A three-Judge bench of the Supreme Court has delivered its judgment (per Aftab Alam J.) in Daiichi Sankyo v. Chigurupati and Daiichi Sankyo v. Narayanan (Civil Appeal No. 7148/2009 and Civil Appeal No. 7314/2009, judgment dated 8 July, 2010); where the Supreme Court has in a common judgment allowed appeals against orders of the SAT in cases involving interpretation of the Takeover Regulations. While the Supreme Court judgment is likely to be discussed in detail subsequently on this blog; in this post, I will briefly summarise some of the legal principles laid down by the Court.
The facts of the matter were admitted by all parties; and have been discussed in previous posts on this blog, which had debated the correctness of the orders of the SAT . The Court resolved the controversy between the parties by focussing on the interpretation of the term ‘persons acting in concert’ under the Regulations. The Court held, inter alia:
1. The concept of ‘persons acting in concert’ under Regulation 2(e)(1) is based on a target company on one side, and two or more persons acting together with a common objective or purpose of substantial acquisition of shares etc. on the other. Without there being a target company, the concept of ‘persons acting in concert’ is meaningless – it would be as irrelevant “as a cheat with no one as a victim of his deception”.
2. As long as there is no shared objective of substantial acquisition of shares of a target company, there can be no question of persons acting in concert. Without there being such a common objective, the concept is again meaningless – it would be tantamount to being as meaningless as “criminal conspiracy without any agreement to commit a criminal offence”. ‘Persons acting in concert’ is not something which happens fortuitously or by accident or chance; it happens only be design.
3. Thus, for the concept of ‘persons acting in concert’ to be relevant, there must (a) be a target company, and (b) the persons must be acting with the shared common objective or purpose of substantial acquisition of shares in that target company.
4. The deeming provision of of Regulation 2(e)(2) does not do away with any of these two elements. Regulation 2(e)(2) is not a provision independent of Regulation 2(e)(1); but the two must be read together. The deeming provision will have effect in cases where a company or its holding company “makes or agrees to make a move for substantial acquisition of shares etc. of a certain target company.” In such cases, “it would be presumed that the move is in pursuance of a common objective and purpose jointly shared by the holding company and the subsidiary company.”
5. But the mere fact that two companies are in a holding-subsidiary relationship would not mean, without anything more, that the two companies are ‘persons acting in concert’.
6. Furthermore, Regulation 2(e)(2) does not create any stand-alone test; it merely creates a rebuttable presumption. This presumption does not operate retrospectively; it applies only from the date two or more persons come together in one of the relationships specified; and does not date back.
7. For the application of Regulation 20(4)(b), it is not relevant or material that the acquirer and the other person, who had acquired the shares of the target company on an earlier date, should be acting in concert at the time of the public announcement for the target company. The relevant time is the time of purchase of shares of the target company. The interpretation of Regulation 20(4) is not affected by Regulation 20(12).
Note: I would like to thank Mr. Karan Lahiri, Advocate, New Delhi for providing me with a copy of the judgment
No thanks required Mihir. There is one thing which I think I must point out about the judgment. It is strange that, in discussing the arguments of the respective senior counsels, Mr. Arvind Datar's contentions were completely forgotten. Personally, I believe that Mr. Datar's efforts in bringing clarity to the content of the regulations themselves, especially qua the relationship between Regulation 20(4) and 20(12) was a major turning point in the matter.