Supreme Court of India
NIRMA INDUSTRIES LTD. & ANR.versusSECURITIES & EXCHANGE BOARD OF INDIA
- Citation
- 2013 INSC 332
- Decided
- 9 May 2013
- Disposal
- Dismissed
- Bench
- S S NIJJAR
Holding
Regulation 27(1)(d) must be construed ejusdem generis with clauses (b) and (c), restricting withdrawal of a public offer to cases of impossibility, and SEBI was not required to provide a personal hearing as the appellants had already submitted all material for consideration.
Summary
Nirma Industries Ltd. and its associate sought to withdraw a public open offer made under SEBI's Takeover Code after discovering alleged fraud and a sharp fall in the target company's share price. SEBI rejected the withdrawal request, and the Securities Appellate Tribunal (SAT) upheld the rejection. The appellants argued that the denial of an oral hearing violated natural justice and that Regulation 27(1)(d) of the Takeover Regulations should be interpreted broadly to allow withdrawal in "such circumstances" beyond impossibility. The Supreme Court held that the regulations do not mandate a personal hearing and that the material was fully placed before SEBI, so no prejudice was caused. It further ruled that Regulation 27(1)(d) must be read ejusdem generis with clauses (b) and (c), limiting withdrawal to situations of impossibility, not merely economic undesirability. Consequently, the appeal was dismissed.
Issues considered
- The applicability of the principle of natural justice and whether SEBI was required to grant an oral hearing before rejecting the withdrawal request.
- Interpretation of Regulation 27(1)(d) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 – whether "such circumstances" includes economic unviability or is limited to impossibility.
- Whether the rejection of the withdrawal request caused adverse civil consequences warranting judicial intervention.
- The relevance of the delay alleged by the appellants in SEBI's processing of the draft letter of offer.
Legislation cited
- SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997s. Regulation 10, s. Regulation 18, s. Regulation 20, s. Regulation 24, s. Regulation 27(1)(b), s. Regulation 27(1)(c), s. Regulation 27(1)(d), s. Regulation 27(4), s. Regulation 3(1)(f), s. Regulation 32(1), s. Regulation 32(2)
- Securities and Exchange Board of India Act, 1992s. 11, s. 11A, s. 11B, s. 11C, s. 15Z
Subjects
natural justicewithdrawal of public offerTakeover CodeRegulation 27ejusdem generisSEBIcivil consequencesdue diligencesecurities regulation
Judgment
[20·t3] 3 S.C.R. 662
A NIRMA INDUSTRIES LTD. & ANR.
v.
SECURITIES & EXCHANGE BOARD OF INDIA
(Civil Appeal No. 6082 of 2008)
MAY 9, 2013
8
[SURINDER SINGH NIJJAR AND ANIL R. DAVE, JJ.)
SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997:
c
Regulation 27 read with Regulation 10 - Order of SEBI
rejecting request of appellant for withdrawal of offer to acquire
equity shares - Challenged for denial of oral hearing - Held:
Not being given an opportunity of oral hearing cannot always
D be equated to a situation, where no opportunity is given to a
party to submit an explanation at all - The entire material on
which the appellants were relying was placed before SEBI and
on its consideration the offer of the appellants was rejected -
Therefore, it cannot be said that the appellants have been in
E any manner prejudiced by the non-grant of the opportunity of
personal hearing - Further, neither the appellants nor their
Merchant Bankers requested for a personal hearing -
Administrative law - Natural justice - Personal hearing.
Regulation 27(1)(b)(c) and (d) - Rejection of request for
F withdrawal of offer to acquire equity shares - Held: Rejection
of request made by appellants for withdrawal from the public
offer or exemption under Regulation 27(1)(d) cannot be said
to be an order causing adverse civil consequences -
Appellants had made an informed business decision -
G Normally, the public offer once made can only be withdrawn
in exceptional circumstances as indicated in Regulation 27(1)
(b), (c) and (d) - These sub-clauses are exceptions to the
general rule and, therefore, have to be construed very strictly
-Clauses (b) and fc) are within the same genus of
H 662
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 663
BOARD OF INDIA
impossibility - Clause (d) also being an exception to the A
general rule would have to be construed in terms of clauses
(b) and (c) - Clause (d) would not permit SEBI to accept the
offer of withdrawal when it has become uneconomical for the
acquirer to perform the public offer - The meaning of terms
"such circumstances" from the realm of impossibility cannot 8
be stretched to the realm of economic undesirability -
Therefore, it cannot be said that the principle of ejusdem
generis is not applicable for interpreting Regulation 27(1) (d)
- SEBI as well as the SAT have correctly concluded that
withdrawal of the open offer in the given set of circumstances C
is neither in the interest of investors nor development of the
securities market - Interpretation of statues - Ejusdem
generis - Maxim 'noscitur a sociis'.
Regulation 27(1) - Order of SEB/ rejecting request for
withdrawal - Plea of delay in passing the order - Held: The D
plea was not raised before SAT - It has been raised for the
first time in the submissions made before Supreme Court -
Since, it is a statutory appeal uls 15Z of the SEB/ Act, the plea
cannot be permitted to be raised - Even on merits, there was
no delay on the part of SEBI in approving the draft letter of E
offer - Securities and Exchange Board of India Act, 1992 -
s. 15Z - Delay/Laches.
The appellants filed the instant appeal challenging
order of the Security Appellate Tribunal (SAT) whereby
F
the appeal against the order dated 30.4.2007 passed by
SEBI rejecting the request for withdrawal of the offer of
the appellants to acquire the equity shares of SRMTL
under the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997, was rejected.
G
It was contended for the appellants that the order
passed by SEBI was passed without granting any
opportunity of hearing to them. It was submitted that even
if the regulations do not specifically provide for the grant
of an opportunity of hearing, it ought to be read into the H
664 SUPREME COURT REPORTS [2013] 3 S.C.R.
A Regulations in view of the drastic civil consequences,
which the appellants would suffer under the impugned
order passed by the SEBI and upheld by SAT. It was
further contended that Regulation 27(1)(d) provides an
exception for withdrawal of open offer not limited to the
8 narrow confines of Clauses (b) and (c) of Regulation
27(1). It was submitted that the exception under
Regulation 27(1)(d) deals with a separate and distinct
class of cases i.e. conferring a discretion on SEBI to allow
withdrawal of open offers in "such circumstances", which
C "in the opinion of the Board merit withdrawal" and, as
such, Regulation 27(1)(d) could not be read "ejusdem
generis" with the preceding clauses to restrict its scope.
Dismissing the appeal, the Court
D HELD: 1.1. Not being given the opportunity of oral
hearing cannot always be equated to a situation, where
no opportunity is given to a party to submit an
explanation at all, before an order is passed causing civil
consequences to it. Regulation 27 of the SEBI
E (Substantial Acquisition of Shares and Takeovers)
Regulations 1997 (Takeover Code) does not contemplate
a provision that the party seeking to withdraw from the
public offer is required to be given an oral hearing before
an order is passed on the request for withdrawal. [para
F 22] [684-D-F]
1.2. The purpose of granting an opportunity of
hearing is to ensure fair treatment of the person or entity
against whom an order is likely to be passed. In the
instant case, all material had been placed by the
G appellants before the SEBI in their letter dated 4.5.2006
and the same material was also placed before the
appellants' merchant bankers, which made an application
on 22.9.2006 to SEBI to exempt the appellants from the
open offer or withdraw the open offer under Regulation
H
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 665
BOARD OF INDIA
27 or re-fix the price of the open offer. The Merchant A
Bankers had discussions with the officers of the SEBI
before giving the opinion in its letter dated 27.6.2006.
Thus, it is apparent that all the necessary information was
available before SEBI for taking a decision as to whether
the claim of the appellants seeking exemption from the B
Takeover Code, or withdrawal of the Letter of Offer would
fall within the purview of Regulation 27(1) (d). Necessary
clarifications, as required by the Merchant Bankers had
also been given in the subsequent correspondences.
Therefore, it cannot be said that substantial justice has c
not been done in the case of the c.ppellants. [para 19 and
22-23] [683-E-G; 682-C-D; 685-C-E]
Canara Bank & Ors. Vs. Debasis Das & Ors. 2003 (2)
=
SCR 968 2003(4) SCC 557; and Managing Director, ECIL,
Hyderabad & Ors. Vs. B. Karunakar & Ors. 1993 (2) Suppl. D
SCR 576 =1993 (4) SCC 727 - referred to.
1.3. The appellants cannot justifiably claim that any
order had been passed by SEBI that would cause
adverse civil consequences, as envisaged by this Court E
in 8. Karunakar & Ors. The appellants after making a
market assessment decided to invoke the pledge on July
22, 2005. Having acquired more than 15% shares of the
target company which triggered the Regulation 10 of the
Takeover Code, the appellants published the proposed F
open offer to acquire upto 20% of the shares of the
existing shareholders. It is undisputable that normally the
public offer once made can only be withdrawn in
exceptional circumstances as indicated in Regulation
27(1) (b), (c) and (d). The rejection of the request made G
by the appellants for withdrawal from the public offer or
exemption under Regulation 27(1 )(d) cannot be said to be
an order causing adverse civil consequences. The
appellants had made an informed business decision
which they felt subsequently, was likely to cause losses. H
666 SUPREME COURT REPORTS [2013) 3 S.C.R.
A In such circumstances, they wanted to pull out and
throw the burden on to the other shareholders.
Therefore, no prejudice has been caused to the
appellants by the order passed by the SEBI rejecting their
request [para 22 and 24] [684-A-C; 686-A-C]
B
1.4. The provisions of Regulations 32(1) and 32(2) are
of no assistance to the appellants. Firstly, neither the
appellants nor their Merchant Bankers requested for an
opportunity for a personal hearing. Secondly, SEBI has
not issued any instructions or directions u/s 11, which
C requires that the rules of natural justice be complied with.
Thirdly, it cannot be said that the appellants had been
condemned unheard as the entire material on which the
appellants were relying was placed before SEBI. It is
upon consideration of the entire matter that the offer of
D the appellants was rejected by the detailed order passed
by SEBI on 30.4. 2007. [para 32] [691-C-F]
Union of India & Anr. Vs. Jesus Sales Corporation 1996
(3) SCR 894 = 1996 (4) SCC 69 - relied on.
E I
Automotive Tyre Manufacturers Association Vs.
Designated Authority & Ors. 2011 (1) SCR 198 = 2011
(2) SCC 258; Darshan Lal Nagpal (Dead) by LRs. Vs.
Government of NCT of Delhi & Ors. 2012 (2) SCR 595 = 2012
F (2) SCC 327- held inapplicable.
2.1. The SAT has correctly come to the conclusion
that under the SEBI Act, the Board has been entrusted
with the fundamental duties of ensuring orderly
development of the securities market as a whole and to
G protect the integrity of the securities market. A
conspectus of the Regulations would show that the
scheme of the Takeover Code is - (a) to ensure that the
target company is aware of the substantial acquisition;
(b) to ensure that in the process of the substantial
H acquisition or takeover, the security market is not
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 667
BOARD OF INDIA
distorted or manipulated and (c) to ensure that the small A
investors are given an option to exit, that is, they are
offered a choice to either offload their shares at a price
as determined in accordance with the Takeover Code or
to continue as shareholders under the new dispensation.
The Takeover Code is meant to ensure fair and equal B
treatment of all shareholders in relation to substantial
acquisition of shares and takeovers and that the process
does not take place in a clandestine manner without
protecting the interest of the shareholders. [para 39-40)
[696-E; 699-F-H; 700-A] C
2.2. Regulation 27(1) states the general rule in
negative terms. It provides that no public offer, once
made, shall be withdrawn. The three sub-clauses, namely,
clauses (b), (c) and (d) are exceptions to the general rule
and, therefore, have to be construed very strictly. The D
exceptions cannot be construed in such a manner that
would destroy the general rule that no public offer shall
be permitted to be withdrawn after the public
announcement has been made. Clearly clauses (b) and
(c). are within the same genus of impossibility. Clause (d) E
also being an exception to the general rule would have
to be construed in terms of clauses (b) and (c). Therefore,
the term "such circumstances" in clause (d) would also
be restricted to situation which would make it impossible
for the acquirer to perform the public offer. The discretion F
has been left to the Board by the legislature realizing that
it is impossible to anticipate all the circumstances that
may arise making it impossible to complete a public offer.
Clause (d) would not permit SEBI to accept the offer of
withdrawal even in circumstances when it has become G
uneconomical for the acquirer to perform the public offer.
Applying the maxim 'noscitur a sociis', the meaning of the
term "such circumstances" cannot be stretched from the
realm of impossibility to the realm of economic
undesirability. Therefore, it cannot be said that the H
668 SUPREME COURT REPORTS [2013] 3 S.C.R.
A principle of ejusdem generis is 11ot applicable for
interpreting Regulation 27(1) (d) of the Takeover Code.
Regulation 3(1) (f) (iv) (which exempts the acquisition of
shares by banks and public financial institutions as
pledgees, from the provisions of the Takeover
B Regulations) is not applicable in the instant case. [para
42, 47, 48, 49, 51 and 53) [701-B-D; 703-D; 703-G-H; 704-
G-H; 707-A; 707-F-G]
Maharashtra University of Health Sciences and Ors. Vs.
Satchikitsa Prasarak Manda/ & Ors. 2010 (3) SCR 91 = 2010
C (3) SCC 786; Kava/appara Kottarathil Kochuni vs. State of
Madras AIR 1960 SC 1080; Amar Chandra Chakraborty Vs.
Collector of Excise (1972 (2) SCC 444; and Commissioner
of income Tax, Udaipur, Rajasthan Vs. McDowell and Co. Ltd.
2009 (8) SCR 983 = 2009 (10) SCC 755 - referred to.
D
Attorney General vs. Prince Ernest Augustus of Hanover,
(1957) AC 436 referred to.
Municipal Corporation of Greater Bombay vs. Bharat
=
E Petroleum Corporation Ltd. 2002 (2) SCR 860 2002 (4) SCC
219; Maharashtra University of Health Sciences & Ors. vs.
=
Satchikitsa Prasarak Manda/ & Ors. 201 O (3) SCR 91 201 O
(3) SCC 786; and Union of India & Ors. Vs. Alok Kumar2010
=
(5) SCR 35 2010 (5) sec 349 - cited.
F Black's Law Dictionary, referred to.
2.3. SEBI as well as the SAT have correctly concluded
that withdrawal of the open offer in the given set of
circumstances is neither in the interest of investors nor
G development of the securities market. Permitting the
withdrawal would lead to encouragement of
unscrupulous elements to speculate in the stock market.
Encouraging such a practice of an offer being withdrawn
which has become uneconomical would have a
H destabilizing effect in the securities market. This would
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 669
BOARD OF INDIA
be destructive of the purpose for which the Takeover A
Code was enacted. [para 50 and 56] [705-F-G; 709-8-C]
Sahara India Real Estate Corporation Limited & Ors v.
Securities and Exchange Board of India & Anr. (2012) 8
SCALE 101 - held inapplicable.
B
2.4. In the instant case, no fraud has been played on
the appellants as such. The shares were acquired by the
appellants on the basis of an informed business decision.
The conclusion reached by SAT that the appellants are
only trying to wriggle out of a bad bargain, which is not C
permissible under Regulation 27(1) (d) of the Takeover
Code, does not call for any interference.[para 60, 67 and
68] [710-F; 715-0-F]
Ram Chandra v. Savitri Devi 2003 (4) Suppl. SCR 543
= 2003 (8) SCC 319; S.P.Chengalvaraya Naidu (dead) by D
LRs. vs. Jagannath (Dead) by LRs. and Ors. 1993 (3) Suppl.
SCR 422 =1994 (1) SCC 1 - referred to.
Marfani and Co. Ltd. vs. Midland Bank Ltd. 1968 (2) All
E.R. 573; and Indian Overseas Bank vs. Industrial Chain ·
Concern 1989 (2) Suppl. SCR 27 = 1990 (1) SCC 484 - held E
inapplicable.
3. The plea of 8 months delay on the part of SEBI to
process the Letter of Offer of the appellants was not made
before SAT and it has been raised for the first time, in the F
submissions made before this Court. Ir "act, the ground
is not even pleaded in the grounds of appeal. The
submission is mentioned only in the list of dates. Since,
it is a statutory appeal u/s 15Z of the SEBI Ac~, the plea
cannot be permitted to be raised in this Court for the first
time, unless the submission goes to the very root of the G
matter. This apart, even on merit, there was no delay on
the part of SEBI in approving the draft letter of offer. [para
71-72] [716-F-H; 717-A; 718-F]
4. As regards the plea that the Court ought to appoint H
670 SUPREME COURT REPORTS [2013] 3 S.C.R.
A an independent valuer and direct a fresh valuation to be
made on the basis of principles contained in Regulation
20(5) of the Takeover Code, suffice it to say that the
formula given in Regulation 20 would have no
applicability in the facts and circumstances of the case.
B The determination of the lowest price under Regulation
20 would be at a stage prior to the making of the public
announcement and not thereafter. [para 73] [718-G-H;
719-A-B]
Case Law Reference:
c
2003 (2) SCR 968 referred to para 22
1993 (2) Suppl. SCR 576 referred to para 22
2011 (1) SCR 198 held inapplicable para 26
D
2012 (2) SCR 595 held inapplicable para 27
1996 (3) SCR 894 relied on para 30
2002 (2) SCR 860 cited para 37
E 2010 (3) SCR 91 cited para 37
2010 (5) SCR 35 cited para 37
AIR 1960 SC 1080 referred to para 45
(1972 (2) sec 444 referred to para 46
F
2009 (8) SCR 983 referred to para 48
(1957) AC 436 referred to para 49
(2012) 8 SCALE 101 held inapplicable para 55
G
2003 (4) Suppl. SCR 543 referred to para 57
1993 (3) Suppl. SCR 422 referred to . para 58
1968 (2) All E.R. 573 held inapplicable para 64
H 1989 (2) Suppl. SCR 27 held inapplicable para 64
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 671
BOARD OF INDIA
CIVIL APPELLATE JURISDICTION : Civil Appeal No. A
6082 of 2008.
From the Judgment & Order dated 06.06.2008 of the
Securities Appellate Tribunal Mumbai in Appeal No. 74 of 2007.
Shyam Divan, Divyam Agarwal, Zerick Dastur, Sarthak B
Mehrotra, Nirman Sharma, Bina Gupta for the Appellants.
Pratap Venugopal, Gaurav Nair (for K.J. John & Co.) for
the Respondent.
The Judgment of the Court was delivered by
c
SURINDER SINGH NIJJAR, J. 1. This statutory appeal
is filed under Section 1SZ of t,he Securities and Exchange
Board of India Act, 1992 (herefnafter referred'to a's the 1SEBI
Act') against the order dated 5th June, 2008 (impugned order) D
passed by the Security Appellate Tribunal (SAT) whereby SAT
has dismissed the appeal filed by the appellants impugning the
directjon contained in the communication dated 30th April,
2007 of SEBI (SEBI order), By the aforesaid order, the request
of the appellants for withdrawal of an offer to acquire the equity E
shares 9f Shree Ram Multi Tech Limited (SRMTL) under the
SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 (Takeover Codeffakeover Regulation) has
been rejected.
F
Facts :
2. On 22nd March, 2002, the Promoters (including friends,
relatives and associates) of SRMTL - a listed company -
borrowed a sum of Rs.48.94 crores from the appellants and
pledged equity shares of SRMTL worth Rs.1,42,88, 700/- G
(24.25% of equity capital) as security. The debt was in form of
issue of Secured Optionally Fully Convertible Premium Notes
by three closely held unlisted companies (Issuer Companies)
for an issue price of Rs.1,00,000/- each having nominal value
of Rs.1,35,000/- each. The issue was made by the Issuer H
672 SUPREME COURT REPORTS [2013] 3 S.C.R.
A Companies by way of subscription agreements and the
individual premium notes issued by each are as under :
(i) Shree Rama Polysynth Pvt. Ltd. 1664
(ii) East-West Polyart Ltd. 1500
B
(iii) Ideal Petroproducts Ltd. 1730
Total
c 3. The Issuer Companies pledged equity shares in the
capital of SRMTL and other closely held companies as security
in favour of the appellants till the redemption of the Premium
Notes by way of pledge agreements (Pledged Shares). The
equity shares of SRMTL pledged by each of the Issuer
D Companies are as under:
(i) Shree Rama Polysynth Pvt. ltrl. 52,49,786
(ii) East-West Polyart Ltd. 28,74,800
E (iii) Ideal Petroproducts Ltd. 62,64, 114
. Total - 1.42.88, 700
4. In May-June, 2002, the pledge over the shares, which
F were in dematerialized form, was carried out in the form
prescribed by National Securities Depository Limited and was
recorded in the records of the respective depositories of the
appellants and the Issuer Companies. On June 10, 2005, the
appellants, in terms of the enforcement provisions contained
in the subscription agreements and the pledge agreements
G issued notices to the Issuer Companies calling upon them to
redeem the outstanding Premium Notes within a period of 30
days, failing which the appellants would be constrained to invoke
the pledge. Premium notes were not redeemed (i.e. debt was
not repaid). Upon default, under the provisions of the Notes, the
H appellants called upon each of the Issuer Companies to
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 673
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
redeem the outstanding Notes within 30 days. Since the Notes A
were not redeemed within the notice period, the pledge was
invoked on July 22, 2005.
5. The invocation of the pledge triggered Regulation 10 of
the Takeover Code.
B
6. On 26th July, 2005, in accordance with the Regulation
10 of the l'akeover Code, the appellants made a Public
Announcement (PA) for proposed open offer to acquire upto
20% of the shares of the existing shareholders. The Public
Announcement was published in the Financial Express, C
Mumbai Edition. According to the appellants, the price offered
in the PA, being Rs.18.60/- per share, was arrived at as per
Regulation 20(4) of the Takeover Code (applicable to frequently
traded shares). The PA stated that SRMTL has suffered
business losses and its net worth has been eroded. The PA D
also clearly stated that the offer may be withdrawn as per
Regulation 27 of the Takeover Code.
7. The appellants further claimed that as per Regulation
18 of the Takeover Code, draft letter of offer was submitted to E
SEBI on August 8, 2005. According to the appellants in the
aforesaid letter, it was specifically stated that details were
given of the composition of Board of Directors and audited
balance sheets of last three years, share holding pattern PRE-
OFFER and POST-OFFER and justification of offer price. The
letter further stated that "Acquirers reserve the right to withdraw F
the offer pursuant to Regulation 27 of the Regulation". In the
meanwhile, the concurrent auditor appointed by the Lenders of
SRMTL, M/s Ernst & Young and the internal auditor of SRMTL,
M/s. R. C. Sharma & Co. in their respective audit reports for
the quarter July-September, 2005, had noted certain G
irregularities in the operations and systems of SRMTL. The
Audit Committee, therefore, recommended a special
investigative audit to look into the irregularities. In view of the
above, a change in management was effected on the insistence
of the Lender Banks. All Promoter Oirectors tendered their H
674 SUPREME COURT REPORTS [2013] 3 S.C.R.
A resignations in their place independent Directors were
appointed. The Board of Directors of SRMTL, after considering
the respective audit report of the aforesaid two accountants,
accepted the recommendations of the Audit Committee and on
January 28, 2006 directed a special inv~stigative audit into the
B financial affairs of the company. The Board appointed Mis. R.
C. Sharma & Co., to conduct the special investigative audit and
submit its report. After investigation, M/s. R. C. Sharma & Co.
submitted its report in three parts, comprising of two interim
reports and one final report on January 30, 2006. In March-April,
c 2006, the aforesaid report of M/s. R.C. Sharma came in the
public domain, resulting in sharp decline in prices of shares of
SRMTL. It is claimed by the appellants that M/s. R.C. Sharma's
report enclosed two earlier inspection reports of 2002 by
Kalyaniwala & Mistry (Kalyaniwala Report) and by Sharp and
D Tannan Associates (Sharp Report), respectively. These reports
were not made available to public. Their existence was
disclosed for the first time when they were filed in the Gujarat
High Court as part of proceeding in Company Petition No.111
of 2005. The appellants further claimed that under Regulation
18 of the Takeover Code, SEBI was expected to revert with its
E comments and observations in about 21 days, i.e. by 29th
August, 2005. However, letter of offer submitted to SEBI was
issued after more than 249 days on 26th April, 2006.
8. The appellants further claim that pursuant to the fraud
F perpetrated by the Promoter Directors of SRMTL and
fraudulent embezzlement of funds in SRMTL in excess of
Rs.350 crores being unearthed, an application was made on
4th May, 2006 to either exempt them from making the open offer
or to permit them to withdraw the open offer under Regulation
G 27 of the Takeover Code or to re-fix the price of the Open Offer.
The appellants further claimed that .the aforesaid request was
justified o:-: the basis of special circumstances cited by the
appellants in the aforesaid letter of May 4, 2006. It had been
pointed out that an investigation into the affairs of SRMTL by
H M/s Ramesh C. Sharma and Co. Chartered Accountants
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 675
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
revealed that a cumulative amount of Rs.326.48 Crores had A
been siphoned out of/embezzled from the coffers 'of SRMTL by
its erstwhile Promoter Directors. This conclusion was based on
the reports submitted by M/s. R.C. Sharma & Co. It was pointed
out that the financial accounts of SRMTL revealed that it had
lost its net worth. Asset Reconstruction Company (India) Limited B
(ARCIL) had acquired the debts and underlying rights arid
obligations from the secured creditors of SRMTL. ARCIL had
also issued a notice dated January 25, 2006 under Section
13(2) of the Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 c
(SARFAESI) threatening action under Section 13(4) thereof. In
the meantime, the High Court of Gujarat had disposed of the
winding up petition filed against SRMTL by the UTI Bank and
Karnataka Bank Ltd. on February 27, 2006. It had also come
to the knowledge of the appellants that though the balance
0
sheets of SRMTL disclosed a contingent liability of only
Rs.15.28 Crores as on March 31, 2005, the actual value was
about Rs.263.65 Crores (out of which Rs.30.65 Crores had
already crystallized). The final reason given was share price of
SRMTL shares had fallen substantially from the date of making E
the Public Announcement.
9. Since the appellants did not receive any response from
the respondent, a request was made on July 1, 2006 to the
Merchant Bankers requesting th.em to forward an application
for withdrawal of the open offer to the respondent. It appears F
that the Merchant Bankers vide letter dated 27th June, 2006
inter alia informed the appellants that the grounds mentioned
in the letter dated 4th May, 2006 are not valid grounds, in terms
of the provisions of Regulation 27 of the Takeover Code. On
July 1, 2006, the appellants requested the Merchant Bankers G
to convey its request in a renewed form to SEBI for its
consideration. The renewed request was contained in a letter
dated July 01, 2006 which was sent to the Merchant Bankers
as an annexure to the letter which was also sent on July 01,
2006, in reply to the letter of the Merchant Bankers dated 27th H
676 SUPREME COURT REPORTS [2013] 3 S.C.R.
A June, 2006. In the aforesaid reply, the appellants had also
informed the Merchant Bankers that it did not agree with the
views expressed by the Merchant Bankers even prior to the
consideration of the facts presented by the appellants to SEBI.
Regulation 27(1) (c) does not provide for specific approval of
B SEBI for withdrawal of the open offer, which is what they were
seeking. On July 8, 2006, the Merchant Bankers informed the
appellants that the relevant regulation is 27(1 )(d) and not
27(1)(c). The letter also refers to a telephonic conversation with
one Mr. Deepak Shah on 8th July, 2006 informing him about
c certain particulars required by the Merchant Bankers. A
complete list of details, required by the Merchant Bankers, was
listed in the aforesaid letter. The appellants were requested to
send the same at the earliest. The appellant sent a reply to the
aforesaid request on 8th July, 2006. Thereafter, on 1st
September, 2006, the appellant was informed by the Merchant
0
Bankers that based on the information supplied on July 1, 2006
and August 28, 2006, an application had been drafted by them
for being med with SEBI, seeking withdrawal of the open offer.
The aforesaid draft application was sent to the appellant for
E verification of the factual position stated therein. From a perusal
of the letter dated 21st September, 2006, the appellants
informed the Merchant Bankers that the clarifications sought on
September 1, 2006 had been sent to them on 7th September,
2006. Therefore, a request was made to include the
clarifications in the original draft letter and include the same in
F the paragraph in contingent liability under special circumstances
for withdrawal of the open offer.
10. In response to the aforesaid request of the appellants,
the Merchant Bank applied to SEBI on September 22, 2006
G requesting that the appellants be permitted to withdraw the offer.
The letter also mentioned the special reasons for the withdrawal
as given by the appellants in the letter dated 4th May, 2006. It
is important to notice here that no request for personal
hearing was made in any of the aforesaid communications.
H
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 677
BOARD OF INDIA [SURINDER SJNGH NIJJAR, J.]
11. The appellants further claimed that on 30th April, 2007, A
the application of the rv:erchant Bankers/appellants was rejected
on the ground that the appellants ought to have conducted due
diligence. The appellants pointed out that the aforesaid
decision was taken by SEBI without affording any personal
hearing to the appellants and without application of mind. The B
appellants claim that the respondent did not appreciate that the
fraudulent transactions, systematic embezzlement and
siphoning of funds was unearthed by special investigative audit
and could not have been found by an outside third party like
appellants before invoking the pledge. Even any due diligence c
that could be conducted could only have been done on
published financial inf9rmation in the public domain, which has
now been found to be fraudulent in character. The appellants
have in the Public Announcement and Letter of Offer relied on
books of accounts for last three financial years i.e. 2002-03,
0
2003-04 and 2004-05 of SRMTL. Even SEBI with all its
compliance requirements and investigative powers was unable
to unearth these instances of fraud perpetrated by promoters
of SRMTL.
12. Being aggrieved by the SEBI order, the appellants filed E
Appeal No.74 of 2007 before the SAT. By the impugned order
dated 5th June, 2008, the SAT rejected the appeal filed by the
appellants. It has been held by SAT that :
"a) Regulation 27(1 )(d) of the Takeover Code is to be given F
a strict interpretation and the words "such circumstances
as in the opinion of the Board merit withdrawal" is to be
read ejusdem generis to be limited to only circumstances
where it is impossible to make a public offer.
b) Appellants ought to have conducted due diligence. G
C) Appellants knew about (i) poor financial condition of
SRMTL; (ii) filing of winding up petitions by UTI Bank
against SRMTL; (iii) net worth of SRMTL being negative;
(iv) several cases of recovery being filed against SRMTL." H
678 SUPREME COURT REPORTS [2013] 3 S.C.R.
A 13. The aforesaid order of SAT is challenged before us
by Nirma Industries Ltd. in this statutory appeal under Section
15Z of the SEBI Act.
14. We have heard very elaborate submissions made by
Mr. Shyam Divan, learned senior counsel on behalf of the
8
appellants and Mr. Pratap Venugopal for SEBI. Mr. Divan
submits that the main issue involved in this appeal is whether
under Regulation 27(1 )(d), SEBI has power to grant exemption
to the appellants from the requirement of making a public offer
under Regulation 10. The alternative issue framed by Mr. Divan
C is as to whether dehors Regulation 27(1) (d), SEBI would still
have the residual power to grant exemption. Apart from the
aforesaid two legal issues, Mr. Divan's primary submission is
based on breach of rules of natural justice. He submits that the
· order passed by SEBI has been passed without granting any
D opportunity of hearing to the appellants. Even if the regulations
do not specifically provide for the grant of an opportunity of
hearing, it ought to be read into the regulations in view of the
drastic civil consequences, which the appellants would suffer
under the impugned order passed by the SEBI upheld by SAT.
E Mr. Divan has straightaway pointed out to the order passed by
SEBI on 30th April, 2007 rejecting the request made in letter
dated 22nd September, 2006 for withdrawal of the public offer.
He has pointed out the observations made in Paragraph 4 of
the aforesaid order, which are as under:-
F
"We are of the view that the acquirer should have done due
diligence before invocation of pledge, and refrained
themselves from invoking their pledge if circumstances so
warranted. Such circumstances, arising out of omission on
the part of the acquirers to have taken due precaution or
G
business misfortunes, in our opinion, are not reasons
sufficient enough to merit withdrawal of the open offer."
15. The aforesaid conclusions, according to Mr. Divan, are
not supported by any reasons let alone sufficient reasons. The
H
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 679
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
order passed by SEBI, according to him, is non-speaking and, A
therefore, ought to have been quashed on that ground alone.
16. The same submission was also made before the SAT.
It has been rejected by the SAT by giving detailed reasons.
Taking into consideration the facts and circumstances of this
8
case, it cannot be said that Rules of Natural Justice have been
violated. The special circumstances which had been elaborately
set out in the two letters written by the appellants on May 4,
2006 and July 1, 2006 and the application made by the
Merchant Bankers on September 22, 2006 have been
summarized by Mr. Shyam Divan in the written submission C
which are as follows :
"a. An investigation into the affairs of SRMTL by
Ramesh C. Sharma & Co., Chartered Accountants,
revealed that a cumulative amount of Rs. 326..48 D
Crores had been siphoned out of/embezzled from
the coffers of SRMTL by its erstwhile Promoter
Directors. Ramesh C. Sharma & Co. submitted two
interim reports [in Febru~ry and March 2006] and
a final report (in March 2006) to arrive at its E
aforesaid conclusions.
b. Further the financial accounts of SRMTL revealed
that it had lost its net worth.
c. Asset Reconstruction Company (India) Limited F
("ARCIL") had acquired the debts and underlying
rights and obligations from the secured creditors of
SRMTL. ARCIL issued a notice dated January 25,
2006 under Section 13(2) of the Securitization and
Reconstruction of Financial Assets and G
Enforcement of Security Interest Act, 2002
("SARFAESI") threatening action under Section
13(4) thereof.
d. The High Court of Gujarat had disposed of the H
680 SUPREME COURT REPORTS [2013] 3 S.C.R.
A winding up petition filed against SRMTL by the UTI
Bank and Karnataka Bank Ltd. vide order dated
February 27, 2006.
e. It had come to the Appellant's knowledge that
though the Balance Sheets of SRMTL disclosed a
B
contingent liability of only Rs. 15.28 Crores as on
March 31, 2005, the actual value was about Rs.
263.65 Crores (out of which Rs.30.65 Crores had
already crystallized).
c f. The share price of SRMTL shares had fallen
substantially from the date of making the Public
Announcement."
17. In the letter dated May 4, 2006, it was pointed out that
0 subsequent to the Public Announcement dated 26th July, 2005
and filing of the draft letter of offer, the circumstances leading
to the requirement of making of Public Announcement by the
appellants (pledgee acquirers) or requirements of the regulation
has substantially changed to the prejudice of the appellants and,
E therefore, it was constrained to seek exemption from
requirement of the Regulations and/or permission to withdraw
the draft letter of offer. The letter sets out the sequence of
events leading to the acquisition, which triggered the provisions
of Regulation 10. It sets out the reasons for fixing the offer price
at Rs. 18.60 per share. The price had been determined at
F deriving the average of weekly high and low closing prices of
shares of SRMTL (the target company) at Bombay Stock
Exchange (BSE) during 26 weeks preceding the date of Public
Announcement. In Paragraph 4 of the letter, it is mentioned as
under:-
G
"Subsequent to the Public Announcement and filing of the
draft Letter of Offer, the price of the shares of SRMTL has
fallen substantially due to circumstances beyond the control
of the Acquirers. It has come to the knowledge of the
H Acquirers that subsequent to the Public Announcement
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 681
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
and filing of the draft Letter of Offer, the financial condition A
of SRMTL has substantially deteriorated on account of
gross mismanagement and embezzlement by the promoter
directors of SRMTL. It is apparent that SRMTL has lost its
substratum and that chances of its revival are negligible."
B
18. In Paragraph 5 of the letter, a prayer is made for
permission either to exempt the Regulation 3(1) (1) read with ·
Regulation 4(2) of the Takeover Regulations or withdrawal of
offer under Regulation 27, on the basis of the justification given
for seeking withdrawal. The complete justification is given C
thereafter in Par:-:graph 6, which consists of sub-paragraphs 6.1
to 6.8. The ultimate reason for seeking withdrawal is given in
Paragraphs 7 and 8, which are as under:-
"?. Under the aforesaid circumstances, it is apparent
that SRMTL has lost its substratum and that D
chances of its revival are negligible. The Pledgee
Acquirers while enforcing the security created by
pledging the shares of SRMTL, are being saddled
with an additional burden of Rs.21,91,54,314 to lhe
undue advantage of the other shareholders of E
SRMTL. The purpose sought to be achieved by
operation of the Regulations is lost in view of the
subsequent developments and the Regulations are
operating harshly against the Pledgee Acquirers. In
view of the changed scenario, it would be F
inequitable and unfair to compel the Pledgee
Acquirers to offer to purchase the shares of SRMTL
from the other shareholders of SRMTL in
accordance with the draft Letter of Offer.
8. In light of the change in circumstances as stated G
hereinabove, considering the present state of
affairs, it would be just, fair and equitable (i) to
exempt the Pledgee Acquirers from operation of
Regulation 10 of the Regulations in exercise of
powers conferred by Regulation 3(1)(1) read with H
682 SUPREME COURT REPORTS [2013] 3 S.C.R.
A Regulation 4(2) of the Regulations or (ii) to permit
withdrawal of the Public Announcement and the
draft Letter of Offer in terms of Regulation 27 of the
Regulations or (iii) permit the Pledgee Acquirers to
re-fix the offer price on the basis of the current
B market price of the shares of SRMTL."
19. It is an admitted fact that the aforesaid letter was sent
by the appellants to its Merchant Bankers. In its letter dated
27th June, 2006, the Merchant Bankers informed the appellants
that the grounds mentioned in the letter dated 4th May, 2006
C are not valid grounds in terms of provisions of Regulation 27
of the Takeover Code. Therefore, clearly the Merchant Banker
was also of the opinion that the specific circumstances relied
upon by the appellants were of no relevance in seeking
withdrawal under Regulation 27. However, on the insistence of
D the appellants, the Merchant Bankers by its letter dated 22nd
September, 2006 requested SEBI to exempt the appellants
from the open offer or withdraw the open offer under Regulation
27 or re-fix the price of the open offer. It appears that the
Merchant Bankers had discussions with the officers of the SEBI
E before giving the aforesaid opinion in its letter dated 27th June,
2006. it was only thereafter the appellants were informed as
under:-
"We have perused the various grounds you have mentioned
F in your above letter to SEBI and are unable to find any of
these as valid grounds in terms of the provisions of
Regulation 27 of the SEBI (Substantial Acquisition of
Shares & Takeovers) Regulations, 1997. The fact that the
market price of the target company is far below the offer
price cannot be a reason for seeking withdrawal of the
G
offer. Regulation 27(1) of the Takeover code is the only
regulation permitting withdrawal of public offers and the
same is reproduced below:
"
H
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 683
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
20. Still not satisfied, the appellants wrote to its Merchant A
Bankers on 1st July, 2006 requesting it to forward the letter
dated 4th May, 2006 to SEBI for its consideration. In the letter,
it was mentioned as follows:-
"Meanwhile, we do not agree with your views even prior B
to SEBl's consideration of the facts presented by us.
Please do note that Regulation 27(1)(c) does provide for
.specific approval of SEBI for withdrawal of the open offer,
which is what we are seeking. Unless SEBI considers our
letter and informs us of a decision not to approve the C
application for withdrawal, it would be premature to
foreclose the options available to us by a fair application
of the law. Consequently, you are requested to forward our
enclosed application formally to SEBI so that SEBI can
consider the same and take a decision in the matter. Once
the decision of SEBI is communicated, we can take further D
steps in the matter. n
21. As noticed earlier, the Merchant Bankers were still not
satisfied with the information provided by the appellants in
support of its request for withdrawal of the open offer. E
Therefore, the appellants had given further clarifications to the
Merchant Bankers. It was only on receipt of the clarifications
that the Merchant Bankers forwarded the request to SEBI for
consideration.
22. From the above, it is apparent that all the necessary
F
information was available before SEBI for taking a decision as
to whether the claim of the appellants seeking exemption' from
the Takeover Code, or withdrawal of the Letter of Offer would
fall within the purview of Regulation 27(1) (d). The purpose of
granting an opportunity of hearing is to ensure fair treatment of G
the person or entity against whom an order is likely to be
passed. In the present case, we are unable to accept the
submission of Mr. Shyam Divan that the impugned order
passed by SEBI on 30th April, 2007, rejecting the application
H
684 SUPREME! COURT REPORTS [2013] 3 S.C.R.
A of the appellants for exemption/withdrawal by SEBI caused an;
"adverse civil consequences". Having acquired the shares of
the target company to the extent which triggered the Regulation
10 of the Takeover Code, the appellants published in the
Financial Express, Mumbai Edition the proposed open offer to
B acquire upto 20% of the shares of the existing shareholders.
The price offered in the Public Announcement, being Rs. 18.60
per share was arrived at as per Regulation 20(4) of the
Takeover code, which is applicable to frequently traded shares.
It is undisputable that normally the public offer once made can
c only be withdrawn in exceptional circumstances as indicated
in Regulation 27(1) (b), (c) and (d). In their letter dated 4th May,
2006, the appellants had given detailed reasons giving
justification for seeking exemption/withdrawal/price fixation. Not
being given the opportunity of oral hearing cannot always be
D equated to a situation, where no opportunity is given to a party
to submit an explanation at all, before an order is passed
causing civil consequences to it. Mr. Shyam Divan has been
at pains to point out that rules of natural justice require that an
opportunity of hearing should have been given to the appellants.
E We see no reason to read into Regulation 27 - the provision
that the party seeking to withdraw from the public offer is
required to be given an oral hearing before an order is passed
on the request for withdrawal. We also see no merit in the
submission that an oral hearing was particularly necessary in
the light of the fraud, which has been perpetrated by the
F promoters of the target company on the innocent shareholders,
which will also include the appellants. Such a submission can
not be accepted either on facts or in law. The appellants had
made a business decision in deliberately purchasing the
shares of the target company to such an extent that it had to,
G under the law; mal<e the Public Announcement for purchase of
other shares at the price of Rs.18.60 per share.
23. In support of his submissions on breach of Rules of
Natural Justice, in his written submission, Mr. Shyam Divan has
H
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 685
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
relied on Canara Bank & Ors. Vs. Debasis Das & Ors. 1 In this A
case, this Court reiterated the well known Rules of Natural
Justice. Otherwise the particular case relied upon has no
relevance to the present proceedings. In the Canara Bank's
case (supra), this Court was considering the case of an
employee subjected to the disciplinary proceedings. Again this B
Court reiterated the well known principle that natural justice is
the administration of justice in a commonsense liberal way.
Further that the rules have been enforced by the Courts to
ensure that substantial justice is done to the party proceeded
against. In the present case, it is a matter of record that all C
material had been placed by the appellants before the SEBI in
its letter dated 4th May, 2006 and the same material was also
placed before the Merchant Bankers. Necessary clarifications,
as required by the Merchant Bankers, had also been given in.
the subsequent correspondences, as noticed by us in the earlier D
part of the judgment. Therefore, it cannot be said that
substantial justice has not been done in the case of the
appellants. This Court in Canara Bank's case (supra) reiterated
the principle laid down in Managing Director, ECIL, Hyderabad
& Ors. Vs. B. Karunakar & Ors. 2 Here again, this Court has
reiterated that even an administrative order, which involved civil E
consequences, must be consistent with the rules of natural
justice. The expression "civil consequences" £.ncompasses
infraction of not merely property or personal rights but of civil
liberties, material deprivations and non-pecuniary damages. In
other words, anything which affects the rights of the citizen in F
ordinary civil life.
24. In our opinion, the appellants cannot justifiably claim
that any order had been passed by SEBI that would cause
adverse civil consequences, as envisaged by this Court in 8. G
Karunakar & Ors. (Supra). The appellants after making a
market assessment decided to invoke the pledge on July 22,
1. (2003) 4 sec 557 .
•
2. (1993) 4 sec 121. H
686 SUPREME COURT REPORTS [2013] 3 S.C.R.
A 2005. Since the shares which came to the appellants were
more than 15%, statutorily Regulation 10 was triggered. The
rejection of the request made by the appellants for withdrawal
from the public offer or exemption under Regulation 27(1 )(d)
cannot be said to be an order causing adverse civil
8 consequences. The appellants had made and informed
business decision which unfortunately for them, instead of
generating profits was likely to cause loses. In such
circumstances, they wanted to pull out and throw the burden on
to the other shareholders. We, therefore, fail to see what
C prejudice has been caused to the appellants by the order
passed by the SEBI rejecting the request of the appellants.
25. In 8. Karunakar & Ors. (supra), having defined the
meaning of "civil consequences", this Court reiterated the
principle that the Court/Tribunal should not mechanically set
D aside the order of punishment on the ground that the ;eport was
not furnished to the employee. It is only if the Court or Tribunal
finds that the furnishing of the report would have made a
difference to the result in the case that it should set aside the
order of punishment. In other words, the Court reiterated that
E the person challenging the order on the basis that it is causing
civil consequences would have to prove the prejudice that has
been caused by the non-grant of opportunity of hearing. In the
present case, we must hasten to add that, in the letter dated
4th May, 2006, the appellants have not made a request for being
F granted an opportunity of personal hearing. Therefore, the
ground with regard to the breach of rules of natural justice
clearly seems to be an after thought.
26. Mr. Shyam Divan had also relied on Automotive Tyre
Manufacturers Association Vs. Designated Authority & Ors. 3
G The aforesaid judgment is again of no relevance in the present
case. The scope and ambit of the Anti-Dumping Regulations,
the Customs Tariff (Identification, Assessment & Collection of
Anti-Dumping Duty on Dumped Articles & for Determination of
H 3. (2011) 2 sec 2ss.
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 687
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.)
Injury) Rules, 1995 was under consideration of this Court. Upon A
consideration of the entire matter, the Court reiterated the
principle of law, which is stated as follows:-
"80. It is thus, well settled that unless a statutory provision,
either specifically or by necessary implication excludes the B
application of principles of natural justice, because in that
event the court would not ignore the legislative mandate,
the requirement of giving reasonable opportunity of being
heard before an order is made, is generally read into the
provisions of a statute, particularly when the order has C
adverse civil consequences which obviously cover
infraction of property, personal rights and material
deprivations for the party affected. The principle holds
good irrespective of whether the power conferred on a
statutory body or Tribunal is administrative or quasi-
judicial. It is equally trite that the concept of natural justice D
can neither be put in a straitjacket nor is it a general rule
of universal application."
27. Considering the 1995 Rules, it was held as follows:-
E
"83. The procedure prescribed in the 1995 Rules imposes
a duty on the DA to afford to all the parties, who have filed
objections and adduced evidence, a personal hearing
before taking a final decision in the matter. Even written
arguments are no substitute for an oral hearing. A personal
F
hearing enables the authority concerned to watch the
demeanour of the witnesses, etc. and also clear up his
doubts during the course of the arguments. Moreover, it
was also observed in Gu/lapa//i, if one person hears and
other decides, then personal hearing becomes an empty
formality." G
28. It was noticed by the Court that in the matter under
consideration, the entire material had been collected by the
predecessor of the DA. He had allowed the interested parties
and/or their representatives to present the relevant information H
688 SUPREME COURT REPORTS [2013] 3 S.C.R.
A before him in terms of Rule 6(6) but the final findings in the form
of an order were recorded by the successor DA, who had no
occasion to hear the appellants. Therefore, it was held that the
final order passed by the new DA offends the basic principle
of natural justice. In the present case, the appellants did not
B make a formal request before SEBI for being given an
opportunity of personal hearing. Thus, the reliance on the
aforesaid case is misplaced.
29. Mr. Shyam Divan then relied on Darshan Lal Nagpal
(Dead) by LRs. Vs. Government of NCT of Delhi & Ors. 4 The
C Court in this case was considering whether the Government of
NCT of Delhi could invoke Section 17(1) and (4) of the Land
Acquisition Act and dispense with the rule of hearing embodied
in Section 5A (2) for the purpose of acquiring certain land. In
this context, the Court observed that the reasons given by NCT
D for invoking the emergency provision were not justified. It was
observed that the documents produced by the parties including
the notings recorded in the concerned file and the approval
accorded by the Lieutenant Governor do not contain anything
from which it can be inferred that a conscious decision was
E taken to dispense with the application of Section 5A which
represents two facets of the rule of hearing that is the right of
the land owner to file objection against the proposed acquisition
of land and of being heard in the inquiry requirea to be
conducted by the Collector. There is no such duty caused on
F SEBI under the Regulations, which would make it incumbent
upon it to grant an opportunity of hearing before rejecting the
application made by the appellants or its Merchant Bankers.
This apart, we again reiterate that the appellants in its letter of
4th May, 2006 did not make any request for a personal hearing.
G In such circumstances, in our opinion, SAT has correctly
concluded that:
"Having acquired the shares of the target company which
breached the threshold limit prescribed by the takeover
H 4. c2012) 2 sec 321.
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 689
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
code, the appellants were required to make a public officer A
to acquire further shares of that company for which a public
announcement was made. The normal rule being that the
public offer once made could not be withdrawn, it was only
in the exceptional circumstances referred to in the earlier
part of our order that such an offer could be withdrawn. The B
appellants were invoking those exceptional circumstances
and the Board having considered the matter took a
decision. It is not that they had no opportunity to p!~ce their
point of view before the Board. In these circumstances, it
was not necessary for them to be given a personal c
hearing."
30. Mr. Venugopal has further pointed out that apart from
the appellants, even the Merchant Bankers did not make a
request for a personal hearing. He submitted that grant of an
opportunity for a personal hearing can not be insisted upon in D
all circumstances. In support of this submission, he relied on
judgment of this Court in the case of Union of India & Anr. Vs.
Jesus Sales Corporation5 • The submission can not be brushed
aside in view of the observations made by this Court in the
aforesaid judgment, which are as under:- E
"5. The High Court has primarily considered the question
as to whether denying an opportunity to the appellant to be
heard before his prayer to dispense with the deposit of the
penalty is rejected, violates and contravenes the principles F
of natural justice. In that connection, several judgments of
this Court have been referred to. It need not be pointed out
that under different situations and conditions the
requirement of compliance of the principle of natural justice
vary. The courts cannot insist that under all circumstances G
and under different statutory provisions personal hearings
have to be afforded to the persons concerned. If this
principle of affording personal hearing is extended
whenever statutory authorities are vested with the power
s. (1996) 4 sec 69. H
690 SUPREME COURT REPORTS [2013] 3 S.C.R.
A to exercise discretion in connection with statutory appeals,
it shall lead to chaotic conditions. Many statutory appeals
and applications are disposed of by the competent
authorities who have been vested with powers to dispose
of the same. Such authorities which shall be deemed to
B be quasi-judicial authorities are expected to apply their
judicial mind over the grievances made by the appellants
or applicants concerned, but it cannot be held that before
dismissing such appeals or applications in all events the
quasi-judicial authorities must hear the appellants or the
c applicants, as the case may be. When principles of natural
justice require an opportunity to be heard before an
adverse order is passed on any appeal or application, it
does not in all circumstances mean a personal hearing.
The requirement is complied with by affording an
opportunity to the person concerned to present his case
D
before such quasi-judicial authority who is expected to
apply his judicial mind to the issues involved. Of course, if
in his own discretion if he requires the appellant or the
applicant to be heard because of special facts and
circumstances of the case, then certainly it is always open
E to such authority to decide the appeal or the application
only after affording a personal hearing. But any order
passed after taking into consideration the points raised in
the appeal or the application shall not be held to be invalid
merely on the ground that no personal hearing had been
F afforded.
"
31. Taking into consideration the facts and circumstances
G of this case, we are unable to accept the submission of Mr.
Shyam Divan with regard to the breach of rules of natural
justice, in this case, merely because the appellants were not
given a personal tiearing.
32. Mr. Shyam Divan had also submitted that grant of
H opportunity of hearing ought to be read into Regulation 27(1)
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 691
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
(d), which enables SEBI to grant exemption or permit A
withdrawal in "such circumstances as in the opinion of the Board
merit withdrawal". He submits that an informed opinion could
only be taken by the Board under the aforesaid Regulation by
permitting the concerned applicant an opportunity of personal
hearing. The learned senior counsel also sought support for the B
aforesaid submission that Regulation 32(1) which permits the
Board to issue airections as it deem fit in the interests of
investors in the securities and securities market under Section
11 or 11 (b) or 11 (d). Regulation 32(2) specifically provides that
in any proceedings initiated by the Board, it shall comply with c
the principle of natural justice, before issuing directions to any
person. In our opinion, the aforesaid provisions are of no
assistance to the appellants. Firstly, neither the appellants nor
' their Merchant Bankers requested for an opportunity for a
personal hearing. Secondly, in the present case, SEBI has not 0
issued any instructions or directions under Section 11, which
requires that the rules of natural justice be complied with. Thirdly,
it cannot be said that the appellants had been condemned
unheard as the entire material on which the appellants were
relying was placed befor~ SEBI. It is upon consideration of the E
entire matter that the offer of the appellants was rejected. This
is evident from the detailed order passed by SEBI on 30th April,
2007. The letter indicates precisely the exceptional
circumstances mentioned by the appellants seeking to withdraw
the public announcement. Each and every circumstance
mentioned was considered by SEBI. Therefore, it can not be F
said that the appellants have been in any manner prejudiced
by the non-grant of the opportunity of personal hearing.
Therefore, the submission made by Mr. Shyam Divan with
regard to the breach of rules of natural justice is rejected.
G
33. Mr. Shyam Divan then submitted that the interpretation
placed on Regulation 27(1) (d) by SEBI as well as the SAT
results in restriction on the wide powers given to SEBI to
regulate the securities market to further the object of the SEBI
Act. He submits that the appellants are equally "an investor" in H
692 SUPREME COURT REPORTS [2013] 3 S.C.R.
A the market; therefore, the regulator also has to keep the interest
of the appellants in mind. He makes a reference to Regulation
3(1) (f) which provides that nothing contained in Regulations 10,
11 and 12 shall apply to acquisition of shares in the ordinary
course of business by banks and financial institutions as
8 pledgees. This, according to Mr. Shyam Divan, is an indicator
that, for a certain class of institutional investor there is a carve
out. He submits that similar carve out is also provided for the
small investors. In the present case, the appellants have lost
out only because there was an inordinate delay in taking action
c by SEBI. Specifying the changes that would be required in the
letter of offer, the necessary decision was to be taken by SEBI
within 21 days under Regulation 18. But it was not taken by
SEBI for a period of 8 months or 239 days, to be precise. Thus,
there was a delay of 221 days. During this period, the entire
scenario had changed. In such circumstances, the appellants
0
would be entitled to exit option like any other ordinary investor.
He submits that by giving a very narrow and restrictive
interpretation to Regulation 27, SAT has actually curtailed the
wide powers vested in SEBI to regulate the securities market
to further the object of the Regulations.
E
34. He submits that Regulation 27(1) (d) should be
construed to confer wide powers on SEBI to allow withdrawal
of an open offer in cases where although it is not impossible
to complete open offer, but such an offer, in its opinion, merits
F withdrawal. It is submitted that the words "such circumstances
as in the opinion of the Board merit withdrawal", appearing in
Regulation 27(1 )(d) of the Takeover Regulations must mean -
"a. The formation of an opinion by Respondent - which
though subjective in nature - must be based on the
G existence of objective facts;
b. The opinion must be one that is formed by
Respondent based upon, circumstances which
merit withdrawal of the public offer;
H c. Circumstances which go into the formation of the
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 693
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
opinion, must be circumstances that are relevant to A
the question of withdrawal of tlie public offer;
d. The circumstc..11ces must be such that no
reasonable person, who comes into possession or
knowledge thereof, can be compelled to (ignore
such circumstances and) proceed with the public
8
offer."
35. Therefore, the discretion conferred on respondent
under Regulation 27(1) (d), entailed the duty of respondent to
form its opinion based on relevant facts and the circumstances C
prevailing at the time when the application for withdrawal of
open offer was made. Admittedly, the respondent failed to do
so.
36. Learned senior counsel further submitted that the SAT
0
in interpreting Regulation 27 has wrongly relied upon the
principle of Ejusdem Generis. He submits that the rule of
ejusdem generis applies only if the statutory provision - (i)
contains an enumeration of specific words; (ii) the subjects of
enumeration constitute a class or category; (iii) that class of E
category is not exhausted by the enumeration; (iv) the general
terms follow the enumeration; and (v) there is no indication of
a different legislative intent.
37. Learned senior counsel submits that in the present
case none of the said requirements are met. The rule of F
ejusdem generis is restricted to cases where the specific
words precede the general words in the language of the statute,
and in totality from a singular genus along with the general
words. The sub-clauses of Regulation 27 do not form a
common genus of cases where it is impossible to do an open G
offer. Learned senior counsel submitted that the provisions
contained in the Takeover Code are regulatory in nature and,
therefore, have to be construed widely. The Takeover Code
provisions do not apply to pledgees. The text of the Takeover
Code indicates a different legislative intent so far as the H
694 SUPREME COURT REPORTS [2013] 3 S.C.R.
A pledgees are concerned. He submits that the court is entitled
to look at the legislative history for interpretation of any provision
in the Act, Rule or Regulation. He submits that the legislative
history of Regulation 27(1) would clearly show that ejusdem
generis was not the appropriate rule of interpretation to be
B implied while construing the aforesaid provisions. He pointed
out that sub-regulation (a) of Regulation 27(1), as originally
enacted, dealt with a case of a competing acquirer which would
entitle the first acquirer to be exempted from making the open
offer. However, to ensure that shareholders of Target Company
c should have an option to decide from both offers, sub-regulation
(a) was omitted on September 9, 2002. Sub-Regulation (b)
deals with a situation where requisite statutory approvals are
not granted to make the open offer; and Sub-Regulation {c)
deals with a situation where the sole acquirer dies and although
it is possible that the legal heirs could make the open offer,
0
nonetheless grants an exemption to the deceased acquirer and
his heirs. Regulation 27(1) (d), is not confined to a particular
situation, but grants a general power to SEBI to permit
withdrawal of open offer where the facts and circumstances in
its opinion may merit withdrawal, taking into account the facts
E and circumstances of that particular case. Therefore, according
to the learned senior counsel, the SAT erred in law in construing
Regulation 27(1) (d) on the principle of ejusdem generis.
According to Mr. Shyam Divan, Regulation 27{1) (d) provides
an exception for withdrawal of open offer not limited to the
F narrow confines of Clauses (b) and {c) of Regulation 27(1).
According to him, the exception under Regulation 27(1) {d)
deals with a separate and distinct class of cases i.e. where
respondent has been conferred discretion to allow withdrawal
of open offers in "such circumstances," which "in the opinion of
G the Board merit withdrawal". Therefore, for this reason also
Regulation 27(1)(d) cannot be read ejusdem generis with the
preceding clauses to restrict the scope. According to him, the
word "such" used in Regulation 27(1)(d) is used in the context
of circumstances that in the opinion of the Board merit
H withdrawal. According to learned counsel, the same does not
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 695
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
take colour from Regulations 27(1) (b) or 27(1 )(c). This apart, A
he submits that the interpretation given to Regulation 27 by the
SAT is so narrow that it leads to absurd consequences. The
narrow construction of Regulation 27(1) (d) would permit
withdrawal only on the same footing as the circumstances
enumerated under Regulation 27(1)(b) and (c). This would B
leave no discretion with SEBI to approve withdrawal, "in such
circumstances", which in the opinion of the Board "merit
withdrawal." Finally, it is submitted that it is an accepted
principle that where two interpretations are possible then such
an interpretation ought to be taken which will not render any c
provision of a statute otiose. According to him, Regulation 27(1)
(d) would be rendered meaningless if it is read ejusdem
generis with Regulation 27(1) (b) and Regulation 27(1) (c).
Learned senior counsel also relied on Regulation 3 of Takeover
Regulations which empowers the respondent to grant a D
complete exemption to an acquirer from Regulations 10, 11 and
12 in certain cases. He. submits that residuary power under
Regulation 3(1) in addition to the specific scenario mentioned
therein is strongly indicative of the intention of the legislature.
In the facts of the present case, it is submitted by Mr. Shyam E
Divan that had the appellants realized that there was a fraud
before making public announcement, it could have gone to the
Takeover Panel after it exercised the pledge on July 22, 2005
and applied for exemption from Regulations 10, 11 and 12. In
those circumstances, the plea of the appellants for exemption
would have been considered before the making of the public F
announcement. It is only because the fraud was detected much
after the making of the public announcement that the appellants
had made an application for withdrawal of the open offer. In such
circumstances, the respondent can certainly exercise its power
under Regulation 27(1)(d) after granting a hearing. In short, the G
submission of Mr. Shyam Divan is that the regulations permit
exercise of discretion before and after public announcement.
Therefore, SEBI as well as SAT had erred in giving a very
narrow interpretation to regulation 27(1)(d). Learned senior
counsel also referred to Regulation 22(14) of the Takeover H
696 SUPREME COURT REPORTS [2013] 3 S.C.R.
A Regulations which provides that an acquirer who has withdrawn
an open offer shall not be permitted to make an open offer for
a period of six months from the date of wi~hdrawal of the offer.
Applying this to Regulation 27, he submits that it is amply clear
that impossibility as sought to be interpreted in Regulation 27
B cannot vanish in six months. Therefore, according to him, it is
clear that withdrawal of an open offer need not be on account
of impossibility only. In support of these submissions, he relied
on Municipal Corporation of Greater Bombay Vs. Bharat
Petroleum Corporation Ltd. 6 Maharashtra University of Health
c Sciences & Ors. Vs. Satchikitsa Prasarak Manda/ & Ors.7 and
Union of India .& Ors. Vs. A/ok Kuma,a.
38. We are unable to accept the submission of Mr. Shyam
Divan that the rule of ejusdem generis has been wrongly
applied by SAT in interpreting the provisions of Regulations
D 27(1) (b) (c) and (d).
39. In our opinion, the SAT has correctly come to the
conclusion that under the SEBI Act, Board has been entrusted
with the fundamental duties of ensuring orderly development of
E the securities market as a whole and to protect the integrity of
th.e securities market. It is precisely for this purpose that the
provision is made in Regulation 7 that any acquirer, who
acquires shares or voting rights which would entitle him to more
than 5% or 10% or 14% shares or voting rights in a company,
F shall disclose at every stage the aggregate of share holding
or voting rights in that company to the company and to the stock
exchanges where shares of the target company are listed.
Under Regulation (8), such an acquirer shall within 21 days from
the financial year ending March 31, make yearly disclosures to
G the company, in respect of his holdings as on 31st March.
Regulation SA provides for disclosure of information with
regard to pledged shares. The Board has power under
6. (2002) 4 sec 219.
1. (2010) 3 sec 786.
H 8. (2010) s sec 349.
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 697
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
Regulation 9, to call for information with regard to the A
disclosures made under Regulations 6, 7, and 8 as and when
required by the Board. Regulation 10 mandates that no acquirer
shall acquire shares or voting rights which entitle such acquirer
to exercise 15% or more of the voting rights in a company,
unless such acquirer makes a public announcement to acquire B
shares of such company in accordance with the Regulations.
The Takeover Code then prescribed a detailed procedure for
making a public announcement and the manner in which the
offer price is determined at which the shares are offered to
public shareholders. Regulation 11 provides that no acquirer c
who, together with persons acting in concert with him, has
· acquired, in accordance with the provisions of law, 15% or more
but less than 55% of the shares or voting rights in a company,
shall acquire, either by himself or through or with persons acting
in concert with him additional shares or voting rights entitling
0
him to exercise more than 5% of the voting rights unless such
acquirer makes a public announcement to acquire shares in
accordance with the Regulations. Again, Regulation 12
provides that irrespective of whether or not there has been any
acquisition of shares or voting rights in a company, no acquirer E
shall acquire control over the target company, unless such
person makes a public announcement to acquire shares and
acquires such shares in accordance with the Regulations. Under
Regulation 13, before making any public announcement of offer
referred to in Regulation 10 or Regulation 11 or Regulation 12,
the acquirer is duty bound to appoint a Merchant Banker F
holding a certificate of registration granted by the Board. Such
Merchant Banker is required to be not associates of or group
of the acquirer or the target company. In other words, it has to
be a totally independent entity. Under Regulation 14, the
Merchant Banker is required to make public announcement G
under Regulation 10 or Regulation 11 within four working days
of entering into an agreement for acquisition of shares or voting
rights exceeding the respective percentage specified in
Regulations 10 and 11. Regulation 15 provided that public
announcement to be made under Regulations 10, 11 or 12 shall H
698 SUPREME COURT REPORTS [2013) 3 S.C.R.
A be made in all editions of one English national daily with wide
circulation, one Hindi national daily with wide circulation and a
regional language daily with wide circulation at the place where
the registered office of the target company is situated and at
the place of the stock exchange where the shares of the target
s company are most frequently traded. Simultaneously, a copy
of the public announcement has to be submitted to the Board
through the Merchant Banker; sent to all the stock exchanges
on which the shares of the company are listed for being notified
on the notice board; and sent to the target company at its
c registered office for being placed before the Board of Directors
of the company. Regulation 16 sets out in detail the particulars
which are required to be expressly stated and the public
announcement is made under Regulations 10, 11 or 12.
Regulation 17 provides that the public announcement or any
advertisement, circular, brochure, publicity material or letter of
0
offer issued in relation to the acquisition of shares must not
contain any misleading information. Under Regulation 18,
within 14 days from the date of public announcement made
under Regulations 10, 11 or 12, as the case may be, the
E acquirer, through its Merchant Banker, is mandated to file with
SEBI the draft of the letter of offer, containing disclosures as
specified by the Board. This letter of offer is to be dispatched
to the shareholders not earlier than 21 days from its submission
to the Board. However, the Board has the power to specify
changes, if any, in the letter of offer which the merchant banker
F and the acquirer is required to carry out such changes before
the letter of offer is dispatched to the shareholders. Regulation
20 provides that the offer to acquire share under Regulations
10, 11 or 12 shall be made at a price not lower than the price
determined as per sub-regulations (4) and (5).Sub-Regulations
G (4) and (5) provides a complete procedure for determination
of the price. Under Regulation 21, it is provided that the public
offer made by the acquirer to the shareholders of the target
company shall be for a minimum 20% of the voting capital of
the company. Regulation 24 imposes certain general
H obligations of the merchant banker. Before the public
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 699
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
announcement of the offer is made, the merchant banker is A
required to ensure that - (a} the acquirer is able to implement
the offer; (b) the provision relating to Escrow account referred
to in Regulation 28 has been made; (c} firm arrangements for
funds and money for payment through verifiable means to fulfil
the obligations under the offer are in place; (d} the public B
announcement of offer is made in terms of the Regulations.
Under Regulation 24(2}, it is provided that the merchant banker
shall furnish to the Board a due diligence certificate which shall
accompany the draft letter.of offer. Under Regulation 24(4}, the
merchant banker is required to ensure that the contents of the c
public announcement of offer as well as the letter of offer are
true, fair and adequate and based on reliable sources, quoting
the source wherever necessary. To ensure the independence
of the merchant banker under Regulation 24(5A}, the merchant
banker is not permitted to deal in the shares of the target 0
company during the period commencing from the date of
appointment in terms of regulation 13 till the expiry of 15 days
from the date of closure of the offer. It is only upon fulfillment of
all obligations by the acquirers under the Regulations, that the
merchant banker is permitted to cause the bank with which the E
escrow amount has been deposited to release the balance
amount to the acquirers. (Regulation 24(6}}. Under Regulation
24(7}, the merchant banker is called to send a final report to
the Board within 45 days from the date of closure of the offer.
. 40. A conspectus of the aforesaid Regulations would show F
that the scheme of the Takeover Code is - (a} to ensure that
the target company is aware of the substantial acquisition; (b)
to ensure that in the process of the substantial acquisition or
takeover, the security market is not distorted or manipulated·
and (c} to ensure that the small investors are given an option G
to exit, that is, they are offered a choice to either offload their
shares at a price as determined in accordance with the
takeover code or to continue as shareholders under the new
dispensation. In other words, the takeover code is meant to
ensure fair and equal treatment of all shareholders in relation H
700 SUPREME COURT REPORTS [2013] 3 S.C.R.
A to substantial acquisition of shares and takeovers and that the
process does not take p1ace in a clandestine manner without
protecting the interest of the shareholders. It is keeping in view
the aforesaid aims and objects of the takeover code that we
shall have to interpret Regulations 27(1 ).
8
Regulation 27 reads as under:
"Withdrawal of offer- (1) No public offer, once made, shall
be withdrawn except under the following circumstances:-
c (a) .............. .'
(b) the statutory approval(s) required have been
refused;
(c) the sole acquirer, being a natural person, has
D died;
(d) such circumstances as in the opinion o the
Board merits withdrawal.
(2) In the event of withdrawal of the offer under any
E of the circumstances specified under sub-regulation (1),
the acquirer or the merchant banker shall:
(a) make a public announcement in the same
newspapers in which the public announcement of
F offer was published, indicating reasons for
withdrawal of the offer;
(b) simultaneously with the issue of such public
announcement, inform - (i) the Board; (ii) all the
stock exchanges on which the shares of the
G
company are listed; and (iii) the target company at
its registered office."
41. We may notice here that Regulation 27(1) (a) was
omitted by SEBI (Substantial Acquisition of Shares and
H
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 701
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
Takeovers) (Second Amendment), Regulations, 2002 w.e.f. A
· 9.9.2002. Prior to omission, it read as under :-
"(a) the withdrawal is consequent upon any competitive
bid."
42. A bare perusal of the aforesaid Regulations shows that 8
Regulation 27(1) states the general rule in negative terms. It
provides that no public offer, once made, shall be withdrawn.
Since Clause (a) has been omitted, we are required to interpret
only the scope and ambit of clause (b), (c) and (d). The three
sub-clauses are exceptions to the general rule and, therefore, C
have to be construed very strictly. The exceptions cannot be
construed in such a manner that would destroy the general rule
that no public offer shall be permitted to be withdrawn after the
public announcement has been made. Clause (b) would permit
a public offer to be withdrawn in case of legal impossibility when D
the statutory approval required has been refused. Clause {c)
again provides for impossibility when the sole acquirer, being
a natural person, has died. Clause (b) deals with a legal
impossibility whereas clause (c) deals with a natural disaster.
Clearly clauses (b) and (c) are within the same genus of 'E
impossibility. Clause {d) also being an excE'ption to the general
rule would have to be naturally construed in terms of clauses
(b) and (c). Mr. Divan has placed a great deal of emphasis on
the expression "such circumstances" and "in the opinion" to
indicate that the Board would have a wide discretion to permi. F
withdrawal of an offer even though it is not impossible to
perform. We are unable to accept such an interpretation.
43. The term "ejusdem generis" has been defined in
Black's Law Dictionary, 9th Edn. as follows :
G
"A canon of construction holding that when a general word
or phrase follows a list of specifics, th~ general word or
phrase will be interpreted to include only items of the same
class as those listed."
H
702 SUPREME COURT REPORTS [2013) 3 S.C.R.
A 44. The meaning of the expression ejusdem generis was
considered by this Court on a number of occasions and has
been reiterated in Maharashtra University of Health Sciences
and Ors. Vs. Satchikitsa Prasarak Manda/ & Ors9 . The
principle is defined thus :
B
"The Latin expression "ejusdem generis" which means "of
the same kind or nature" is a principle of construction,
meaning thereby when general words in a statutory text are
flanked by restricted words, the meaning of the general
words are taken to be restricted by implication with the
c meaning of the restricted words. This is a principle which
arises "from the linguistic implication by which words
having literally a wide mt3aning (when taken in isolation)
are treated as reduced in scope by the verbal context". It
may be regarded as an instance of ellipsis, or reliance on
D implication. This principle is presumed to apply uniess
there is some contrary indication [see Glanville Williams,
The Origins and Logical Implications of the Ejusdem
Generis Rule, 7 Conv (NS) 119]."
E 45. Earlier also a Constitution Bench of this Court in
Kava/appara Kottarathil Kochuni vs. State of Madras 10·
construed the principle of ejusdem generis wherein it was
observed as follows :
" ........ The rule is that when general words follow particular
F and specific words of the same nature, the general words
must be confined to the things of the same kind as those
specified. But it is clearly laid down by decided cases that
the specific words must form a distinct genus or category.
It is not an inviolable rule of law, but is only permissible
G inference in the absence of an indication to the contrary."
46. Again this Court in another Constitution Bench decision
9. (2010) 3 sec 786.
H 10. AIR 1960 SC 1080.
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 703
BOARD OF INDIA (SURINDER SINGH NIJJAR, J.]
in the case of Amar Chandra Chakraborty Vs. Collector of A
Excise 11 observed as follows : ·
".... The ejusdem generis rule strives to reconcile the
incompatibility oetween specific and general words. This
doctrine applies when (i) the statute contains an B
enumeration of specific words; (ii) the subjects of the
enumeration constitute a class or category; (iii) that class
or category is not exhausted by the enumeration; (iv) the
general term follows the enumeration; and (v) there is no
indication of a different legislative intent."
c
47. Applying the aforesaid tests, we have no hesitation in
accepting the conclusions reached by SAT that clause (b) and
(c) referred to circumstances which pertain to a class, category
or genus, that the common thread which runs through them is
the impossibility in carrying out the public offer. Therefore, the o
term "such circumstances" in clause (d) would also be restricted
to situation which would make it impossible for the acquirer to
perform the public offer. The discretion has been left to the
Board by the legislature realizing that it is impossible to
anticipate all the circumstances that may arise making it E
impossible to complete a public offer. Therefore, certain amount
of discretion has been left with the Board to determine as to
whether the circumstaRGes fall within the realm of impossibility
as visualized under sub-clause (b) and (c). In the present case,
we are not satisfied that circumstances are such which would
F
make it impossible for the acquirer to perform the public offer.
The possibility that the acquirer would end-up making loses
instead of generating a huge profit would not bring the situation
within the realm of impossibility.
48. We are unable to accept the submission of Mr. Shyam G
Divan that clause (d) would permit SEBI to accept the offer of
withdrawal even in circumstances when it has become
uneconomical for the acquirer to perform the public offer. The
rule of ejusdem generis as defined by this Court in
11. (1972) (2) sec 444. H
704 SUPREME COURT REPORTS [2013] 3 S.C.R.
A Commissioner of Income Tax, Udaipur, K.ajasthan Vs.
McDowell and Co. Ltd12• is as follows :
"The principle of statutory interpretation is well known and
well settled that when particular words pertaining to a
B class, category or genus are followed by general words,
the general words are construed as limited to things of the
same kind as those specified. This rule is known as the
rule of ejusdem generis. It applies when:
(1) the statute contains an enumeration of specific
C words;
(2) the subjects of enumeration constitute a class or
category;
(3) that class or category is not exhausted by the
D enumeration;
(4) the general terms follow the enumeration; and
(5) here is no indication of a different legislative intent."
E 49. Mr. Divan has sought to persuade us that clause (d)
in fact carves out an exception out of the except:ons provided
in clauses (b) and (c). l/'/e see no justification in moving away
from the Latin maxim "noscitur a sociis", which contemplates
that a statutory term is recognized by its associated words. The
F Latin word "sociis" means society. It was pointed out by
Viscount Simonds in Attorney General vs. Prince Ernest
Augustus of Hanover, (1957) AC 436 that when general words
are juxtaposed with specific words, general words cannot be
read in isolation. Their colour and their contents are to be
G derived from their context. Applying the aforesaid principle, we
are unable to stretch the meaning of terms "such circumstances"
from the realm of impossibility to the realm of economic
undesirability. In essence, the submission made by Mr. Divan
H 12. (2009) 10 sec 755.
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 705
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
is that unless they are allowed to walk away from the public offer A
they would have to bear losses which would otherwise have
been shared by the erstwhile shareholders of the target
company. Accepting such a proposition would be contrary to
the aims and objectives of the Takeover Code which is to
ensure transparency in acquisition of a large percentage of B
shares in the target company. It would also encourage
undesirable and speculative practices in the stock market.
Therefore, we are unable to accept the submission of Mr.
Shyam Divan. Regulation 27(1) (d) would empower the SEBI
to permit withdrawal of an offer merely because it has become c
uneconomical to perform the public offer.
50. Mr. Venugopal, in our opinion, has rightly submitted that
the Takeover Regulations, which is a special law to regulate
"substantial acquisition of shares and takeovers" in a target
company lays down a self contained code for open offer; and D
also that interest of investors in the present case required that
they should be given an exit route when the appellants have
acquired substantial chunk of shares in the target company. He
has correctly emphasised in his submissions that the orderly
development of the securities market as a whole requires that E
public offers once made ought not to be allowed to be withdrawn
on the ground of fall in share price of the target company, which
is essentially a business misfortune or a financial decision of
the acquirer having gone wrong. SEBI as well as the SAT have
correctly concluded that withdrawal of the open offer in the given F
set of circumstances is neither in the interest of investors nor
development of the securities market. Mr. Venugopal is correct
in voicing the apprehension that if on ground of fall in prices,
public offer is allowed to be withdrawn, it could lead to frivolous
offers, being made and withdrawn. This would adversely affect G
the interests of the shareholders of the target company and the
integrity of the securities market, which is wholly contrary to the
intent and purpose of the takeover regulations. In such
circumstances, we are unable to agree with the submission of
Mr. Shyam Divan that the order passed by SEBI on 30th April, H
2007 can be said to be an order causin~ civil conseQuences.
706 SUPREME COURT REPORTS [2013) 3 S.C.R.
A The appellants wanting to withdraw the public offer merely
wishes to cut its losses at the expense of the innocent
shareholders, who are entitled under the Regulations to the exit
option. In such circumstances, the appellants would have to buy
the shares at the quoted prices of Rs.18.60 per share, placing
B a financial burden on the appellants. The aim of the appellants
was merely to avoid such an added burden. This is patent from
the plea made by the Merchant Bankers on 22nd September,
2006 on behalf of the appellants. In the aforesaid application,
it is clearly mentioned as under:
c "Under the aforesaid circumstances, it is apparent that
SRMTL has lost is substratum, has become a "sick
company" and that chances of lis (sic) survival are
negligible. The pledgee Acquirers while enforcing the
security created earlier (invoking the pledge on the shares
D of SRMTL) had triggered Regulation 10 of the Regulations
requiring the Pledgee Acquirers to make the open offer.
However, on account of subsequent knowledge of
development at SRMTL, it is apparent that if this offer is
not withdrawn, the Pledgee Acquirers will be saddled with
E an additional burden of over Rs.25 crores. In our view, the
purpose sought to be achieved by operation of the
Regulations is lost in view of the subsequent
developments and hence the Regulations will operate
harshly again the Pledgee acquirers. In view of the
F changed scenario, it would be inequitable and unfair to
compel the Pledgee Acquires to proceed with the offer to
purchase the shares of SRMTL from the shareholders of
SRMTL in accordance with the draft Letter of Offer.
In light of the change in circumstances as stated above
G
and considering the present state of affairs, we now appeal
to you to kindly permit the acquirers to withdraw the offer
by using the powers vested in you in terms of Regulation
27(4) of the Regulations."
H 51. In view of the foregoing reasons, we are not inclined
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 707
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
to accept the submissions of Mr. Divan that the principle of A
ejusdem generis is not applicable for interpreting Regulation
27(1) (d) of the Takeover Code.
Object of Takeover Code qua the Lenders
52. The next submission of Mr. Shyam Divan is based on B
Regulation 3(1)(f) of the Takeover Code, which exempts the
banks and financial institutions from making a public offer
where an acquisition of shares is made in the ordinary course
of business, in pursuance of the pledge of shares made in its
favour. It is submitted that the objective underlying the said C
provision appears to be to give an exemption to the creditors
who acquire shares to secure the loan/credit and then invoke
the pledge to recover such credit from the defaulting parties,
but not to take over the management of the target companies.
On similar reasoning, the said objective, as put forward by the D
learned senior, would be taken to apply in the case of a private
company which gives credit and acquires shares as pledged
in course of the business, since the object of such private
companies is also not to takeover the management but to
secure their loan. It is also submitted that Regulation 27(1) (d) E
of the Takeover Code ought to be interpreted with such latitude
to further the said objective of the Takeover Code.-.
53. We are unable to accept the aforesaid submission of
Mr. Shyam Divan. Rather we find merit in the submission of Mr. F
Venugopal that "Regulation 3(1) (f) (iv) (which exempts the
acquisition of shares by banks and public financial institutions
as pledgees, from the provisions of the Takeover Regulations),
does not advance the case of the appellants any further. Under
this regulation, exemption is provided to certain entities that
acquire shares in the ordinary course of business. The G
regulation provides exemption from Regulation 10, 11 and 12
to Scheduled Commercial Banks or Public Financial Institutions
acting as pledgees in the ordinary course of business, in order
to facilitate their business operations. Such acquisition of
H
708 SUPREME COURT REPORTS [2013] 3 S.C.R.
A shares in normal circumstances is not with the intention of
taking over the target company. The shares are acquired to
protect the economic interest of the banks and public financial
institutions by securing repayment of the loan. Such
acquisitions of shares have nothing in common with acquisition
B of shares by an acquirer company such as the appellants
seeking to gain control in the affairs of the target company.
Powers of Respondent under SEBI Act:
54. Mr. Shyam Divan has further submitted that de hors
C the Takeover Regulations/Code, SEBI has wide powers to allow
withdrawal of offer under Sections 11 & 11 B of the SEBI Act.
To safeguard the interest of the investors in securities, and
also, to regulate the securities market, SEBI has the power to
take whatever steps it considers appropriate. In this context,
o the learned senior counsel relied upon the case of Sahara India
Real Estate Corporation Limited & Ors v. Securities and
Exchange Board of India & Anr13•
55. We are not inclined to accept the aforesaid
E submission. In the aforesaid judgment in Sahara India Real
Estate Corporation Limited (supra) this Court observed as
under:
"From a collective perusal of Sections 11. 11A, 11 B and
11 C of the SEBI Act, the conclusions drawn by the SAT,
F that on the subject of regulating the securities market and
protecting interest of investors in securities, the SEBI Act
is a stand alone enactment, and the SEBl's powers
thereunder are not fettered by any other law including the
Companies Act, is fully justified.
G
56. These observations have been made by this Court to
emphasise that SEBI has all the powers to protect the interests
of investors in securities and also to ensure orderly, regulated,
and transparent functioning of the stock markets. The aforesaid
H 13. (2012) 8 SCALE 101.
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 709
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
observations would be of no assistance to the appellants herein A
who is seeking to walk away from public offer merely to avoid
economic loses. Rather we agree with the submission of Mr.
Venugopal that permitting such a withdrawal would lead to
encouragement of unscrupulous elements to speculate in the
stock market. Encouraging such a practice of an offer being B
withdrawn which has become uneconomical would have a
destabilizing effect in the securities market. This would be
destructive of the purpose for which the Takeover Code was
enacted.
Fraud:
c
57. It is submitted that since fraud vitiates every solemn
act, the withdrawal of the public offer by the appellants ought
to have been allowed. In this regard, reliance is placed upon
Ram Chandra v. Savitri Devi (2003) 8 SCC 319 (Paras 15- D
30).
58. This submission of Mr. Shyam Divan is wholly
misconceived in the facts and circumstances of this case. In
the case of Ram Chandra (supra), this Court has reiterated the E
principle laid down in the case of S.P. Chenga/varaya Naidu
(dead) by LRs. vs. Jagannath (Dead) by LRs. and Ors. 14 The
principle was explained by Kuldip Singh, J. in the following
words:
"Fraud avoids all judicial acts, ecclesiastical or temporal" F
observed Chief Justice Edward Coke of England about
three centuries ago. It is the settled proposition of law that
a judgment or decree obtained by playing fraud on the
court is a nullity and non est in the eyes of law. Such a
judgment/decree - by the first court or by the highest court G
- has to be treated as a· nullity by every court, whether
superior or inferior. It can be challenged in any court even
in collateral proceedings."
14. (1994) 1 sec 1. H
710 SUPREME COURT REPORTS [2013] 3 S.C.R.
A 59. It was further held in paragraph 5, as follows:-
"5. The High Court, in our view, fell into patent error. The
short question before the High Court was whether in the
facts and circumstances of this case, Jagannath obtained
the preliminary decree by playing fraud on the court. The
8
High Court, however, went haywire and made observations
which are wholly perverse. We do not agree with the High
Court that "there is no legal duty cast upon the plaintiff to
come to court with a true case and prove it by true
evidence". The principle of "finality of litigation" cannot be
c pressed to the extent of such an absurdity that it becomes
an engine of fraud in the hands of dishonest litigants. The
courts of law are meant for imparting justice between the
parties. One who comes to the court, must come with clean
hands. We are constrained to say that more often than not,
D process of the court is being abused. Property-grabbers,
tax-evaders, bank-loan-dodgers and other unscrupulous
persons from all walks of life find the court-process a
convenient lever to retain the illegal gains indefinitely. We
have no hesitation to say that a person, who's case is
E based on falsehood, has no right to approach the court.
He can be summarily thrown out at any stage of the
litigation."
60. In the present case, no fraud has been played on the
F appellants as such. The shares were acquired by the appellants
on the basis of an informed business decision. The appellants
cannot be permitted to take advantage of its own laxity to justify
seeking withdrawal of the public offer.
61. Mr. Shyam Divan submitted that SEBI has wrongly
G concluded that the fact of the large scale embezzlement in the
target company were existent prior to the exercise of the pledge
by the appellants and, therefore, were "known" or "could have
been known" by the appellants, if the appellants had exercised
proper "due diligence". He points out that the entire basis and/
H
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 711
BOARD OF INDIA [SURINDER SINGH NlJJAR, J.]
or the special circumstances in which the appellants made an A
application for permission to withdraw the public offer was on
the basis of certain facts which came to light subsequently i.e.
facts which came in the public domain and/or the knowledge
of the appellants, only after the appellants exercised its right of
pledge and after the appellants made consequential public B
announcement. According to the learned senior counsel, the
Sharma Report, which came in public domain after the public
announcement, for the first time informed the public that through
fraudulent transactions, Rs.326 Crores were siphoned off/
embezzled by erstwhile promoters of SRMTL. As soon as the c
Sharma Report was made public, the market· price of the
shares of the target company fell from Rs.18.60 to Rs.8.56. He
also emphasised that the Sharma Report also brought to public
notice the Kalyaniwala Report and Sharp Report. These reports
were submitted to the erstwhile Board of Directors of the target 0
company in 2002. However, these reports were not made public
and in fact were deliberately withheld from the public in spite
of the same being price sensitive. Therefore, according to Mr.
Shyam bivan, the appellants, or for that matter, any person
exercising due diligence and care, could not have and did not E
know the existence and nature of the fraud and embezzlements
by the erstwhile promoters of the target company. If the SEBI,
the capital market regulator, with all its infrastructure did not
become aware of the damning indictment of a listed company
permitting its controlling promoters to abuse, misuse and
embezzle funds belonging to investors in the securities market, F
it cannot rationally be accepted that the appellants would have
discovered the same by exercise of due diligence. Mr. Shyam
Divan further brought to our notice the facts which were known
at the time of public announcement and the facts which could
not have been known even after due diligence since the same G
did not reflect in the balance sheet and/or financial statement
of the target company. The known facts at the time of public
announcement are listed as under:
"SRMTL had negative net worth; H
712 SUPREME COURT REPORTS [2013) 3 S.C.R.
A SRMTL Company was recently faced with poor financial
performance;
Stated reasons for the aforesaid poor performance and
negative net worth was:
8 (i) Low volume of sales and products;
(ii) Reduced price and lower realization;
(iii) Working capital constraints;
c (iv) Higher unabsorbed fixed costs.
Certain Litigations as stated in the Letter of Offer were
pending."
0 62. The facts which could not have been known even after
due diligence are stated to be as under:
"Finding of special investigative audit by M/s. RC.Sharma
& Co., Chartered Accountants as contained in the three
reports;
E
Unexplained shortfall of cash - cash being siphoned by
those in management.
Issuance of warrants to Pan Emami Cosmed Ltd in concert
with Emami's promoters with a view to fraudulently siphon
F Rs.2.74 Crores.
Promoters fraudulently appropriating money by sale of
goods to Emami Ltd by creating charge on trade
receivables.
G
Siphoning of Rs.SO Crores by promoters/directors of
SRMTL through related party transactions "by creating a
fictitious asset procurement case and subsequently
creating false grounds of writing off the same amount in
H the books of the Company".
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 713
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
Rs. 143 Crores of "huge contingent liability is not disclosed A
in Balance Sheet as on 31.03.2005.
Systematic embezzlement and siphoning of funds by
promoters director of more than 326 Crores by fraudulent
transactions." ·
B
63. On the basis of the aforesaid, Mr. Shyam Divan
submitted that the conclusion recorded by the SEBI which has
been upheld and approved by SAT is without any factual basis.
64. Mr. Shyam Divan, relyi·1g on Regulation 3A which c
prohibits dealing in securities of a target company if a person
has access to price sensitive information, submitted that if the
appellants were privy to the contents of the Kalyaniwala and
Sharp Reports it would have been precluded from invoking the
pledges, as such action would constitute "dealing in securities". D
It is also submitted by Mr. Shy~m Divan that the expression "due
diligence" does not mean that the party has to assume the role
of amateur detective, nor is the party obliged to make any
enquiries unless it can be established that there existed any
circumstances which should have aroused any suspicion. It is E
also submitted that the law laid down in Marfani and Co. Ltd.
vs. Midland Bank Ltd. 15 and Indian Overseas Bank vs.
Industrial Chain Concem 16 which enumerates the benchmark
or standards accepted from a party while performing the due
diligence should be taken into account.
F
65. We are not much impressed by any of the submissions
made by Mr. Shyam Divan on this issue. Admittedly, the
appellants were aware of the litigation against Shree Ram Multi
Tech Limited and its Directors. The litigation commenced in the
year 2003 i.e. before the public announcement made by the G
appellants. In fact, the letter of offer itself refers to the pending
litigation by and against the target company and its directors.
15. 1968 (2) All E.R. 573.
16. 1990 1 sec 484. H
714 SUPREME COURT REPORTS [2013] 3 S.C.R.
A 66. In Paragraph 4.17 of the said letter, the appellants
mentioned the cases filed by Banks and Financial Institutions;
Cases/Appeals filed by SRMTL against Banks and financial
Institutions; Cases filed by the Registrar of Companies in the
Court of Additional Chief Metropolitan Magistrate, Ahmedabad
s in the matter of non payment of dividend under Section 205 of
the Companies Act, 1956 and the application filed by the
company against Registrar of Companies, Gujarat in Gujarat
High Court in this matter under Section 482 of the Criminal
Procedure Code. The list also mentions a case filed in the City
c Civil Court, Ahmedabad by two commercial entities involving
a sum of Rs.14275.47 lacs in the matter of recovery of dues
and alleged claim for damages. The litany of cases also
includes an appeal of SRMTL and its directors before the SAT
against an order of SEBI dated 6th September, 2004
restraining the company and few of its directors from accessing
0
the securities market and prohibiting from buying, selling and
dealing in securities, directly or indirectly, for a period of five
years on the charge of having violated sections 11 and 13 of
the SEBI Regulations, 2003. There were six cases pending
E against the target company in the Labour Court, Kaloi, (Gujarat)
by ex-employees of the Company in the matter of their dues
and compensation. There were cases pending in relation to
Central Excise. In one case, CEGAT had passed an order on
25th February, 2004 claiming duty of Rs.101.81 lacs, fine of
Rs.2 lacs and penalty of Rs.0.20 lacs. Excise duty authorities
F have in various cases raised a demand on target company for
an aggregate sum of Rs.145.90 lacs towards excise duty and
Rs.97.02 lacs towards penalty for various offences. Similarly,
excise duty of Rs.1317.65 lacs was demanded as a result of
a raid by the Intelligence Officer, Central Excise, Ahmedabad
G for non-accounted raw materials. Undoubtedly, the appeals
were pending in the higher fora in a number of cases.
Nonetheless any reasonable investor/group of investors/
consortium would have come to a conclusion that investing in
this entity would not be a prudent decision.
H
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 715
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
67. Taking into account the aforesaid state of affairs, SAT A
has concluded as follows:-
''The above facts would seem to be enough to provide the
appellants a correct prognosis regarding the financial
health and prospects of the target company. Clearly, the 8
appellants decided on invoking the pledge on the shares
of the target company with open eyes and sufficient
knowledge about the affairs of the target company. It is not
as if the appellants were innocent and were caught
napping in an unexpected turn of events. We are not, C
therefore, inclined to accept at its face value the argument
of the appellants that they had no prior clue about the
adverse financial information relating to the target
company and were contained in the later reports of the
Chartered Accountants. In this view of the matter, the
Board was justified in characterizing the situation that the D
appellants are faced with as the result of lack of due
diligence and/or sheer business misfortune. They are only
trying to wriggle out of a bad bargain which is not
permissible under Regulation 27(1) (d) of the takeover
code." E
68. The aforesaid conclusion reached by SAT, in our
opinion, does not call for any interference.
69. We are inclined to agree with the submission made
by Mr. Venugopal that the appellants can.not be permitted to F
wriggle out of the obligation of a public offer under the Takeover
Regulation. Permitting them to do so would deprive the ordinary
shareholders of their valuable right to have an exit option under
the aforesaid regulations. The SEBI Regulations are designed
to ensure that public announcement is not made by way of G
speculation and to protect the interest of the other
shareholders. Very solemn obligations are cast on the merchant
banker under Regulation 24(1) to ensure that -
(a) the acquirer is able to implement the offer; H
716 SUPREME COURT REPORTS [2013] 3 S.C.R.
A (b) the provision relating to Escrow account referred to in
Regulation 28 has been made;
(c) firm arrangements for funds and money for payment
through verifiable means to fulfil the obligations under the
offer are in place;
(d) the public announcement of offer is made in terms of
the Regulations;
(e) his shareholding, if any in the target company is
c disclosed in the public announcement and the letter of
offer.
70. Regulation 24(2) mandates that the merchant banker
shall furnish to the Board a due diligence certificate which shall
accompany the draft letter of offer. The aforesaid regulation
D clearly indicates that any enquiries and any due diligence that
has to be made by the acquirer have to be made prior to the
public announcement. It is, therefore, not possible to accept the
$Ubmission of Mr. Shyam Divan that the appellants are to be
permitted to withdraw the public announcement based on the
E discovery of certain facts subsequent to the making of the
public announcement. In such circumstances, in our opinion, the
judgments cited by Mr. Shyam Divan are of no relevance.
Delay:
F
71. Mr. Shyam Divan has also indicated that it was
because of the unexplained delay of 8 months on the part of
SEBI to process the Letter of Offer of the appellants that the
prices for the shares of the target company went down from Rs.
18.60 to Rs. 8.56, during this period. This would impose huge
G financial liability on the appellants. This submission is also
wholly misconceived. The submission was not made before
SAT and it has been raised for the first time, in the submissions
made by Mr. Shyam Divan. In fact, the ground is not even
pleaded in the grounds of appeal. The submission is mentioned
H only in the list of dates. Since, we are considering a statutory
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 717
BOARD OF INDIA [SURINDER SINGH NIJJAF<, J.]
appeal under Section 15Z of the SEBI Act, the same cannot A
be permitted to be raised in this Court for the first time, unless ·
the submission goes to the very root ofthe matter. This apart,
even on merit, we find that the submission is misconceived.
Regulation 18(1) and (2) of the SEBI Takeover Code reads
thus:- B
18. Submission of letter of offer to the Board -
(1) Within fourteen days from the date of public
announcement made under regulation 10, 11 or 12 as the
case may be, the acquirer shall, through its merchant C
banker, file with the Board, the draft of the letter of offer
containing disclosures as specified by the Board.
(2) The letter of offer shall be dispatched to the
shareholders not earlier than 21 days from its submission 0
to the Board under sub-regulation (1):
Provided that if, within 21 days from the date of
submission of the letter of offer, the Board specifies
changes, if any, in the letter of offer (without being under
any obligation to do so), the merchant banker and the E
acquirer shall carry out such changes before the letter of
offer is dispatched to the shareholders :
[Provided further that if the disclosures in the draft letter of
offer are inadequate or the Board has received any F
complaint or has initiated any enquiry or investigation in
respect of the public offer, the Board may ca1I for revised
letter of offer with or without rescheduling the date of
opening or closing 9f the offer and may offer its comments
to the revised letter of offer within seven working days of G
filing of such revised letter of offer.]"
72. A perusal of the aforesaid regulation clearly shows that
the acquirer is required to file the draft letter of offer containing
disclosures as specified by the Board within a period of 14
H
718 SUPREME COURT REPORTS [2013] 3 S.C.R.
A days from the date of public announcement. Thereafter, letter
of offer has to be dispatched to the shareholders not earlier than
21 days from its submission to the Board. Within 21 days, the
Board is :equired to specify changes if any, that ought to be
made in the letter of offer. The merchant banker and the
B acquirer have then to carry out such changes before the letter
of offer is dispatched to the shareholders. But there is no
o.bligation to do so. Under the second proviso, the Board may
call for revised letter of offer in case it finds that the disclosures
in the draft letter of offer are inadequate or the Board has
c received any complaint or has initiated any enquiry or
investigation in respect of the public offer. It is important to
notice that in the first proviso the Board does not have any
obligation to specify any change in thf:l draft letter of offer within
a period of 21 days. In the present case, in fact, the Board had
D not specified any changes within 21 days. We have already
noticed earlier that the lett~r of offer was lacking and deficient
in detail. The appellants themselves were taking time to submit
details called for, by their merchant bankers through various
letters between 08.08.2005 to 20.3.2006. We have already
noticed the repeated advice given by the merchant banker to
E enhance the issue size of the open offer and to comply with
other requirements of the Takeover Regulations. The appellants,
in fact, were prevaricating and did not agree with the
interpretation placed on Regulation 27(1) (d) by the Merchant
Banker. We, therefore, reject the submission of Mr. Shyam
F Divan that there was delay on the part of SEBI in approving the
draft letter of offer.
Court mav direct fresh valuation:
73. Lastly, Mr. Shyam Divan has submitted that even if the
G appellants were not to be permitted to withdraw the public offer,
the Court ought to appoint an independent valuer and direct a
fresh valuation to be made on the basis of principles contained
in Regulation 20(5) of the Takeover Regulations. Such a
valuation, according to Mr. Shyam Divan, would be justified in
H
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 719
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
the light of the foregoing submissions. We are not at all A
impressed by the aforesaid submission. The formula given in
Regulation 20 would have no applicability in the facts and
circumstances of this case. The determination of the lowest
price under Regulation 20 would be at a stage prior to the
making of the public announcement and not thereafter. B
74. In view of the aforesaid, we find no merit in the appeal
and it is accordingly dismissed.
R.P. Appeal dismissed.
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