Once a takeover offer is made, it is generally
treated as sacrosanct. It is extremely difficult for acquirers to withdraw from
the offer. This position has been clarified in a number of decisions of courts
and appellate tribunals, including the Supreme Court. We have previously
discussed the cases of Nirma
Industries v. Securities and Exchange Board of India (2013) and SEBI
v. Akshya Infrastructure Pvt. Ltd. (2014), both decided by the Supreme
Court, as well as Pramod
Jain v. Securities and Exchange Board of India (2014) that was decided
by the Securities Appellate Tribunal (SAT). I do not propose to discuss the
facts and reasoning in those cases, as they are set out in detail in the earlier
posts. In any event, in all of these cases, SEBI’s refusal to permit a
withdrawal of the takeover offer was upheld. All of these cases were decided
under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations
1997 (the “1997 Regulations”).
treated as sacrosanct. It is extremely difficult for acquirers to withdraw from
the offer. This position has been clarified in a number of decisions of courts
and appellate tribunals, including the Supreme Court. We have previously
discussed the cases of Nirma
Industries v. Securities and Exchange Board of India (2013) and SEBI
v. Akshya Infrastructure Pvt. Ltd. (2014), both decided by the Supreme
Court, as well as Pramod
Jain v. Securities and Exchange Board of India (2014) that was decided
by the Securities Appellate Tribunal (SAT). I do not propose to discuss the
facts and reasoning in those cases, as they are set out in detail in the earlier
posts. In any event, in all of these cases, SEBI’s refusal to permit a
withdrawal of the takeover offer was upheld. All of these cases were decided
under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations
1997 (the “1997 Regulations”).
More immediately, a question arises as to whether
position changes in any significant way under the SEBI (Substantial Acquisition
of Shares and Takeovers) Regulations, 2011 (the “2011 Regulations”). Is there
likely to be a better chance for acquirers to withdraw offers once made? In a paper
last year, I had offered some predictions:
position changes in any significant way under the SEBI (Substantial Acquisition
of Shares and Takeovers) Regulations, 2011 (the “2011 Regulations”). Is there
likely to be a better chance for acquirers to withdraw offers once made? In a paper
last year, I had offered some predictions:
The position under the 2011 [Regulations]
has altered only marginally. A new ground has been added whereby the acquirer
can withdraw an offer if a condition that has been included in the agreement
that triggers the offer is not met for reasons beyond the reasonable. While
this enhances the ability of acquirers to design conditions (such as the MAC
clause) in a mandatory offer, the result is that both the offer as well as the
private arrangement (that triggered the offer) would fail if the condition were
not satisfied. Hence, while some leeway has been provided for mandatory offers,
the benefit will not be available to voluntary offers that would be subject to
the strict regime outlined by the Supreme Court.
has altered only marginally. A new ground has been added whereby the acquirer
can withdraw an offer if a condition that has been included in the agreement
that triggers the offer is not met for reasons beyond the reasonable. While
this enhances the ability of acquirers to design conditions (such as the MAC
clause) in a mandatory offer, the result is that both the offer as well as the
private arrangement (that triggered the offer) would fail if the condition were
not satisfied. Hence, while some leeway has been provided for mandatory offers,
the benefit will not be available to voluntary offers that would be subject to
the strict regime outlined by the Supreme Court.
The question and these predictions were tested in a SEBI
order issued earlier this week in the Matter
of Open Offer of Jyoti Limited. In what appears to be a hostile takeover
offer of sorts, on June 22, 2015 two acquirers made an offer to the shareholders
of Jyoti Limited (the target company) to acquire 75% shares of the company. The
target company then raised objections on account incorrect statements made by
the acquirers in the letter of offer, and stating that the company was the
subject matter of a reference to the Board for Industrial and Financial Reconstruction
(BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985. The
target company then approached the BIFR and obtained an order maintaining
status quo regarding the control of the company, which effectively put paid to
the takeover offer made by the acquirers. The BIFR’s order was upheld by the
appellate authority.
order issued earlier this week in the Matter
of Open Offer of Jyoti Limited. In what appears to be a hostile takeover
offer of sorts, on June 22, 2015 two acquirers made an offer to the shareholders
of Jyoti Limited (the target company) to acquire 75% shares of the company. The
target company then raised objections on account incorrect statements made by
the acquirers in the letter of offer, and stating that the company was the
subject matter of a reference to the Board for Industrial and Financial Reconstruction
(BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985. The
target company then approached the BIFR and obtained an order maintaining
status quo regarding the control of the company, which effectively put paid to
the takeover offer made by the acquirers. The BIFR’s order was upheld by the
appellate authority.
In these circumstances, and given their entanglement
with the lengthy process before the BIFR, the acquirers approached SEBI with a
request to withdraw the offer. The legal question before SEBI was: “Whether the
Open Offer made by the Acquirers can be allowed to be withdrawn in accordance with
Regulation 23(1) of the Takeover Regulations, 2011?” SEBI then went on to
interpret regulation 23(1) in the light of the Supreme Court decisions
mentioned above. In a nutshell, sub-regulations (a),(b) and (c) of regulation
23(1) provide for specific circumstances under which the offer can be
withdrawn, and sub-regulation (d) is broader and is attracted in “such
circumstances as in the opinion of [SEBI], merit withdrawal”. The key issue was
whether those decisions that were decided under the 1997 Regulations held good
under the 2011 Regulations. SEBI answered categorically in the affirmative. Its
key observations are as follows:
with the lengthy process before the BIFR, the acquirers approached SEBI with a
request to withdraw the offer. The legal question before SEBI was: “Whether the
Open Offer made by the Acquirers can be allowed to be withdrawn in accordance with
Regulation 23(1) of the Takeover Regulations, 2011?” SEBI then went on to
interpret regulation 23(1) in the light of the Supreme Court decisions
mentioned above. In a nutshell, sub-regulations (a),(b) and (c) of regulation
23(1) provide for specific circumstances under which the offer can be
withdrawn, and sub-regulation (d) is broader and is attracted in “such
circumstances as in the opinion of [SEBI], merit withdrawal”. The key issue was
whether those decisions that were decided under the 1997 Regulations held good
under the 2011 Regulations. SEBI answered categorically in the affirmative. Its
key observations are as follows:
4.5.6 As stated in the preceding
paragraph 4.5.2, the provisions of Regulation 23(1) of the Takeover
Regulations, 2011, are similar to the provisions of Regulation 27(1) of the
Takeover Regulations, 1997. Consequently, the ratio laid down by the Hon’ble
Supreme Court in the matters of Nirma
Industries Limited and Another vs. SEBI and SEBI v. Akshya Infrastructure Private Limited with respect to
Regulations 27(1) of the Takeover Regulations, 1997, are squarely applicable to
the provisions of Regulation 23(1) of the Takeover Regulations, 2011.
paragraph 4.5.2, the provisions of Regulation 23(1) of the Takeover
Regulations, 2011, are similar to the provisions of Regulation 27(1) of the
Takeover Regulations, 1997. Consequently, the ratio laid down by the Hon’ble
Supreme Court in the matters of Nirma
Industries Limited and Another vs. SEBI and SEBI v. Akshya Infrastructure Private Limited with respect to
Regulations 27(1) of the Takeover Regulations, 1997, are squarely applicable to
the provisions of Regulation 23(1) of the Takeover Regulations, 2011.
4.5.7 Placing reliance on the
observations of the Supreme Court in the aforementioned matters, I find that an
Open Offer once made under the Takeover Regulations, 2011, can only be
withdrawn under the provisions of Regulations 23(1)(a), (b), (c) and (d) of
such Regulations. Further, since withdrawal of the Open Offer in the instant
proceedings only attracts the provisions of Regulation 23(1)(d) of the Takeover
Regulations, 2011, the phrase ‘such circumstances’ under the said Regulation
has to be read in accordance with the conditions stipulated in Regulations
23(1)(a), (b) and (c) of the Takeover Regulations, 2011.
observations of the Supreme Court in the aforementioned matters, I find that an
Open Offer once made under the Takeover Regulations, 2011, can only be
withdrawn under the provisions of Regulations 23(1)(a), (b), (c) and (d) of
such Regulations. Further, since withdrawal of the Open Offer in the instant
proceedings only attracts the provisions of Regulation 23(1)(d) of the Takeover
Regulations, 2011, the phrase ‘such circumstances’ under the said Regulation
has to be read in accordance with the conditions stipulated in Regulations
23(1)(a), (b) and (c) of the Takeover Regulations, 2011.
Hence, the jurisprudence laid down under the 1997 Regulations
continues to apply to the 2011 Regulations, which do not permit much greater
leeway for acquirers to withdraw the offer.
continues to apply to the 2011 Regulations, which do not permit much greater
leeway for acquirers to withdraw the offer.
An additional factor relevant in SEBI’s order
relates to the interplay between the Takeover Regulations and the BIFR process
under SICA. Given that the BIFR’s order stalling the takeover was only an
interim one, which could possibly be lifted in the future, the completion of
the offer was not an impossibility. Further, by asking the acquirers to
approach the BIFR for their final decision, SEBI effectively lobbed the ball
back onto BIFR’s court.
relates to the interplay between the Takeover Regulations and the BIFR process
under SICA. Given that the BIFR’s order stalling the takeover was only an
interim one, which could possibly be lifted in the future, the completion of
the offer was not an impossibility. Further, by asking the acquirers to
approach the BIFR for their final decision, SEBI effectively lobbed the ball
back onto BIFR’s court.
OFFHAND
The discussion, mainly pivoted on case law, does not make any sense, should one bear in mind the implications of the fundamental principles enshrined in the age-old law on contracts INDIAN CONTRACT ACT.
Generally, for all practical- economic, commercial, whatever- purposes, any 'offer' is permissible to be withdrawn before its 'acceptance' by the other party. The point of doubt, – is that not a sacrosanct and well accepted principle, – be it under the contract law or common law- regardless of whether or not the offer in a given case is one as mandated by any other ‘law’ or ‘regulation’ ?
Open to being enlightened, in case eminent law pundits at large have rational, founded on objectively satisfying /convincing reasons, to believe and forcefully canvass a materially different view!