Supreme Court Reinforces Sanctity of a Takeover Offer

what circumstances can a takeover offer, once made, be withdrawn? This issue
has occupied the attention of the Supreme Court in two previous cases,
Nirma Industries v.
Securities and Exchange Board of India
and Securities and Exchange Board of India v. Akshya Infrastructure Pvt. Ltd. In
these cases, the Supreme Court took a strict view and held that the acquirers
were not permitted to withdraw their offers (see discussion here
and here
respectively). Thereafter, in Pramod Jain v. Securities and Exchange Board
of India
, the Securities Appellate Tribunal (SAT) was constrained by
the Supreme Court rulings and refused to permit a withdrawal of an offer even
where there was a two-year delay in obtaining SEBI’s approval of the offer and
in the meantime the target’s promoters were alleged to have encumbered the most
valuable asset of the company and to have siphoned company funds (see
discussion here).
It recently came to my
attention that the SAT’s decision in Pramod
had been appealed to the Supreme Court, which issued its
verdict last November
. Unsurprisingly, the Supreme Court followed the same
line of reasoning in treating takeover offers as sacrosanct and did not permit
the acquirer to withdraw the offer, thereby confirming the ruling of SAT, and
the earlier ruling of the Securities and Exchange Board of India (SEBI). Legal
counsel for the acquirers (who the were appellants before the Supreme Court)
sought to distinguish Nirma Industries and
Akshya Infrastructure, primarily on
two grounds. First, there were significant delays at SEBI’s end (of nearly two
years) that made the offer economically unviable. The delays were as a result
of several complaints filed before SEBI against both the acquirer as well as
the target. Second, given that the acquirer had made a hostile offer for the
target, the target’s management had indulged in defensive tactics (such as by
siphoning the assets of the company). However, the Supreme Court did not accept
the reasoning provided by the acquirer.
The Court found it appropriate
to adhere to its decision and reasoning in the earlier two cases. Although it
agreed with the SAT’s finding that there was undue delay on the part of SEBI in
dealing with the offer, this by itself was not sufficient to merit a withdrawal
of the offer by the acquirer. Circumstances relating to the offer have been
specifically provided in the SEBI Takeover Regulations (in this case the
earlier version of 1997 applied), and the present case did not fall within any
of them. Moreover, the Supreme Court also observed that the consequence of any
wrongful conduct on the part of the target or its management is not an
automatic withdrawal of the offer, and that appropriate remedies are available
to the acquirer to pursue as an aggrieved party.

Disputes relating to takeover
regulations have on occasion found their way to the Supreme Court, which has
played the role of interpreting ambiguities in the regulations. As regards
withdrawal, regulation 27 of the SEBI Takeover Regulations of 1997 has been the
subject matter of three different decisions of the Supreme Court, as discussed
herein. All have been unanimous in circumscribing the ability of the acquirer
to withdraw the offer, thereby reinforcing the sanctity of takeover offers.
Given such a strict approach adopted by the Supreme Court, it is incumbent upon
SEBI to deal with and dispose of issues pertaining to takeover offers in a
timely manner.

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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