# DAIICHI SANKYO COMPANY LTD v. JAYARAM CHIGURUPATI & ORS

- **Citation:** [2010] 8 S.C.R. 251
- **Court:** Supreme Court of India
- **Decided:** 2010-07-08
- **Case number:** Civil Appeal No. 7148 of 2009
- **Bench:** S.H. Kapadia, Aftab Alam, Swatanter Kumar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/daiichi-sankyo-company-ltd-v-jayaram-chigurupati-ors-27031
- **Pages:** 48

## Headnote

Securities and Exchange Board of India (Substantial
A
B
Acquisition of Shares and Takeovers) Regulations, 1997:
C
Regulations 20(4)(b), 20(12), 2(e)(1) and (2) - Offer price
for acquisition of shares in case of indirect takeover of a
company - Determination of - Ranbaxy acquired shares of
Zenotech in January 2008 at a price of Rs. 160 per equity
D
share -
On June 16, 2008, Daiichi made public
announcement to the shareholders of Ranbaxy to acquire
shares - Daiichi acquired more than 50% of share capital of
Ranbaxy on October 20, 2008 and Ranbaxy became
subsidiary of Daiichi - On January 19, 2009, Daiichi mad~
public announcement to acquire shares of Zenotech @
E
Rs. 113. 62 per equity share - Whether Ranbaxy was a 'person
acting in concert' with Daiichi and therefore whether the price
paid by Ranbaxy to the shareholders of Zenotech in January
2008 was relevant for determining exit price offered by Daiichi
to Zenotech's shareholder under Regulation 20(4)(b) - Held:
F
Ranbaxy did not qualify as 'persons acting in concert' under
·Regulation 2(e)(1) for the acquisition of shares of Zenotech
as Ranbaxy and Daiichi did not have any common object or
purpose to acquire the shares or voting rights of the Zenotech
when the agreement was executed between Ranbaxy and G
Daiichi on June 11, 2008 - Acquisition of Zenotech's shares
by Daiichi was only consequential to the acquisition of
Ranbaxy and was not a concerted action - Any acquisition
of Zenotech shares made by Ranbaxy earlier at a time when
251
H
252
SUPREME COURT REPORTS
[2010) 8 S.C.R.
A it was not a 'person acting in concert' with Daiichi was of no
consequence and price paid by Ranbaxy for Zenotech shares
at that time would not attract clause (b) of Regulation 20(4) -
Securities and Exchange Board of India Act, 1992.
8
Regulation 2(e)(1} - Concept "person acting in concert"
- Held: The concept is based on a target company on the one
side, and on the other side two or more persons coming
together with the shared common objective or purpose of
substantial acquisition of shares etc. of the target company -
Unless there is a target company, substantial acquisition of
C whose shares etc. is the common objective or purpose of two
or more persons coming together, there can be no "persons
acting in concert".
Legislation: Delegated legislation - Legislative practice
0 in India that unlike an Act, a Regulation or the later
amendments introduced in it are not preceded by the "Object
and Purpose" clause - Absence of "Object and Purpose"
clause in the Regulations creates difficulties for Courts in
properly construing the provisions of Regulations dealing with
E the complex issues - Need for change in old practice and to
add at the beginning the object and purpose clause to the
delegated legislations as in the case of the primary
legislations.
On October 3, 2007 Ranbaxy entered into a Share
F Purchase and Share Subscription Agreement (SPSSA)
jointly with Zenotech and its promoter whereby Ranbaxy
agreed to purchase a large block of equity shares
representing 27.35% of the company's fully paid up
equity share capital, at a negotiated price of Rs.160 per
G equity share and to subscribe to 54.89 lacs fully paid up
equity shares at the same price under a preferential
allotment of Zenotech. On October 5, 2007, Ranbaxy
made public announcement whereby it sought to acquire
from the public shareholders, equity shares of Zenotech
H constituting 20% of its expanded share capital. In the
DAIICHI SANKYO COMPANY LTD. v. JAYARAM
253
CHIGURUPATI & ORS.
public announcement, Ranbaxy quoted offer price of A
Rs.160 per equity share. On November 23, 2007,
Zenotech duly allotted 54.89 lacs fully paid up shares to
Ranbaxy. The open offer made by Ranbaxy for Zenotech
shares in terms of Securities and Exchange Board of
India (Substantial Acquisition of Shares and Takeover)
B
Regulations, 1997 (the Takeover Code or Takeover
Regulations) closed on November 15 2008. Following the .
completion of the open offer formalities

## Text

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[2010] 8 S.C.R. 251
DAIICHI SANKYO COMPANY LTD.
v.
JAYARAM CHIGURUPATI & ORS.
(Civil Appeal No. 7148 of 2009)
JULY 08, 2010
[S.H. KAPADIA, CJI, AFTAB ALAM AND
SWATANTER
KUMAR, JJ.]
Securities and Exchange Board of India (Substantial
A
B
Acquisition of Shares and Takeovers) Regulations, 1997:
C
Regulations 20(4)(b), 20(12), 2(e)(1) and (2) - Offer price
for acquisition of shares in case of indirect takeover of a
company - Determination of - Ranbaxy acquired shares of
Zenotech in January 2008 at a price of Rs. 160 per equity
D
share -
On June 16, 2008, Daiichi made public
announcement to the shareholders of Ranbaxy to acquire
shares - Daiichi acquired more than 50% of share capital of
Ranbaxy on October 20, 2008 and Ranbaxy became
subsidiary of Daiichi - On January 19, 2009, Daiichi mad~
public announcement to acquire shares of Zenotech @
E
Rs. 113. 62 per equity share - Whether Ranbaxy was a 'person
acting in concert' with Daiichi and therefore whether the price
paid by Ranbaxy to the shareholders of Zenotech in January
2008 was relevant for determining exit price offered by Daiichi
to Zenotech's shareholder under Regulation 20(4)(b) - Held:
F
Ranbaxy did not qualify as 'persons acting in concert' under
·Regulation 2(e)(1) for the acquisition of shares of Zenotech
as Ranbaxy and Daiichi did not have any common object or
purpose to acquire the shares or voting rights of the Zenotech
when the agreement was executed between Ranbaxy and G
Daiichi on June 11, 2008 - Acquisition of Zenotech's shares
by Daiichi was only consequential to the acquisition of
Ranbaxy and was not a concerted action - Any acquisition
of Zenotech shares made by Ranbaxy earlier at a time when
251
H
252
SUPREME COURT REPORTS
[2010) 8 S.C.R.
A it was not a 'person acting in concert' with Daiichi was of no
consequence and price paid by Ranbaxy for Zenotech shares
at that time would not attract clause (b) of Regulation 20(4) -
Securities and Exchange Board of India Act, 1992.
8
Regulation 2(e)(1} - Concept "person acting in concert"
- Held: The concept is based on a target company on the one
side, and on the other side two or more persons coming
together with the shared common objective or purpose of
substantial acquisition of shares etc. of the target company -
Unless there is a target company, substantial acquisition of
C whose shares etc. is the common objective or purpose of two
or more persons coming together, there can be no "persons
acting in concert".
Legislation: Delegated legislation - Legislative practice
0 in India that unlike an Act, a Regulation or the later
amendments introduced in it are not preceded by the "Object
and Purpose" clause - Absence of "Object and Purpose"
clause in the Regulations creates difficulties for Courts in
properly construing the provisions of Regulations dealing with
E the complex issues - Need for change in old practice and to
add at the beginning the object and purpose clause to the
delegated legislations as in the case of the primary
legislations.
On October 3, 2007 Ranbaxy entered into a Share
F Purchase and Share Subscription Agreement (SPSSA)
jointly with Zenotech and its promoter whereby Ranbaxy
agreed to purchase a large block of equity shares
representing 27.35% of the company's fully paid up
equity share capital, at a negotiated price of Rs.160 per
G equity share and to subscribe to 54.89 lacs fully paid up
equity shares at the same price under a preferential
allotment of Zenotech. On October 5, 2007, Ranbaxy
made public announcement whereby it sought to acquire
from the public shareholders, equity shares of Zenotech
H constituting 20% of its expanded share capital. In the
DAIICHI SANKYO COMPANY LTD. v. JAYARAM
253
CHIGURUPATI & ORS.
public announcement, Ranbaxy quoted offer price of A
Rs.160 per equity share. On November 23, 2007,
Zenotech duly allotted 54.89 lacs fully paid up shares to
Ranbaxy. The open offer made by Ranbaxy for Zenotech
shares in terms of Securities and Exchange Board of
India (Substantial Acquisition of Shares and Takeover)
B
Regulations, 1997 (the Takeover Code or Takeover
Regulations) closed on November 15 2008. Following the .
completion of the open offer formalities, Ranbaxy issued
a post offer announcement on January 30, 2008. The
announcement disclosed that though in the public c
announcement it offered to purchase shares amounting
to 20% of Zenotech's capital, it actually received only
2.2% of the expanded share capital of the company and
the promoters still retained large portion of their
shareholding in Zenotech.
D
On June 11, 2008, Daiichi (appellant) entered into
SPSSA jointly with Ranbaxy and its promoter whereby
Daiichi agreed to acquire 30.91% of the fully paid up
equity share capital of Ranbaxy by buying a sufficiently
large block of shares from the company's promoters.
Daiichi also agreed to subscribe to the shares
representing in the aggregate 11 % of fully paid up equity ,
share capital of Ranbaxy and 238 lacs share warrants
each warrant exercisable for one equity share of
Ranbaxy. On June 16, 2008, Daiichi made a public
announcement to the shareholders of Ranbaxy (other
than sellers under SPSSA) to acquire in the aggregate
22.01% of the fully paid share capital of Ranbaxy.
Daiichi's control over Ranbaxy consummated on
October 20, 2008, when it acquired more than 50% of the
G
share capital of Ranbaxy and from that date, Ranbaxy
became a subsidiary of Daiichi. Daiichi made the public
announcement in regard to Zenotech on January 19,
2009. In the public announcement, Daiichi offered
Rs.113.62 for each share of Zenotech. The offer price was
E
F
H
254
SUPREME COURT REPORTS
(2010] 8 S.C.R
A based on the price of Zenotech shares quoted on the
stock exchange.
Complaints were filed to SEBI by one of the
promoters of Zenotech and another shareholder of
8 Zenotech claiming that the offer price for Zenotech
shares could not be less than Rs.160 per share and
requested the SEBI to direct Daiichi to revise the offer
price. The claim was rejected. Security Appellate
Tribunal (SAT) allowed the appeals and directed Daiichi
to offer Rs.160 per share to the shareholders of Zenotech.
C Aggrieved by the decision of SAT, Daiichi filed the
appeals.
Allowing the appeals, the Court
HELD: 1.1. Regulation 2(b) of the Securities and
D Exchange Board of India (Substantial Acquisition of
Shares and Takeover) Regulations, 1997 (the Takeover
Code or Takeover Regulations), defines the term
'acquirer'. In terms of the definition, on entering into the
SPSSA on June 11, 2008, Daiichi became the acquirer
E (directly) of Ranbaxy and also of Zenotech (indirectly
through the acquisition of Ranbaxy). Regulation 20(12) of
the Takeover Code says that the offer price for the shares
of a company being taken over indirectly and as a
consequence of the acquisition of the primary target,
F would be determined with reference to two dates, one
when the public offer was made in regard to the "Parent
company" (that is, the company, the acquisition of which
resulted in the takeover of the secondary target company)
and the other when the public offer is made for the
G secondary target company and the higher of the two
would be taken as the offer price. In terms of the said subregulation, therefore, the share price of Zenotech was
required to be determined as on June 16, 2008 (the date
of the public announcement for Ranbaxy, the parent
H company) and as on January 19, 2009 (the date of the
DAIICHI SANKYO COMPANY LTD. v. JAYARAM ', 255
CHIGURUPATI & ORS.
public announcement for Zenotech, the indirectly target A
company). Regulation 20(12) mentions the dates with
reference to which the offer price is to be determined but
it does not say as to how the offer price is to be
·,
determined. Sub-regulations (4) and (5) remained
unchanged and did not undergo any amendments s
following the introduction of sub-regulation (4) in
regulation 14 and sub-regulation (12) in regulation 20.
This is to say that the provision$ of sub-regu'lations (4)
and (5) applied both to cases of direct and indirect
takeover; they were not designed only for cases of c
indirect takeover. [Paras 11, 12, 25) (267-E-G; 280-G-H;
281-A-E]
1.2. Sub-regulation (4) of regulation 20 prescribes
three ways for determining the share price with the
stipulation that the highest among them would be the
D
offer price. Clause (a) of sub-regulation (4) refers to the
negotiated price un~er the agreement. This would clearly
apply to a case of direct takeover and shall have no
application to a case of indirect takeover like the present
one. Clause (b) is based on the price paid by the acquirer
E
or persons acting in concert with him for acquisition of
shares of the target company within the period of twenty
six weeks prior the date of the public announcement and
clause (c) is based on the price of the shares of the target
company as quoted on the stock exchange. The
F
appellant worked out the share price of Zenotech as on
June 16, 2008 and January 19, 2009, following the
different modes provided under regulation 20(4)(c) and,
in the public announcement, offered Rs.113.62 per share,'
that being the highest among all. [Paras 26, 27] [281-FG
H; 282-A, D-E]
1.3. On the date Daiichi entered into the SPSSA with
Ranbaxy, it became acquirer both in relation to Ranbaxy
and Zenotech directly in case of the former and indirectly
in case of the latter. Regulation 20(4)(b) speaks of the · H
256
SUPREME COURT REPORTS
[2010] 8 S.C.R.
A price paid by the acquirer or persons acting in concert
with him for acquisition of shares, if any, during the
twenty six weeks period prior to date of public
announcement. It does not speak of any agreement to
acquire shares or of any voting rights or control over the
B target company but the actual price paid for acquisition
of its shares. The Appellate Tribunal proceeded on the
basis that since Daiichi and Ranbaxy were "persons
acting in concert" on the date of the public
announcement made by Daiichi for Zenotech shares,
c clause (b) of regulation 20(4) would be attracted
regardless of the fact that the two were not in that
relationship on the dates of purchase of Zenotech shares
by Ranbaxy. [Para 20 and 40) [272-G-H; 289-A-C, E-F]
1.4. The concept of "person acting in concert" under
D regulation 2(e)(1) is based on a target company on the
one side, and on the other side two or more persons
coming together with the shared common objective or
purpose of substantial acquisition of shares etc. of the
target company. Unless there is a target company,
E substantial acquisition of whose shares etc. is the
common objective or purpose of two or more persons
coming together there can be no "persons acting in
concert". The other limb of the concept requires two or
more persons joining together with the shared common
F objective and purpose of substantial acquisition of shares
etc. of a certain target company. Two or more persons
may join hands together with the shared common
objective or purpose of any kind but so long as the
common object and purpose is not of substantial
G acquisition of shares of a target company they would not
comprise "persons acting in concert".
The idea of
"persons acting in concert" is not about a fortuitous
relationship coming into existence by accident or
chance. The relationship can come into being only by
H design, by meeting of minds between two or more
DAIICHI SANKYO COMPANY LTD. v. JAYARAM
257
CHIGURUPATI & ORS.
persons leading to the shared common objective or- A
purpose of acquisition of substantial acquisition of
shares etc. of the target company. The common objective
or purpose may be in pursuance of an agreement or an
understanding, formal or informal; the acquisition of
shares etc. may be direct or indirect or the persons acting
B
in concert may cooperate in actual acquisition of shares
etc. or they may agree to cooperate in such acquisition.
Nonetheless, the element of the shared common
objective or purpose is the sin qua non for the
relationship of "persons acting in concert" to come into c
being. Therefore, on signing the SPSSA, ·Daiichi and
Ranbaxy did not come within the relationship of persons
acting in concert within the meaning of regulation 2(e)(1)
of the Takeover Code. [Paras 43, 44 and 45] [290-D-H; 291A-H]
. D
2.1. The deeming provision as contained in clause (2)
of Regulation 2(e) cannot do away either with the target
company or the common objective or purpose of
substantial acquisition of shares etc. of the target
company shared by two or more persons because to do E
so would be destructive of the very idea of "persons
acting in concert" as defined in clause (1) of Regulation
2(e). Therefore, clause (2) of Regulation 2(e) containing
the deerping clause cannot be seen as a 'stand alone'
provision, independent of clause (1) of Regulation 2(e).
F
The deeming provision under clause (2) operates only
within the larger framework of clause (1) of regulation
2(e).
The deeming provision simply says that in case of
nine specified kinds of1relationships, in each category, the
person paired with the other would be deemed to be
G
acting in concert with him/it. What it means is that if one
partner in the pair makes or agrees to make substantial
acquisition of shares etc. in a company it would be
presumed that he/it was acting in pursuance of a common
objective or purpose shared with the other partner of the
H
258
SUPREME COURT REPORTS
[2010) 8 S.C.R.
A pair. Something more is required to comprise "persons
acting in concert" than the mere relationship of a holding
company and a subsidiary company. Merely because a
company has a subsidiary company, the two cannot be
dubbed as "persons acting in concert" unless another
B company is identified as the target company and either
the holding company or the subsidiary make some
positive move or show some definite inclination for
substantial acquisition of shares etc. of the target
company. [Paras 46, 47] (292-A-C; D-H; 293-A-B]
c
2.2. The deeming provision under sub-clause (2)
would give rise to the presumption that Daiichi and
Ranbaxy were "persons acting in concert", only from
'Jctober 20, 2008, the date on which Ranbaxy became a
subsidiary of Daiichi and not before that, provided of
D course the other conditions were also satisfied. Hence,
the purchase of Zenotech shares by Ranbaxy in January
2008 cannot be said to be by a "person acting in concert"
with Daiichi. The Appellate Tribunal was in error in
proceeding on the basis that the material date for
E Ranbaxy and Daiichi to be acting in concert was the date
. of the public announcement for the Zenotech shares.
[Paras 48, 49, 50] [293-B-H; 294-A-G; 295-A]
3. The Appellate Tribunal's error is the result of
F mixing up the provisions of sub-regulations (12) and (4)
of Regulation 20. Sub-regulation (12) came to be
introduced in Regulation 20 as a consequence of
extension of time for making public announcement for
the secondary and indirectly targeted company by
insertion of sub-regulation (4) in Regulation 14. SubG regulation (12) of Regulation 20 obliges the acquirer to
work out the best value for the shares of the indirectly
targeted company as obtaining on the date of the public
announcement for the parent target company as well as
on the date of the public announcement for the indirectly
H targeted company concerned and then to offer the
DAIICHI SANKYO COMPANY LTD. v. JAYARAM
259
CHIGURUPATI & ORS.
shareholders the better of the two values, so that the
A
extension allowed for making the public announcement "
for the indirectly targeted company should not cause any
prejudice to its shareholders. Sub-regulation (12) does
not in any way affect sub-regulation (4) which remains
unamended and it certainly does not alter the meaning
8'J
of "person acting in concert" as used in that sub-section.
[Para 51] (295-D-G]
4. For application of Regulation 20(4)(b) it 1s not
relevant or material that the acquirer and the other
person, who had acquired the shares of the target C
company on an earlier date, should b·e acting in concert
at the time of the public announcement for the target
company. What is material is that the other person was
acting in concert with the acquirer at the time of purchase
of shares of the target company. So far as Zenotech was
D
concerned, Ranbaxy was not acting in concert with
Daiichi either from the date of the SPSSA or even aftert
becoming a subsidiary of Daiichi and the acquisition of
Zenotech shares by Ranbaxy in the month of January
2008 did not come within the ambit of Regulation 20(4)(b).
E
The offer price in the public announcement for Zenotech
shares made by Daiichi was correctly worked out. [Paras
52, 55] (295-H; 296-A-B; F-H)
5. As per the legislative practice in India, unlike an
Act, Regulations or any amendments introduced in it are
not preceded by the "Object and Purpose" clause. The
absence of the object and purpose in the Regulations or
F
the later amendments introduced in it only adds to the
difficulties of the court in properly construing the
provisions of Regulations dealing with complex issues.
G
The court, so to say, has to work in complete darkness
without so much as a glimpse into the mind of the maker
of the regulation. Regulations are brought in and later
subjected to amendments without being preceded by any
reports of any expert committees. Now, with more and
H
260
SUPREME COURT REPORTS
[2010] 8 S.C.R
A more of the regulatory regime where highly important
and complex and specialised spheres of hum<)n activity .
·are governed by regulatory mechanisms framed under
delegated legislation, it is high time to change the old
practice and to add at the beginning the "Object and
B Purpose" clause to the delegated legislations as in the
case of the primary legislations. [Para 57] [297-D-H; 298A-B]
c
D
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
7148 of 2009.
From the Judgment & Order dat.__ed 7.10.2009 of the
Securities Appellate Tribunal, Mumbai ih Appeal No. 137 of
2009.
WITH
C.A. No. 7314 of 2009
G.E. Vahanvati, A.G., Fali S. Nariman, Arvind Datar, C.A.
Sundaram, Shyam Divan, Ashok Desai, Anand S. Pathak, Nitin
Wadhwa, Amit Mishra, Subhash Sharma, Siddharth Dutta, G.
E Adarsh, Rajshekhar Rao, Rahul Kumar, Karan Laihri, Senthil
Jagadeesan, G. Ramakrishna Prasad, B. Suyodhan, Amarpal,
Bharat J. Joshi, Pratap Ve~gopal, Surekha Raman, Dileep
Poolakkot (for K.J. John & Co.) Somasekhar Sundareasan,
Ananya Kumar, Ankur Saigal, Bina Gupta, Gaurav Singh, Tripti
F Ray, J.N. Bhushan, John Mathew, S. Dutta for the appearing
parties.
The Judgment of the Court was delivered by
I.
AFTAB ALAM, J. 1. Whether the offer of rupees one
G hundred thirteen and paise sixty two only (Rs.113.62) per share
made by the appellant, Mis Daiichi Sankyo Company Ltd. in
its public announcement dated January 19, 2009 for acquisition
.. of the shares of Zenotech Laboratories Ltd. was fair and lawful
br whether the offer price could not be less than rupees one
H hundred and sixty only (Rs.160.00) per share? This is the
'
I
DAIICHI SANKYO COM PAN'( LTD. v. JAYARAM
261
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
question that falls for consideration in these two appeals. A
A ·
correct answer to the question requires a proper construction
and understanding of certain provision of the Securities and
Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997 (the SEBI Takeover Regulations
or Takeover Code).
B
2. The facts of the case are fairly simple and are admitted
on all sides. The two appeals arise from almost identical facts
but in this judgment we would be referring to the paper book
of Civil Appeal No.7148 of 2009.
3. On October 3, 2007 Ranbaxy Laboratories Limited
(respondent no.3), a company incorporated and registered
under the Indian Companies Act, entered into a Share
Purchase and Share Subscription Agreement jointly with
Zenotech (respondent no.4) and its promoter, Dr. Jairam
Chigurupati (respondent no.1 in Civil Appeal No.7148). The
agreement provided for Ranbaxy to purchase from Zenotech's
promoters a large block of equity shares (78,78,906 in number),
· representing 27.35% of the company's fully paid-up equity
share capital, at the negotiated price of rupees one hundred
and sixty (Rs.160.00) per equity share and to subscribe to
54,89,536 fully paid-up equity shares at the same price (rupees
one hundred and sixty per share) under a preferential allotment
by Zenotech. Having entered into the agreement to acquire
shares that would entitle it to exercise voting rights in Zenotech
far in excess of the statutorily prescribed limit of fifteen percent
(and, in all likelihood, control over it) Ranbaxy was legally
obliged to make a public announcement to acquire shares of
c
D
E
F
the company from the ordinary shareholders. It did so on
October 5, within four days of the agreement as required by
G
law. In the public announcement it sought to acquire from the
public shareholders, equity shares of Zenotech constituting
twenty percent of its expanded share capital. In the public
announcement Ranbaxy quoted offer price of rupees one
hundred and sixty only (Rs.160.00) per equity share as the
negotiated price under the agreement (SPSSA) was the
H
262
SUPREME COURT REPORTS
[201C] 8 S.C.R.
A highest of the prices arrived at by the different ways prescribed
by law. On November 8, 2007 the share purchase transaction
between Ranbaxy and the promoters of Zenotech (Dr.
Chigurupati and his family) was completed and at the annual
general meeting of Zenotech held on the same day, the
B shareholders of Zenotech approved the preferential allotment
of shares to Ranbaxy. On November 23, 2007 Zenotech duly
allotted (by way of preferential allotment) 54,89,536 fully paidup shares to Ranbaxy. The 'open offer' made by Ranbaxy for
Zenotech shares, in terms of the Takeover Regulations, closed
c on November 15, 2008. Following the completion of the open
offer formalities, Ranbaxy issued a post offer announcement on
January 30, 2008. The announcement disclosed that though in
the public announcement it offered to purchase shares
amounting to twenty percent of Zenotech's capital it actually
D received shares comprising only 2.2 percent of the expanded
share capital of the company and further that on completion of
all transactions Ranbaxy's shareholding in Zenotech stood at
46.85% of the latter's share capital. It may be stated here that
even after the sale in terms of the agreement the promoters (Dr.
Chigurupati and his family) retained a large portion of their
E shareholding in Zenotech.
4. It needs to be stated here that up to this stage Daiichi
was nowhere on the scene. It is no one's case that the
acquisition of Zenotech's shares and control by Ranbaxy was
F at the instance of Daiichi or it was in furtherance of some overt
or covert understanding between the two.
5. On June 11, 2008 Daiichi (the appellant in these two
appeals) entered into a Share Purchase and Share
G Subscription Agreement (the 'SPSSA') jointly with (i) Malvinder
Singh and others, the promoters of Ranbaxy, and (ii) Ranbaxy
Laboratories Ltd. Under the agreement, Daiichi would acquire
30.91 % of the fully paid-up equity share capital of Ranbaxy by
buying a sufficiently large block of shares from the company's
promoters. In addition, Daiichi would subscribe to (i) shares,
H
DAIICHI SANKYO COMPANY LTD. v. JAYARAM
263
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
representing in the aggrega•e 11 % of the fully paid-up equity
A
share capital of Ranbaxy, and (ii) 2,38,34,333 share warrants,
each warrant exercisable for one equity share of Ranbaxy. On
the same day Ranbaxy informed the Stock Exchanges that in
the meeting held on that date its Board of Directors had ratified
the terms of the SPSSA and had decided to seek the approval
B
of the company's shareholders for issuance of the shares and
the warrants to Daiichi, on preferential basis, as. stipulated in
the SPSSA. In this letter dated June 11, 2008, addressed to
the Stock Exchanges it was also stated that, since Ranbaxy was
holding 46.85 percent of the equity shares of Zenotech, the c
SPSSA "has also triggered an 'Open Offer' to be made by
· 'Daiichi Sankyo' to the public shareholders of 'Zenotech' to
acquire a minimum of 20% of the Equity Shares of 'Zenotech'
at a price to be determined under the applicable SEBI
Regulations". In order to complete its takeover of Ranbaxy as
D
envisaged under the SPSSA, Daiichi went through the gamut
of the statutory prescriptions. On June 16, 2008 it made a public
announcement ('open offer') to the shareholders of Ranbaxy
(other than the Sellers under the SPSSA) to acquire in the
aggregate 22.01% of the fully paid-up equity share capital of
E
Ranbaxy. The offer price in the public announcement, was
rupees seven hundred and thirty seven only (Rs.737.00) for
each share, which was the price Daiichi had paid to the
company's promoters for acquisition of the shares under the
agreement and which worked out to be the highest of the prices
reckoned by the different ways prescribed by the law. Daiichi's
F
control over Ranbaxy consummated on October 20, 2008 when
it acquired more than fifty percent of the share capital of
Ranbaxy (as it stood on that date) and on and from that date
Ranbaxy became a subsidiary of Daiichi. The relation in which
Ranbaxy came with Daiichi had another consequence, to which
G
an allusion was made in the letter that Ranbaxy had addressed
to the Stock Exchanges on the date of the SPSSA. Whether
intended or not, as a result of its takeover (direct) of Ranbaxy,
Daiichi also (indirectly) acquired control of 46.85% of the equity
share capital in Zenotech, held by Ranbaxy. What on the date
H
264
SUPREME COURT REPORTS
[2010] 8 S.C.R.
A of the SPSSA was an anticipated consequence, on October
20, 2008 became the reality and this date became the starting
point for reckoning the period during which the "acquirer'',
Daiichi must make the public announcement (open offer) to the
shareholders of Zenotech. Daiichi duly made the public
8 announcement in regard to Zenotech on January 19, 2009. In
the public announcement, Daiichi offered rupees one hundred
thirteen and paise sixty two (Rs.113.62) for each share of
Zenotech. The offer price was based on the price of the
Zenotech shares quoted on the stock exchange.
C
6. In regard to the offer price of rupees one hundred
thirteen and paise sixty two (Rs.113.62) made in the public
announcement by Daiichi, N. Narayanan respondent no.1 in
Civil Appeal No.7314 of 2009, who was holding 63000 shares
in Zenotech made a complaint to the Securities and Exchange
D Board of India (SEBI) (vide. letters dated January 19, March
5, April 1, April 15, and May 7, 2009). He claimed that the offer
price for Zenotech shares could not be less than rupees one
hundred and sixty (Rs.160.00) per share and requested the
SEBI to direct Daiichi to revise the offer price accordingly and
E also to pay interest @ 15% for the delay in coming out with the
public announcement.
7. Respondent no.1 in Civil Appeal No.7148 of 2009, Dr.
Chigurupati who was the Director, founder and promoter of
F Zenotech and who along with his wife was holding 26% equity
shares in Zenotech made a similar complaint to SEBI through
a detailed representation dated January 27, 2009.
The SEBI afte~ due consideration of the matter turned down
the claim of the respondents (vide letter dated June 18, 2009
G in the case of N. Narayanan's complaint and letter dated June
22, 2009 in the case of the complaint of Dr. Chigurupati).
8. Against the decision of the SEBI, Dr. Chigurupati and
N. Narayanan preferred separate appeals, being Appeal
Nos.137 and 139 respectively of 2009 before the Security
H
DAIICHI SANKYO COMPANY LTD. v. 'JAYARAM
265
CHIGURUPATI & ORS. [AFTAB ALAM, J.)
Appellate Tribunal. The SecurityAppellate Tribunal upheld the
A
claim of the respondents and by order dated October 7, 2009
allowed the appeals, reversed the decision df the SEBI,
modified the letter of offer (sic) issued by Daiichi and directed
Daiichi to offer rupees one hundred and sixty (Rs.160.00) per
share to the shareholders of Zenotech. Daiichi has now brought
B
the matter in appeal before this Court.
9. Since the offer price for the Zenotech shares quoted in
the public announcement is the bone of contention between the
parties, we need to see some clauses in the public offer in some ·
detail. In paragraph 1.2 it was stated as follows:
C
"1.2 There are no 'Persons Acting in Concert' within the
meaning of Regulation 2(1)(e)(1) of the Regulations in
relation to this offer. However, due ta the applicability of
Regulation 2(1)(e)(2) of the Regulations, there could be
certain entities deemed to, be Persons Acting in Concert
D
with the Acquirer."
Paragraph 4 was about "Reason for Acquisition and Offer
and .Future Plan about the Target Company" and in paragraph
4.1 it was stated as follows:
"4.1 As stated in Para(s) 1.4 and 1 :g_above, as a resultof
the acquisition of- its stake in RLL, together with the
acquisition of control in RLL, the Acquirer has indirectly
acquired 46.85% of the fully paid up equity share capital
of the Target Company held by RLL, which in turn has
resulted in an indirect substantial acquisition of shares and
voting rights in the Target Company by the Acquirer for the
purposes of Regulation 1 O and 12 of the Regulations.
Accordingly, this Offer is being made pursuant to
Regulations .10 and 12 of the Regulations."
And the offer price was calculated and quoted in paragraph
1.9 as follows:
E
F
G
· "1.9 The shares of the Target Company are frequently
traded on the SSE within the meaning of Regulation 20(5)
H
of the Regulations.
266
SUPREME COURT REPORTS
[2010) 8 S.C.R.
A
The Offer price of Rs.113.62 per equity share is justified
in terms of Regulation 20(4) of the Regulations as it is the
higher of the following:"
i.
The negotiated price under the SPSSA#
N.A.
B
ii.
Highest price paid by Acquirer for any
acquisition (including by way of allotment
in a public or rights or preferential issue)
during the 26 weeks prior to the date of
the public announcement to shareholders
c
of RLL
iii.
The average of the weekly high and low Rs. 113.62
of the closing prices of shares of the
Target Company on BSE during the 26
weeks pe.riod preceding the date of
D
public announcement to shareholders of
RLL.
iv.
The average of the daily high and low
Rs. 103.51
prices of the shares of the Target
E
Company on BSE during the 2 week
period preceding the date of public
announcement to shareholders of RLL
v.
Highest price paid by Acquirer for any
N.A.
acquisition (including by way of allotment
in a public or rights or preferential issue)
during the 26 weeks prior to the date of
F
the P.A.
vi.
The average of the weekly high and low Rs.106.03
of the closing prices of shares of target
company on BSE during the 26 weeks
period preceding the date of the P.A.
G
vii. The average of the daily high and low
Rs.109.52
prices of shares of target company on
BSE during the 2 weeks period
H
preceding the date of the P.A.
DAIICHI SANKYO COMPANY LTD. v. JAYARAM
267
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
10. Now is the time to take a look at the statutory
A
provisions controlling and regulating such transactions and to
see how far the steps taken by Daiichi/Ranbaxy were in
conformity with the mandates of the law. The relevant provisions
are to be found in the Securities And Exchange Board of India
(Substantial Acquisition Of Shares And Takeover) Regulations,
B
1997 (the Takeover Code or the Takeover Regulations) framed
under section 30 of the Securities and Exchange Board of
India Act, 1992. The Takeover Code was first notified by SEBI
in November 1994. This was replaced by the 1997 Takeover
Code after undergoing a number of amendments made in
C
light of the recommendations of the first Bhagwati Committee's
report of January 18, 1997. The 1997 Takeover Code provided
for the regulatory mechanism for indirect acquisition of the
kind we see in the present case. The 1997 Takeover Code
underwent further amendments by the SEBI (Substantial
Acquisition of Shares and Takeovers) (Second Amendment)
D
Regulations, 2002, with effect from September 9, 2002 in light
of the recommendations made by the second Bhagwati
Committee's report submitted in May 2002.
11. Now, to the relevant provisions of the Takeover Code:
E
regulation 2 has the definition clauses and sub-regulation (b)
defines acquirer as follows:
"2(b) "acquirer" means any person who, directly or
indirectly, acquires or agrees to acquire shares or voting
rights in the target company, or acquires or agrees to
acquire control over the target company, either by himself
or with any person acting in concert with the acquirer;"
F
12. Thus, in terms of the definition, on entering into the
SPSSA on June 11, 2008 Daiichi became the acquirer G
(directly) of Ranbaxy and also of Zenotech (indirectly, through
the acquisition of Ranbaxy).
13. Regulation 2(c) defines control and regulation 2(e)
defines "Person acting in concert" which is as follows:
H
A
B
c
D
E
F
G
H
268
SUPREME COURT REPORTS
[2010) 8 S.C.R.
"2 (e) "person acting in concert" comprises,-
(1) persons who, for a common objective or purpose of
substantial acquisition of shares or voting rights or gaining
control over the target company, pursuant to an agreement
or understanding (formal or informal), directly or indirectly
co-operate by acquiring or agreeing to acquire shares or
voting rights in the target company or control over the target
company.
(2) Without prejudice to the generality of this definition, the
following persons will be deemed to be persons acting in
concert with other persons in the same category, unless
the contrary is established :
(i) a company, its holding company, or subsidiary or such
company or company under the same management either
individually or together with each other;
·
(ii) a company with any of its directors, or any person
entrusted with the management of the funds of the
company;
(iii) directors of companies referred to in sub-clause (i) of
clause (2) and their associates;
(iv) mutual fund with sponsor or trustee or asset
management company;
(v) foreign institutional investors with sub-account(s};
(vi) merchant bankers with their client(s) as acquirer;
(vii) portfolio managers with their client(s) as acquirer;
(viii) venture capital funds with sponsors;
(ix) banks with financial advisers, stock brokers of the
acquirer, or any company which is a holding company,
subsidiary or relative of the acquirer :
DAIICHI SANKYO COMPANY LTD. v. JAYARAM
269
, CHIGURUPATI & ORS. [AFTAB ALAM, J.]
!
.
Provided that sub-clause (ix) shall not apply to a bank
A
whose sole relationship with .the acquirer or with any
company, which is a holding company or a subsidiary of
the acquirer or with a relative of the acquirer, is by way of
providing normal commercial banking services or such
activities in. connection with the offer such as confirming
B
. availability of funds, handling acceptances and other
registration work;
(x) any investment company with any person who has an
interes( as director, fund manager, trustee, or as a
. shareholder having not less than 2 per cent of the paid-up
C
capital of that company or with any other investment
company in which such person or his associate holds not
less than 2 per cent of the paid-up capital of the latter
company.
Note : For the purposes of this clause "associate•
means,-
(a) any relative of that person within the meaning of section
6 of the Companies Act, 1956 (1 of 1~56); and
(b) family trusts and Hindu undivided families; "
D
E
14. We shall presently examine the j,rovisions of regulation
2(e) in greater detail as the result of the case would depend ~l
good deal on how we understand the meaning of "persons
F
acting in concert" and what meaning is put to regulation 2(e)(1)
. and especially 2(e)(2l(i).
15. Regulation 2(o) defines "Target Company" as follows:
"2(o) "target company" means a listed company whose
G
shares or voting rights or control is directly or indirectly
acquired or is being acquired;"
16. Thus, on the date of the SPSSA both Ranbaxy and
Zenotech became "Target Companies" for Daiichi, the acquirer,
H.
270
SUPREME COURT REPORTS
[2010) 8 S.C.R.
A the former directly and the latter indirectly.
17. Chapter II of the Takeover Code deals with
"Disclosures Of Shareholding And Control In A Listed
Company" and Chapter Ill contains provisions dealing with
8 "Substantial Acquisition Of Shares Or Voting Rights In And
Acquisition Of Control Over A Listed Company". Chapter Ill
begins with regulation 10 that makes it obligatory for an
"acquirer" acquiring, in aggregate, fifteen percent or more of
the voting rights in a company whether by acquisition of shares
or voting rights to make a public announcement to acquire
C shares of that company in accordance with the provisions of
the Takeover Regulations. Regulation 10, along with its marginal
heading, reads as follows:
D
E
"Acquisition of [fifteen] per cent or more of the shares or
voting rights of any company.
10. No acquirer shall acquire shares or voting rights which
(taken together with shares or voting rights, if any, held by
him or by persons acting in concert with him), entitle such
acquirer to exercise fifteen per cent or more of the voting
rights in a company, unless such acquirer makes a public
announcement to acquire shares of such company in
accordance with the regulations."
18. Regulation 11 has the marginal heading,
F "Consolidation of holdings" and it lays down the obligations of
an "acquirer'' who, together with persons acting in concert with
him, has acquired, in accordance with the provisions of law,
fifteen percent or more but less than fifty five percent of the
shares or voting rights in a company. At the end of regulation
G 11 there is an explanation that applies both to regulations 10
and 11. The explanation is relevant for our purpose and it reads
as follows:
H
"Explanation. -
For the purposes of regulation 10 and
regulation 11, acquisition shall mean and include,-
DAIICHI SANKYO COMPANY LTD. v. JAYARAM
271
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
(a) direct acquisition in a listed company to which the
A
regulations apply;
(b) indirect acquisition by virtue of acquisition of
companies, whether listed or unlisted, whether in India or
abroad."
19. Regulation 10, as seen above makes it obligatory for
an "acquirer" acquiring fifteen per cent or more of shares or
voting rights in a listed company to make a public
announcement to acquire shares of that company. Regulation
B
14 prescribes the time limit within which the public C
announcement stipulated in regulation 10 is to be made.
Regulation 14 along with its marginal heading reads as follows:
"Timing of the public announcement of offer.
14.