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iv)Has Acquirer acquired substantial shareholding / control over the target company in contravention of the said regulation. If so, when did the obligation on the part of the Acquirer arise, to make public announcement ?

11. CONSIDERATION OF ISSUES 11.1. Whether the Acquirer intended/decided to acquire shares/voting rights/control over the Target company pursuant to the Draft Stock Purchase Agreement dated 21.11.97 ?

It has been contended by the Acquirer that SEBI had considered all the agreements while declining exemption vide its order dated 09.09.98 and had held that the Acquirer would be required to "make public offer as required under the Regulations if they are desirous of acquiring the proposed equity capital of the Target company". Consequently, the Acquirer had not acted upon the draft Stock Purchase Agreement entered into with Hoechst on 21.11.97. Further, SEBI had for the past 3 - 4 years never alleged that the 1997 umbrella agreement or the November 1997 draft Share Purchase Agreement was a concluded / binding agreement to acquire shares / control which triggered the regulations and only in February 2002 it is contended / alleged for the first time after a lapse of 4 years that in November 1997 the provisions of regulations 10 & 12 had been triggered. It is also contended by the Acquirer that it is not open for SEBI, which had been apprised of all facts / documents in 1997 itself, to allege in February 2002 that a public announcement was required to be made in November 1997.

Thus, in view of the aforesaid, it is clear that EBITO was in fact a subsidiary of the Acquirer by virtue of management control being with them although EBITO was apparently shown to be a subsidiary of Hoechst by virtue of its 51% shareholding i.e. marginally higher shareholding than that of the Acquirer i.e. 49% shareholding in EBITO.

The Acquirer has also contended that it had not acted upon the draft stock purchase agreement entered into on 21.11.97. It is observed from the disclosures above referred to, that the Acquirer was in a position to control the management or policy decisions of the Target company although it may not have acquired the voting rights held by Hoechst in the Target company. Had it not been so, the Acquirer would not have included the Target company as part of its group and also in the consolidation of the financial statements. Thus, the intention of the Acquirer to acquire the substantial shareholding of the Target company was continuing since the date of entering into agreement dated 21.11.97 with Hoechst for acquisition of the shares of the Target company. In fact the Acquirer was already controlling the target company and only a formal shape was to be given to the acquisition of shareholding / control of the Target company. The aforesaid de facto control was given the formal shape by the subsequent formation of EBITO by both the buyer (the Acquirer) and the seller (Hoechst) and the transfer of shares of the Target company by the seller (Hoechst) to the EBITO and then reduction in capital and increase in capital of EBITO resulting in the Acquirer becoming the holding company of EBITO and ultimately the Target Company. That is, the Acquirer attempted and achieved indirectly, what it could not achieve directly.

From the above, it is seen that the consideration received by Hoechst for having sold its shares held in the Target company was nothing but its own money.

Further, after restructuring EBITO becoming 100% subsidiary of the Acquirer, the Acquirer automatically acquired the shares/voting rights in the Target company. At the time of restructuring the Acquirer did not appear to have paid any consideration to Hoechst for its 51% shares in EBITO, which EBITO cancelled / deleted and reissued in the Acquirer's name. From the same it appears that Hoechst had sold its shareholding/controlling stake in the Target company to the Acquirer (through EBITO ) without receiving any consideration. The Acquirer therefore, appears to have acquired the 50.1% voting rights in the Target company without any consideration.

In view of the above, the contention of the Acquirer that SEBI cannot deny / disallow an exemption expressly available under the statutory takeover regulations by alleging that such scheme was undertaken to circumvent the provisions of regulations, is not tenable, as the subsequent floating of EBITO and restructuring etc, was nothing but an effort by the Acquirer to formalize the acquisition of shareholding/control over the Target company which it had already acquired.

I have also noted the submissions of the Acquirer that the financial reorganization / arrangement or reconstruction undertaken by EBITO in February 2001 was not preconceived and was not undertaken to acquire the shares / control of the Target company and that it was a response to an unforeseen economic / financial events. In view of the reasons detailed hereinbefore the aforesaid contention of the Acquirer is not tenable.