Background and Facts
Last month, the Supreme Court had
the occasion in SEBI v. Akshya Infrastructure Pvt. Ltd.
to consider the narrow question of the whether “an open offer voluntarily made
through a Public Announcement for purchase of shares of the target company can
be permitted to be withdrawn at a time when the voluntary open offer has become
uneconomical to be performed”, which it answered in the negative.
the occasion in SEBI v. Akshya Infrastructure Pvt. Ltd.
to consider the narrow question of the whether “an open offer voluntarily made
through a Public Announcement for purchase of shares of the target company can
be permitted to be withdrawn at a time when the voluntary open offer has become
uneconomical to be performed”, which it answered in the negative.
The brief facts of the case are
that Akshya Infrastructure, which is part of the promoter group of MARG Limited
(the target company), made certain acquisitions of further shares in the target
between 2006 and 2011 that caused it to breach the creeping acquisition limits
under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
1997 (the Takeover Regulations). Subsequently, on October 20, 2011,[1] Akshya
made a voluntary open offer under
Reg. 11 of the Takeover Regulations at a price of Rs. 91 per share, which
represented a 10% premium over the prescribed floor price. Upon making the
public announcement, Akshya filed the draft public offer document with SEBI for
its comments. There was an exchange of correspondence that ensued between SEBI
and Akshya that primarily related to Akshya’s prior trigger of the mandatory
offer requirements due to its breach of the creeping acquisition limits. Due to
this, there had been a delay of 13 months in SEBI’s clearance of the offer
documents. After comments were conveyed by SEBI on November 30, 2012, Akshya
challenged them before the Securities Appellate Tribunal (SAT), including on the
ground that the delay in SEBI’s response rendered the offer unviable and
academic. By its order, the SAT allowed Akshya’s appeal and allowed it to
withdraw the open offer and the escrow amount deposited in support thereof.
that Akshya Infrastructure, which is part of the promoter group of MARG Limited
(the target company), made certain acquisitions of further shares in the target
between 2006 and 2011 that caused it to breach the creeping acquisition limits
under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
1997 (the Takeover Regulations). Subsequently, on October 20, 2011,[1] Akshya
made a voluntary open offer under
Reg. 11 of the Takeover Regulations at a price of Rs. 91 per share, which
represented a 10% premium over the prescribed floor price. Upon making the
public announcement, Akshya filed the draft public offer document with SEBI for
its comments. There was an exchange of correspondence that ensued between SEBI
and Akshya that primarily related to Akshya’s prior trigger of the mandatory
offer requirements due to its breach of the creeping acquisition limits. Due to
this, there had been a delay of 13 months in SEBI’s clearance of the offer
documents. After comments were conveyed by SEBI on November 30, 2012, Akshya
challenged them before the Securities Appellate Tribunal (SAT), including on the
ground that the delay in SEBI’s response rendered the offer unviable and
academic. By its order, the SAT allowed Akshya’s appeal and allowed it to
withdraw the open offer and the escrow amount deposited in support thereof.
It is against the decision of the
SAT that SEBI preferred an appeal to the Supreme Court. On appeal, the Supreme
Court reversed the order of the SAT and disallowed Akshya from withdrawing its
open offer, thereby once again upholding the sanctity of an open offer made
under the Takeover Regulation.[2]
SAT that SEBI preferred an appeal to the Supreme Court. On appeal, the Supreme
Court reversed the order of the SAT and disallowed Akshya from withdrawing its
open offer, thereby once again upholding the sanctity of an open offer made
under the Takeover Regulation.[2]
Issues and Ruling
In arriving at its conclusion, the
Supreme Court considered several issues pertaining the Takeover Regulations,
with the key among them discussed below:
Supreme Court considered several issues pertaining the Takeover Regulations,
with the key among them discussed below:
Voluntary
vs. Mandatory Offer
vs. Mandatory Offer
Akshya contended that Reg. 27 of the
Takeover Regulations that deals with withdrawal of a takeover offer (and which
was subjected to a restrictive interpretation of by the Supreme Court in the Nirma Case as discussed here)
applies only to mandatory offers and not to voluntary offers. The Supreme Court
did not accept this contention because it amounts to “reconstructing” the said
provision, which refers to “public offer” without expressly restricting it to
mandatory offers. In that sense, there “can be no distinction between a triggered public offer and a voluntary public offer”.
Takeover Regulations that deals with withdrawal of a takeover offer (and which
was subjected to a restrictive interpretation of by the Supreme Court in the Nirma Case as discussed here)
applies only to mandatory offers and not to voluntary offers. The Supreme Court
did not accept this contention because it amounts to “reconstructing” the said
provision, which refers to “public offer” without expressly restricting it to
mandatory offers. In that sense, there “can be no distinction between a triggered public offer and a voluntary public offer”.
Applicablity
of Nirma Industries
of Nirma Industries
Akshya also raised the argument
that Nirma Industries is inapplicable
to the present case (also due to the nature of the offer as discussed above),
and also that the decision of the Supreme Court in that case itself requires
reconsideration. However, the Supreme Court refused to accept the argument and
relied extensively on the ruling in Nirma
Industries to interpret Reg. 27 again in a restricted manner so as to limit
the circumstances in which with an open offer, once made, can be withdrawn. The
court did not find that the present case fit within the circumstances that
deserved permission for a withdrawal.
that Nirma Industries is inapplicable
to the present case (also due to the nature of the offer as discussed above),
and also that the decision of the Supreme Court in that case itself requires
reconsideration. However, the Supreme Court refused to accept the argument and
relied extensively on the ruling in Nirma
Industries to interpret Reg. 27 again in a restricted manner so as to limit
the circumstances in which with an open offer, once made, can be withdrawn. The
court did not find that the present case fit within the circumstances that
deserved permission for a withdrawal.
Delay
in SEBI’s Response
in SEBI’s Response
Akshya’s main plank of argument was
that the delay in the open offer (that in the end made it uneconomical) was
caused by SEBI, and hence SEBI cannot enforce the offer obligations. The
Supreme Court adopted a rather balanced approach in dealing with the delay
argument. While it came down heavily on SEBI for the cause of the delay, it was
found that such delay by itself was insufficient as a justification to allow
Akshya to withdraw the offer, and that the delay “will not result in nullifying
the action taken by SEBI, even though belated”.
that the delay in the open offer (that in the end made it uneconomical) was
caused by SEBI, and hence SEBI cannot enforce the offer obligations. The
Supreme Court adopted a rather balanced approach in dealing with the delay
argument. While it came down heavily on SEBI for the cause of the delay, it was
found that such delay by itself was insufficient as a justification to allow
Akshya to withdraw the offer, and that the delay “will not result in nullifying
the action taken by SEBI, even though belated”.
Analysis
The decision of the Supreme Court
is significant in as much as it reiterates the sanctity of a takeover offer,
and considerably limits the circumstances when an offeror can renege on its
obligations. By refusing to deviate from its previous ruling in Nirma Industries, it has introduced
clarity and certainty on the matter. This recognises the fact that open offers
are made for the benefit of the shareholders of the target, and hence they must
be pursued to their logical conclusion without any hindrances.
is significant in as much as it reiterates the sanctity of a takeover offer,
and considerably limits the circumstances when an offeror can renege on its
obligations. By refusing to deviate from its previous ruling in Nirma Industries, it has introduced
clarity and certainty on the matter. This recognises the fact that open offers
are made for the benefit of the shareholders of the target, and hence they must
be pursued to their logical conclusion without any hindrances.
From a takeover structuring
perspective, however, it considerably enhances the risk to the offeror. Hence,
the offeror must be committed to the offer, and must be convinced as to the
commercial viability of the offer and be prepared to accept the risk of intervening
events, changes in business, in the economic environment and other factors,
unless they are elevated to the extent recognised in Reg. 27 of the Takeover
Regulations (and Reg. 23 of the present version of the Takeover Regulations of
2011). This imposes a significant onus on offerors. At is does not matter
whether the offer is voluntary or mandatory – both stand on the same footing.
It is not as if the voluntary nature
of the offer will provide any leeway to the offer. Once the offer is made, the
offeror effectively reaches a point of no return.
perspective, however, it considerably enhances the risk to the offeror. Hence,
the offeror must be committed to the offer, and must be convinced as to the
commercial viability of the offer and be prepared to accept the risk of intervening
events, changes in business, in the economic environment and other factors,
unless they are elevated to the extent recognised in Reg. 27 of the Takeover
Regulations (and Reg. 23 of the present version of the Takeover Regulations of
2011). This imposes a significant onus on offerors. At is does not matter
whether the offer is voluntary or mandatory – both stand on the same footing.
It is not as if the voluntary nature
of the offer will provide any leeway to the offer. Once the offer is made, the
offeror effectively reaches a point of no return.
While the delay on the part of SEBI
was not permitted to be used by the offeror in this case as an excuse to
withdraw the offer, the Supreme Court’s observations on delays in the
regulatory oversight of takeovers are relevant and seem to make a larger point:
was not permitted to be used by the offeror in this case as an excuse to
withdraw the offer, the Supreme Court’s observations on delays in the
regulatory oversight of takeovers are relevant and seem to make a larger point:
It is a matter of
record that the comments were not offered for 13 months. Such kind of delay is
wholly inexcusable and needs to be avoided. It can lead to avoidable
controversy with regard to whether such belated action is bona fide exercise of
statutory power by SEBI. By adopting such a lackadaisical, if not callous
attitude, the very object for which the regulations have been framed is
diluted, if not frustrated. It must be remembered that SEBI is the watchdog of the Securities Market. It is
the guardian of the interest of the shareholders. It is the protective shield
against unscrupulous practices in the Securities Market. Therefore, SEBI like
any other body, which is established as a watchdog,
ought not to act in a lackadaisical manner in the performance of its duties.
The time frame stipulated by the Act and the Takeover Regulations for
performing certain functions is required to be maintained to establish the
transparency in the functioning of SEBI.
record that the comments were not offered for 13 months. Such kind of delay is
wholly inexcusable and needs to be avoided. It can lead to avoidable
controversy with regard to whether such belated action is bona fide exercise of
statutory power by SEBI. By adopting such a lackadaisical, if not callous
attitude, the very object for which the regulations have been framed is
diluted, if not frustrated. It must be remembered that SEBI is the watchdog of the Securities Market. It is
the guardian of the interest of the shareholders. It is the protective shield
against unscrupulous practices in the Securities Market. Therefore, SEBI like
any other body, which is established as a watchdog,
ought not to act in a lackadaisical manner in the performance of its duties.
The time frame stipulated by the Act and the Takeover Regulations for
performing certain functions is required to be maintained to establish the
transparency in the functioning of SEBI.
As
these observations of the Supreme Court reemphasize, time is of the essence in
takeovers. Nevertheless, there have been several instances whereby takeover
offers have opened several months after the draft offer document has been filed
with SEBI, often due to disagreements between the offeror and the regulator. In
the process, it is the offeree shareholders who suffer. It is with this in mind
that regulators in other jurisdictions such as the UK and Singapore (with the Takeover
Panel and the Securities Industry Council (SIC) respectively) follow a more
informal approach towards takeover regulation whereby the regulators adopt a
more practical attitude to ensure efficiency and timely progress of the
takeover offer. Similarly, it would augur well for takeover offers in India to
be completed within a tight timeframe from their announcement, without any
delays, particularly from the regulatory standpoint.
these observations of the Supreme Court reemphasize, time is of the essence in
takeovers. Nevertheless, there have been several instances whereby takeover
offers have opened several months after the draft offer document has been filed
with SEBI, often due to disagreements between the offeror and the regulator. In
the process, it is the offeree shareholders who suffer. It is with this in mind
that regulators in other jurisdictions such as the UK and Singapore (with the Takeover
Panel and the Securities Industry Council (SIC) respectively) follow a more
informal approach towards takeover regulation whereby the regulators adopt a
more practical attitude to ensure efficiency and timely progress of the
takeover offer. Similarly, it would augur well for takeover offers in India to
be completed within a tight timeframe from their announcement, without any
delays, particularly from the regulatory standpoint.
[1]
Note that the offer was made immediately prior to the effectiveness of the SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011, and hence
the previous SEBI Takeover Regulations 1997 apply to the facts of this case.
Note that the offer was made immediately prior to the effectiveness of the SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011, and hence
the previous SEBI Takeover Regulations 1997 apply to the facts of this case.
[2]
The Supreme Court adopted a similar approach last year in Nirma Industries Limited v. SEBI.
The Supreme Court adopted a similar approach last year in Nirma Industries Limited v. SEBI.