Securities Appellate Tribunal
Sebi vs South East Marine Engineering And ... on 9 September, 2002
ORDER
G.N. Bajpai, Chairman 1.0 BACKGROUND 1.1 This order deals with the show cause notice dated 19th February, 2002 issued by SEBI to Technip Coflexip SA, France pursuant to complaints received by SEBI in the month of October, 2001 and also the application dated 26th June, 2002 filed by Technip Coflexip SA, claiming exemption for acquisition of 58.24% shares / voting rights / control of South East Marine Engineering and Construction Ltd, as a result of open offer made by Technip Coflexip SA, France for the shares of Coflexip SA, France.
1.2 Coflexip Stena Offshore (Mauritius)Ltd. owns 58.24% of voting capital of South East Marine Engineering and Construction Ltd (hereinafter referred to as "SEAMEC"), a listed Indian company, formerly known as Peerless Shipping and Oil Field Services Ltd.
1.3 The shares of SEAMEC are listed on The Calcutta Stock Exchange Association Ltd, The Stock Exchange, Mumbai, Madras Stock Exchange Ltd , The Stock Exchange, Ahmedabad and the National Stock Exchange of India Ltd.
1.4 Coflexip Stena Offshore (Mauritius) Ltd. is a wholly owned subsidiary of Stena Offshore(Jersey)Ltd., a company incorporated in the Channel Islands.
1.5 Stena Offshore (Jersey) Ltd, in turn is a 100% subsidiary of Coflexip Stena Offshore NV (Netherlands) which in turn is a 100% subsidiary of Copflexip SA, France 1.6 Coflexip S.A., France (hereinafter referred to as `Coflexip') is a company organized under the laws of French Republic and is stated to be a world leader in the provision of sub-sea development systems for the offshore oil and gas industry. The shares of Coflexip were listed on the Nasdaq since 1993 (and are stated to be delisted on 11th December 2001,) and on the Premier Marche of Euronext Paris since December 1994. The Stena International BV (hereinafter referred to as "Stena") and ISIS were its major shareholders.
1.7 Technnip S.A., France (after October 2001 known as `Technip Coflexip' , hereinafter referred to as `Technip') is a company organized under the laws of the French Republic and is engaged in the business of design and construction of petroleum and petrochemical facilities.
1.8 Institut Francais du Petrole (French Petroleum Institute - hereinafter referred to as "IFP" ) is an independent centre for research and industrial development, education, professional training and information for the oil and gas and automotive industries. It does not carry on industrial or commercial activities. IFP is a "professional body" created by a decree of the French government. The members of the Board of Administration are designated by the Ministries of Industry, Economic Affairs and Government control is exercised by the Directeur des Hydrocarbons, Government commissioner and by the head of Economic and Financial mission for petroleum and chemistry, France.
1.9 ISIS is a company organized under the laws of the French Republic. ISIS was promoted by IFP in 1975 as a wholly owned subsidiary to hold its investments. ISIS was established to manage equity holdings of IFP in commercial companies. IFP retained majority control of ISIS at all times until October 2001.
1.10 In the month of October, 2001,SEBI received complaints, inter alia, stating that Technip has on 12.4.2000, acquired shares representing 29.68% of the paid up capital of Coflexip from Stena acting in concert with ISIS (which was holding 18.51% of shares of Coflexip) and has consequently acquired right to appoint majority of directors on the Board of Coflexip. Consequently, by virtue of aforesaid acquisition of 29.68% shares of Coflexip, Technip acquired control over SEAMEC and therefore triggered the provisions of regulation 12 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the 'said Regulations'), since Technip and ISIS together held 47.85% shares / voting rights and had majority of directors on the Board of Coflexip i.e. 6 out of 11 directors on 12.04.2000 and 7 out of 12 directors on 30.05.2000.
1.11 Pursuant to the aforesaid complaint, SEBI called upon SEAMEC and Technip vide its letter dated 31st October 2001 to provide factual information regarding alleged violation. In response thereto, SEAMEC and Technip submitted their replies vide letters dated 12th November 2001 and 14th November 2001, respectively. The aforesaid submissions were considered and were not found to be satisfactory and accordingly, a show cause notice dated 19.02.2002 was issued to the Technip, ISIS and IFP.
2.0 SHOW CAUSE NOTICE 2.1 Pursuant to the complaints, SEBI issued a show cause notice dated 19.02.02 to Technip, IFP & ISIS mentioning inter alia, that :-
(i) on October 25,1999, Coflexip acquired 49.85% shares from Peerless General Finance & Investment Company Limited resulting in increase in its shareholding from 8.39% to 58.24% of total voting capital of SEAMEC.
(ii) Stena along with ISIS was holding collectively 47.85% in Coflexip as on 12.4.2000, out of which 29.68% was held by Stena and 18.17% by ISIS. On April 12, 2000 Technip had purchased all the shares held by Stena (single largest shareholder of Coflexip) in Coflexip. After the said acquisition of 29.68% shares of Coflexip held by Stena, Technip along with person acting in concert i.e. ISIS enjoyed 47.85% voting rights in Coflexip and had 6 directors on the Board of Coflexip comprising 11 directors on 12.04.2000 and were in a position to control Coflexip.
(iii) in view of the nature of cross holdings amongst Technip, ISIS & IFP, the composition of Board of Directors of Coflexip, Technip & ISIS and the control exercised by ISIS along with Total Fina ELF & Gaz de France over Technip decisions, prima facie, Technip and ISIS (Second largest Shareholder in Coflexip) were persons acting in concert in terms of regulation 2(1)(e) of the Regulations. Further, Technip along with ISIS were acting in concert with the common objective of acquiring control over Coflexip.
(iv) after the said acquisition of 29.68% shares of Coflexip held by Stena, Technip along with person acting in concert i.e. ISIS enjoyed 47.85% voting rights in Coflexip and had 6 directors on the Board of Coflexip comprising 11 directors on 12.04.2000 and were in a position to control Coflexip.
(v) therefore, after the acquisition of shares of Coflexip held by Stena on 12.4.2000, Technip along with person acting in concert i.e. ISIS acquired control over 100% subsidiary of Coflexip namely Coflexip Stena Offshore (Mauritius) Ltd. which owned 58.23% of voting capital in SEAMEC. As a result of the aforesaid acquisition, Technip acquired 58.23% voting capital of SEAMEC and control over SEAMEC and triggered the provisions of regulations 10 & 12 of the said Regulations.
(vi) as Technip along with persons acting in concert have acquired the said shares/voting rights and control of SEAMEC in the manner as stated above without making a public announcement as required by the provisions of the said Regulations, Technip has, prima-facie, violated the provisions of regulations 10 & 12 read with regulations 14(1) & 14 (3) of the Regulations and therefore, Technip is liable for penal action under the Regulations and Securities and Exchange Board of India Act, 1992 (hereinafter referred to as "SEBI Act").
(vii) in view of the aforesaid, Technip is called upon to show cause as to why one or more or all action(s) under regulation 44 and regulation 45 of the Regulations and Sections 11, 11B, 15H and 24 of the SEBI Act, should not be initiated against Technip, IFP and ISIS for violations specified above.
3.0 SUBMISSIONS 3.1 In response to SEBI's show cause notice dated 19.02.02 Technip and IFP made their submissions vide letters dated 5th March 2002 and ISIS made its submission vide letter dated 9th April 2002.
3.2 SUBMISSIONS MADE BY TECHNIP The submissions made by Technip vide its letters dated 14th November 2001, 5th March 2002 and 24th May 2002, inter alia, are as under :-
3.2.1 The shareholding pattern of Coflexip prior to April 2000 was as under:
Number of shares % PUBLIC 9,047,330 48.66% STENA INTERNATIONAL BV.
4,668,195 25.11% ISIS 3,378,000 18.17% JP MORGAN Whitefriars 850,000 4.57% ELF ATOCHEM S.A 508,521 2.73% EMPLOYEE HELD 88,730 0.48% COMPANY HELD 52,917 0.28% TOTAL DU CAPITAL 18,593,693 100% 3.2.2. The shareholding pattern of Technip prior to April 2000 was as under:
Number of shares % PUBLIC 10,259,441 65.0 ISIS 1,856,359 11.8 GAZ DE FRANCE 1,715,837 10.9 TOTAL FINA ELF 1,001,862 6.4 EMPLOYEE HELD 470,807 3.0 COMPANY HELD 454,231 2.9 TOTAL DU CAPITAL 15,758,537 100 3.2.3 Though ISIS had a stake in both the companies and had nominated directors in both Technip and Coflexip, it was not in management or control of either of the two companies.
3.2.4 Prior to April 2000 and July 2001, the shareholding of ISIS was as under :-
Number of shares % IFP PUBLIC / others 2,451,051 2,194,269 52.76% 47.24% TOTAL of 4,645,320 100% 3.2.5 On or about 19th April, 2000 Technip acquired the entire interest of Stena in Colfexip. Technip thus acquired all of the shares held by Stena in Colfexip amounting to 29.68% (which included shares held through J.P Morgan). Prior thereto Technip had on 11th April 2000 forwarded a letter to Coflexip which briefly stated the following and the same was a legally binding undertaking, enforceable in the French Courts:
(i) Technip was not acting in concert with any one with respect to Coflexip and had no plan relating to any such concerted action;
(ii) Technip has no intention to increase the interest they will take in Coflexip before April 19, 2001;
(iii) Technip agrees not to sell or otherwise dispose of any shares before October 19, 2000;
(iv) Technip agrees that any sale or disposition of 1,839,398 Coflexip shares between October 19, 2000 and August 19, 2001 to any person other than institutional investors would be subject to Coflexip's right upon receipt of 21 days prior notice to substitute a purchaser of Coflexip's choice other than a direct competitor of Technip ;
(v) Technip informs Coflexip that these restrictions on sales and other dispositions would not apply in the event of a public offer by any other person for Coflexip shares and would terminate if a third party, acting alone or in concert with others, became the owner of 20% or more of the share capital or voting rights of Coflexip or if a reorganisation of Coflexip businesses resulted in its then current business lines representing less than 65% of its consolidated net sales without the agreement of Technip representatives on Coflexip's board of directors.
(vi) Technip agrees that, until the earlier August 11, 2001 and the date on which Technip interest in Coflexip constituted less than 10% of the outstanding share capital or voting rights of Coflexip, Technip would not acquire any interest in a company with businesses in subsea engineering, manufacturing or installation of underwater equipment linked to the development of oil or gas fields without the consent of Coflexip 3.2.6 On April 28, 2000, Technip issued:
(i) a Notification for Crossing Legal Thresholds by acquiring 29.68% of Coflexip equity capital; This was a statutory obligation under French Company law;
(ii) a Statement of Intent binding for 12 months in which Technip declared that:
a) this acquisition of shares from Stena was a friendly acquisition of shares which should result in the conclusion of a strategic alliance;
b) it was acting alone;
c) it did not intend to increase its shareholding;
d) it will be represented on the Coflexip board of directors by four members out of a total of twelve members;
e) it does not intend to take control of Copflexip;
f) for a period of six-months, it will not reassign its shareholding, except for a maximum of one-third to institutional investors, without prior consultation with Copflexip Section 356-1 of the French Companies Act makes such a statement, binding in law and if a breach is committed, the person committing a breach is deprived of his voting rights for 2 years. Under French law a Statement of Intent is to be issued on crossing the 10% and 20% limits of shareholding or voting rights in any listed company.
3.2.7 These documents have been filed with the French Market Authority ("Conseil des Marchds Financiers") which made them public on May 4, 2000 and with the Stock Exchange Commission ("Commission des Opdrations de Bourse"). The Conseil des Marche's Financiers thereafter issued a public notice dated 4th May, 2000 recording and accepting the statements made hereinabove.
3.2.8 Technip had complied with the above mentioned Statement of Intent. During that period Technip had only 4 directors out of 12 in the Board of Copflexip. Technip was not acting in concert either with ISIS or IFP. There was no shareholders agreement between Technip and ISIS.
3.2.9 It is significant that prior to April 2000 i.e. by a shareholders' agreement dated 2nd November, 1994 entered into between Stena, ISIS and other major shareholders of Coflexip, the parties therein had whilst acting in concert with one another agreed to certain pre-emptive rights being granted to one another, consultation and control on appointment of the Chairman and Managing Director as also balance representation on the Board of Directors. The said agreement was valid till June 2000. After April 2000 the said shareholders agreement continued between ISIS and Compagnie Financiere Atochem, (part of the Elf group). Technip was not a party to the said shareholders agreement nor did it act or agree to act in concert with any party whilst acquiring the shareholding of Stena in Coflexip. Even after Technip acquired the shares of Stena in Coflexip, Technip did not step into its shoes nor was it bound by the agreement. The fact of the said agreement has always been disclosed in the Annual Report in French published in France and in Form 20 - F filed with the US Securities and exchange commission. The inference in the notice that Technip was acting in concert with ISIS or IFP is completely baseless.
3.2.10 On September 1, 2000, Technip and Copflexip released a statement, the CSO/Technip Upstream "alliance", in which it was agreed to combine, when deemed appropriate, on an ad-hoc and non-exclusive basis, their capabilities to provide their customers with the most effective team to target conceptual and detailed engineering contracts as well as Engineering, Procurement and Commissioning ("EPC") contracts. As a result of this statement, a steering committee has been set up, composed of commercial persons representing of both managements. This "alliance" had resulted in some joint bids, as both companies often do with other contractors which resulted in the conclusion of only one contract. This alliance and steering committee would have been wholly unnecessary had Technip already controlled Copflexip as alleged in the show cause notice. It is significant that after Technip actually acquired 99% of Coflexip, there was no need for any such steering committee to officially meet.
3.2.11 With regards to the composition of Coflexip board of directors, at the meeting of the board of directors of 14 April 2000, three representatives of Technip were co-opted. The fourth representative was appointed on 30 May 2000 by the General Meeting.
3.2.12 It is submitted that the acquisition of 29.68% of shares by Technip in Coflexip did not amount to acquisition of control over Coflexip. As both Technip and Coflexip were companies incorporated under French law, for this purpose it is necessary to consider the French law, as it would be the French law which would decide as to whether on April, 2000 Technip acquired control over Coflexip. The relevant provisions of French law are as under:
Section 355-1 of the French Companies Act (Loi No. 66-537 du 24 juillet 1966 sur les. soci6tds commerciales) provides that a company (the "Company") holds control over another (the "Target") in the following cases :
(i) the Company holds, directly or indirectly, title to a number of shares granting to such holder a majority of voting rights in the general meetings of shareholders of the Target.
(ii) the Company holds the majority of voting rights in the Target pursuant to an agreement with a third party.
(iii) the Company in effect determines, through the votes it holds, the decisions taken in the general meetings of shareholders of the Target [what is known as "de facto" control].
The application of the above provisions to the facts under review leads to the following conclusions :
(i) The ownership of shares amounting to a 29.68 % equity interest in Coflexip did not constitute a majority of voting rights of a general meeting of shareholders of that company. That shareholding did not create a control by Technip over Coflexip.
(ii) There was no agreement between Technip and a third party or ISIS or IFP giving to Technip a majority of voting rights in Coflexip. Under the French Companies Act, the parties to any such agreement would have been subject to a disclosure obligation to the French market authority, which publicises such disclosures in its Official Bulletin as well as on its lnternet site. Undisclosed agreements are unenforceable.
(iii) French law requires that, in order to be characterised as de facto control, the power to effectively determine at the general meetings of shareholders the decisions made by the Target result from a stable, sustained influence exerted over a certain period of time. In this particular instance, there were only two general meetings, over a span of thirteen months.
Based on the above provisions it is submitted that there was no control by Technip over Coflexip during the period under review. Further -
French company law compels the Company, upon crossing the equity interest level of ten per cent of share capital or voting rights in the Target, and again of twenty per cent of share capital or voting rights in the Target company, to file with the French market authority (with copy to the Target) the abovementioned Notification for Crossing Legal Thresholds and a Statement of Intent (Section 356-1 of French Companies Act).
Pursuant to the same Section of the Companies Act, that Statement of Intent is binding on the declaring Company for the twelve months from its date, and the stated intent may only be altered in the event of a "significant" change in the circumstances surrounding the target company, in its position or in the shareholding of the interested parties.
The declaring shareholder who fails to abide by the stated intent is liable to being deprived of the voting rights exceeding the declared threshold for a period of two years.
Technip was therefore, bound by the terms of the Statement of Intent made public on 19 April 2000 to abstain from taking control over Coflexip for a period of twelve months. Technip did in effect abide by the said terms, since its equity interest ownership remained unchanged from April 2000 through July 2001.
The Statement filed by Technip pursuant to the Companies Act was further reinforced by a commitment made by Technip directly to Coflexip to the same effect; such commitment was mentioned in the press release of 12 April 2000.
3.2.13 Furthermore, without prejudice to the foregoing submissions even under the provisions of the said Regulations "control of" Coflexip was not acquired by Technip in April, 2000. For the purpose of acquiring control under the said Regulations, it is necessary that Technip should have acquired the right to appoint a majority of directors of Coflexip or a right to control the management or policy decisions of Coflexip or should have acquired control by virtue of a Shareholder's Agreement or in any other manner. As explained by their dated the 14th November, 2001, the same was not the case. In fact, Technip has given undertakings which were filed with the relevant authorities in France, stating that for a period of 12 months, they did not intend to take control of Coflexip. Technip had not therefore, acquired control of SEAMEC.
3.2.14 Whether one person or a group of persons controls a company is essentially a question of fact. Certain situations or circumstances may raise doubt or suspicion but whether in fact there has been any acting in concert has to be established. The facts set out above and in particular the fact that by the statement of intent filed formally in France it was assured that Technip would not for 1 year from April 2000 take control of Coflexip clearly show that in April 2000 Technip did not control Coflexip as alleged in the show cause notice.
Moreover under French law had Technip whether acting alone or in concert with one or more other entities acquired control of Coflexip, it would have to disclose the fact to the French market authorities and the public and make a bid for all shares in Coflexip not held by Technip. Failure to make such a disclosure or make such a bid would have deprived Technip of voting rights. The very fact, that Technip neither made any such disclosure nor bid nor was any complaint made on the subject by the French market authorities establishes that in fact Technip did not in fact acquire such control in April, 2000.
3.2.15 Thus, the entire basis of the Show-cause Notice is misconceived. However, the subsequent facts are also relevant.
(a) The discussions that took place between the various shareholders of Coflexip and the representatives of Technip (as set out in the offer documents) clearly indicate that Technip was not acting in concert with any shareholder of Cofiexip.
(b) Technip on 3 July, 2001 made a public offer to take over the shares of Coflexip inter alia, at a cash price of Euro 193. On 26th July, 2001 the said cash price was increased to Euro 199 which resulted in Technip making an extra payment of Euro 30 million equivalent to approximately Rs.125 crores. In this regard the relevant facts may briefly be stated as under :
On 1st July, 2001 the board of directors of Technip approved the exchange offers for Coflexip and ISIS shares and a cash consideration of Euro 193 per Coflexip share;
On 6th July 2001, the board of directors of Coflexip met to consider the announced offers to acquire Coflexip. At that meeting it was proposed by certain directors that a special committee of the directors unaffiliated with Technip or ISIS be formed to review the offers to acquire Coflexip. Significantly, the board of Coflexip decided by a majority decision to form a special committee though all the nominees of Technip voted against the formation of the Committee. This itself indicates that Technip was not in control of Coflexip even in July 2001.
The special committee thereafter had discussions with and requested the representatives of Technip to increase the cash consideration being offered to the shareholders of Coflexip. Pursuant thereto on 25th July, 2001 the Board of directors of Technip approved an increased offer of Euro 199 per Coflexip share and it was only thereafter that Coflexip's special committee met and unanimously voted to recommend the offer of Technip;
If as suggested by SEBI, Technip controlled or managed Coflexip, then the aforesaid setting up of the special committee or recommendation of a higher price would not have taken place as it is against the interest of Technip It is also submitted that the same are contrary to the various undertakings and documents filed with the Securities Exchange Commission (US SEC), to the French and other authorities. The same clearly shows that in April, 2000, Technip had not acquired control over Coflexip nor were they acting in concert with any other party to acquire control.
3.2.16 It may be noted that ISIS also owned a significant shareholding in Coflexip. It is significant that IFP was also one of the founding shareholders of Coflexip and through ISIS held a significant shareholding in Coflexip. If the allegations made in the Show-cause Notice are correct, it would imply that ISIS and IFP were the parent companies of both Coflexip and Technip. If this was the situation, and IFP was the ultimate parent company, there would be no change in control by virtue of the aforesaid acquisition by Technip. In such circumstance, the Regulations would not at all be applicable.
3.2.17 It is submitted that-merely because ISIS had a shareholding of 11.8 % in Technip and a shareholding of 18.17 % in Coflexip, it did not mean that either IFP or ISIS were in control or in management of Technip or Coflexip. It is to be noted that the majority of the shareholders of both Technip and Coflexip (prior to October, 2001) are the public. Furthermore, under the French law, the directors of a company are in a fiduciary position and are responsible to the company and its shareholders. This limits their allegiance to the shareholders proposing them as directors. Thus, it cannot be said that Technip and ISIS are persons acting in concert.
3.2.18 It is significant that apart from SEBI, no authority in the United States or Europe has alleged that by virtue of the acquisition of shares of Coflexip in April, 2000, Technip had acquired control over Coflexip. It is submitted that if that was the factual situation, Technip would have faced legal action in a large number of countries throughout the world and Technip would have had to make open offer for all shares of Coflexip in April, 2000 itself. No other authority in the United States or Europe has, even remotely, suggested that Technip acquired control of Coflexip in April, 2000. It is also significant that the change in the name of Technip toTechnip Coflexip took place only after October 2001.
3.2.19 It is submitted that at the time of acquisition of 29.68% of the shares of Coflexip by Technip in April 2000, there was no cross holding at all between Technip and ISIS and IFP, in as much as ISIS held shares in Technip and Coflexip, but Technip/Coflexip did not hold shares in ISIS, and similarly, while IFP held shares in ISIS and Technip, there was no cross holding by ISIS/Technip in IFP. There are no facts set out in the Show Cause Notice in support of its allegation that there was a cross holding and/or how such alleged cross holding contributed to the diverse persons "acting in concert with the common objective of acquiring control over Coflexip" as alleged.
3.2.20 Regarding the allegation pertaining to the composition of the Board of Directors of ISIS, there is no allegation in the Show Cause Notice as to what part of the constitution of the Board of Directors of ISIS contributed or amounted to the diverse persons "acting in concert with the common objective of acquiring control over Coflexip" as alleged. Therefore, the said allegation in the Show Cause Notice should be ignored as it is not supported by any facts whatsoever. Once again, it is respectfully submitted that there is no deeming provision under regulation 2(1)(e)(1) and therefore, the Show Cause Notice does not discharge its obligation to establish that the constitution of the Board of Directors of Coflexip, Technip and/or ISIS resulted in and/or caused Technip and ISIS to act in concert, as alleged or at all.
3.2..21 The allegation that some of the shareholders of Technip, viz., ISIS, Gaz de France, Total Fina Elf, who in the aggregate held 29.1% of the shares of Technip at the relevant time, exercised control over the decisions of Technip. Therefore, alleged joint acts of some of the shareholders of Technip, cannot result in one of such shareholders (ISIS) acting concert with Technip. There are no allegations and or facts to the effect that Technip acted in concert with its other shareholders or any of them. Therefore, the aforesaid contention that merely because certain shareholders of Technip, who in the aggregate held 29.1% of the shares at the relevant time, controlled the decisions of Technip, that would result in Technip acting in concert with one of such shareholders, is completely without basis and is not sustainable.
3.2.22 The aforesaid submissions do not in any manner admit that ISIS along with TotalFina ELF and Gaz de France exercised any control over Technip decisions at the relevant time. As a result of the public offer by Technip, ISIS has now become a wholly-owned subsidiary of Technip, and will be merged into Technip in June 2002. Further to the public offer of Technip for all the shares in Coflexip and to this date, Elf-Total and Gaz de France together hold some [10.10 %] of the share capital of Technip and do not hold control over Technip.
3.2.23.It is submitted that the definition of control under regulation 2 (1)(c) includes the right to appoint a 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. Determination of control, in terms of the aforesaid definition, is a question of fact and therefore, the allegation that there has been a change in control must be substantiated by facts that there has been a change in the right to appoint a majority of directors, or to control the management or policy decisions and there cannot be a presumption to that effect. It is submitted:
(i) that Technip did not own a majority of the voting rights of Coflexip (50%) and consequently had no right in law to appoint a majority of the directors on the Board of Coflexip; and
(ii) that Technip and Coflexip did not have any agreement, at the time, which vested a majority of the voting rights in Technip.
3.2.24 Though the acquisition of shares of Coflexip by Technip in July-October 2001 is not the subject matter of the Show Cause notice, Technip would like to place on record that they are in process of filing an exemption application under the relevant Regulation.
Pursuant to the aforesaid submissions Technip filed an application vide letter dated 24.05.2002 under regulation 3(1) (l) of the said Regulations claiming exemption for the acquisition of shares of Coflexip in July 2001 for acquiring control of SEAMEC. The exemption application has been dealt with in subsequent paragraphs.
3.3 SUBMISSIONS MADE BY IFP 3.3.1 IFP is a professional institute acting as a research, development and education foundation and it is not a policy of IFP to manage, operate or control the composition of the Boards of companies where it holds equity, which is very evident from the fact that IFP had only 3 directors on the Board of ISIS out of a total of 9 directors even when it held 52.8% of the paid-up share capital of ISIS, as of April, 2000.
3.3.2 As of April 2000, IFP was an indirect shareholder in Technip and Coflexip via ISIS, a public company listed on the Paris Stock Exchange and in which investors held a 47.2% interest. As of April 2000, IFP did not have a controlling interest in either Technip or Coflexip. ISIS held only 11.8% share interest in Technip and had only 2 directors on the Board of Directors of Technip out of a total of 11 directors. As such, it is clear that IFP had no control, whether direct or indirect, over Technip through ISIS. Therefore, to allege that Technip and ISIS belonged to an IFP group is too overreaching an assertion. Furthermore, ISIS held only an 18.7% interest in Coflexip at such time and had only 3 directors on the Board of Directors of Coflexip out of a total of 11 Directors. IFP had no representatives on either Technip or Coflexip.
3.3.3 IFP did not act in concert with Technip or Coflexip, either directly or indirectly through ISIS, during Technip's acquisition of the 29.68% interest in Coflexip. IFP had no involvement in the acquisition by Technip of the 29.68% stake in Coflexip. IFP made no decisions and had no input in such transaction. IFP could not control the management, or the day to day running of either Technip or Coflexip.
3.3.4 The Technip shareholders' agreement made between ISIS, Gaz de France, Total and Sogerap on September 22, 1994, provided ISIS with two directors out of a maximum of 13 on the Board of Directors of Technip, and a pre-emptive right with respect to the sale of Technip shares, but provided no rights or privileges to ISIS with respect to the management or control of Technip, or the acquisition of the shares of another company (i.e., Coflexip) by Technip, and, consequently, no control of any kind was granted or exercised in any way either to ISIS or to IFP under such shareholders agreement. This shareholders agreement has expired.
3.3.5 Furthermore, in July, 2001 Technip launched a take-over bid on ISIS. IFP tendered its holdings in ISIS to Technip pursuant to the bid. This demonstrates that IFP never controlled either directly or through ISIS the affairs of Technip.
3.3.6 IFP had no involvement in the acquisition of Coflexip Stena Offshore (Mauritius) Ltd. IFP made no decisions and had no input, in the transaction.
3.3.7 In view of the above, it is submitted that at no time has IFP acted in concert with Technip during Technip's acquisition of its 29.68% interest in Coflexip from Stena. Thus, the provisions of the said Regulations clearly have not been breached by IFP. Furthermore, at no point of time did IFP directly or through ISIS have any control over Coflexip or Technip as clearly evidenced by the facts stated above. Thus, the question of the application of regulations 10,12 or 14 does not and cannot arise in the present circumstances.
3.4 SUBMISSIONS OF ISIS ISIS reiterated the submissions made by Technip and stated inter alia, the following :-
3.4.1 ISIS was a holding company founded in 1975 by IFP to promote the development of equipment and services for the technological sectors of the oil and gas industry and hold equity interests in approximately 20 companies in the areas of exploration and production, petrochemicals, engineering, construction and maintenance, etc. 3.4.2. Prior to 26th July 2001, the shareholding of ISIS was as under:
Number of Shares % of Share Capital IFP 2,451,051 52.90 Morgan Stanley & Co. Inc. 117,365 2.5 Banque Nationale de Paris (BNP) 46,453 1.0 K Capital Partners LLC 216,504 4.6 Employees 56,391 1.2 Public 1,722,079 37.1 Treasury stock 35,477 0.8 TOTAL 46,45320 100 3.4.3 Under French law had Technip and ISIS whether acting alone or in concert with one or more other entities acquired control of Coflexip, it would have to disclose the fact to the French market authorities and the public and make a bid for all shares in Coflexip not held by Technip / ISIS. Failure to make such a disclosure - or make such a bid would have deprived Technip / ISIS of voting rights in that company. The very circumstance that Technip and ISIS neither made any such disclosure nor a bid nor was any complaint made on the subject by the French market authorities establishes that Technip and ISIS did not in fact acquire such control in April, 2000.
3.4.4 Thus, the entire basis of the Show-cause Notice is misconceived. However, the subsequent facts are also relevant in this regard.
(i) The discussions that took place between the boards of IFP, ISIS, the various shareholders of Coflexip and the representatives of Technip (as set out in the offer documents) clearly indicate that Technip was not acting in concert with any shareholder of Coflexip or with ISIS.
(ii) On 1st July, 2001 the board of directors of Technip approved the exchange offers for Coflexip and ISIS shares and a cash consideration of Euro 193 per Coflexip share.
On 1st July, 2001, the board of directors of IFP approved the ISIS exchange offer.
On 2nd July, 2001 the Board of directors of ISIS also approved the ISIS exchange offer which provided for 11 Technip Shares for 10 ISIS shares and a sale by ISIS of all its holdings to IFP other than shares in Technip and Coflexip at an agreed consideration.
(iii) Technip on 3rd July, 2001 made a public offer to take over the shares of Coflexip inter alia at a cash price of Euro 193.
(iv) On 6 July 2001, the board of directors of Coflexip met to consider the announced offers to acquire Coflexip. At that meeting it was proposed by certain directors that a special committee of the directors unaffiliated with Technip or ISIS be formed to review the offers to acquire Coflexip. Significantly, the Board of Coflexip decided by a majority decision to form a special committee though all the nominees of Technip voted against the formation of the Committee. Two out of the three nominee directors of ISIS also voted in favour of the resolution. This itself indicates that neither Technip nor ISIS was in control of Coflexip even in July 2001 and that they were not acting in control with respect to Coflexip.
(v) The special committee thereafter had several thorough discussions with representatives of Technip regarding the strategy and management organisation of the future group and requested that Technip increase the cash consideration being offered to the shareholders of Coflexip.
(vi) Pursuant thereto, the Board of directors of Technip on 25th July 2001 approved an amended offer in which the cash part of the offer price was increased to Euro 199 per Coflexip share, which resulted in Technip making an extra payment of Euro 30 million equivalent to approximately Rs.125 crores.
Thereafter, Coflexip's special committee reported favourably to the Board of Directors of Coflexip on the said increased offer, whereupon the Board of Directors of Coflexip, meeting on that same day, unanimously voted to recommend the increased Technip offer to the Coflexip shareholders.
(vii) If as suggested by SEBI, Technip controlled or managed Coflexip, then the aforesaid setting up of the special committee or recommendation of a higher price would not have taken place as it is against the interest of Technip.
(viii) The ISIS exchange offer commenced on 26 July 2001 in France and sometime later in the USA and was completed on 28 September 2001 with the physical registration of shares being completed on 19 October,2001.
(ix) As is clearly stated in the formal prospectus in form F4 submitted by Technip to the U.S. Securities and Exchange Commission, the primary purpose of the ISIS exchange offer was to "facilitate the acquisition by Technip of control of Coflexip.
Had Technip already controlled Coflexip since April, 2000, (as alleged in the show cause notice) there was no need whatsoever to make this offer and the very fact that the offer was made shows that Technip did not in fact or in law control Coflexip till July 1 October 2001.
(x) Both the aforesaid offers made by Technip were conditional offers. The offer to acquire the shares of Coflexip was conditional upon receipt of approvals of the United States Securities and Exchange Commission (US SEC) and/or other regulatory authorities in the United States, Finland, Germany, Netherlands and Brazil. The said approvals were received on 10 August, 2001, 8th August, 2001, 1st August, 2001 and 17th August, 2001, respectively.
(xi) All the said offers closed on 28 Sept, 2001 the results of which were officially announced on 11october, 2001. On 19 October, 2001 the physical registration of the shares was completed. As a result of the ISIS offer, Technip acquired 99.04 % of the share capital and voting rights of ISIS, Technip also acquired as a result of the Coflexip offer 98.36 % of shares of Coflexip and 98.54 % of the voting rights of Coflexip (including the shares and voting rights held by ISIS). It is thus only on 11th October, 2001 that Technip could be said to have acquired control of Coflexip.
4.0 HEARING A hearing before Chairman, SEBI was given to Technip, IFP and ISIS on 29th May 2002. Technip, IFP and ISIS attended the same and reiterated the submissions made by them as stated hereinabove.
5.0 ISSUES 5.1 I have taken into consideration the facts of the case, the submissions made by Technip, IFP and ISIS vide their letters as well as made by them during the hearings and also the documents submitted by them in support of their submissions.
5.2 From the above, the following issues arise which need consideration:
(i) Whether ISIS and/or IFP can be termed as persons acting in concert with Technip, when Technip acquired 29.68% of shares / voting rights in Coflexip on 12th April 2000 from Stena?
(ii) If yes, whether pursuant to acquisition of 29.68% of shares / voting rights in Coflexip on 12th April 2000 from Stena , Technip indirectly acquired control of SEAMEC in terms of the said Regulations ?
(iii) Was Technip under an obligation to make Public Announcement for acquisition of shares of SEAMEC ?
5.3 CONSIDERATION OF ISSUES 5.3.1 Whether ISIS and/or IFP can be termed as person acting in concert with Technip, when Technip acquired 29.68% of shares / voting rights in Coflexip on 12th April 2000 from Stena?
5.3.2 In this regard I have noted that ISIS had 11.8% shareholding in Technip and was the single largest shareholder of Technip.
5.3.3 IFP had 52.76% shareholding in ISIS and was the holding company of ISIS.
5.3.4 ISIS was having two directors on the Board of Technip and 3 directors on the Board of Coflexip.
5.3.5 Technip had 3 directors on the Board of Coflexip on 12.04.2000 and 4 directors on the Board of Coflexip on 30.05.2000. Technip along with representatives of ISIS had majority of directors on the Board of Coflexip i.e. 7 directors out of total number of 12 Directors on 30/5/2000 and jointly Technip and ISIS were holding 47.85% shares/voting rights of Coflexip .
5.3.6 ISIS and Gaz de France had disclosed at the time of the admission of listing of the Technip shares on the Paris Bourse (September 1994) that they were acting in concert with regard to their interest in Technip pursuant to a Shareholder's Agreement between ISIS and Gaz de France which provided that (i) in the event of either ISIS or Gaz de France wanting to sell their shares in Technip the same would have to be offered to the other party (ii) each party were to be represented on Technip board of directors in proportion to their respective voting rights in Technip. Total Fina Elf was also party to the Shareholders Agreement until September 22, 2000 when they decided not to renew their participation thereto. The shareholders agreement terminated upon publications of the final result of the ISIS exchange offer. The shareholders Agreement terminated upon the publication of the final results.
5.3.7 I have noted that Stena, ISIS and other major shareholders of Coflexip had a formal agreement dated November 2, 1994 to control Coflexip. The agreement provided for the right of first refusal, which means that if one party wants to opt out of the agreement then it has to first offer the shares to the other parties involved in the agreement and only after their refusal, if any, and with their permission, they can sell it to other party. The permission was not required if the sale of shares is amongst members of a group or in favour of affiliates of a member of that group.
5.3.8 Before dealing with the issue it would be pertinent to advert to the relevant regulations.
Regulation 2(1)(e), states that a person acting in concert comprises:
(1) persons who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal or 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) bank 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 commercial banking services or such activities in connection with the offer, such as confirming availability of funds, handling acceptances and other registration work.
(x) Any investment company with any person who has an interest as director, fund manager, trustee, or as a shareholder having not less than 2% of the paid up capital of that company or with any other investment company in which such person or his associates 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."
From the above definition it is clear that in terms of regulation 2(1)(e)(i) persons acting in concert comprise persons who for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company pursuant to an agreement or understanding (formal or informal) directly or indirectly co-operate by acquiring or agreeing to acquire shares or voting rights in the target company.
Further, the provisions of regulation 2(1)(e)(ii) being a deeming provision must be read in conjunction with regulation 2(1)(e)(i). Further, persons who are deemed to be acting in concert must together have some intention or interest in the acquisition of shares of Target company.
5.3.9 It is observed that Technip prior to acquiring the entire interest of Stena amounting to 29.68% (which included shares held through J.P Morgan)in Colfexip , had on 11th April 2000 forwarded a letter to Coflexip which briefly stated the following and which was a legally binding undertaking enforceable in the French Courts:-
(i) Technip was not acting in concert with any one with respect to Coflexip and had no plan relating to any such concerted action;
(ii) Technip has no intention to increase the interest they will take in Coflexip before April 19, 2001;
(iii) Technip agrees not to sell or otherwise dispose of any shares before October 19, 2000;
(iv) Technip agrees that any sale or disposition of 1,839,398 Coflexip shares between October 19, 2000 and August 19, 2001 to any person other than institutional investors would be subject to Coflexip's right upon receipt of 21 days prior notice to substitute a purchaser of Coflexip's choice other than a direct competitor of Technip ;
(v) Technip informs Coflexip that these restrictions on sales and other dispositions would not apply in the event of a public offer by any other person for Coflexip shares and would terminate if a third party, acting alone or in concert with others, became the owner of 20% or more of the share capital or voting rights of Coflexip or if a reorganisation of Coflexip businesses resulted in its then current business lines representing less than 65% of its consolidated net sales without the agreement of Technip representatives on Coflexip's board of directors.
(vi) Technip agrees that, until the earlier August 11, 2001 and the date on which Technip interest in Coflexip constituted less than 10% of the outstanding share capital or voting rights of Coflexip , Technip would not acquire any interest in a company with businesses in subsea engineering, manufacturing or installation of underwater equipment linked to the development of oil or gas fields without the consent of Coflexip 5.3.10 It is also observed that on April 28, 2000, Technip issued:
(i) a Notification for Crossing Legal Thresholds by acquiring 29.68% of Coflexip equity capital; This was a statutory obligation under French Company law;
(ii) a Statement of Intent binding for 12 months in which Technip declared that:
this acquisition of shares from Stena was a friendly acquisition of shares which should result in the conclusion of a strategic alliance;
it was acting alone;
it did not intend to increase its shareholding;
it will be represented on the Coflexip board of directors by four members out of a total of twelve members;
it does not intend to take control of Coflexip;
for a period of six-months, it will not reassign its shareholding, except for a maximum of one-third to institutional investors, without prior consultation with Coflexip.
Further, as submitted by Technip, it is observed from the documents duly certified, that Section 356-1 of the French Companies Act makes such a statement, binding in law and if a breach is committed, the person committing a breach is deprived of his voting rights for 2 years. Under French law a Statement of Intent is to be issued on crossing the 10% and 20% limits of shareholding or voting rights in any listed company.
5.3.11 It is also observed that the aforesaid documents have been filed with the French Market Authority ("Conseil des Marchds Financiers") which made them public on May 4, 2000 and with the Stock Exchange Commission ("Commission des Opdrations de Bourse"). The Conseil des Marche's Financiers thereafter issued a public notice dated 4th May, 2000 recording and accepting the statements made hereinabove.
5.3.12 From the various declarations filed by Technip before French authorities that it was not acting in concert with anybody else for the purpose of acquiring shares / voting rights / control over Coflexip and in view of the Technip's letter dated 4/5/00 vide which it had filed declaration of threshold crossing and statement of intent with French authorities (Council of Financial Markets) declaring the objectives it intends to pursue vis-a- vis Coflexip in the twelve coming months as stated hereinbefore, and specifically that -
Technip is acting alone That it does not intend to increase its equity interest on Coflexip That it shall be represented on the Board of Directos by four directors out of a total of twelve members.
That it does not intend to acquire control over Coflexip It would be difficult to hold that Technip was acting in concert with ISIS or IFP for the purpose of acquiring control over Coflexip, when it acquired 29.68% shares from Stena, on 12.4.00.
5.3.13 Further it is also noticed that Technip has further undertaken to Coflexip that it shall not for the next six months sell its interest and that it shall not for the following ten months, dispose of such interest without prior consultation with Coflexip, subject to retaining the right to sell shares representing less than a third of its interest to institutional investors.
Technip also specified that the above undertakings relating to the standstill of its equity interest as well as to the possible sale of such interest shall lapse in certain circumstances, including (i) the filing of a tender offer for the shares of Coflexip and (ii) the acquisition by a shareholder or several shareholders acting in concert, of 20% or more of the share capital or voting rights of Coflexip.
5.3.14 It is also observed that there was no agreement between Technip and a third party or ISIS or IFP giving Technip a majority of voting rights in Coflexip. Further under the French Companies Act, the parties to any such agreement would have been subject to a disclosure obligation to the French Market Authority, which publicises such disclosures in its Official Bulletin as well as on its lnternet site since undisclosed agreements are unenforceable.
5.3.15 From the aforesaid it is clear that Technip was acting alone and had no commonality of objective or community of interest with ISIS or IFP for the purposes of acquiring shares / voting rights / control over Coflexip. Further there was no agreement between Technip and a third party or ISIS or IFP giving to Technip a majority of voting rights in Coflexip.
5.3.16 It would be pertinent here to advert to Securities Appellate Tribunal order in case of Modipon v/s SEBI & others dated July 31, 2001, (2001) 44 CLA 94 (SAT), holding inter-alia, that "...Any person and shareholder 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....."
It may be noted that the rationale behind clubbing the shareholding of persons acting in concert with the acquirer is that, such persons may have commonality of objective and a community of interests which could be acquisition of shares or voting rights beyond the threshold limit or gaining control over the company and this act of acquiring shares or voting rights in a company must serve this common objective. Implicit in the concerted action of these persons must be an element of co-operation.
It would also be pertinent to advert to the order of Hon'ble High Court of Bombay in the matter of K K Modi V/s. Securities Appellate Tribunal, in SEBI Appeal No. 9/2001 (with Notice of motion no. 2033 of 2001, dated November 5, 2001), (2002) 35 SCL 230 (BOM.) wherein it has been ,inter alia , held that "...... there is no hard and fast rule that a promoter must always be deemed to be an acquirer or a person acting in concert with the acquirer. On the facts, it may be held that a promoter shares the common objective or purpose of substantial acquisition of shares with the acquirer. It may well be that he may not share the said common objective or purpose. If he does, he shall be deemed to be a person acting in concert with the acquirer, but if he does not, he cannot be deemed to be an acquirer merely because he happens to be a promoter. Regulation 2(1)(e)(2) also makes this clear. The persons named therein are deemed to be persons acting in concert with other persons in the same category, unless the contrary is established. It, therefore, follows that even though there is a presumption that the persons described therein may be deemed to be persons acting in concert with the acquirer, the presumption is rebuttable, and therefore, in each case, the facts have to be examined to reach a conclusion as to whether a person is or is not acting in concert with the acquirer for the purpose of substantial acquisition of shares or voting rights or gaining control over the target company. He may do so by an express agreement or understanding, and the agreement or understanding may be proved by evidence on record. Similarly, he may co-operate with the acquirer directly or indirectly. What is important is that it must be shown that he is acting in concert with the acquirer......... ......What is relevant is not whether the promoters have acted in concert with each other in managing the target company, but whether they are acting in concert for the purpose of substantial acquisition of shares or voting rights or gaining control over the target company. The fact, therefore, that the target company, MRL, has been managed in the past by the promoters acting in co-operation and concert with each other is hardly relevant for the determining the question whether the promoters are acting in concert in the matter of substantial acquisition of shares or voting rights in the target company. The mere fact, therefore, that the acquirers, while making the public offer, assumed and acted on the basis that Modipon Ltd. was acting in concert with them, will not make Modipon Ltd. a person acting in concert with them......"
Thus, from the above it follows that under regulation 2(1)(e)(2), the persons named therein are deemed to be persons acting in concert with other persons in the same category, unless the contrary is established meaning thereby that its rebuttable presumption and therefore in each case the facts have to be examined to reach a conclusion as to whether a person is or is not acting in concert with the acquirer for the purpose of substantial acquisition of shares or voting rights or gaining control over the Target company. From the facts of the instant case as discussed in detail hereinbefore, it is apparent that Technip, IFP and ISIS were not persons acting in concert for the purposes of acquisition of control over Coflexip when Technip acquired 29.68% shares of Coflexip from Stena on 12.04.2000.
5.3.17 It is also observed that:
(i) French company law compels the Company, upon crossing the equity interest level of ten per cent. of share capital or voting rights in the Target company, and again of twenty per cent. of share capital or voting rights in the Target company, to file with the French market authority (with copy to the Target company) the abovementioned Notification for Crossing Legal Thresholds and a Statement of Intent (Section 356-1 of French Companies Act);
(ii) pursuant to the same Section of the Companies Act, that Statement of Intent is binding on the declaring Company for the twelve months from its date, and the stated intent may only be altered in the event of a "significant" change in the circumstances surrounding the target company, in its position or in the shareholding of the interested parties;
(iii) the declaring shareholder who fails to abide by the stated intent is liable to being deprived of the voting rights exceeding the declared threshold for a period of two years.
5.3.18 As submitted by Technip, it is also observed that under French law had Technip , acting alone or in concert with one or more other entities acquired control of Coflexip it would have to disclose the fact to the French market authorities and the public and to make a bid for all shares in Coflexip not held by Technip. Failure to make such a disclosure or make such a bid would have deprived Technip of voting rights. Further, Technip neither made any such disclosure nor made any bid for the entire shareholding of Coflexip, establishes that in fact Technip did not acquire such control in April, 2000.
5.3.19 I also find merit in the submission of Technip that it had filed declaration regarding acting alone before French authorities and Technip would have faced legal action in a large number of countries throughout the world and Technip would have had to make open offer for all the shares of Coflexip in April 2000 itself had it been acting in concert with anybody and no authority in the United States or Europe has alleged that by virtue of the acquisition of shares of Coflexip in April 2000, Technip had acquired control over Coflexip.
5.3.20 In view of the provisions of French Law and the regulatory provisions prevailing in France, it is clear that Technip was not acting in concert with ISIS and IFP when Technip acquired 29.68% shares/voting rights of Coflexip from Stena on 12/4/2000.
5.3.21 It is also observed that IFP is an independent centre for research and industrial development, education, professional training and information for the oil and gas and automotive industries. It does not carry on industrial or commercial activities, neither does it control or manage other companies. IFP is a "professional body" created by a decree of the French government. The members of the Board of Administration are designated by the Ministries of Industry, Economic Affairs and Government control is exercised by the Directeur des Hydrocarbons Government commissioner and by the head of Economic and Financial mission for petroleum and chemistry.
Its statutory purpose is to support the advancement of the petroleum (and oil services) industry. To that aim, it is endowed with a part of certain petroleum taxes and excises and in return, it is subject to the financial control of the French state. IFP conducts and funds research in various directions, all related to the oil industry from oil exploration and related services to development and crude oil and gas production down to refining and production of light, finished products (such as petrol, lubricants, fuel oil and all raw materials of the petro chemical industry).
It also promotes companies created to apply the results of its own research thus IFP was one of the founding shareholders of both Technip in 1958 and Coflexip in 1971.
In 1975, IFP promoted ISIS as a wholly owned subsidiary to hold its investments. IFP retained majority control in ISIS at all times until October 2001, although ISIS became listed on Euro Next Paris in 1997.
IFP supervises and controls the Ecole Nationale Superiere Du Petrole et Des Moteurs (National Engineering College for Oil and Fuel Engine Studies) located on IFP grounds. From time to time, Technip has been deputing some of its Engineers go give training courses at the aforesaid college.
5.3.22 It is also observed that IFP is a professional institute acting as a research, development and education foundation and it is not a policy of IFP to manage, operate or control the composition of the Boards of companies where it holds equity, which is very evident from the fact that IFP had only 3 directors on the Board of ISIS out of a total of 9 directors even when it held 52.8% of the paid-up share capital of ISIS, as of April, 2000.
In view of the facts and circumstances of the case including nature of functioning of IFP, a `professional body' created by a decree of French Government and performing the role of a research body, it is difficult to hold that IFP along with ISIS was acting in concert with Technip for the purpose of acquiring shares/voting rights/ control of Coflexip so as to indirectly acquire control over SEAMEC. It is difficult to arrive at the said conclusion merely because IFP was the parent/promoter of ISIS . There was no common objective or purpose amongst them for acquiring shares or voting rights or gaining control over Coflexip .Further, there was no agreement or understanding amongst them to acquire or agree to acquire shares or voting rights in Coflexip.
In the K K Modi's case, Hon'ble Bombay High Court has held that "...It therefore, follows that the mere fact that a person is a promoter does not make him an acquirer, unless it is shown that he either intends to acquire or is acting in concert with the acquirer for the acquisition of shares of the target company. Before he can be said to be acting in concert with the acquirer, it must be shown that he shares with the acquirer a common objective or purpose for substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding and directly or indirectly co-operates with the acquirer or agrees with him to acquire shares or voting rights in the target company or control over the target company. It is significant that the definition of acquirer does not include a promoter, but includes persons acting in concert with an acquirer. The question as to whether a person is acting in concert with the acquirer is essentially a question of fact. A promoter may not act in concert with the acquirer, whereas a stranger might......."
From the above, it follows that the mere fact that a person is a promoter does not make him an acquirer unless it is shown that he either intends to acquire or is acting in concert with the acquirer for the acquisition of shares in the Target company. Further, before he can be said to be acting in concert with the acquirer, it must be shown that he shares with the acquirer a common objective or purpose for substantial acquisition of shares or voting rights or gaining control over target company pursuant to an agreement or understanding and directly or indirectly co-operates with the acquirer to acquire shares or voting rights or control over the target company. From the facts of the instant case, it is observed that though IFP is the parent / promoter of Technip and ISIS, it did not share any common objective or purpose with either Technip or ISIS to acquire shares / voting rights or control over SEAMEC when Technip acquired 29.68% shares of Coflexip from Stena on 12.04.2000. Further, there was no agreement or understanding among IFP, Technip and ISIS for acquisition of shares of Coflexip on 12.04. 2000.
5.3.24 In view of the above factual position, merely because ISIS was a major shareholder of Technip, Technip was having 2 directors on the Board of ISIS and IFP was parent of ISIS and Technip, it is difficult to hold that Technip, ISIS and IFP were acting in concert for the purposes of acquiring control over Coflexip when Technip acquired 29.68% shares of Coflexip from Stena on 12.04.2000.
5.3.25 In view of the fact that Technip was not acting in concert with IFP or ISIS for the purposes of acquiring control over Coflexip when Technip acquired 29.68% shares of Coflexip from Stena on 12.04.2000, for the reasons detailed herein before, Technip did not indirectly acquire the control of SEAMEC in terms of the said Regulations by virtue of such acquisition of 29.68% shares of Coflexip. Hence there was no obligation to make Public Announcement for acquisition of shares of SEAMEC by Technip.
Therefore the other two issues as stated at 5.2 require no further consideration.
6.0 EXEMPTION APPLICATION 6.1 Technip vide its letter dated 24.5.02 stated that regarding the acquisition of shares of Coflexip in July 2001, it is in the process of filing an application for exemption from making of public offer as per the said Regulations. Further, during the hearing held on 29.05.02, the representative of Technip proposed to file an exemption application in terms of regulation 3(1)(l) read with regulation 4(2) of the said Regulations.
Technip made an application dated June 26,2002 to SEBI under sub-regulation (2) of regulation 4 of the said Regulations seeking exemption from making public offer under regulation 10 read with regulation 12, for acquisition of shares / voting rights or control of SEAMEC.
6.2 In the aforesaid application, Technip submitted, inter-alia, the following grounds for seeking exemption :
6.2.1 The indirect acquisition of control of SEAMEC by Technip was an incidental fall out of the global acquisition of Coflexip by Technip in October 2001. This averment is substantiated by the following facts :
(i) the said global acquisition was neither designed nor intended to result in the acquisition of SEAMEC. The contribution of SEAMEC to the global profits/ revenues/ assets of Coflexip, were negligible as discussed in detail hereinafter;
(ii) the acquisition did not result in any change in the direct ownership or control of SEAMEC. The global acquisition resulted in an indirect acquisition of shares by virtue of the shares held by Coflexip in SEAMEC through a chain of subsidiaries ending with Coflexip Stena Offshore (Mauritius) Ltd. The owners of the shares of SEAMEC continues to be Coflexip Stena Offshore (Mauritius) Ltd. which held 58.24% of the paid up capital of SEAMEC even after the overseas acquisition of Coflexip. Further there is no change in the shareholding pattern of the other subsidiaries through which Coflexip held the shares of SEAMEC;
(iii) no due diligence was carried out on SEAMEC, or its activities in India, by Technip on or prior to the acquisition of the shares of Coflexip.
6.2.2. The total business of SEAMEC formed a small and insignificant portion of the total business of Coflexip.
(i) Whilst the revenues of Coflexip for the years ending 31" December, 1999 and 31st December, 2000 were Euro 1.017 billion (approx. Rs.44.67 billion) and Euro 1.064 billion (approx. Rs.46.40 billion) respectively, the revenues of SEAMEC for the corresponding period were Rs. 861 million (31st March 2000) and Rs.766.4 million (9 month period ending 31st December 2000). The revenue for the year ending 31st.Dec.2001 for SEAMEC was Rs. 891 million, and that for 9 months period ending on 31st.Dec.2000 was 770 million. This clearly demonstrates that the revenues of SEAMEC formed an insignificant portion of the total revenues of Coflexip.
(ii) SEAMEC reported a small profit of Rs.36.7 million for the nine months period ended 31st December, 2000 and a profit of approximately Rs. 71 million for the year ending 31st December 2001. The profits of Coflexip were Euro 89.61 million (approx. Rs.3.9 billion) and Euro 222.70 million (approx. Rs.9.7 billion), for the years ending Decembers 1999 and 2000 respectively.
(iii) The asset figures for SEAMEC are Rs.1.60 billion (31" Dec 2000) and Rs.1.61 billion (31st December 2000). The assets, of Coflexip for 31s' December, 1999 and 31st December, 2000 were Euros 1.336 billion (Rs. 56 billion) and 1.599 billion (Rs.69.73 billion) respectively. Thus in terms of assets, SEAMEC contributed merely 2% of the total asset base of Coflexip as on December 2000.
In support of the aforesaid contentions and submissions Technip made reference to orders passed by the SEBI in the past, specifically in relation to the acquisition of Alfa Laval and Krone Communications Ltd. stating that SEBI has thought it fit to exempt the acquirers therein from making public offers in terms of the Regulations, on the grounds, inter alia, that the target companies in those cases, constituted an insignificant proportion in terms of business/revenues/assets, compared to the larger global acquisitions.
6.2.3. No consequential change in either the constitution of the Board or in the business policies of SEAMEC have been made. Nor was the acquisition of shares in Coflexip made with the purpose of securing control and /or changing the management and/or business policies of SEAMEC. In this regard Technip has submitted that :-
(i) pursuant to the global acquisition, the Board/ management of SEAMEC remains unchanged except that one Ms. Giraut who was Chief Financial Officer of Coflexip and a member of the Board of Directors of SEAMEC resigned her position with Technip - Coflexip in April, 2002 and consequently resigned from SEAMEC. In her place no one has been appointed. Therefore, there has been no change in control over and or in the constitution of the Board and/or management of SEAMEC consequent to or caused by the global acquisition. It is submitted that the resignation of one of the directors from the Board of Directors of SEAMEC does not constitute or amount to a "change" in the Board of Directors of SEAMEC. It is also submitted that in any case, the aforesaid resignation from the Board of Directors of SEAMEC was not a consequence and/or fall out of the acquisition of shares of Coflexip in France.
(ii) there has been no change in the business policies of SEAMEC since July 2001, i.e. from the time that Technip started negotiations for the acquisition of the shares of Coflexip. SEAMEC continues to operate and conduct its business as in the past, namely, of the three Offshore Support Vessels, two continue to be deployed in Offshore India, and the third one remains deployed in international offshore construction market, as before. In short post the acquisition of July 2001, there has been no change either in the asset position or in the business lines of SEAMEC.
(iii) a reference may be made to diverse orders passed by the SEBI earlier, specifically in relation to the acquisition of CTR Manufacturing Industries Ltd. etc., where the SEBI was pleased to exempt the acquirer from making a public offer on the grounds, inter alia, that "it was stated in the application that there would be no change at all in the control of the management or policy decisions, directly or indirectly" of the target companies.
That as a result of the acquisition of shares in Coflexip, there has been no change in the control of the management or policy decisions, whether directly or indirectly, of SEAMEC, and that furthermore, Technip has no intention of bringing about any such change as a consequence of the acquisition by it of the shares of Coflexip other than in the usual course of business.
(iv) the controlling stake in SEAMEC of Coflexip Stena Offshore (Mauritius) Ltd. has not altered subsequent to the global acquisition.
6.3 Technip has also submitted that
(a) If they have to make an open offer for acquisition of 20% of shares of SEAMEC, the same will lead to -
(i) reduction in liquidity of shares of SEAMEC which are listed on the Stock Exchanges;
(ii) reduction in the public shareholding in SEAMEC to approximately 22% thereby reducing the liquidity of the shares of SEAMEC in the stock exchanges;
(iii) considerable reduction in volume of trading in the shares of SEAMEC as they are not heavily traded on the Stock Exchanges;
(b) The global acquisition is beneficial to the interests of the Indian shareholders as explained hereunder :-
(i) that as a result of the aforesaid acquisition, SEAMEC would have the benefit of the technical and commercial expertise of Technip-Coflexip in various fields, thereby potentially increasing its business potential;
(ii) that the Indian shareholders would continue to hold shares in a subsidiary of a multinational company and would not be prejudiced.
(c) There would be no adverse impact on the interest of the shareholders pursuant to the aforesaid acquisition as explained hereunder :-
(i) that the intention of the take over code is to promote and protect the interests of the shareholders of the Indian company. By the aforesaid acquisition, the shareholders of SEAMEC are not adversely affected which is clear from the fact that post October 2001 (when the global acquisition was completed), the price of the shares of SEAMEC on the National Stock Exchange have significantly risen from Rs.44.45 (which was the prevailing price of 19th October, 2001) to Rs.102.55 i.e. the price on 31st.May,2002, ie an increase of over 130%. This is despite the fact that in the meantime, there has been only a marginal rise of 5.3% in the overall stock index (NIFTY) from 976.65 on 1st October, 2001 to 1028.80 as on 31st May,2002;
(ii) the above clearly shows that the Indian shareholders appear to view the global acquisition as beneficial and the increase in the share prices support this perspective of the shareholders.
(d) The acquisition of shares in SEAMEC by Technip is prohibited without the prior approval of FIPB and RBI. It is submitted that the business of SEAMEC falls within the petroleum sector and /or service sector for which the automatic route of approval for investments by persons resident outside India is not available. Furthermore, approval of FIBP is also required as the public offer would involve acquisition of shares by foreign investors in an existing Indian firm. In the absence of such an approval from RBI and/or FIPB, Technip is not in a position to legally acquire the shares of SEAMEC.
7.0 The said application was forwarded to the Takeover Panel on 27/6/02 in terms of sub-regulation (4) of regulation 4 of the said Regulations. The Takeover Panel vide its report dated 8/7/2002 recommended, inter alia, as under:
"From the facts stated in the application, it is evident that acquisition of control of the target company has already been taken over. Since under the existing Takeover Code, the public announcement must precede such acquisition of control, the application now made seeking exemption does not fall within the purview of Panel's jurisdiction. In the circumstances, no recommendation is made by the Panel. "
Further the Panel vide its letter dated 26/7/02 stated as under
" In line 5 of para 2 of the captioned report, the words " the public announcement" are substituted by the words " the application for exemption" and accordingly , the report stands corrected."
8.0 HEARING As the Takeover Panel did not recommend grant of exemption as sought by the Technip, Technip was granted an opportunity for personal hearing in terms of sub regulation (6) of regulation (4) of the said Regulations before Chairman, SEBI on 10/8/02, wherein Technip reiterated the submissions made by it vide its application dated 26.06.02 for exemption, as detailed in preceding paragraphs.
9.0 ISSUES 9.1 I have taken into consideration the facts of the case, the submissions, written as well as oral made by Technip during the hearing and also the documents submitted by it in support of its submissions.
9.2 From the above, the following issues arise which need consideration:
i. Whether in facts of the case, exemption from the applicability of Chapter III of the said Regulations can be granted to Technip?
ii. If not, when were the provisions of the said Regulations triggered and when was Technip obliged to make a public announcement?
10.0 CONSIDERATION OF ISSUES 10.1 Whether in the facts of the case, exemption from the applicability of Chapter III of the Regulations can be granted to the Technip?
10.1.1 It is observed that Technip has stated that the indirect acquisition of control of SEAMEC by Technip was an indirect fall out of the global acquisition of Coflexip. In this regard, it will be relevant to refer here to regulation 10.
Regulation 10 reads as under:-
"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 percent 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."
Explanation to Regulations 10 & 11 reads as under:
"Explanation:- For the purposes of Regulation 10 and Regulation 11, acquisition shall mean and include,-
(a) ........
(b) indirect acquisition by virtue of acquisition of holding companies, whether listed or unlisted, whether in India or abroad."
From the aforesaid Explanation, it is clear that regulation 10 covers the cases of indirect acquisition of control by the acquirer by virtue of acquisition of holding company whether listed or unlisted whether in India or abroad. Therefore, if an acquirer acquires the control of a holding company and consequently also acquires the shares / voting rights or control over the target company then, such acquirer will have to make an open offer for indirectly acquiring shares / voting rights of the target company, in terms of regulation 10.
Further, it is also noted that the aforesaid regulation cover cases of indirect acquisition irrespective of the fact whether the indirect acquisition of control of any company is a direct or indirect fallout of the global acquisition. If the acquirer acquires indirect control of a company, he is under an obligation to make an open offer in terms of the above said regulation.
In the instant case, it is observed that by virtue of acquiring shares / voting rights to the tune of 98.36 % of Coflexip, Technip indirectly acquired control over SEAMEC, since, Coflexip was holding 58.24% shareholding in SEAMEC through its wholly owned subsidiaries.
Thus, even if the indirect acquisition of control of SEAMEC by Technip was a fall out of the global acquisition of Coflexip, it squarely falls within the definition of acquisition as provided under the Explanation to regulations 10 & 11.
In view of the above, on acquisition of 98.36 % shares of Coflexip through open offer in July 2001, Technip admittedly acquired control over Coflexip which has resulted in Technip indirectly acquiring 58.24% in SEAMEC. Thus, Technip was under an obligation to make a public announcement to acquire shares of SEAMEC, in accordance with the said Regulations. Technip has requested that the said transaction be exempted for the reasons as stated in paragraphs hereinbefore.
10.1.2 In this regard, Technip has pleaded that there has been no change at any time in the Board of Directors or shareholding of SEAMEC and there is no change in control over Stena . To consider this argument, it would be relevant to refer here to the regulation 2(1)(c) and regulation 12.
regulation 2(1)(c) states that -
"2 (1) (c), Unless the context otherwise requires:-
"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; "
Further, regulation 12 lays down that -
"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."
From the reading of the aforesaid provisions of the said Regulations, it is clear that an acquirer acquires control inter alia, on acquiring the right to appoint the majority of directors of the company. In the instant case, it is observed that on acquisition of 98.36% of shares of Coflexip, Technip acquired 58.24% shares of SEAMEC and by virtue of acquisition of such shareholding Technip also acquired the right to appoint majority of directors on the Board of SEAMEC.
Technip has submitted that there has been no change at any time in the Board of Directors or shareholding of SEAMEC. In this context, it may be mentioned that what is material is that Technip has, consequent to its acquisition of 98.36% shares and control over Coflexip, has a right to appoint majority of directors on the Board of SEAMEC, although Technip may not have exercised its right to appoint directors on the Board of SEAMEC. Thus Technip has, in terms of regulation 2(1)(c) read with regulation 12, acquired control over SEAMEC.
10.1.3 In this regard, I have also noted the submission of Technip that the assets/profits/revenue of SEAMEC formed an insignificant part of the assets/profits/ revenue of Coflexip and that Technip has at no time carried out any due diligence in respect of the affairs of SEAMEC. It has also been stated that if a public offer is made for 20% of the shares of SEAMEC under the said Regulations, the holding of the public in SEAMEC would be reduced to 22% which is not in the public interest. Further, it may be mentioned that the global acquisition is beneficial to the interests of Indian shareholders and as a result of the aforesaid acquisition, the shareholders of SEAMEC are not adversely affected which is clear from the fact that post October 2001 (when the global acquisition was completed), the price of the shares of SEAMEC on The National Stock Exchange has significantly risen from Rs.44.45 (which was the prevailing price of 1st October, 2001) to Rs.102.55 i.e. the price on 31st.May,2002, i.e an increase of over 130%.
It may be mentioned that exemption from making a public announcement, under the said Regulations has to be considered taking into account entirety of facts in each case. Further, while considering the aforesaid facts, the interests of the shareholders in terms of providing exit opportunity to the shareholders of the Target company has also to be kept in mind.
In this regard it may be mentioned that the fact that the assets/profits/ revenue of SEAMEC formed an insignificant part of the assets/profits/ revenue of Coflexip and that Technip has at no point of time carried out any due diligence in respect of the affairs of SEAMEC has to be considered in conjunction with the other relevant facts and also the interest of the shareholders of SEAMEC in terms of providing an adequate exit opportunity to them. It is an admitted fact that Technip has acquired shares and control of SEAMEC pursuant to acquisition of shares of Coflexip and thus, triggered regulations 10 & 12 of the said Regulations and if exemption is granted to Technip, the shareholders of SEAMEC would be deprived of an exit opportunity. It would only be fair to provide such an opportunity to the shareholders of SEAMEC, in the light of acquisition of shares / control over SEAMEC by Technip.
Further, merely because post offer the holding of public in SEAMEC may get reduced to 22% cannot be a ground for seeking exemption. In this regard it would be pertinent to mention that the Bhagwati Committee Report on the basis of which the said Regulations have been framed, had also dealt with the issue of minimum public offer viz-a-viz public shareholding after the offer. The report mentions that - "Impossibility of performance on the basis that the public holding left would be low cannot be a ground for not making mandatory minimum offer to the shareholders, in a takeover situation." In fact, it has been duly considered and envisaged that even where the public shareholding after the offer were to fall below the minimum shareholding required for continuous listing, the public offer should be made. It is observed in the instant case that the public shareholding in SEAMEC is 42% and even after the public offer the same would admittedly be reduced to 22%, presuming the offer receives full acceptance. In the similar matter, in case of B.P. Plc. Foseco, where the public shareholding was 42%, SEBI had directed the acquirer to make a public offer. The said directions issued by SEBI have been upheld by Securities Appellate Tribunal, Mumbai (hereinafter referred to as "SAT"). SAT, in B.P. Plc (formerly B.P. Amoco) & Foseco Plc Vs. SEBI [30 of 2001] has observed that the exemption on this ground may not be available and the exemption is to be granted depending on the facts and circumstances of each case.
10.1.4 Technip has also submitted that it would not be permissible for Technip to make such a public offer, without the approval of the Reserve Bank of India and the Foreign Investment and Promotion Board of the Government of India.
In this regard, it will be relevant to refer to Clause (xvi) of regulation 16 and sub -regulation (12) of regulation 22 which read as under:-
Regulation 16 " The public announcement referred to in regulation 10 or 11 or 12 shall contain the following particulars, namely :-
.......
statutory approvals, if any, required to be obtained for the purpose of acquiring the shares under the Companies Act, 1956 (I of 1956), the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969), the Foreign Exchange Regulation Act, 1973 (46 of 1973), and / or any other applicable laws.
Regulation 22 (12) "The acquirer shall, within a period of 30 days from the date of the closure of the offer, complete all procedures relating to the offer including payment of consideration to the shareholders who have accepted the offer and for the purpose open a special account as provided under regulation 29.
Provided that where the acquirer is unable to make the payment to the shareholders who have accepted the offer before the said period of 30 days due to non-receipt of requisite statutory approvals, the Board may, if satisfied that non-receipt of requisite statutory approvals was not due to any wilful default or neglect of the acquirer or failure of the acquirer to diligently pursue the applications for such approvals, grant extension of time for the purpose, subject to the acquirer agreeing to pay interest to the shareholders for delay beyond 30 days, as may be specified by the Board from time to time. "
From the aforesaid it is clear that the Acquirer can make a Public Announcement conditional upon receipt of statutory approvals under regulation 16(xvi). The approval of the Reserve Bank of India and the Foreign Investment and Promotion Board of the Government of India, falls under statutory approvals and sub -regulation (12) of regulation 22 clarifies that offer can be made pending receipt of requisite statutory approvals and power has been vested in SEBI to grant extension of time for the purpose. Therefore, requirement of such statutory approval cannot be a ground for claiming exemption by Technip from making open offer.
It will also be pertinent to refer here to the judgment of Hon'ble Mumbai High Court in the case of B.P. Plc vs. Securities and Exchange Board of India being first appeal (no. 582 of 2001 in SEBI Appeal no. 11/2001 dated August 8, 2001), [2001] 34 SCL 469 (BOM) wherein it has held in a similar situation that " ..... the contention that regulatory approvals have to be obtained even prior to agreeing to acquire cannot be sustained. In fact in the public announcement it is always mentioned that the offer is subject to such regulatory approval. That is why in Regulation 27, it is mentioned that a public offer can be withdrawn if a required statutory approval is refused. Therefore, it is clear that a public offer can be made by a public announcement even before obtaining the required regulatory approval."
Thus, from the aforesaid it is clear that requirement of statutory approval cannot be a ground for claiming exemption by Technip from making open offer.
10.1.5 It is seen that Technip has, in support of its contentions, cited certain orders passed by SEBI wherein exemption was granted to the acquirers. In this regard it is stated that the background and the facts of the aforesaid cases were different from the background and facts of the instant case and therefore, the aforesaid orders are not relevant for the purposes of determining the grant of exemption to Technip.
10.1.6 It is also observed that Technip has filed an application seeking exemption from making public offer to the shareholders of SEAMEC on 26th June, 2002, whereas the provisions of the Regulations were triggered on 3rd July, 2001 when Technip had made an open offer to the shareholders of Coflexip in France, as dealt in detail in subsequent paragraphs. In this regard, it would be pertinent to refer to sub regulation (2) of regulation 4, which reads as under:
"For seeking exemption under Clause (l) of sub-regulation (1) of regulation 3, the acquirer shall file an application with the Board, giving details of the proposed acquisition and the grounds on which the exemption has been sought.
From the above provision, it is clear that it refers to an application with respect to "proposed acquisition". Therefore, an application for exemption has to be filed by an acquirer regarding the "proposed acquisition" before the said Regulations are triggered. In the instant case, it is observed that the application has been filed by the acquirer after triggering of the said Regulations on 3rd July, 2001. Further it is also noticed that the exemption application has been filed after a lapse of a period of 1 year approximately and that too after issuance of a show cause notice by SEBI in February, 2002.
10.1.7 In view of the reasons stated hereinabove and recommendations of the Panel I find that the application of Technip seeking exemption from the provisions of regulations 10 and 12 for acquisition of control over SEAMEC as a result of acquisition of 98.36% shares in Coflexip does not merit exemption.
10.2. In view of the above findings, it needs to be considered when were the provisions of the said Regulations triggered and when was Technip obliged to make a public announcement?
Before dealing with the above issue, it will be relevant to advert to the relevant provisions of the said Regulations which are as under :-
Regulation 14 (Timing of the public announcement of offer) Regulation 14(1) : "The public announcement referred to in Regulation 10 or Regulation 11 shall be made by the merchant banker not later than four working days of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein".
Regulation 14(3) : "The public announcement referred to in Regulation 12 shall be made by the merchant banker not later than four working days after any such change or changes are decided to be made as would result in the acquisition of control over the target company by the acquirer".
In this regard, from the submissions made by Technip vide its letters dated 24th May, 2002, and submissions made during the hearing on 10/8/02 and documents available on record, it is observed that Technip through an open offer in France, on 3rd July, 2001 acquired shares of Coflexip which increased its shareholding to 98.36% in Coflexip. Pursuant to the open offer, Technip gained control over Coflexip and indirectly acquired control over SEAMEC. The said offer made to the shareholders of Coflexip in France opened on 03.07.01 and was closed on 28.09.01 and the result of which was officially announced on 11.10.01. On 19. 10.01 the physical registration of the shares was completed. SEAMEC vide their letter dated 22.10.2001 informed the Calcutta Stock Exchange that Technip of France have acquired majority ownership of Coflexip which indirectly holds 58.24% shares in the equity capital of SEAMEC.
From the aforesaid it is clear that admittedly the offer was made by Technip to the shareholders of Coflexip in France on 3/7/2001 for the acquisition of entire balance shares of Coflexip and Technip was fully aware that the same would result in acquisition of substantial shares/voting rights to the extent of 58.24% and control over SEAMEC.
In view of the said offer to the shareholders of Coflexip in France, the provisions of the said Regulations got triggered on 3/7/2001 since in terms of regulations14(1) and 14(3) the public announcement has to be made by the Acquirer within 4 working days of taking any decision which would result in change in control of the Target company. Accordingly, once the said Regulations have been triggered the Technip is under an obligation, to make a public announcement in terms of the Regulations.
In this regard, it would be relevant to refer to the observation of the Hon'ble Mumbai High Court in B.P. Plc case that " Even Regulation 12, mentions in categorical terms as "no Acquirer shall acquire control over the Target company unless such person makes a public announcement to acquire shares and acquires such shares".
Therefore what is contemplated is that a public announcement must precede any acquisition of shares and only thereafter a person can acquire shares. Any other interpretation would render public announcement superfluous and the objectives sought to be achieved would be lost.
This is all the more abundantly clear from Regulation 14(3) which mentions about the necessity of public announcement when "any such change or changes are decided to be made as would result in the acquisition of control over the Target company by the Acquirer". That is to say, when any such change is decided to be made, the same would result in acquisition or control, then public announcement will have to be made. Therefore, once a decision is taken, which would result in acquisition or control, then public announcement must precede such acquisition or control. That is the decision to later on result in acquisition or taking control."
Thus when Technip, in the instant case ,made a public offer on 3/7/2001 , to the shareholders of Coflexip in France , to acquire the entire balance shares of Coflexip , the same led to indirect acquisition of shares/voting rights and control over SEAMEC. Therefore , the obligation to make Public Announcement arose on 3/7/2001 when public offer to the shareholders of Coflexip was made in France. The said public announcement was to be made within four working days of 3/7/2001.
In compliance with the Regulations the Public announcement should have been made within 4 working days of 03.07.01 the date when the open offer was made in France to the shareholders of Coflexip. However, no such public announcement was made.
Thus, the relevant date of triggering the code is 03.07.01 i.e. when the offer was made, by Technip in France to acquire the entire shareholding of Coflexip.
11.0 CONCLUSION In view of the aforesaid, I find that the Technip, ISIS and IFP were not acting in concert for the purpose of acquiring shares/voting rights in Coflexip when Technip acquired 29.68% shares of Coflexip from Stena on 12/4/2000 and hence does not appear to be in violation of Regulations by Technip on 12/4/2000.
Further I also find that Technip has violated regulations 10 and 12 read with sub-regulations (1) and (3) of regulation 14, when Technip through an open offer acquired shares of Coflexip increasing its holding to 98.36% shares in Coflexip. Pursuant to the open offer Technip gained control over Coflexip and SEAMEC as Technip has acquired 58.24% shares/voting rights and control in SEAMEC, without making public announcement to acquire shares/voting rights or control of SEAMEC in accordance with the said Regulations 12.0 ORDER 12.1 In view of the findings made above, in exercise of the powers conferred upon me under sub-section (3) of Section 4 read with Section 11B SEBI Act 1992 read with regulations 44 and 45 of the said Regulations, I hereby direct the Acquirer to make public announcement as required under Chapter III of the Regulations in terms of regulations 10 & 12. The reference date for calculation of offer price shall be taken as 3/7/01. The public announcement shall be made within 45 days of passing of this order.
12.2 Further, in terms of sub-regulation (12) of regulation 22, the payment of consideration to the shareholders of SEAMEC has to be made within 30 days of the closure of the offer. The maximum time period provided in the said Regulations for completing the offer formalities in respect of an open offer is 120 days from the date of public announcement. The public announcement in the instant case ought to have been made taking 3/7/01 as the reference date and thus the entire offer process should have been completed latest by 31/10/01. Since no public announcement for acquisition of shares of SEAMEC has been made, which has adversely affected the interest of shareholders of SEAMEC, it would be just and equitable to direct Technip to pay interest @ 15% per annum on the offer price. Technip is hereby accordingly directed to pay interest @ 15% per annum to the shareholders for the loss of interest caused to the shareholders of SEAMEC from 1/11/01 till the date of actual payment of consideration for the shares to be tendered and accepted in the offer to be made by Technip.
12.3 his order shall come into force with immediate effect.