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Open Offer under Takeover Code once made, cannot be withdrawn without any proper justification

November 25, 2016

Open Offer under Takeover Code once made, cannot be withdrawn without any proper justification


Pramod Jain and Others (Appellant(s))


Securities Exchange Board of India. (Respondent(s))


Civil Appeal No. 9103 of 2014


Supreme Court of India

FACTS: Mr. Pramod Jain and Pranidhi Holdings Private Limited (‘Acquirers’) along with J.P. Financial Services Private Limited, person acting in concert (‘PAC’), (collectively referred as ‘Appellants’) collectively held 11,39,002 equity shares (6.47%) of the target company. Golden Tobacco Limited (the target company) is a company having its registered office at Tobacco House, S.V. Road, Vile Parle (West), Mumbai – 400 056. The equity shares of the target company are listed on the Bombay Stock Exchange Limited (BSE) and the National Stock Exchange of India Limited (NSE). Appellants made a Public Announcement (PA) through V C Corporate Advisors Private Limited (“Merchant Banker”) for acquiring 44,02,201 Equity Shares (25%) of Golden Tobacco Limited (“Target Company”) from its equity shareholders at a price of Rs. 101/-per share, on 12th November, 2009. The Draft Letter of Offer (DLO) was filed by Appellants with SEBI on 20th November, 2009. During examination of the DLO, certain complaints were received by SEBI against the acquirers and PAC as well as against the target company and its promoters. After PA, Appellants applied to SEBI for withdrawing the offer under the Takeover Code on 08th October, 2011. By giving reasons or justification that – “the SEBI had not taken any decision on the DLO in two years during which period the management of the target company had systematically siphoned off its coffers, depleted its valuable fixed assets and eroded its net worth substantially with the intention of making it a shell company” The SEBI vide order dated 13th April, 2012 declined to permit withdrawal of the PA but observed that alleged violation of Regulation 23 by the target company shall be investigated. It was held that as per Regulation 23(1), the target company was entitled to dispose of its assets with the approval of the shareholders even after the PA. DECISION The Court held that there is no justification for automatic withdrawal from public offer without clear prejudice to the acquirer to the extent of rendering the carrying out of public offer impossible. ORDER OF SECURITIES APPELLATE TRIBUNAL The Court observed that “though SEBI was not justified in causing delay in giving its comments on public offer for more than two years, this is not enough to justify withdrawal from public offer so long as the case does not fall under Regulation 27 of the Takeover Code which deals with withdrawal of public offer under certain circumstances.” The above view has been affirmed by the SAT in its impugned order (by majority). About the timeline stipulated in Regulation 18, it was observed that under the second proviso thereto, the SEBI could take time in making inquiry on a complaint and thereafter could call for a revised letter of offer with or without re-scheduling the date of opening or closing the offer. However, it was observed that in the present case, SEBI was wholly unjustified in taking more than 2 years for offering its comments on the letter of offer submitted by the appellants. This, however, did not constitute a ground to permit withdrawal of the PA. About the contention that the public offer was frustrated and became impossible of implementation on account of encumbering of the most valuable property of the target company in violation of Regulation 23 and other steps of the promoters making the target company a shell company, it was observed that the target company had taken decision to develop its Vile Parle property even before the PA. The court in this case has relied on its own ruling made in following cases:
  1. Nirma Industries Limited. Vs. SEBI, wherein it was held that under the Takeover Code, public offer once made cannot be withdrawn so as to deprive the shareholders of their valuable right to have exit option and also to ensure that public announcement is not made by way of speculation.
  2. SEBI Vs. Akshya Infrastructure Private Limited wherein it was held that SEBI is not justified in causing delay in dealing with issuance of its comments on a Letter of Offer, as delay can lead to controversy as to whether such belated action is bona fide exercise of statutory power, and that economic unavailability is no ground to justify prayer for withdrawal
The Court while accepting the undue delay on SEBI’s part in dealing with draft Letter of Offer, agreed with SEBI’s submission that it could not address the complaints as the appropriate forum was CLB.


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