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As already noticed above, the appellants had pledged their shares with the two banks as collateral security when Morepen availed the loan facilities. It is not in dispute that when Morepen made default in repayment of the loans, the pledges were invoked by the banks and the shares were transferred from the demat accounts of the appellants to the demat accounts of the banks and they were registered as beneficial owners in the records of the depository. When the loan account was settled, the banks transferred back the shares to the appellants by executing DIS. It is argued by the learned senior counsel for the appellants that the shares throughout remained under pledge even when they were transferred in the name of the banks on the invocation of the pledge and that the banks did not acquire those shares. The argument is that the appellants throughout remained the beneficial owners of the shares and that when they were transferred back to them by the banks there was no acquisition by them so as to attract the provisions of Regulations 7 and 11 of the takeover code. The learned senior counsel very strenuously argued that the relationship between the appellants and the banks even after the transfer of shares to the latter continued to be that of pledgor and pledgee and that the banks were throughout holding the shares as collateral security which were released on repayment/settlement of the loan. In support of his argument Shri Chaudhary relied upon the two letters dated December 13, 2004 and December 19, 2007 which have been reproduced hereinabove. He also placed reliance on a tripartite agreement dated August 9, 2006 between the appellants, Morepen and Lakshmi bank titled as extension of pledge. He referred to the contents of this agreement and clause 8 in particular which reads as under:

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4. To begin with, the shares were pledged with the two banks as collateral security for the loans taken by Morpen. Admittedly, the pledges were created as per the provisions of Regulation 58 of the Regulations reproduced hereinabove. The pledges were created and recorded in the records of the depository and the pledgors and the pledgees were informed of the entry of creation of the pledges through their participants. As long as the shares remained under pledge, the peldgors (the appellants) were their beneficial owners and the only effect of the pledge was that the shares under pledge could not be transferred any further or dealt with in the market without the concurrence of the pledgees i.e. the banks. The pledge by itself did not bring about any change in the beneficial ownership of the shares pledged and there was no question of the provisions of the takeover code being attracted. It was somewhere in the year 2004 that default was committed in the repayment of the loans as a result whereof the banks invoked the pledges and got the shares transferred from the demat accounts of the appellants (pledgors) to their own demat accounts. On such invocation, the depository cancelled the entry of pledge in its records and registered the banks as beneficial owners of the shares in its records and made the necessary amendments therein. The depository then immediately informed the participants of the pledgors and the pledgees of the change and the participants also recorded the necessary changes in their records. Upon the banks being recorded as beneficial owners of the shares in the records of the depository, they became members of the target company and they acquired not only the shares but also the voting rights attached thereto. But for the exemption granted to them under Regulation 3(1)(f)(iv) of the takeover code, they would have been required to comply with the provisions of Regulation 11(1) by making a public announcement to acquire further shares of the target company as envisaged therein. The shares acquired by the banks ceased to be the security for the loans as the banks had become the beneficial owners thereof. In December 2007, Morpen paid the entire loan amounts to the banks and settled the loan accounts. It was then that the banks issued a 'no dues certificate' to Morepen, the principal borrower and simultaneously executed DIS requiring their participants to debit their accounts and transfer the shares in the names of the appellants. Accordingly, the shares got transferred from the demat accounts of the banks to the demat accounts of the appellants in the records of the depository. On this transfer being made by the banks, the appellants acquired the shares and became their beneficial owners as their names were entered in the records of the depository. Admittedly, the shares which the appellants acquired in December 2007 were in excess of the threshold limit(s) prescribed by Regulation 11(1) of the takeover code and, therefore, the said regulation got triggered. The appellants were required to come out with a public announcement to acquire further shares of the target company as envisaged in this Regulation. This was not done. Not only this, the appellants having acquired the shares from the banks were also required to make the necessary disclosures in terms of Regulation 7 of the takeover code to the target company and the stock exchanges where the shares were listed. This, too, was not done. We are, therefore, satisfied that the provisions of Regulations 7 and 11(1) stood violated and the adjudicating officer was right in recording a finding to this effect. No fault can, thus, be found with the impugned order, in this regard.

5. The argument of the learned senior counsel that the letters dated December 13, 2004 and December 19, 2007 and the tripartite agreement executed on August 9, 2006 clearly indicate the intention of the parties that the shares were throughout held by the banks as collateral security notwithstanding the fact that they stood transferred in their names is not acceptable. Such an argument would mean circumventing the statutory provisions of the takeover code and Regulation 58 of the Regulations which cannot be permitted. The way we read these documents is that after the shares were transferred in the names of the banks on the invocation of the pledge, the parties agreed that the banks will transfer the shares back to the pledgors (appellants) upon the loan being repaid. It was open to the banks to transfer the shares to other parties and instead of doing that, they agreed to transfer the shares back to the appellants. This agreement will not override or circumvent the statutory provisions already referred to above and would only result in transfer of shares from the banks to the appellants. This transfer is altogether different from the transfer by which the shares came to the banks upon invocation of pledge and by no process of reasoning can it be said that the banks continued to hold the shares as collateral security which was returned to the appellants on the repayment of the loan.