A person becomes an acquirer by virtue of his action - who acquires or agrees to acquire shares etc. Identification is thus action oriented. In the instant case the public offer was made in February 1998, to acquire equity shares representing 20% of the fully paid up equity capital of the target company by Swedish Match Singapore Pte. Ltd. along with Plash and AVP acting in concert. At that point of time all the said entities were acquirers. But on 27.9.2000, the said Swedish Match Singapore Pte. Ltd. acquired 21.89% shares from Plash and AVP. Their respective position was of buyer and seller and therefore it can not be said that they were acquirers or they were acting in concert as far as the said transaction is concerned. Swedish Match Singapore and Plash and AVP were not persons acting in concert at the relevant point of time of the impugned acquisition of shares by Swedish Match Singapore, for the reason that they had no common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company. There is no doubt that as the Bhgawati Committee put it, to be acting in concert with an acquirer:
"they must have commonality of objective and community of interest, which Match Singapore Pte. Ltd. and Plash and AVP were acting in concert or for that matter Haravon and Seed acted in concert with the said Swedish Match Singapore at that particular juncture. It was Swedish Match Singapore which singly acquired 21.89% shares of the target company. But there is no denial that since the said Swedish Match Singapore and Haravon and Seed were part of the Swedish Match Group, their total holding in the target company's share capital was 74%. From the definition of the concept 'control' it is clear that control of a company is not confined only to the shareholding, but it can be exercised through several means as stated in the definition. Therefore it is wrong to say that a promoter already in control of the company may not resort to acquisition of shares in that company. Recently this Tribunal had examined the concept of the expression "promoter" and "acquirer" in a case - Modipon Ltd v. Securities and Exchange Board of India & Others , (2001) 33 SCL 85wherein, the Tribunal held:
"It may be noted that the promoter as such need not be an acquirer automatically . Any person, and share holder including the promoter will become an acquirer or a person acting in concert with the acquirer only if he falls within the definition of these expressions provided in regulation 2(b) and 2(e). It is the conduct of the party that decides the identity. A dormant promoter or a promoter simpliciter who neither acquires nor agrees to acquire shares or voting rights or control over the target company is not an acquirer and his share holding in the target company cannot be considered as the share holding of the acquirer warranting exclusion from the public shareholding. Similarly if the characteristics of a person acting in concert stated in the definition are found missing in the case of a person, it may not be proper to consider him as a person acting in concert with the over the target company he can be safely considered as an acquirer who in turn would be subject to the provisions of regulation 11. Likewise a promoter can be a person acting in concert provided he is found to cover within the scope of the definition under regulation 2(1)(e). Whether a promoter is also an acquirer or person acting in concert would depend on the facts of each case. It is to be noted that there is no blanket prohibition on the promoters acquiring shares etc. in the company."
33. I find no reason to take a different view in this case.
34. Even though it was alleged in the show cause notice that the Appellants had violated the provisions of regulations 10 and 11, the impugned order does not hold the Appellants guilty of violating regulation 10. The surviving charge, as per the impugned order is violation of regulation 11(1). It is, therefore, felt not necessary in this case to examine the applicability of regulation 10.
35. As already stated, the 1997 Regulations is aimed at regulating substantial acquisition of shares and takeover of companies. The title of the Regulations - Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 - itself is indicative of the focus of the Regulations. It is divided into VI chapters comprising 47 regulations. The core chapter is Chapter III which is also titled "Substantial acquisition of shares or voting rights in and acquisition of control over a listed company." Thus it is clear that the Regulations aim at regulating (i) Substantial acquisition of shares or voting rights in a listed company; (ii) acquisition of control over a listed company. The Regulations have provided measures to regulate these two matters specifically in different regulations.
36. Regulations 10 and 11 relate to substantial acquisition of shares or voting rights.
37. As stated earlier it is not in dispute that the Swedish Match group was holding 52.11% shares of the target company and the said holding was increased to 74% on acquisition of 21.89% shares by Swedish Match Singapore Pte. Ltd, a company belonging to the said Swedish Match Group. 21.89% shares were acquired on 27.9.2000. It was acquired from the Jatia Group a group which was reportedly in joint control of the target company with the Swedish Match Group. The said Jatia Group ceased to be a "joint controller" of the target company by virtue of transfer of its shareholding to the Swedish Match Group.
38. Regulation 11 is on consolidation of holding of shares or voting rights in the target company by the existing holders of shares/voting rights. According to sub regulation (1) of regulation 11 "no acquirer who, together with persons acting in concert with him has acquired in accordance with the provisions of law, 15% or more but less than 75% of the shares or voting rights in a company, shall acquire either by himself or through or with persons acting in concert with him additional shares or voting rights entitling him to exercise more than 5% of the voting rights in any period of 12 months, unless such acquirer makes a public announcement to acquire shares of such company, in accordance with the regulation." On a perusal of the said regulation it is clear that the obligation for compliance of the requirement of the regulation is on the "acquirer". The expression acquirer has been defined in regulation 2(1)(b). As per the definition, the Acquirer is a person who directly or indirectly acquires or agrees to acquire shares or voting rights in the target company or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer. The expression person acting in concert has also been defined in regulation 2 (1) (e). Regulation 11 is attracted in respect of acquisition by an acquirer who together with persons acting in concert with him is more than 5% of the voting rights in any period of 12 months is permissible only on making a public announcement to acquire shares.
39. In the light of the definition of the expression 'acquirer' in regulation 2(1)(b) there is little scope to not to consider Swedish Match Singapore Pte. Ltd. as the acquirer as 21.89% share capital of the target company was acquired directly by the said company. It is on record that the said Swedish Match Singapore Pte. Ltd. is a 100% subsidiary of Swedish Match AB. 52.11% of the share capital of the target company at the relevant point of time was with Haravon and Seed. Both these companies are subsidiaries of Swedish Match Singapore and, therefore, subsidiaries of Swedish Match AB. In the light of the relationship among the companies the Swedish Match Group, it can be safely concluded that Swedish Match AB indirectly acquired the shares. In the light of the factual position, all these companies are to be considered as acquirers of shares in the target company. It is born out of the material on record that the objective of acquiring shares by the Swedish Match Group was to enhance its control over the target company and the companies in the said group with such common objective, acquired shares of the target company. They acted in concert.
40. The fact that from the very beginning the Swedish Match Group was keen to enhance its control over the target company is evident from the factual position. In this context the following disclosure made in the letter of offer dated 2.2.1998 made for the purpose of acquiring 20% share capital of the target company by the Jatia Group is worth noting.
"WIMCO was incorporated in 1923 and was controlled by Swedish Match to Subsequently Swedish Match decided to focus its business on developing a strong market position for designated products in selected geographic markets.
In 1997, as part of this strategy, Swedish Match held discussions with the Jatia Group to jointly develop and expand the business activities in India and finalised Agreements to this effect with the Jatia Group on December 11, 1997. Haravon and Seed having their offices at 9, Pennang Road, #13-21 Park Mall, Singapore 238459 are foreign companies incorporated under the laws of the Republic of Singapore and presently hold 84,47,307 and 30,83,936 enquiry shares respectively of face value of Rs.10/- each of WIMCO aggregating 28.61% of its paid up equity capital. Mr. R. K. Jatia and Mr. R.G.N. Swamy were the legal and beneficial owners respectively of the entire issued and paid-up capital of Haracon and Seed as on the date of the Public Announcement. Pursuant to the Agreements, SMS, a wholly owned subsidiary of Swedish Match, agreed to acquire control over the management of Haravon and Seed and thereby control the management of WIMCO in joint participation with the Jatia Group.
Accordingly, as per the Share Purchase Agreement, SMS has acquired a 62% stake in the equity capital of each of the Foreign Companies from the Jatia Group for a total consideration of Rs.16,18,79,626/- (paid in equivalent US Dollars at the TT buying rate for US Dollars announced by the State Bank of India on the date immediately preceding the date of payment of consideration) thereby acquiring control over 38.61% of the paid-up equity capital of WIMCO. The negotiated consideration paid to the Jatia Group in respect of purchase of the 62% stake in the equity capital of each of the Foreign Companies has been arrived at by valuing the holding of the Foreign Companies in WIMCO at Rs.35/- per equity share. Consequent to such indirect acquisition of control by SMS, the present Offer is being made by SMS along with Plash and AVP, acting in concert.
? Upward revision in the size of the offer in accordance with the provisions of the Takeover Regulations.
The acquirers have not purchased any equity shares of WIMCO since the date of the Public Announcement.
As provided under the Share Purchase Agreement, the Jatia Group shall, on completion of the public offer, further transfer 1% of the equity capital in each of the Foreign Companies to SMS for every 1,89,500 equity shares of WIMCO acquired by them at a consideration arrived at by valuing the holding of the Foreign Companies in WIMCO at Rs.35/- per equity share, to maintain a proportionate holding between SMS and the Jatia Group."
41. It is also not disputed that Swedish Match Group (Acquirers) was holding 52.11% shares in the target company at the relevant point of time. The Acquirers (Swedish Match Singapore) acquired 21.89% shares on 27.9.2000 from the Jatia Group. The acquisition of 21.89% shares, undoubtedly is above the 5% limit prescribed in regulation 11(1) and at that point of time the Acquirers were holding 52.11% shares which was within the band prescribed in the said regulation. In this context the argument put forward by Shri Raghavan has to be seen. According to him Jatia Group was acting in concert with Swedish Match Group and such inter se transfer of shares from one group to another in control did not result in acquisition of additional shares to attract regulation 11(1). But the factual position does not support the said point of view. It is true that in 1998, the public offer to acquire 20% of the share capital of the target company was jointly made by Swedish Match Singapore Pte. Ltd. Plash and AVP, it was also stated therein that "Swedish Match Singapore Pte. Ltd. along with Plash Food Private Ltd. and AVP Trading Private Ltd., acting in concert hereby make an unconditional offer to the public shareholders
42. The Acquirers have agreed that the equity shares tendered under the Public offer shall be purchased by Plash and AVP. However, each of the Acquirer would be jointly and severally liable for fulfillment of the obligation under the offer." The Appellants' argument that Jatia Group & the Swedish Match Group were acting in concert for the purpose of acquiring 20% shares in 1998 is correct.
43. But it is difficult to hold that they were also acting in concert in the context of acquisition of 21.89% shares by Swedish Match Singapore in September, 2000. It is noted that the public offer made in February 1998, was to acquire equity shares representing 20% of the fully paid up equity capital of the target company by Swedish Match Singapore Pte. Ltd. along with Plash and AVP acting in concert. At that point of time all the said entities were acquirers. But on 27.9.2000, the said Swedish Match Company acquired 21.89% shares from Plash and AVP. In the transaction their respective position was of buyer and seller and therefore it can not be said that they were acquirers or they were acting in concert as far as the said transaction is concerned. Swedish Match Singapore and Plash and AVP were not persons acting in concert at the time of the impugned acquisition of shares by Swedish Match Singapore, for the reason that they had no common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company. In fact at that point of time the Jatia Group was giving up its joint control in the target company by divesting its shareholding. The Appellants' contention that once a person acted in concert (PAC) with the acquirer, for ever he is to be considered as a person acting in concert with the acquirer is not correct. It is not that once a PAC always a PAC. It is not a permanent relationship. It is the intent and action of the person that would decide as to whether that particular person is acting in concert with the acquirer. According to the Bhagwati Committee, (para 2.22 of the report)". In the instant case of acquisition in the light of the facts it is difficult to conclude that Swedish Match Singapore Pte. Ltd. and Plash and AVP were acting in concert or for that matter Haravon and Seed acted in concert with the said Swedish Match Singapore at that particular juncture. It is noted that Swedish Match Singapore directly acquired 21.89% shares of the target company.
44. In my view the Appellants contention that since the acquisition of shares was due to transfer interse the controlling parties, additional shares were not acquired to attract the provisions of regulation 11(1) is unfounded. Acquisition of 21.89% shares was an additional acquisition of shares by the Acquirers. This fact has been admitted by the Acquirers also as could be seen from the letter dated 28.9.2000 from Swedish Match AB to the Respondent. In the said letter it has been stated:
"As you are aware, we together with certain Indian Companies operating under the name and style "Plash Foods Private Limited and AVP Trading Ltd. (which Indian Companies belong to the Jatia Group) are, as per the various regulations/guidelines etc. issued by the Securities and Exchange Board of India (SEBI), promoters of WIMCO Ltd. and have been persons in joint control of WIMCO Ltd.
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 11,382,800 equity shares (Purchased shares) from the aforementioned Indian Companies, such that we are now in sole control of WIMCO Limited... ." It is a candid admission by the Appellant, that they acquired additional shares. On a careful perusal of the provisions of regulation 11 (1) it is clear that acquirer was not on additional acquisition over and above the bench mark of 5% stipulated in the regulation.
45. In this context the Appellants' submission that it is an acquisition covered under regulation 12 and in terms of the proviso and explanation thereto, there is no requirement of making a public announcement has to be examined. Regulation 12 as already stated is on acquisition of control . According to the said regulation independent or regardless of whether or not there has been any acquisition of shares or voting rights in a company an acquirer is not to acquire control over the target company without making a public announcement to acquire shares and acquire such shares in accordance with the Regulation. However, as per the proviso, the requirement of public announcement is not applicable if change in control takes place in pursuance to a resolution passed by the target company's shareholders. According to the Explanation to the regulation, -- (i)Where there are two or more persons in control over the target company, the cessor of any one such person from such control is not to be deemed to be a change in control (ii) Where any person or persons are given joint control such control shall not be deemed to be a change in control so long as the control given is, equal or to or less than the control exercised by person(s) presently having control over the company.
46. Though the definition "control" provided in the regulation 2 (1) ( c) is an inclusive definition, it is exhaustive. It is noticed that the nature of control is identified with the right to (i) to appoint majority directors or (ii) control the management or policy decisions. The control need not necessarily be exercised directly. It could be exercised indirectly also. How this control could be exercised ?
47. The regulation is not complete on this.. It gives only certain instances i.e. by virtue with the provisions of the regulations would be necessitated even when there has been no acquisition of shares... ... .." Bhagwati Committee in its subsequent report (2002) also noted that regulation 12 was introduced to include "change in control even when there is no acquisition of shares" (para 4.2).
48. Thus, it is clear that regulation 12 is meant to take care of change in control.
49. Control is not linked to shareholding alone. Shareholding could be one of the factors. Change in control also could also be independent of any change in the shareholding of persons in a company. This aspect is adequately explained in the Bhagwati Committee report relied on by learned Counsel for parties in this appeal.
50. The prefix that "irrespective of whether or not there has been any acquisition of shares or voting rights in a company" indicates that the change in control could also be independent of acquisition of shares. Regulation is focussed on change in control. It is not meant to regulate the factors that result in change of control. It is in this context the provisions of regulations 10 and 11 which is on substantial acquisition of shares come into play Regulation 10 or 11 comes into operation irrespective of whether the acquisition has resulted in any change in control or not.
51. The triggering point therein is acquisition of shares beyond the specified limit.
52. It is also to be noted that regulation 3(1) excludes acquisition of shares in certain cases, referred thereunder from the applicability of regulations 10, 11 and 12.
53. But these exceptions are relatable only to acquisition of shares. In my view even though clause (l) provides for exemption to "such other cases as may be exempted from the applicability of Chapter III by the Board under regulation 4" is applicable only with reference to acquisition of shares and not with reference to acquisition of control, as the said regulation (l) need be interpreted following the ejusdem generis 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 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 Learned Counsel had cited authorities in support of the same. Shri Kumar Desai had also adopted the same submission on the interpretation of the regulations. I am in full agreement with the learned Counsel on their submission that effect should be given to each of the regulations, that regulations should be construed harmoniously and that a construction that reduces one of the provisions to a useless lumber or dead letter is not harmonious construction. On a careful perusal of the scheme of the Regulations and the objective of the Regulations I do not find the provisions of regulation 11(1) and 12 in conflict in any manner. These two regulations are put in position to meet different situations. Regulation 11 specifically deals with the cases of acquisition of shares for the purpose of consolidation of holdings by the existing shareholders whereas regulation 12 is exclusively on control and the control is not connected to any particular factor. Control need not necessarily be only on account of shareholding; it could be exercise in any manner. In that context it does not stand to logic to ignore the specific regulation dealing with acquisition of shares and apply regulation 12 which is focussed on control.
54. It is also to be noted that the 1997 Regulations is a beneficial legislation. A bare mechanical interpretation of the words and application of legislative intent devoid of concept or purpose will reduce the remedial and beneficial measures provided for in the legislation to futility. According to Blackstone the most fair and rational method for interpreting a statute is by exploring the intention of the legislature through the most natural and probable signs which are "either the words, the context, the subject matter, the effect and consequence or the spirit and reason of law. (Commentaries on the Laws of England Vol. 1 p.59). Hon'ble Supreme Court in District Mining Officer V Tata Iron and Steel Company 9JT 2001 SC 183) had held that "a statute is an edict of the legislature, and in construing a statute, it is The legislative intent behind the Regulations is clear. The objective is to protect the interests of investors in securities. It is with the said objective that regulations 10, 11 and 12 have been framed providing an exit opportunity to the existing share holders of a company under acquisition, and that exit opportunity can not be denied by resorting to a narrow and technical interpretation of the regulations.
55. As already stated in this order regulations 10, 11 and 12 are put in position to meet different situations. Which one of these regulations is attracted to an acquisition, would depend on the specific facts. In my opinion in the light of the facts, as the Respondent has held, the acquisition in question attracts the provisions of regulation 11(1).
56. For the reasons stated above I am of the view that the impugned order is to be sustained. I order accordingly.
57. The Respondent's direction to the Appellants to make public Announcement in terms of Chapter III of the 1997 Regulations within 45 days of the date of the impugned order stands modified to the extent that the 45 days' time specified will be from the date of this order. Rest of the impugned order remains as it is.