Update on Delisting of Fresenius Kabi Oncology Limited

[The following post
is contributed by Yogesh Chande, who
is a Consultant with Economic Laws Practice, Advocates & Solicitors. Views
of the author are personal]
On 22 July 2013, the SEBI whole
time member passed an order in relation to the proposed voluntary delisting of
Fresenius Kabi Oncology Limited (Target Company) by its promoters in
accordance with the SEBI (Delisting of Equity Shares) Regulations, 2009 (Delisting
). This order was discussed in a previous
Now, the Securities Appellate
Tribunal (SAT) by its order
dated 10 September 2013 has allowed an appeal by the Target Company to the
extent that it may go ahead with the delisting offer without the condition
imposed by SEBI regarding compliance with Regulation 17(b)[1]
of the Delisting Regulations.
While relying upon a judgment of
the Hon’ble Delhi High Court, SAT also mentioned that though section 11(2) of
the SEBI Act, 1992 casts a duty of protecting the investor’s interests upon
SEBI while granting it wide powers, however, wide powers granted to a public
authority cannot be construed as allowing it to amend the law on a case to case
SAT was of the view that the law
must operate uniformly to maintain its sanctity, and when Regulation 17(b) of
the Delisting Regulations categorically mentions that the current shareholding
of the promoter group ought to be taken into consideration while making a
delisting offer, there can be no question of SEBI specifying a different
criterion. The Target Company had contended that the order dated 22 July 2013 is
flawed as it imposes the condition on the promoter of taking its shareholding
up to 95% in keeping with Regulation 17 of the Delisting Regulation, when the
actual position in law is that, based on the current shareholding of the
promoter in the Target Company i.e., 81%, the promoter should only be required
to take it up to 90.50% [and not 95%].
The concluding paragraph of the
order of SAT states that SEBI is, however, at liberty to investigate the
complaints made by investors against the Target Company and take necessary
action as per law, if so advised. It may be noted that, in the original
, it was also pointed out that the order dated 22 July 2013 did not appear
to contain any directive to investigate the allegations, which SAT has taken
into consideration in paragraph 22 of its order.
SAT, while allowing the appeal,
has also taken into consideration the fact that no documents were brought on
record by SEBI to lend any credibility to the accusations i.e. that the
investors who bought the 9% shareholding in the OFS might have acted in
collusion with the Target Company so as to sell those shares off when the
delisting offer is made and ensure the successful completion of the delisting
The concluding paragraph of the
SAT order also states that, in an eventuality of the investigation being conducted
by SEBI into the complaints, SEBI is expected to act and take a decision
expeditiously after investigating the complaints in question so that the Target
Company is not put to unnecessary delay.
Though the SAT order has now
permitted delisting of the Target Company without the condition imposed by SEBI[3]
regarding compliance with Regulation 17(b) of the Delisting Regulations, the
purpose of the order dated 22 July 2013 imposing the said condition was in view
of the complaints received by SEBI from investors [not investigated prior to
passing the said order] alleging that the entities who purchased shares in the
OFS may have participated in the OFS with an intent to subsequently tender
their shares at an artificial price in the bids for the delisting offer, which
will be in collusion with the promoters of the target company, and thus enable
the promoters to successfully delist the target company.
The words “…..so that the Target Company is not put to unnecessary delay” in
the concluding paragraph of the SAT order seems to suggest that, the delisting
offer can be launched only subject to the outcome of the investigation of the
said complaints by SEBI.

– Yogesh Chande

[1] Dealing with the minimum number of equity shares to be
acquired by the promoter for a delisting to be considered successful
[2] Paragraph 22 of the SAT order
[3] The pre-OFS promoter shareholding [90% and not 81%] be
considered for computing the percentages under regulation 17

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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