# 3 S.C.R. 662 NIRMA INDUSTRIES LTD. & ANR v. SECURITIES & EXCHANGE BOARD OF INDIA

- **Citation:** [2013] 3 S.C.R. 662
- **Court:** Supreme Court of India
- **Decided:** 2013-05-09
- **Case number:** Civil Appeal No. 6082 of 2008
- **Bench:** Surinder Singh Nijjar, Anil R. Dave
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/3-s-c-r-662-nirma-industries-ltd-anr-v-securities-exchange-board-of-india-28909
- **Pages:** 58

## Headnote

SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997:
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G Normally, the public offer once made can only be withdrawn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
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.
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
F
G
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)

## Text

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A
8
c
[20·t3] 3 S.C.R. 662
NIRMA INDUSTRIES LTD. & ANR.
v.
SECURITIES & EXCHANGE BOARD OF INDIA
(Civil Appeal No. 6082 of 2008)
MAY 9, 2013
[SURINDER SINGH NIJJAR AND ANIL R. DAVE, JJ.)
SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997:
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
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.
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
F
G
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]
E
Union of India & Anr. Vs. Jesus Sales Corporation 1996
(3) SCR 894 = 1996 (4) SCC 69 - relied on.
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; 704G-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]
c
D
Case Law Reference:
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
2012 (2) SCR 595
1996 (3) SCR 894
2002 (2) SCR 860
held inapplicable para 27
relied on
cited
E
2010 (3) SCR 91
cited
para 30
para 37
para 37
para 37
para 45
para 46
para 48
para 49
F
G
2010 (5) SCR 35
AIR 1960 SC 1080
(1972 (2) sec 444
2009 (8) SCR 983
(1957) AC 436
(2012) 8 SCALE 101
cited
referred to
referred to
referred to
referred to
held inapplicable para 55
2003 (4) Suppl. SCR 543
referred to
para 57
. para 58
1993 (3) Suppl. SCR 422
1968 (2) All E.R. 573
referred to
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 1 SZ 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.
Facts :
F
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 :
B
c
(i) Shree Rama Polysynth Pvt. Ltd.
1664
(ii) East-West Polyart Ltd.
(iii) Ideal Petroproducts Ltd.
Total
1500
1730
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.
(ii) East-West Polyart Ltd.
E
(iii) Ideal Petroproducts Ltd.
. Total
52,49,786
28,74,800
62,64, 114
- 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 PREOFFER 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
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[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
0 September, 2006, the appellant was informed by the Merchant
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.
H
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.
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
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.
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;
F
G
(iv) several cases of recovery being filed against SRMTL."
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[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
8 Mr. Shyam Divan, learned senior counsel on behalf of the
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
F
G
H
the aforesaid order, which are as under:-
"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
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
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
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SUPREME COURT REPORTS
[2013] 3 S.C.R.
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
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).
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."
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
B
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
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
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
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
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
D
E
F
G
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SUPREME COURT REPORTS
[2013] 3 S.C.R.
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
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:-
F
G
H
"We have perused the various grounds you have mentioned
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
offer. Regulation 27(1) of the Takeover code is the only
regulation permitting withdrawal of public offers and the
same is reproduced below:
"
NIRMA INDUSTRIES LTD. v. SECURITIES & EXCHANGE 683
BOARD OF INDIA [SURINDER SINGH NIJJAR, J.]
20.