# CLARIANT INTERNATIONAL LTD. AND ANR v. SECURITIES AND EXCHANGE BOARD OF INDIA

- **Citation:** [2004] Supp. 3 S.C.R. 843
- **Court:** Supreme Court of India
- **Decided:** 2004-08-25
- **Bench:** N. Santosh Hegde, S.B. Sinha, A.K. Mathur
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/clariant-international-ltd-and-anr-v-securities-and-exchange-board-of-india-20120
- **Pages:** 42

## Headnote

Securities and Exchange Board of India Act, 1992:
Section 2(2)-"Shareholders "-Rights of-Held: Purely contractual
in nature.
Section 1 I-Interest of investors in security-Power of Board-Held:
Board has wide power to issue directions both in the interest of the
securities market as well as for protection of interest of investors-Such
A
B
c
power includes a direction to pay interest.
D
Sections 11to11-D, 15-A to 15-JA, 15-T. 15-U, 15-V and 15-ZSecurities Appellate Tribunal-Powers and function of-JurisdictionNature and scope of-Held: Not in any way fettered by the statute-The
Tribunal which is an expert body must, therefore, be allowed to exercise E
its own jurisdiction conferred on it by the statute without any limitationHad it been the intention of the Parliament to limit the jurisdiction of the
Tribunal it could have done so explicitly as has been done in terms of S.
15-Z in the case of Supreme Court.
Sections 11to11-D, 15-A to 15-J, 15-T, 15-U and 15-V-Security F
and Exchange Board-Powers and functions of-Doctrine of separation
of powers-Nature and scope of-Held: The Board exercises legislative,
executive and judicial powers-The only check on such wide-ranging
power is that the Board must comply with the Constitution and the ActHence, where an expert body such as the Securities Appellate Tribunal is G
constituted, the scrutiny at its end must be held to be of wide import.
Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997: Regulation 44(i) [as inserted
in 2002}.
H
843
844
SUPREME COURT REPORTS (2004] SUPP. 3 S.C.R.
A
Public offer-Delay in making of-Expression "interest of investors"-
Import of-Held: Such an expression did not occur in Regulation 44 as
it stood in 1997-Hence, its insertion in Regulation 44 in 2002 shows that
the Board has wide powers to issue directions including award of interestHowever, Regulation inserted in 2002 has curtailed the discretionary
B jurisdiction of the Board-The Board, in terms of the 1997 Regulations,
could award interest by way of damages-But by reason of the 2002
Regulations, its power is limited to grant of interest to compensate lhe
shareholders for the loss suffered by them arising out of the delay in making
the public offer-However, the shareholders have no say in the matterC As a necessary concomitant they have no legal right therein-The discretion
so exercised is subject to appeal as also judicial review and, thus, must
also answer the test of reasonableness-Further, payment of interest for
delay in making the public offer is not a commercial transaction-Interest
awarded reduced from 15% to 10%.
D
"Interest of investors"-Directions issued to safeguard-Nature and
E
scope of Held: Regulation 44(i) inserted in 2002 not of penal consequence
but only a civil consequence-But a direction in terms of Regulation 44
of 1997, which was "in the interest of the securities market"; would
indisputably have caused civil consequences to the defaulters.
Interest-Award of-Principles-Held: In the absence of any
agreement or statutory provision or mercantile usage, interest payable can
be only at the market rate-Such interest is payable upon establishment
of the totality of circumstances justifYing exercise of such equitable
F jurisdiction-In such matters, courts of law can take judicial notice of both
inflation as also fall in bank rate of interest.
Compensation and interest-Held: Only those shareholders whose
shares have been accepted upon public announcement of offer and who
have suffered loss owing to blockage of amount by not being able to sell
G the shares held by them are entitled to compensation and interestMoreover, such shareholders must be those who were shareholders on the
triggering date i.e. the date of takeover/acquisition.
Interest awarded to shareholders-Dividend received by
H shareholders-Effect of-Held: The dividend received by shareholders
CLARIANT INTERN A TI ON ALL TD. v. SECURITIES k EXCHANGE BOARD OF INDIA 845
should be set-o

## Text

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CLARIANT INTERNATIONAL LTD. AND ANR.
v.
SECURITIES AND EXCHANGE BOARD OF INDIA
AUGUST 25, 2004
(N. SANTOSH HEGDE, S.B. SINHA AND A.K. MATHUR, JJ.]
Securities and Exchange Board of India Act, 1992:
Section 2(2)-"Shareholders "-Rights of-Held: Purely contractual
in nature.
Section 1 I-Interest of investors in security-Power of Board-Held:
Board has wide power to issue directions both in the interest of the
securities market as well as for protection of interest of investors-Such
A
B
c
power includes a direction to pay interest.
D
Sections 11to11-D, 15-A to 15-JA, 15-T. 15-U, 15-V and 15-ZSecurities Appellate Tribunal-Powers and function of-JurisdictionNature and scope of-Held: Not in any way fettered by the statute-The
Tribunal which is an expert body must, therefore, be allowed to exercise E
its own jurisdiction conferred on it by the statute without any limitationHad it been the intention of the Parliament to limit the jurisdiction of the
Tribunal it could have done so explicitly as has been done in terms of S.
15-Z in the case of Supreme Court.
Sections 11to11-D, 15-A to 15-J, 15-T, 15-U and 15-V-Security F
and Exchange Board-Powers and functions of-Doctrine of separation
of powers-Nature and scope of-Held: The Board exercises legislative,
executive and judicial powers-The only check on such wide-ranging
power is that the Board must comply with the Constitution and the ActHence, where an expert body such as the Securities Appellate Tribunal is G
constituted, the scrutiny at its end must be held to be of wide import.
Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997: Regulation 44(i) [as inserted
in 2002}.
H
843
844
SUPREME COURT REPORTS (2004] SUPP. 3 S.C.R.
A
Public offer-Delay in making of-Expression "interest of investors"-
Import of-Held: Such an expression did not occur in Regulation 44 as
it stood in 1997-Hence, its insertion in Regulation 44 in 2002 shows that
the Board has wide powers to issue directions including award of interestHowever, Regulation inserted in 2002 has curtailed the discretionary
B jurisdiction of the Board-The Board, in terms of the 1997 Regulations,
could award interest by way of damages-But by reason of the 2002
Regulations, its power is limited to grant of interest to compensate lhe
shareholders for the loss suffered by them arising out of the delay in making
the public offer-However, the shareholders have no say in the matterC As a necessary concomitant they have no legal right therein-The discretion
so exercised is subject to appeal as also judicial review and, thus, must
also answer the test of reasonableness-Further, payment of interest for
delay in making the public offer is not a commercial transaction-Interest
awarded reduced from 15% to 10%.
D
"Interest of investors"-Directions issued to safeguard-Nature and
E
scope of Held: Regulation 44(i) inserted in 2002 not of penal consequence
but only a civil consequence-But a direction in terms of Regulation 44
of 1997, which was "in the interest of the securities market"; would
indisputably have caused civil consequences to the defaulters.
Interest-Award of-Principles-Held: In the absence of any
agreement or statutory provision or mercantile usage, interest payable can
be only at the market rate-Such interest is payable upon establishment
of the totality of circumstances justifYing exercise of such equitable
F jurisdiction-In such matters, courts of law can take judicial notice of both
inflation as also fall in bank rate of interest.
Compensation and interest-Held: Only those shareholders whose
shares have been accepted upon public announcement of offer and who
have suffered loss owing to blockage of amount by not being able to sell
G the shares held by them are entitled to compensation and interestMoreover, such shareholders must be those who were shareholders on the
triggering date i.e. the date of takeover/acquisition.
Interest awarded to shareholders-Dividend received by
H shareholders-Effect of-Held: The dividend received by shareholders
CLARIANT INTERN A TI ON ALL TD. v. SECURITIES k EXCHANGE BOARD OF INDIA 845
should be set-off against interest awarded.
A
Administrative Law:
Delegated legislation-Duties of authority-Held: When any criterion
is fixed by a statute or by a policy, an attempt should be made by the B
authority making the delegated legislation to follow the policy formulation
broadly and substantially and act in conformity thereof
Interpretation of Statutes:
Legal fiction-Inevitable corollaries thereof-Held: Once a fiction is C
created, upon imagining a certain state of affairs, imagination cannot be
permitted to be boggled when it comes to the inevitable corollaries thereof
Words & Phrases:
"Interest of investors "-Meaning of-In the context of Regulation
44(i) of the Securities and Exchange Board of India (Substantial Acquisition
of Shares and Takeovers) Regulations, 1997.
Doctrines:
"Doctrine of restitution "-Invoking of-During pendency of
litigation-Held: Can be invoked-But the court should see that while
compensating a person he should not be urijustly enriched.
"Doctrine of separation of powers "-Discussed
Colour Chem. Ltd. was a target company. Its shares are listed on
D
E
F
the Bombay Stock Exchange and National Stock Exchange. An
agreement was entered into by and between one Hoechst and one
Clariant pursuant whereto and in furtherance whereof German G
Specialty Chemicals business of the target company was transferred
to the latter by transferring some equity shares of Rs. I 00 each of the
target company. On or about 21-11-1997, with a view to giving effect
to the said agreement, Clariant sought for an exemption from compliance
of the requirements of making open offer to the shareholders of the H
846
SUPREME COURT REPORTS (2004] SUPP. 3 S.C.R.
A target company in terms of the provisions of the Securities and
Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997. Such exemption, however, was not
granted. Hoechst in the aforementioned situation decided to sell-off the
shares held by it in the target company to Ebito, a company that was
B floated as a special purpose vehicle. After the transfer Ebito became
a 100% subsidiary company of Clariant.
A complaint was received by the Securities and Exchange Board
oflndia to the effect that as by reason of the aforementioned agreement
C as SO.I% shares/voting rights and control in the target company had
been made without any public announcement, the provisions of the
Regulations had been violated. Upon an inquiry made in this behalf,
the Board concluded that the .acquirer had actually acquired the
control over the target company on 21-11-1997. By reason of an order,
D the Board issued certain directions.
An appeal was preferred against the said order by the acquirer
wherein the primary question raised was the rate of interest for the
delay involved in making payment to the shareholders who tendered
the shares in the public offer required to be made in terms of the
E Regulations.
The submissions of the acquirer before the Securities Appellate
Tribunal were that (i) the rate of interest was on the higher side; (ii)
the dividends having been paid in the meantime, the same should be
F set-off from the amount of payable interest; and (iii) the interest was
payable only to those shareholders who held shares on the triggering
date.
The Tribunal by its impugned judgment while rejecting the first
G two contentions raised on behalf of the appellan<-acquirer accepted the
third and held that the interest shall be at the rate of 15% as directed
by the respondent and further held that the dividend paid by the target
company to its shareholders was not required to be deducted from the
interest payable to the shareholder by the appellant-acquirer. Hence
H the appeals.
,
CLARIANT INTERNATIONAL LTD. v. SECURITIES & EXCHANGE BOARD OF INDIA 84 7
Disposing of the appeals, the Court
A
HELD: 1.1. 'Shareholder' has neither been defined in the Securities
and Exchange Board of India Act, 1992 nor in the Securities and
Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997; whereas 'shares' have been defined to B
mean shares in the share capital of a company carrying voting rights
and include any security which would entitle the holder to receive shares
with voting rights but shall not include preference shares. (863-C]
1.2. As 'shareholder' has not been defined, with a view to bringing
a 'shareholder' within the provisions of the said Regulations, one has to C
refer to the relevant provisions of the Companies Act, 1956. (863-F)
2.1. Section ll of the Act provides that it shall be the duty of the
Securities Exchange Board to protect the interest of investors in
securities. Regulation 44 of 1997, however, empowered the Board to D
issue directions only in the interest of the securities market. The
expression "in the interest of the investors" did not occur therein.
Regulation 44 of the 2002 Regulations, which contains the said expression,
thus, confers a wider power upon the Board. Regulation 44 of the 2002
Regulations, furthermore, empowers the Board to issue directions both
in the interest of the securities market as well as for the protection of the E
interest of investors. Such directions may be issued in its discretion. The
Board, however, in its discretion may or may not issue such directions.
The shareholders do not have any say in the matter. As a necessary
concomitant, they have no legal right. (864-B-D; 864-G-H)
2.2. A direction in terms of Regulation 44, which was in the
interest of securities market indisputably would have caused civil or
evil consequences on the defaulters. Regulation 44(i) of the 2002
Regulations, however, does not provide for any penal consequence. It
provides for only a civil consequence. [864-E]
3. The Board further having a discretionary jurisdiction must
exercise the same strictly in accordance with law and judiciously. Such
discretion must be a sound exercise in law. The discretionary jurisdiction,
F
G
it is well known, although may be of wide amplitude as the expression
"as it deems fit" has been used but in view of the fact that civil H
848
SUPREME COURT REPORTS (2004] SUPP. 3 S.C.R.
A consequences would ensue by reason thereof, the same must be
exercised fairly and bona fide. The discretions so exercised is subject
to appeal as also judicial review, and thus, must also answer the test
of reasonableness. The discretionary jurisdiction has to be exercised
keeping in view the purpose for which it is conferred, the object sought
B to be achieved and the reasons for granting such a wide discretion. A
discretionary jurisdiction, furthermore, must be exercised within the
four corners of the statute. [865-A-B, D-F[
Narendra Singh v. Chhotey Singh, (1983] 4 SCC 131 and Dr.
C Akshaibar Lal v. The Vice-Chancellor, Banaras Hindu University, [1961]
3 SCR 386, relied on.
D
Kruger v. Commonwealth of Australia, [1997] 146 Aus LR 126 and
de Smith, Wolf and Jowell: Judicial Review of Administrative Action, 5th
Edn., p. 445, para 9-022, referred to.
4.1. Interest can be awarded in terms of an agreement or statutory
provisions. It can also be awarded by reason of usage or trade having
the force of law or on equitable considerations. Interest cannot be
awarded by way of damages except in cases where money due is
E wrongfully withheld and there are equitable grounds therefor, for
which a written demand is mandatory. (865-G[
4.2. In the absence of any agreement or statutory provision or a
mercantile usage, interest payable can be only at the market rate. Such
F interest is payable upon establishment of totality of circumstances
justifying exercise of such equitable jurisdiction. (866-A]
G
Municipal Corporation of Delhi v. Sushi/a Devi (Smt.), [1994] 4 SCC
317, Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa v.
NC. Budharaj, [2001] 2 SCC 721, relied on.
4.3. In a given case where the liability arises during the pendency
of a litigation, doctrine of restitution can be invoked. (866-D]
South Eastern Coalfields Ltd. v. State of MP., (2003] 8 SCC 648,
H relied on.
CLARIANT INTERNATIONAL LTD. v. SECURITIES & EXCHANGE BOARD OF INDIA 849
Black's Law Dictionary, 7th Edn., p. 1315 and John D. Calamari A
& Joseph M Perillo: Law of Contracts, referred to.
5. When a benchmark is fixed by a statute, the question as to
whether a discretion has been judicially or properly exercised or not
will have to be determined in the context of the facts of the particular B
case. So also, when a benchmark is fixed or the court grants interest
at the agreed rate, it may not be necessary to give rea8ons but where
interest is granted at a higher or lesser rate, some reasons are required
to be assigned. [867-A-BJ
Secretary, Irrigation Department v. G.C. Roy, [1992) I SCC 508, C
relied on.
6.1. By reason of Regulation 44, as substituted in 2002, the
discretionary jurisdiction of the Board is curtailed. It in terms of
Regulations 1997 could award interest by way of damages but by D
reason of Regulation 2002, its power is limited to grant interest to
compensate the share holders for the loss suffered by them arising out
of the delay in making the public offer. The courts of law can take
judicial notice of both inflation as also fall in bank rate of interest. The
bank rate of interest both for commercial purpose and other purposes E
had been the subject matter of statutory provisions as also the judgemade laws. Even in cases of victims of motor vehicles accidents, the
courts have upon taking note of the fall in the rate of interest held that
9% interest to be reasonable. Furthermore while construing such
provisions, the courts must take into consideration the provisions of the F
law such as Section 34(1) and (2) of the Code of Civil Procedure, 1908
as had been interpreted by courts prior thereto. [867-B-EJ
Kaushnuma Begum (Smt.) v. New India Assurance Co. Ltd., [2001)
2 SCC 9, HS. Ahammed Hussain v. Ir/an Ahammed, [2002) 6 SCC 52
and United India Insurance Co. Ltd. v. Patricia Jean Mahajan, (2002) 6 G
sec 281, relied on.
6.2. The Statutory changes brought about must be noticed by the
court keeping in view the fact that the nature of jurisdiction exercised
by the Board has been changed. The mischief rule also in this case H
I\
850
SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A should be applied. [867-E]
7. The payment of interest for delay in making the public offer
is not a commercial transaction. [868-C]
B
Citibank NA. v. Standard Chartered Bank, [2004[ 1 SCC 12 and
c
D
Citibank NA. v. Standard Chartered Bank, [2004[ 6 SCC 1, relied on.
DDA v. Mis: Surgical Cooperative Industrial Estate Ltd., [1993]
Supp. 4 SCC 20, held inapplicable.
DDA v. Joginder S. Monga, [2004[ 2 SCC 297; State Bank of Patiala
v. Harbans Singh, [1994[ 3 SCC 495 and Regional Provident Fund
Commissioner v. Shiv Kumar Jain, [2000[ 1 SCC 98, referred to.
Black's Law Dictionary, referred to.
8. While awarding interest, it is required to bear in mind that
interest would be payable on the maximum price of the share which
was Rs. 318 and not on Rs. 220 which was not the prevailing price
in 1998, as a result whereof not only a shareholder would be getting
E a higher price but would also be getting interest thereupon. [870-E[
9.1. To becom.: a shareholder, a person has to fulfil two conditions,
namely, he must agree in writing to become a member of a company
and whose name should be entered in its register of members. The
F members holding equity share capital of a company and whose names
are entered as beneficial owners in the records of the depository shall
be deemed to be the members of the concerned company. [871-F-G]
9.2. The rights of a shareholder are purely contractual and would
be such which are granted to him by the Company's Memorandum or
G Articles of Association together with the statutory rights conferred on
him by the Companies Act, 1956. [873-8[
Mis. Howrah Trading Co. Ltd. v. The Commissioner of Income Tax,
[1959[ Supp. 2 SCR 448 and Balkrishan Gupta v. Swadeshi Polytex Ltd.,
H !19851 2 sec 167, relied on.
l
CLARJANT INTERNATIONAL LTD. v. SECURJTIES & EXCHANGE BOARD OF INDIA 851
Palmer;s Company Law, 23rd Edn., p. 154, para 12-07, referred A
to.
9.3. A shareholder having regard to the direction issued by the
Tribunal must be one who was a shareholder on the triggering date
i.e. the takeover/acquisition of the target company. Purpose and object
of creating a legal fiction is well known. Once a fiction is created upon B
imagining a certain state ofaffairs, the imagination cannot be permitted
to be boggled when it comes to the inevitable corollaries thereof.
[873-C-D)
Dipak Chandra Ruhidas v. Chandan Kumar Sarkar, [2003) 7 SCC C
66; ITW Signode India Ltd. v. CCE, (2004] 3 SCC 48 and Ashok Leyland
Ltd. v. State of Tamil Nadu, (2004] 3 SCC l, relied on.
IO. Directions by the Board are required to be issued for the
purpose of protecting the interest of the investors which would imply
that such protection be extended to the persons who are entitled D
thereto and not any other shareholder who would get the same by
windfall. The shareholders contemplated under Regulation 44(i) must
be those shareholders whose shares have been accepted upon public
announcement of offer and who have suffered a loss owing to blockage
of amount by not being able to sell the shares held by them. The object E
of the said provision is to protect the interest of such shareholders who
had suffered a loss for delay in making the public announcement and,
thus, may have to be compensated. The very fact that the benchmark
as regards the rate of interest has been fixed is also a pointer to the
fact that the interest is to be paid to such investors who had suffered
some loss. (873-D-F]
F
II.I. While compensating a person, the court should see that he
is not unjustly enriched. Interest is directed to be paid on the default
of the acquirer occasioning loss suffered by an investor of his money.
Interest was, therefore, payable only to such persons who were G
shareholders of the target company as on the triggering date. The
question of paying interest by way of compensation to persons who had
not suffered any loss, thus;·would not arise. (873-G; 874-A; 873-H]
12. When any criterion is fixed by a statue or by a policy, an
attempt should be made by the authority making the delegated H
852
SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A legislation to follow the policy formulation broadly and substantially
and in conformity thereof. [876-D]
Secretary, Ministry of Chemicals & Fertilizers, Government of India
v. Cipla Ltd., [2003] 7 SCC I, relied on.
B
13.1. Executive functions of the State calls for exercise of discretion.
c
D
The executive also, thus, performs quasi judicial and quasi-legislative
functions and, in this view of the matter, the administrative adjudication
has become an indispensable part of the modern State activity.
[876-F-G]
13.2. Administrative Tribunals may be called specialized courts
of law, although it does not fulfill the criteria of a law court as is
ordinarily understood inasmuch as it cannot, like an ordinary court of
law, entertain suits on various matters, including the matter relating
to the vires of a legislation. [876-G-H; 877-A]
0. Hood Phillips: Constitutional and Administrative Law, 8th Edn.,
p. 692 under the Chapter Tribunals", para 30-021; Robert Carnwath:
Environment Enforcement: The Need for a Specialist Court published in
1992 Journal of Planning and Environment Law, p. 799, Barbara
E Mescher: Powers of the Takeovers Panel and their Effect upon ASIC and
the Court; 2002 (76) Australian Law Journal, p. 119, referred to.
14.1. Had the intention of the Parliament been to limit the
jurisdiction of the Securities Appellate Tribunal, it could have said so
explicitly as has been done in terms of Section 15-Z of the Act whereby
F the jurisdiction of this Court to hear the appeal is limited to the
question of law. [880-A-B)
14.2. The jurisdiction of the appellate authority under the Act is
not in any way fettered by the statute and, thus, it exercises all the
G jurisdiction as that of the Board. It can exercise its discretionary
jurisdiction in the same manner as the Board. [880-B-C)
14.3. Our Constitution although does not incorporate the
doctrine of separation of powers in its full rigour but it does make a
horizontal division of powers between the Legislature, Executive and
H Judiciary. [880-E)
CLARIANT INTERNATIONAL LTD. v. SECURITIES & EXCHANGE BOARD OF INDIA 853
Rai Sahib Ram Jawaya Kapur v. State of Punjab, AIR (1955) SC A
549, relied on.
15. The Board exercises its legislative power by making regulations,
executive power by administering the regulations framed by it and
taking action against any entity violating these regulations and judicial B
power by adjudicating disputes in the implementation thereof. The
only check upon exercise of such wide-ranging power is that it must
comply with the Constitution and the Act. In that view of the matter,
where an expert tribunal has been constituted, the scrutiny of its end
must be held to be of wide import. The Tribunal, another expert body,
must, thus, be allowed to exercise its own jurisdiction conferred on it C
by the statute without any limitation, (880-F, HJ
Cellular Operators Association of India v. Union of India, (2003) 3
SCC 186 and West Bengal Electricity Regulatory Commission v. CESC
Ltd., (2002) 8 sec 715, relied on.
D
H WR. Wade and C.F. Forsyth: Judicial Review of Administrative
Law, Bernard Schwartz: Administrative Law, 3rd Edn., p. 625 para 10.l
and Amnon Rubin Stein: Jurisdiction and Illegality, referred to.
16. The Tribunal has committed an error in holding that the E
dividend being a participatory benefit available to a shareholder and
being distinct from interest, the same should not be taken into
consideration. The Regulation fixes a benchmark as regards rate of
interest. If any amount has been received by the shareholders by
keeping the shares till a public offer was made, the amounts so received p
by them by way of dividend should set-off. (883-D-EJ
17. The interest of justice would be sub-served, if the rate of
interest is directed to be paid @ 10% per annum from March 1998
till 2003. The interest at the rate of 10% is directed instead and in place
of the normal, 9% having regard to the fact that the appellants G
themselves in their Memoran·dum of Appeal filed before the Tribunal
had contended that the Board should have granted interest at the rate
of 10% per annum instead of 15%. If any dividend was paid during
the said period, the same shall be adjusted with the amount of interest.
[883-G; 884-A-BJ H
854
SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A
18. The appellants had deposited a total amount of Rs. 111.50
B
c
D
E
crores which sum has been invested. The interest accruing thereupon
shall enure to the benefit of those shareholders who were entitled to
the payment of interest for the period during which the said amount
remained invested. (884-B-C]
19. That part of the decision of the Tribunal whereby it was held
that those persons who were the shareholders till the triggering date
continued to be shareholders on the closure of the public offer alone
would be entitled to interest is, therefore, upheld. (884-C-D-El
20. However, the case of the Administrator of the Specified
Undertaking of the Unit Trust of India, stands on a different footing.
The facts of the matter clearly go to show that in effect and substance,
the appellants are the successors of the U. T.I. They being the statutory
beneficiary, are entitled to interest irrespective of the fact it came into
being after 1998. (884-D-El
CIVIL APPELLATE JURISIDICTION: Civil Appeal No. 3183 of
2003.
From the Judgment and Order dated 21.2.2003 of the Securities
Appellate Tribunal, Mumbai in Appeal No. 114 of 2002.
WITH
Civil Appeal Nos. 3701, 3872 of 2003 and D3952 of 2004.
R.F. Nariman, Dushyant Dave, Kirit N.Rawal, Manu Krishnan, Rishi
F Agrawal, E.C. Agarwala, Mahesh Agarwal, Ms. Pumima Bhat, Shrish K.
G
Misra, Praveen K. Mehdiratta, Bhargava V. Desai, Pradeep Mathur,
Sanjeev Kr. Singh, Dr. Indra Pratap Singh, Ms. Rachna Gupta, Jeevan
Prakash and K.K. Rai, for the appearing parties.
The Judgment of the Court was delivered by
S.B. SINHA, J.: These appeals under Section 15Z of the Securities
and Exchange Board of India Act, 1992 (for short, 'the said Act) arise out
of a judgment and order dated 21.02.2003 passed by the Securities
Appellate Tribunal, Mumbai (for short, 'the Tribunal') in Appeal No.114
H of 2002.
CLARIANT INTERNATIONAL LTD. v. SECURITIES & EXCHANGE BOARD OF INDIA [SINHA, J.] 855
BACKGROUND FACTS :
A
Colour Chem Ltd, is a target company. Its shares are listed on the
Bombay Stock Exchange and National Stock Exchange, Appellant No.I
(Clariant) in Civil Appeal No.3183 of 2003 is a Swiss company being
subsidiary of another Swiss company, Clariant AG. Hoechst is a German B
company whereas Ebito Chemiebeteiligungen AG (Ebito) is a Swiss
company, In Ebito Clariant held 49% and Hoechest 51% shares. An
agreement was entered into by and between Hoechst and Clariant pursuant
whereto and in furtherance whereof German Specialty Chemicals business
was transferred to the latter by transferring 583708 equity shares of Rs. C
100 each of the target company. On or about 21.11.1997, with a view to
give effect to the said agreement, Clariant sought for an exemption from
compliance of the requirements of making open offer to the shareholders
of the target company in terms of the provisions of the Securities and
Exchange Board oflndia (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 (for sho1t, the Regulations). Such exemption, however, D
was not granted. Hoechst in the aforementioned situation decided to sell
off the shares held by it in the target company to Ebito, a company which
was floated on 19.5.2000 as a special purpose vehicle. Actual transfer took
place on 13.10.2000. Ebito by reason of the aforementioned transfer
became a 100% subsidiary of Clariant.
E
A complaint was received by the Securities and Exchange Board of
India (for short, 'the Board') to the effect that as by reason of the
aforementioned arrangement as 50. l % shares/voting rights and control in
the target company had been made without any public announcement, the F
provisions of the Regulations had been violated. Upon an inquiry made in
this behalf, the Board came to the conclusion that the acquirer had actually
acquired the control over the target company on 21.11.1997, By reason
of an order dated 16.10.2002, the Board directed :
"13.1 In view of the findings made above, in exercise of the G
powers conferred upon me under sub-section (3) of Section 4 read
with Section 11 B SEBI Act 1992 read with regulations 44 and 45
of the said Regulations, I hereby direct the Acquirer to make
public announcement as required under Chapter JJI of the said
Regulations in terms of regulations 10 & 12 taking 21.11.97 as H
A
B
c
D
E
856
SUPREME COURT REPORTS (2004] SUPP. 3 S.C.R.
the reference date for calculation of offer price. The public
announcement shall be made within 45 days of passing of this
order.
13.2 Further, in terms of sub regulation (12) ofregulat.ion 22, the
payment of consideration to the shareholders of the Target
company has to be made within 30 days of the closure of the offer.
The maximum time period provided in the said Regulations for
completing the offer formalities in respect of an open offer, is 120
days from the date of public announcement. The public
announcement in the instant case ought to have been made taking
21.11.97 as a reference date and thus the entire offer process
would have been completed latest by 21.3.98. Since no public
announcement for acquisition of shares of the Target company has
been made, which has adversely affected interest of shareholders
of Target Company, it would be just and equitable to direct the
Acquirer to pay interest @15% per annum on the offer price, the
Acquirer is hereby accordingly directed to pay interest @15% per
annum to the shareholders for ,he loss of interest caused to the
shareholders from 22.3.98 till the date of actual payment of
consideration for the shares to be tendered in the offer directed
to be made by the Acquirer."
An appeal was preferred thereagainst by the acquirer wherein the
primal question raised was the rate of interest for the delay involved in
making payment to the shareholders who tendered the shares in the public
F offer required to be made in terms of the Regulations.
G
It is not in dispute that the value of the share as on 24.2.1998 was
Rs. 220; on 22.10.2002 Rs .. 2 ! 3 and on the date of public announcement
i.e. on 7.4.2003 the value of the share was Rs. 209, Rs. 233 Rs. 203 and
Rs. 220, whereas the offer price was Rs. 318 .
The submissions of the acquirer before the Tribunal were that (i) the
rate of interest is on the higher side; (ii) the dividends having been paid
in the meantime, the same should be set off from the amount of payable
interest; and (iii) the interest is payable only to those shareholders who held
H shares on the triggering date, namely, 24.2.1998.
CLARIANT INTERNATIONAL LTD. v. SECURITIES & EXCHANGE BOARD OF INDIA [SINHA, J.] 857
IMPUGNED JUDGMENT :
The Tribunal by its impugned judgment while rejecting the first
two contentions raised on behalf of the acquirer accepted the third,
holding :
"(i) Those persons who were holding shares of the target company
on 24.2.1998 and continue to be shareholders on the closure day
A
B
of public offer to be made in terms of the directions given by the
Respondent vide the impugned order alone shall be eligible to
receive interest in case the shares which they were holding on
24.2.1998 are tendered in response to public offer made in terms C
of the impugned order, and accepted by the Appellants.
(ii) The interest payable by the Appellants shall be at the rate of
15% as directed by the Respondent in its order dated 16.l 0.2002.
(iii) The dividend paid by the target company to its shareholders
not required to be deducted from the interest payable to the
shareholders by the Appellants."
D
The acquirer has preferred Civil Appeal No.3183 of 2003, whereas E
the Board has filed Civil Appeal No.3701 of 2003 against the said
judgment. Civil Appeal Nos. 03952 of2004 and 3872 of2003 have been
filed by the Administrator of the Specified Undertaking of the Unit Trust
of India and by one Umeshkuamr G. Mehta respectively.
Submissions :
F
Mr. R.F. Nariman, and Mr. D.A. Dave, learned Senior Counsel
appearing on behalf of the appellants, would submit that the intent and
purport of Regulation 44 of the Regulations, being to compensate the
shareholders for the loss suffered by them, the rate of interest payable to G
the shareholders would vary from case to case. The guidelines in this
regard having been provided for in the statute, Mr. Nariman would submit,
grant of 9% interest should be held to be just and proper in view the fact
that the investment was to be made for a long period, i.e., for about five
years. In support of the said contention, the learned counsel placed reliance H
858
SUPREME COURT REPORTS (2004) SUPP. 3 S.C.R.
A on Kaushnuma Begum (Smt.) and Others v. New India Assurance Co. Ltd.
and Others, [2001) 2 SCC 9, HS. Ahammed Hussain and Another v.
Irfan Ahammed and Another, [2002] 6 SCC 52, United India Insurance
Co. Ltd. and Others v. Patricia Jean Mahajan and Others, (2002]
6 SCC 281 and DDA and Others v. Joginder S. Monga and Others, [2004]
B 2 sec 297.
It was further submitted that those shareholders who had purchased
the shares later than the date fixed by the SEBI were not entitled to receive
any compensation by way of interest as they were not the shareholders on
C the said date having regard to the fact that their names did not appear in
the register of the company. As regard the findings of the Board that the
amount of dividend paid to the shareholders would not be set off against
the amount of interest, it was argued that having regard to the fact that
actual date of transfer had been fixed on 22.3.1998, by reason ofa fiction
D created, a person must be deemed to be a shareholder as on that date and
having regard to the fact that interest was being paid to the shareholders
at the offer price from the said date till the actual payment is made, the
amount received by the shareholders by way of dividend is liable to be
adjusted from the amount to be paid by way of interest. Our attention has
E further been drawn to the fact that pursuant to the order of this Court dated
28.4.2003 a sum of Rs. 111.50 crores had been deposited and invested in
a nationalized bank.
F
Mr. Kirit Rawal, learned Senior Counsel appearing on behalf of the
Board, would, on the other hand, contend that while fixing the rate of
interest, the Board, being an expert body, exercises a discretionary
jurisdiction and, thus, the Tribunal and this Court should not interfere
therewith. The learned counsel would argue that the rate of interest fixed
at 15% p.a. cannot be said to be arbitrary and in support thereof
reliance has been placed on Delhi Development Authority v. Mis Surgical
G Cooperative Industrial Estate Ltd. and Others, [1993] Supp. 4 sec 20.
Mr. Rawal would contend that from a bare perusal of Regulation 44(i) of
the Regulations, it would appear that all those shareholders who had
opted to sell their shares pursuant to the public offer are entitled to the
payment of interest and, thus, the finding of the Tribunal in this regard is
H bad in law.
CLARIANT INTERNATIONAL LTD. v. SECURITIES &·EXCHANGE BOARD OF INDIA [SINHA, J.] 859
It was submitted that Regulation 44 must be read with Section I IB A
of the Act so as to put a proper and effective meaning thereto in terms
whereof the Board is entitled to issue any direction including those which
are specified therein ..
{'s regard the direction issued by the Tribunal to the effect that only B
those shareholders who were on the roll of the company and continued to
be so on the date of public offer alone are entitled to interest, Mr. Rawal
would contend that by reason of such construction of Regulation 44, the
free transferability of the shares which is the basic feature of the security
market would be interfered with.
Mr K.K. Rai, learned counsel appearing on behalf of the Appellant
m Civil Appeal No. 3872 of 2003, would, inter alia, contend that
transaction being commercial in nature, interest at the rate of 15% cannot
c
be said to be on a high side. Reliance in support of the said contention
has been placed on State Bank of Patia/a and Another v. Harbans Singh, D
[1994] 3 SCC 495 and Regional Provident Fund Commissioner v. Shiv
Kumar Joshi, [2000] I SCC 98.
It was contended that as shares were traded on speculation, it may
not be possible to identify the shareholders who as per direction of the E
Tribunal would be entitled to interest as the shares by such time might have
changed many hands. Furthe1more, the process being a complex one,
Regulation 44 should be read in such a manner which may be effectually
worked out.
Mr. Shrish Kr. Misra, learned counsel appearing on behalf of F
the Administrator of the Specified Undertaking of the Unit Trust of
India in Civil Appeal No. D3952 of 2004 would submit that the appellants
therein should be held to be entitled to grant of interest despite the fact
that it was not a shareholder as on 11.3.1998 as would appear from the
following:
G
A. That the Unit Trust of India was a statutory corporation
under the Unit Trust oflndiaAct, 1963 and was/ is the shareholders
of the Target company and as on 24-2-1998 holding 1123800
shares.
H
860
A
B
c
SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
B. That Unit Trust of India Act, 1963 has been repealed by the
Act of the Parliament i.e. Unit Trust of India (Transfer of
Undertaking and Repeal) Act, 2002.
C. That the said Act provides for transfer and vesting ofUndertaking
(excluding Specified Undertaking) of Unit Trust of India to a
Specified Company (being UTI Trustee Company Pvt. Ltd.) to be
formed and registered under the Companies Act 1956 as well as
for transfer and vesting of Specified Undertaking of Unit Trust of
India in the Administrator appointed by the Central Government
in the terms of section 7 of Unit Trust of India (Transfer of
Undertaking and Repeal) Act, 2002.
D. That as per section 4(1) (b) of the said Act the Specified
undertaking of the erstwhile Unit Trust oflndia being all business,
assets, liabilities and properties set out in Schedule-I of the said
D
Act stood transferred to the vested in the "Administrator of the
Specified Undertaking of the Unit Trust of India" on and with
effect from the appointed day viz. 1-2-2003. That by virtue of
section 4(l)(a) of the said Act, the Undertaking (excluding the
Specified Undertaking) of the erstwhile Unit Trust of India
E
being all business, assets, liabilities and properties set out in
schedule II of the said Act stood transferred to and vested in the
"UTI Trustee Company Pvt. Ltd" on and with effect from the
appointed day viz. 1-2-2003.
F
G
E. That the 1123800 shares (considering face value of Rs. 10
each) purchased by the erstwhile Unit Trust of India were/are
from the amount which relates to Schedule I & II to the said Act.
Therefore, the shares purchased by the erstwhile Unit Trust of
India of Mis. Colour Chem Ltd. stands transferred to and vested
in the 'Administrator of the Specified Undertakings of the Unit
Trust of India' and the 'Specified Company' i.e. UT! Trustee
Company Pvt. Ltd. by virtue of the said Act.
F. That out of 1123800 shares the amount invested for 501100
(considering face value ofRs.10 each as on 24-2-1998) shares is
H
from the schemes which come under schedule I of the said Act,
CLARIANT INTERNATIONAL LTD. v. SECURITIES & EXCHANGE BOARD OF INDIA [SINHA, J.] 861
as such the "Administrator of the Specified Undertaking of the A
Unit Trust of India" is the successor in holder of 501100 shares.
G. That the amount invested by the erstwhile Unit Trust of India
for the balance 622700 (considering face value of Rs. 10 each as
on 24-2-1998) shares was from the schemes which come under B
the Schedule II of the said Act, as such the "UT! Trustee Company
Pvt. Ltd." is the successor in holder of those 622700 shares.
H. That as per Section 5(1) of the said Act all the assets and
liabilities including lands, buildings, vehicles, cash balances, C
deposits, foreign currencies, disclosed and undisclosed reserves,
reserves fund, special reserve fund, benevolent reserve fund, any
other fund stock, investments, shares, bonds, debentures, security,
powers authorities privileges benefits of the erstwhile Unit Trust
oflndia vest in "Administrator of the Specified undertaking of the
Unit Trust of India" and "UT! Trustee Company Pvt. Ltd."
D
I. That as per section 5(2) of the said Act "All contracts, deeds
bonds guarantees, power of attorney other instruments (including
all units issued and unit schemes formulated by the Trust and
working arrangements) subsisting immediately before the appointed E
day and affecting the Trust shall cease to have effect or to be
enforceable against the Trust and shall be in full force and effect
against or in favour of the specified company (UT! Trustee
Company Pvt. Ltd.) or the Administrator (Administrator of the
Specified Undertaking of the Unit Trust of India) as the case may F
be, in which the undertaking or specified undertaking has vested
by virtue of the said Act and enforceable as fully and effectually
as if instead of the Unit Trust oflndia, tli_e specified company (UT!
Trustee Company Pvt.