Full Judgment Text
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 361 OF 2007
SECURITIES & EXCHANGE BOARD
OF INDIA ...APPELLANT
VERSUS
BURREN ENERGY INDIA LTD.
& ORS. ...RESPONDENTS
JUDGMENT
RANJAN GOGOI, J.
1. The challenge in this appeal is to
an order of the learned Securities
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Appellate Tribunal, Mumbai (hereinafter
referred to as “the Tribunal”) reversing
the order of the Adjudicating Officer
th
dated 25 August, 2006 holding the
respondents guilty of contravening the
provisions of Regulation 22(7) of the
Securities and Exchange Board of India
(Substantial Acquisition of Shares and
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Takeovers) Regulations, 1997 (hereinafter
referred to as “the Regulations”). A
penalty of Rs.25 lakhs has been imposed on
each on the respondents herein for the
aforesaid violation. Aggrieved by the
aforesaid reversal, Securities & Exchange
Board of India (hereinafter referred to
as “SEBI”) is in appeal before us.
2. The relevant facts are not in
dispute. The first respondent herein –
Burren Energy India Ltd. (hereinafter
referred to as “Burren”) was incorporated
in December, 2004 under the laws of
England and Wales with its registered
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office in London. Burren was formed to
acquire the entire of the equity share
capital of one Unocal Bharat Limited
(hereinafter referred to as “UBL”),
incorporated in Mauritius in July, 1996.
The shares of the aforesaid UBL were
acquired in September, 1996 by one Unocal
International Corporation (for short
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“UIC”) incorporated in California in USA.
3. Admittedly, UBL did not carry out
any business activity but, at the relevant
time, held 26.01% of the issued share
capital of Hindustan Oil Exploration Co.
Ltd. (hereinafter referred to as “the
target company”).
4. Burren entered into a share
th
purchase agreement with UIC on 14
February, 2005 to acquire the entire
equity share capital of UBL. This
agreement was entered into in England and
by virtue thereof all the shares of UBL
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were registered in the name of Burren on
th
the same day itself i.e. 14 February,
2005. On account of this transformation
Burren came to hold 26.01% of the share
capital in the target company. As the
acquisition was beyond the stipulated 15%
of the equity share capital of the target
company the Regulations got attracted
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making it obligatory on the part of
Burren to make a public announcement in
accordance with the Regulations. Such
public announcement in the form of a
public offer for sale/purchase of 20% of
the shares of the target company at a
determined price of Rs.92.41 per fully
th
paid up equity share was made on 15
February, 2005 by Burren and UBL acting as
a person acting in concert.
th
5. On 14 February, 2005 i.e. date of
execution of the share purchase agreement
Burren appointed two of its Directors (Mr.
Finian O'Sullivan and Mr. Atul Gupta) on
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the board of UBL and on the same date UBL,
which is a person acting in concert with
Burren, appointed the same persons on the
board of directors of the target company.
This, according to SEBI, amounted
violation of Regulation 22(7) of the
Regulations inasmuch as the said
appointment was made during the offer
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period which had commenced on and from 14
February, 2005 i.e. date of execution of
the share purchase agreement.
6. To appreciate the issue the
provisions of Regulation 2(1)(f) of the
Regulations which defines 'offer period'
and Regulation 22(7) of the Regulations
alleged to have been violated by the
respondents may be extracted below:
“2(1)(f) “Offer period” means
the period between the date of
entering into Memorandum of
Understanding or the public
announcement, as the case may be
and the date of completion of
offer formalities relating to
the offer made under these
regulations”
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22. General obligations of the
acquirer.-(1)...................
(2) ............................
................................
(7) During the offer period, the
acquirer or persons acting in
concert with him shall not be
entitled to be appointed on the
Board of Directors of the target
company:
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Provided that in case of
acquisition of shares or voting
rights or control of a Public
Sector Undertaking pursuant to a
public announcement made under
the proviso to sub-regulation
(1) of Regulation 14, the
provisions of sub-regulation (8)
of Regulation 23 shall be
applicable:
Provided further that where
the acquirer, other than the
acquirer who has made an offer
under regulation 21A, after
assuming full acceptances, has
deposited in the escrow account
hundred per cent of the
consideration payable in cash
where the consideration payable
is in cash and in the form of
securities where the
consideration payable is by way
of issue, exchange or transfer
of securities or combination
thereof, he may be entitled to
be appointed on the Board of
Directors of the target company
after a period of twenty-one
days from the date of public
announcement.
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7. The Tribunal hearing the matter in
appeal took the view that under Regulation
2(1)(f) of the Regulations 'offer period'
is clearly defined as the period of time
between the date of entering into
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Memorandum of Understanding or the public
announcement, as the case may be, and the
date of completion of offer formalities.
The learned Tribunal was of the view that
when there was no ambiguity or uncertainty
in the provisions of the Regulations the
definition of 'offer period' has to be
literally interpreted. The learned
Tribunal went into the dictionary meaning
of the expression 'Memorandum of
Understanding' and went on to hold that
the same falls short of a concluded
contract. As there was no Memorandum of
Understanding between the parties it is
the date of public announcement that would
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trigger of the commencement of the 'offer
period'. As the appointment of the
Directors in the target company was made
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on 14 February, 2005 and the public
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announcement was made on 15 February,
2005 the learned Tribunal was of the view
that the respondents (appellants before
it) cannot be held liable for violating
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Regulation 22(7) of the Regulations, as
found by the Adjudicating Officer.
8. The main thrust of the contentions
advanced on behalf of the appellant before
us appears to be that the words
'Memorandum of Understanding' are not
words of Art conveying a single meaning.
In an appropriate situation a 'Memorandum
of Understanding' may also include a
concluded agreement between the parties.
Even in a given case where a Memorandum of
Understanding is to fall short of a
concluded agreement and, in fact, the
concluded agreement is executed
subsequently, the 'offer period' would
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still commence from the date of the
Memorandum of understanding. If the offer
period commences from the date of such
Memorandum of Understanding, according to
the learned counsel, there is no reason
why the same should not commence from the
date of the share purchase agreement when
the parties had not executed a Memorandum
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of Understanding. It is also submitted
that the commencement of the ‘offer
period’ from the date of public
announcement would primarily have
relevance to a case where acquisition of
shares is from the market and there is no
Memorandum of Understanding or a concluded
agreement pursuant thereto.
9. In reply, Shri Shyam Divan,
learned Senior Counsel appearing for the
respondents has urged that Regulation
22(7) of the Regulations can have no
application to the present case inasmuch
as the disqualification from appointment
on the board of directors of the target
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company will operate only when the
acquirer or persons acting in concert are
individuals and not a corporate entity.
This is because under Section 253 of the
Companies Act, 1956 (corresponding to
Section 149 of the Companies Act, 2013)
there is an embargo on a body corporate
from being appointed as a director. Shri
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Divan has also drawn the attention of the
Court to the provisions of Regulation
22(7) of the Regulations as it originally
existed; its amendment in the year 2002
(which provision is relevant for the
purposes of the present case) and the
subsequent amendment effected in the year
2011. Shri Divan has submitted that
meaning sought to be attributed to the
Regulations relevant to the present case
i.e. 2002 Regulations has been
specifically incorporated in the
Regulations amended in the year 2011.
That the concluded share purchase
agreement would be the starting point of
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the 'offer period' is mandated under the
2011 Regulations and not under the 2002
Regulations.
10. We have considered the submissions
of the parties.
11. In the present case, while Burren
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was the acquirer, UBL was the person
acting in concert. This is evident from
the letter of offer (public announcement)
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dated 15 February, 2005. The embargo
under Section 22(7) is both on the
acquirer and a person acting in concert.
The expression 'person acting in concert'
includes a corporate entity [Regulation
2(1)(e)(2)(i) of the Regulations] and also
its directors and associates [Regulation
2(1)(e)(2)(iii) of the Regulations]. If
this is what is contemplated under the
Regulations we do not see how the first
argument advanced by Shri Divan on behalf
of the respondents can have our
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acceptance.
12. Insofar as the second argument
advanced by Shri Divan is concerned it is
correct that in the definition of 'offer
period' contained in Regulation 2(1)(f) of
the Regulations, relevant for the present
case, a concluded agreement is not
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contemplated to be the starting point of
the offer period. But such a consequence
must naturally follow once the offer
period commences from the date of entering
into a Memorandum of Understanding which,
in most cases would reflect an agreement
in principle falling short of a binding
contract. If the offer period can be
triggered of by an understanding that is
yet to fructify into an agreement, we do
not see how the same can be said not to
have commenced/started from the date of a
concluded agreement i.e. share purchase
agreement as in the present case.
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13. On the view that we have taken we
will have to hold that the learned
Tribunal was incorrect in reaching its
impugned conclusions and in reversing the
order of the Adjudicating Officer.
Consequently the order of the learned
Tribunal is set aside and that of the
Adjudicating Officer is restored. The
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penalty awarded by the Adjudicating
th
Officer by order dated 25 August, 2006
shall be deposited in the manner directed
within two months from today.
14. The appeal consequently is allowed
in the above terms.
....................,J.
(RANJAN GOGOI)
....................,J.
(N.V. RAMANA)
NEW DELHI
DECEMBER 2, 2016
JUDGMENT
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