# SWEDISH MATCH AB AND ANR v. SECURITIES ANO EXCHANGE BOARD, INDIA AND ANR

- **Citation:** [2004] Supp. 3 S.C.R. 745
- **Court:** Supreme Court of India
- **Decided:** 2004-08-25
- **Case number:** Civil Appeal No. 2361 of 2003
- **Bench:** N. Santosh Hegde, S.B. Sinha, A.K. Mathur
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/swedish-match-ab-and-anr-v-securities-ano-exchange-board-india-and-anr-20009
- **Pages:** 40

## Headnote

Substantial Acquisition of Shares and takeovers Regulations, 1997;
Regulations 2(e) and {c), JO, 11, 12, Proviso to Explanation (1) of
Regulations 12, 14, 15, 16, 23, 44 and 45 :
A
B
c
Foreign companies and Indian companies jointly acquired majority
shareholding in a company/target company-Foreign company purchased
shares from the Indian companies to take control over the target company
independently without making any public announcement thereto-SEE!
directed them to make public announcement in terms of Regulation 11 (1 )- D
Affirmed by Security Appellate Tribunal-On appeal, Held: Interest of
shareholders could be protected by means of public announcement of offer
in terms of provisions of Regulations 10, 11 and 12-Acquirer of shares
statutorily requires to make public announcement of such acquisitionApproval in the general meeting of share holders does not sub-serve the
requirement of law-Proviso to Regulation 12 would apply only when E
change of control over the company take place by the mode other than by
acquisition of shares-Since change of control did not take place by reason
of inheritance/succession but by way of acquiring shares from another,
Regulation 11 and not Regulation 12 would be attracted-Though
Regulations 11 and 12 operate in different fields yet they may overlap- F
The acquirers in such a situation could issue a combined notice in terms
of both the Regulations-However, mandatory requirements to make
public announcement cannot be dispensed with-Though provisions under
Regulations are clear yet Rule of purposive construction would clarify the
real intent of the legislature therein-Companies Act, 1956-Section G
81{l)(A).
Securities and Exchange Board of India Act, 1994; Sections 15(H),
(J), (Z) and 24 :
Penal Provision-Interpretation of-Held: Regulation being regulatory H
745
746
SUPREME COURT REPORTS (2004] SUPP. 3 S.C.R.
A in nature, they do not deserve strict construction-Interpretation of
Statutes.
Constitution of India, 1950; Article 142-Applicabililty of-Held: It
is a fit case where Supreme Court should exercise its jurisdiction to direct
B the Board to forebear from proceedings with the adjudication proceedings
against the appellants.
Words and Phrases :
'Additional shares '-Meaning of in the context of Companies Act,
c 1956.
Appellant No. I-foreign company/holding company of four foreign
companies, including appellant No. 2, had acquired 52.11 % shares in
an Indian Company/the target company. Two Indian companies,
promoters of the target company, had acquired 24.11 % shares in the
D target company. The holding company entered into an agreement with
the Indian companies to acquire certain percentage of shares in the
target company for which it made a public announcement in terms of
provisions of Regulation 10 of the Substantial Acquisition of Shares
and Take over Regulations/SE BI Regulations. Subsequently, the target
E company allotted shares on a preferential allotment to the foreign
holding company which thereafter acquired shares to the extent of
21.89% at a price well above the market price from their counterpart
Indian companies, raising its share holding in the target company to
74% leading to sole control of the holding company over the target
F company. Later, the target company also approved the change in
control by way of resolution in the general meeting of the shareholders
and the same was brought to the notice of SEBI.
SEBI served a show cause notice upon the appellants as to why
no public announcement was made in terms of Regulations 10 and
G 11(1) of the Regulations. SEBI, upon hearing of the appellants,
observed that the acquisition of shares falling under proviso to
Regulation 12 does not automatically absolve them from making public
announcement of their taking over control of the target company.
Securities Appellate Tribunal/SAT affirmed the order of SEBI. Hence
H the present appeal.
SWEDISH MATCH AB v. SECURITIES & EXCHANGE BOARD
747
Appellants contended that although each one of

## Text

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SWEDISH MATCH AB AND ANR.
v.
SECURITIES ANO EXCHANGE BOARD, INDIA AND ANR.
AUGUST 25, 2004
[N. SANTOSH HEGDE, S.B. SINHA AND A.K. MATHUR, JJ.]
Substantial Acquisition of Shares and takeovers Regulations, 1997;
Regulations 2(e) and {c), JO, 11, 12, Proviso to Explanation (1) of
Regulations 12, 14, 15, 16, 23, 44 and 45 :
A
B
c
Foreign companies and Indian companies jointly acquired majority
shareholding in a company/target company-Foreign company purchased
shares from the Indian companies to take control over the target company
independently without making any public announcement thereto-SEE!
directed them to make public announcement in terms of Regulation 11 (1 )- D
Affirmed by Security Appellate Tribunal-On appeal, Held: Interest of
shareholders could be protected by means of public announcement of offer
in terms of provisions of Regulations 10, 11 and 12-Acquirer of shares
statutorily requires to make public announcement of such acquisitionApproval in the general meeting of share holders does not sub-serve the
requirement of law-Proviso to Regulation 12 would apply only when E
change of control over the company take place by the mode other than by
acquisition of shares-Since change of control did not take place by reason
of inheritance/succession but by way of acquiring shares from another,
Regulation 11 and not Regulation 12 would be attracted-Though
Regulations 11 and 12 operate in different fields yet they may overlap- F
The acquirers in such a situation could issue a combined notice in terms
of both the Regulations-However, mandatory requirements to make
public announcement cannot be dispensed with-Though provisions under
Regulations are clear yet Rule of purposive construction would clarify the
real intent of the legislature therein-Companies Act, 1956-Section G
81{l)(A).
Securities and Exchange Board of India Act, 1994; Sections 15(H),
(J), (Z) and 24 :
Penal Provision-Interpretation of-Held: Regulation being regulatory H
745
746
SUPREME COURT REPORTS (2004] SUPP. 3 S.C.R.
A in nature, they do not deserve strict construction-Interpretation of
Statutes.
Constitution of India, 1950; Article 142-Applicabililty of-Held: It
is a fit case where Supreme Court should exercise its jurisdiction to direct
B the Board to forebear from proceedings with the adjudication proceedings
against the appellants.
Words and Phrases :
'Additional shares '-Meaning of in the context of Companies Act,
c 1956.
Appellant No. I-foreign company/holding company of four foreign
companies, including appellant No. 2, had acquired 52.11 % shares in
an Indian Company/the target company. Two Indian companies,
promoters of the target company, had acquired 24.11 % shares in the
D target company. The holding company entered into an agreement with
the Indian companies to acquire certain percentage of shares in the
target company for which it made a public announcement in terms of
provisions of Regulation 10 of the Substantial Acquisition of Shares
and Take over Regulations/SE BI Regulations. Subsequently, the target
E company allotted shares on a preferential allotment to the foreign
holding company which thereafter acquired shares to the extent of
21.89% at a price well above the market price from their counterpart
Indian companies, raising its share holding in the target company to
74% leading to sole control of the holding company over the target
F company. Later, the target company also approved the change in
control by way of resolution in the general meeting of the shareholders
and the same was brought to the notice of SEBI.
SEBI served a show cause notice upon the appellants as to why
no public announcement was made in terms of Regulations 10 and
G 11(1) of the Regulations. SEBI, upon hearing of the appellants,
observed that the acquisition of shares falling under proviso to
Regulation 12 does not automatically absolve them from making public
announcement of their taking over control of the target company.
Securities Appellate Tribunal/SAT affirmed the order of SEBI. Hence
H the present appeal.
SWEDISH MATCH AB v. SECURITIES & EXCHANGE BOARD
747
Appellants contended that although each one of the Regulations A
viz. 10, 11 and 12 stipulates making of public announcement but they
are mutually exclusive; that there was no acquisition of additional
shares since the aggregate shareholding of the parties did not increase
at all; that since shareholders in the general meeting of the company
had approved the change in control over the target company, no public B
announcement was required to be made; and that in the facts and
circumstances of the case penal provisions should not have been
directed to be invoked.
Respondents submitted that the language used in Regulations 10,
11 and 12 being clear and unambiguous, the question of application C
of Regulation 12 would not arise since a transfer of control from joint
owners to a single sole owner cannot be termed as change in control;
that the opinion of the Tribunal shall prevail over that of the Board;
that no disclosure has ever been made by the Appellants that in fact
they had intended to purchase the shares belonging to one group at a D
price well below the market price of the share. On the contrary, the
stand of the Appellants was that they did not sell the shares below the
market price; that the appellants withheld a very valuable information
about the price of the share so as to take over control of the target
company from the shareholders; that a transaction may trigger both E
Regulation 11 and Regulation 12 in which event a combined notice of
public announcement of the offer could be issued; and that the penal
provisions contained in Section lSH of SEBI Act could not be invoked
in the present proceedings.
Partly allowing the appeal, the Court
HELD : 1.1. Public announcement evidently is required to be
made having regard to the fact that the interest of investors is required
F
to be protected; pursuant whereto and in furtherance whereof the
shareholder would be informed of the value of the shares at which the G
transfer of control would take place so as to enable him to exercise his
option to sell shares at the price offered by the acquirer or continue
to keep the same. [768-D-E, H; 769-A]
1.2. A control over the target company may be achieved by
amending the memorandum of association or by any other mode which H
748
'.>UPREME COURT REPORTS (2004] SUPP. 3 S.C.R.
A necessitates a resolution to be passed by the shareholders in a general
meeting. The expressions "in pursuance to a resolutio11. passed by the
shareholders in a general meeting" are crucial as the proviso to
Regulation 12 of Substantial Acquisition of Shares and Take over
Regulations would apply only when the change of control over the
B target company takes place otherwise than by acquisition of shares or
voting rights. A resolution passed in the general meeting of the
shareholders of the target company does not sub-serve the requirements
of law inasmuch as, it would bear repetition to state, when transfer of
control over the target company takes place by reason of acquisition
of shares at a price higher than the market price the acquirer has a
C statutory obligation to make the public announcement. Such a statutory
requirement is not capable of being waived by the majority shareholders.
It was merely disclosed by the appellants that such acquisition of shares
would not be at a price lower than the market price. If such transfer
was to take place at a price less than the market price, the second
D proviso appended to Regulation 12 would have attracted. It was,
therefore, obligatory on the part of the acquirer to furnish correct
information as regard the price offered to the Indian group of
companies. (769-F-G; 771-A-B-C]
E
2.1. Regulations IO, II and 12 of the Regulations seek to protect
the interests of the shareholders. Public announcement of offer is one
of the modes of protecting the interests of the shareholders. Regulations
IO, II and 12 ex-facie operate in three different fields. They seek tu
control creeping acquisition which may lead to substantial acquisition
F and ultimately total control of the company. There may, however, be
a case where control of the company is sought to be taken over by
transfer of share only in which event Regulations II and 12 both may
apply. [768-D-E, G-H; 769-A[
2.2. Regulation II contemplates both situations, namely, where
G substantial acquisition of shares may result in change of control and
w~ere it does not. Only because in a case where acquisition of
additional shares may result in change of control, the same by itself
would not exempt the acquirer from complying with the statutory
requirement of Regulation I l. There may be a situation where
H Regulations 11 and 12 may overlap with each other, in which event,
SWEDISH MATCH AB v. SECURITIES & EXCHANGE BOARD
7<\9
it would be open to the acquirer to issue a combined notice fulfilling A
the requirement of both Regulations 11 and 12. The purport and object
of which a regulation is made must be duly fulfilled. Regulations 14,
15 and 16 clearly postulate that public announcement is required to
be made in relation to transfer of shares attracting Regulations 10 or
11. Public announcement is at the base of Regulations 10, 11 and 12, B
except in a situation which would bring the case within one or the other
'exception clause'. Hence, the requirement of complying with the
mandatory requirements to make public announcement cannot be
dispensed with. [776-C-D-E-F]
2.3. Regulation 12, like Regulations 10 and 11, also speaks of public C
announcement. Such public announcement is required to be made
irrespective of whether or not there has been any acquisition of shares
or voting rights in a company. In either of the cases, the acquirer is
statutorily required to make public announcement of acquisition of
shares and control of the target company in accordance with the D
regulations. The proviso appended to Regulation 12 carves out an
exception as regard necessity of making public announcement.
Explanation appended to Regulation 12, however, states that it would
have no application where a change in control takes place pursuant to
a resolution passed by the shareholders in a general meeting. The proviso E
to Regulation 12 cannot be said to have any application in the instant
case by reason of the Explanation appended thereto. (769-C-D-E]
2.4. Change of control contemplated under Regulation 12 calls for
a public announcement when the same is sought to be achieved by
acquiring shares or voting rights. A change of control in terms of F
Regulation 12 may also take place pursuant to a resolution passed by
the shareholders in a general meeting. Only in the latter case the
proviso which carves out an exception would be attracted. The effect
and purport of the first proviso may also be construed having regard
to the second proviso appended thereto. The second proviso appended G
to Regulation 12 takes within its fold a case where the joint control to
sole control is through sale at less than the market value of the share.
It, therefore, speaks of a different situation, namely control by transfer
of joint control to sole control though sale was at less than the market
value of the share·s. In a case where the second proviso is attracted, H
750
SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A Explanation (1) will have no role to play. [770-C-D-E]
3.1. The present case is not a case where Regulation 3 will have
any application. However, the Appellants did not claim any exemption
in terms of Regulation 3 nor were they eligible therefore. It is also not
B a case where change in control had taken place by reason of inheritance
or succession but by reason of conscious act of transfer of shares by
one acquirer from another. In a case of this nature, thus, Regulation
12 would not apply, the logical corollary whereof would be that
Regulation 11 will apply. Proviso to Regulation 12 exempts only a
party of the main enactment. It does not take within its embargo both
C the situations contemplated under Regulation 12. [771-F-G-H; 772-E]
S. Sundaram Pillai Etc. v. V.R. Fattabiraman, AIR (1985) SC 582;
Laxminarayan R. Bhattad & Ors., v. State of Maharashtra & Ors., [2003]
5 SCC 413; Ali MK. & Ors. v. State of Kera/a & Ors., [2003] 11 SCC
D 632 and Union of India v. Sanjay Kumar Jain, JT (2004) 6 SC 318 and
Dipak Chandra Ruhidas v. Chandan Kumar Sarkar, [2003] 7 SCC 66,
referred to.
3.2. Acquisition of shares from one Company in favour of the
other was done by a foreign company as a group and not as an
E individual company. Factually, it is not correct to contend that the
foreign holding company had acquired 21.89% shares of its own. Even
if other companies-Indian companies had done so, Regulation IO would
apply as no public announcement was made therefor. By reason of
acquisition so made, the foreign company, as acquirer, together with
F other Indian companies, had acquired more than 15% but less than
75% of shares. Any of those acquirers prohibited from acquiring by
itself any additional share entitling it to exercise more than 5% of the
voting rights. Such acquisition of additional shares may be either from
public or from a person with whom at one point of time the acquirer
G had acted in concert. If such a meaning is not assigned, the disjunctive
clauses contained in the expressions "either by himself or through or
with person acting in concert with him" may not carry a true and
effective meaning. [775-C-D-E-F-G-H]
4.1. It may be true that the Board in its impugned order
H proceeded on a wrong premise that having regard to the proviso
SWEDISH MATCH AB v. SECURITIES & EXCHANGE BOARD
751
appended to Regulation 12, Regulation 12 would be attracted. But SAT A
rightly construed the provisions of Regulations 11 and 12 in arriving
at a finding that Regulation 11 would be attracted and Regulation 12
would not be. The Tribunal was entitled to take a different view of the
matter from that of the Board with a view to sustain the ultimate result
in the appeal in exercise of its appellate power. Such a power in the B
appellate Courtffrihunal is akin to or analogous to the principles
contained in Order 41 Rule 33 CPC. Even otherwise before this Court
the judgment of the Tribunal is in question; this Court is required to
consider its correctness. In any event, the reasonings of the Tribunal
shall prevail over the Board. (776-G-H; 777-A-B]
C
S. Shanmugavel Nadar v. State ofT.N, (2002] 8 SCC 361, relied on.
4.2. The Board is an expert body. As a legislature, it makes the
regulations; as an executive, it implements the legislation and in case D
of a breach it takes upon a quasi-judicial function. While functioning
in its judicial capacity, it has wide discretion. Its decision is final subject
to the decision of the Tribunal. But the sequence of events clearly go
to show that even the Board was not sure of the legal position. Since
the Board did not think it fit to apply the Explanation appended to E
Regulation 12 in its proper perspective, the Tribunal at a later stage
came to a clear finding that proviso appended to Regulation 12 would
have no application and Explanation would. [782-E-F-G; 783-A-B]
4.3. Although no difficulty in construing the provisions of
Regulations 11 and 12 is found but assuming Regulations 11 and 12 F
are not clear, the rule of purposive construction should be taken
recourse to. It is now trite that when an expression is capable of more
than one meaning, the Court would attempt to resolve that ambiguity
in a manner consistent with the purpose of the provisions and with
regard to the consequences of the alternative constructions. Regulations G
1 O, 11 and 12 were amended in the year 1997 having regard to the fact
that the 1994 Regulations contained many loopholes, and thus, the
mischief rule should he resorted to so as to suppress the mischief
which would have surfaced had the literal rule been allowed to cover
the field. [777-C-D; 778-D-E]
H
752
SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A
Anwar Hasan Khan v. Mohd. Shafi & Ors., [2001) 8 sec 540 and
Handicrafts Emporium & Ors. v. Union of India & Ors., [2003] 7 SCC
589, referred to.
Clark & Tokeley Ltd. (tla Spellbrook) v. Oakes, (1998) 4 All ER 353
B and Inland Revenue Commissioners v. Trustees of Sir John And Settlement,
(1984) Ch. 382, referred to.
5. A penal statute indisputably is required to be strictly construed.
But a different situation may arise if the penalty is sought to be levied
as a result of failure on the part of the person statutorily obliged to
C comply with the statutory provisions which are imperative in nature.
There may not be any doubt or dispute as regard the proposition that
when words employed in a penal statute are not clear, the principle
'against doubtful penalisation' would be applied. Regulations being
regulatory in nature, the intent and object sought to be achieved
D thereby must be firmly applied with. In this view of the matter,
Regulations do not deserve strict construction so as to hold that even
a public offer was not necessary. (778-F-G; 782-D]
Handicrafts Emporium & Ors. v. Union of India & Ors., [2003] 7
SCC 589; Reema Aggarwal v. Anupam & Ors, (2004] 3 SCC 199; Bairam
E Kumawat v. Union of lndia & Ors., [2003) 7 sec 628; The Seksaria
Cotton Mills Ltd. v. State of Bombay, [1953] SCR 825 and State of Bihar
v. Bhagirath Sharma & Anr,. (1973] 2 SCC 257, referred to.
6. The adversarial system prevailing in India allows a counsel to
F put forward construction of the enactment in question relying on
several alternative arguments and the Court may ultimately base its
judgment on unglossed literal meaning. (783-E]
Inland Revenue Commissioners v. Trustees of Sir John and Settlement,
G (1984) Ch. 382, referred to.
Francis Bennion 's Statutory Interpretation, Fourth Edition, page
371, referred to.
7. Once a public offer is made the investors would be entitled to
H elect to transfer their shares at a higher price which may be offered
SWEDISH MATCH AB v. SECURITIES & EXCHANGE BOARD [SINHA, J.]
753
by the acquirer with a view to acquire control over the target company. A
The investors would also be entitled to interest at such rate as the
Board may determine. The provisions of Section 15H of the Securities
and Exchange Board of India Act mandates that a penalty of rupees
twenty-five crore may be imposed. The Board does not have any
discretion in the matter and, thus, the adjudication proceeding is a B
mere formality. Only in the criminal proceedings initiated against the
Appellants, existence of mens rea on the part of the Appellants would
come up for consideration. Hence, it is a fit case where this Court
should exercise its jurisdiction under Article 142 of the Constitution
to direct the Board to forbear from proceeding with the adjudication C
proceeding against the Appellants. This may not, however, be treated
to be a precedent. (783-G-H; 784-A-B-C]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2361 of
2003.
From the Judgment and Order dated 18.2.2003 of the Securities
Appellate Tribunal, Mumbai in appeal No. 33 of 2002.
D
F.S. Nariman, Rahul P. Dave, Robin R. David, Himanshu Narain,
Anuj,Dinesh Banth, Atul Sud and Mrs. Shirai: Contractor Patadia for the
Appellants.
E
Kirit N. Raval, Bhargava V. Desai, Sanjeev Kumar Singh, Pradeep
Kumar Malik, E.C. Agrawala, K.K. Rai and Shrish Kumar Misra for the
Respondents.
The Judgment of the Court was delivered by
S.B. SINHA, J. : BACKGROUND FACTS:
F
Wimco Limited (Wimco) is a target company. Its shares are listed on
the stock exchanges at Mumbai, Delhi, Calcutta, Kanpur as also on the G
National Stock Exchange. It is engaged in the business of manufacture
and sale of a broad range of safety matches.
The Appellant No. I herein (Swedish Match) is incorporated in
Sweden. It is a holding company of the Appellant No. 2 (S.M.S) holding H
754
SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A its entire paid up capital. It is also a holding company of Haravon
Investments Private Limited (Haravon) and Seed Trading Private Limited
(Seed). These four companies hereinafter would be called and referred to
as the Swedish Match Group. It had acquired in the target company 52.11 %
shares, i.e., 46.18% by Haravon and 5.93% by Seed. AVP Trading Private
B Limited (AVP) and Plash Floods P. Ltd. (Plash) \1ere Indian promoters of
the target company. They belong to one Jatia Group of companies holding
24. 11 % of the share capital of the target company, i.e., A VP holding 6.03%
and Plash holding 18.08%.
The Swedish Match entered into an agreement with the Jatie Group
C to acquire majority shoreholding in Haravon and Seed and to make a public
announcement of offer to acquire 20% shares in Wimco. The obligation
to make a public announcement of offer arose in view of indirect
acquisition of more than 10% shares in Wimco (in view of the law as
prevailing thence) attracting the provisions of Regulation 10 of the SEBI
D (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
(hereinafter called and referred to for the sake of brevity as "the
Regulations").
On or about 17th December, 1997, the public announcement of offer
E was made by S.M.S. together with the Jatia Group of Companies, viz.,
Plash and A VP as "acquirers" and "persons acting in concert". In the letter
of offer, it was specified that both Swedish Match Group and Jatia Group
intend to exercise joint control over the affairs of Wimco. For the purpose
of the public announcement of offer, 'Haravon' and 'Seed' being subsidiaries
F of Swedish Match Singapore were deemed to be "persons acting m
concert" in terms of Regulation 2(e)(2)(i) of the 'Regulations'.
Upon completion of the process of public offer, the share holding in
Wimco was as under: Haravon 28.28%, Seed 10.33%, AVP 5% and Plash
15%. The aggregate of total share holding of both the groups, thus, came
G to 58.61%.
It is not in dispute tliat subsequent to April, 1998 the said Groups were
exercising joint control over the affairs of Wimco. By a Special Resolution
adopted in this behalf, the target company allotted shares on a preferential
H allotment basis to 'Haravon', 'AVP' and 'Plash' purported to be in terms
SWEDISH MATCH AB v. SECURITIES & EXCHANGE BOARD [SINHA, J.] 755
of Section 81(1)(A) of the Companies Act, 1956 whereupon the share A
holding in Wimco came to as under:
Haravon 46.18%, AVP 6.03%, Plash 18.08%.
As no preferential shares were allotted to Seed, its shareholding was
diluted to 5.93%.
B
Swedish Match Group, thus, held 52.11 % and Jatia Group held
24.11% of the total shares in Wimco. The aggregate shareholding of both
the Groups came to 76.22%. The Government of India by an order dated
5th July, 1999 permitted increase in foreign equity participation in the C
target company from 38.61% to 52.11%.
S.M.S. thereafter acquired from Jatia Group (as the latter was desirous
of exiting from the joint control over Wimco) the following extent of share:
A VP 5.47%, Plash 16.42%, at a price well above the market price.
Pursuant to or in furtherance of the letter of the Government of India
dated 19th May, 2000 increasing foreign collaboration to the extent of'
74.00438%; the Swedish Match Group acquired 74% shareholding and
Jatia Group was left with 2.22% in Wimco.
D
E
It is also not in dispute that although the market value of each
acquired share of the target company was only Rs. 9.55; the consideration
paid to Jatia Group by the Swedisl. Match Group was Rs. 35/- per equity
share. Pursuant to or in furtherance of the said arrangement, the Directors
belonging to Jatia Group resigned as a result whereof, their joint control F
with Swedish Match Group ceased leading to sole control of the latter.
Allegedly, the cessation of joint control was approved in a general meeting
of the shareholders of Wimco held on 27th September, 2000. S.M.S.
thereupon by a letter dated 27th September, 2000 in terms of Regulation
7 of the Regulations disclosed to WIMCO its holding of more than 5% of
the equity share capital. The said transaction was also brought to the notice G
of the SEBI {the Board) by a letter dated 28th September, 2000. It also
agreed to adhere to the 'lock-in' restrictions applicable to the locked in
shares forming part of2 l.89% shares purchased from A VP and Plash (Jatia
Group of Companies). Upon receipt of the said information, SEBI by a
letter dated 17th October, 2000 made a query as to whether the said H
756
SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A transaction took place in accordance with Regulation 20 (pricing guidelines),
Regulation 7 (mandatory disclosures) and Regulation 12 (change in
control) of the Regulations, in response whereto, Swedish Match by a letter
dated 1st November, 2000 submitted its replies thereto. An additional
query by SEBI was made as regard calculation of market price and
B ccimpliance of the provisions of the Regulations by a letter dated 30th
November, 2000; to which a reply was give1t on 8th January, 2001.
PROCEEDINGS BEFORE SEE! :
A show-cause notice was served upon the Appellants by SEBI asking
C them to show cause as to why no public announcement of offer had been
made in terms of Regulations I 0 and 11 ( 1) of the Regulations stating:
D
E
F
"4. As you have acquired the shares of WL in the manner as stated
above without making a public announcement as required by the
provisions of the captioned regulations, you have, prima-facie,
violated the provisions of Regulation I 0 individually and
Regulation 11(1) collectively of the captioned Regulations and,
therefore, you are liable for penal action under the Regulations
and SEBI Act, 1992.
5. In view of the above, you are called upon to show cause as to
why one or more or all action(s) under Regulation 44 and
Regulation 45( 6) of the Regulations and Section 11 B of the SEBI
Act 1992, should not be initiated against you for violation
specified above."
The Appellants herein filed a show cause before the Board.
ORDER OF SEE! :
G
The Chairman, SEBI upon hearing the Appellants by an order dated
4th June, 2002 observed that Regulation 12 has no application.
It was, however, held:
"In view of the above, the submission of the Acquirers that
H
Regulation 11 (I) should exclude a transaction involving a transfer
SWEDISH MATCH AB v. SECURITIES & EXCHANGE BOARD [SINHA, J.)
757
of shares as part of cessation of participation in joint control, A
particularly where such persons in joint control acquired shares
as persons acting in concert is not tenable.
Therefore, if an Acquirer triggers either of the Regulations, i.e.,
Regulations 10, 11 or 12, he has to make a public announcement B
unless the acquisition is specifically exempt in terms of the
Regulations. Therefore, each of the Regulations 10, 11 & 12 has
to be complied with independently by the Acquirers. The acquisition
falling under proviso to Regulation 12 is not automatically exempt
from the applicability of Regulations 10 & 11."
Consequent upon the said findings, the following directions were
issued :
"In view of the above the exercise of the powers conferred upon
c
me under sub-section (3) of Section 4 read with Section 118 SEBI D
Act 1992 (hereinafter referred to as the Act) read with Regulation
44 & 45 of the Regulations, I hereby direct the Acquirers to make
public announcement in terms of Chapter III of the Regulations
in terms of sub-Regulation ( 1) of Regulation 11 taking 271912000
as the reference date for calculation of offer price within 4 5 days
of passing of this order."
THE TRIBUNAL :
E
Aggrieved by and dissatisfied with the said order, an appeal was
filed by the Appellants herein before the Securities Appellate Tribunal F
(Tribunal). The Tribunal took notice of the Appellant's letter dated
28.9.2000 contending "We wish to inform you that we have through our
wholly owned subsidiary Swedish Match Singapore Pte. Ltd. and pursuant
to the requisite approvals acquired an additional 11382800 equity shares
from the aforesaid Indian companies such that we are not in sole control G
of WJMCO Ltd. " and held:
"Sequence has been mentioned correctly thus that they acquired
additional shares and thereby acquired sole control of WIMCO
Ltd. As the control is relatable to the shareholding in the instant
case and to nothing else and cessation of contrli'l was due to H
758
A
B
SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
divesting of the said ownership of shares in the absence of any
other evidence to the contrary it can be safely concluded that the
Acquirers acquired shares from the Jatia Group and consequently
Jatia Group ceased to be in joint control of the target company.
Assuming that if the Jatia Group had been in joint control due to
some other factors, then section 11 would not have attracted. In
the instant case, it is a clear case of acquisition of shares and
cessation of control consequential to divestment of shares held by
the person in control."
(Emphasis supplied)
C
Holding that the provisions of Regulations 11 (I) and 12 are not in
D
E
F
conflict with each other in any manner and further holding that the
Regulation is a beneficial legislation, the Tribunal held:
"The legislative intent behind the Regulations is clear. The
objective is to protect the interests in securities. It is with the said
objective that regulations I 0, 11 and 12 have been framed
providing an opportunity to the existing shareholders of a company
under acquisition and that exit opportunity cannot be denied by
resorting to a narrow and technical interpretation of the regulations.
As already stated in this order regulations I 0, 11 and 12 are put
in position to meet different situations. Which one of these
regulations is attracted to an acquisition, would depend on the
specific facts. In my opinion in the light of the facts, as the
Respondent has held, the acquisition in question attracts the
provisions of regulation 11(1)."
This appeal has been filed by the Appellants herein before this Court
in terms of Section 15-Z of the Securities and Exchange Board of India
Act, 1992 (for short "the Act")
G SUBMISSIONS :
Mr. F.S. Nariman, learned senior counsel appearing on behalf of'the
Appellants would contend that although each one of the Regulation I 0, 11
and 12 of the Regulations require making of public announcement, but the
same are mutually exclusive and independent of one another as they
H address different types of acquisitions (as found by SEBI) and should
SWEDISH MATCH AB v. SECURlTIES & EXCHANGE BOARD [SINHA, J.]
759
necessarily, thus, be limited to the context of the situation with which it A
deals and should not be projected into the other.
The learned counsel would point out that Regulation I 0 applies to
initial acquisition of shares or voting rights by an acquirer whereas
Regulation 11 having been captioned as "Consolidation of Holdings" deals B
with consolidation of existing shareholder(s) by way of acquisition of
additional shares, i.e., such acquisition must be by way of combined
shareholding of acquirer and persons who previously acted in concert with
him resulting in increase of more than 5% and in case of Regulation 11 (I),
by acquisition of any additional shares.
c
Regulation 11, Mr. Nariman would submit, does not cover purchase
of shares by the acquirer from the persons who have previously acquired
shares in concert with him as in such a case there is no acquisition of
additional shares as the aggregate shareholding of the parties does not
increase at all and far less by 5%. Elaborating his submission, Mr. Nariman D
would argue that as both Swedish Match Group and Jatia Group had
76.22% which was reduced to 74%, there had been no acquisition of
additional shares and in that view of the matter the purported admission
by the Appellants in its letter dated 28.9.2000 should be ignored. Proviso
appended to Regulation 12, according to Mr. Nari man, is squarely attracted E
in the instant case, in view of the fact that the shareholders in a general
meeting had approved the change in control in favour of the Swedish
Match Group from the joint control of Swedish Match Group and Jatic
Group and in that view of the matter, no public announcement therefor was
required. In the alternative it was submitted that Regulation 11 does not F
envisage inter se transfer between one group to the another. The Scheme
of the statute is such, it was urged, that the requirement of public
announcement is not attracted in all cases which would be evident from
Regulation 3 of the Regulations and in that view of the matter it cannot
be said that the proviso appended to Regulation 12 will have no application
in the instant case. In this connection our attention has also been drawn G
to the subsequent amendments made to the regulations. The learned
counsel would argue that also in a situation like death or bankruptcy of
a person in joint control may lead to sole control of the target company
in which event also the rigours of Regulation 12 will have no application.
Pointing out the difference between Regulations 11 and 12, it was urged H
760
SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A that whereas in terms of Proviso to Regulation 12 the change in control
is exempted from the applicability thereof (which otherwise requires the
making of a public announcement) by a resolution passed by the shareholders
in the General Meeting, but the necessity of making a public offer under
Regulation 11 cannot be condoned by the shareholders because a right to
B have the shares offered under the public offer is conferred upon the
remaining shareholders as even a majority of them cannot barter away the
right of a minority. The position, however, would be different in a case
where change in control of the target company is approved by the majority
of the shareholders in a general meeting, as therein the question as regard
C protection of the interest of the shareholders would fall for consideration.
Regulations 10, 11 and 12 having been intended for the benefit of the
shareholders of the target company, the learned counsel would argue, only
a letter of offer is required to be sent to all the shareholders of the target
company in terms of Regulation 22(3) for the purpose of allowing and
D enabling the existing shareholders to avail of the opportunity to offer their
shares for purchase to the acquirers at a price specified in the public
announcement and the letter of offer. Reqmrement of change from joint
control to sole control would be fulfilled if all the existing shareholders
approved the change from joint control to sole control, urged Mr. Nariman,
E as by reason of such a resolution, the transfer from joint control to the sole
control would be offered which would amount to an election not to exit
from the company and to remain therein under the management of the sole
controller.
It was urged that Explanations (i) and (ii) are explanations to the
F proviso appended to Regulation 12 and not to the main part thereof, which
had been inserted only for the purpose of clarifying the phrase "change in
control" occurring therein.
The learned senior counsel would submit that where there is a mere
G cessor of control by one out of two persons already in control or where
any person or persons are given joint control and the combined degree of
control is not greater than being presently exercised, a resolution in a
general meeting is not necessary; since there is no change in control and,
thus, the question of any acquisition of control within the meaning of the
H main part of Regulation 12 would not arise. Proviso to Explanation (i) i.e.
SWEDISH MATCH AB v. SECURITIES & EXCHANGE BOARD [SINHA, J.]
761
cessor of control by one or more persons already in control, according to A
Mr. Nariman, imposes a further restriction if the transfer of joint to sole
.control is through sale of shares at less than the market value of the shares,
in which an event only a special Resolution is required to be passed al a
specially called meeting of the shareholders of the target company.
Without prejudice to the submissions as referred to hereinbefore, Mr.
Nariman would argue that once a direction has been issued by the Board,
the penalties specified in Regulation 44 including(~) criminal prosecution
under Section 24 of the Act; (b) monetary penalty under Section I SH of
the Act and ( c) directions under the provisions of Section 1 IB of the Act
may ensue but in the facts and circumstances of the case penal provisions
should not have been directed to be resorted to having regard to the fact
that the Regulations contained no clear and unambiguous words to indicate
the true legal position. The penal provisions, it was contended, are required
B
c
to be strictly construed. Reliance in this connection has been made on
Francis Bennion's Statutory Interpretation, Third Edition, at page 637, D
Avais v. Hartford Shankhouse and District Workingmen 's Social Club and
Institute, Ltd., [1969] l All ER 130 at 135, The Seksaria Cotton Mills Ltd
v. The State of Bombay, [1953] SCR 825 at 834 and State of Bihar v.
Bhagirath Sharma and Another, [1973] 2 SCC 257 at 261.
E
Mr. Kirit N. Raval, learned senior counsel appearing on behalf of the
Respondent, on the other hand, would contend that the language in
Regulations IO, 11and12 of the Regulations bein_g clear and unambiguous,
this Court should apply the principles of literal interpretation. He would
urge that having regard to Explanation I appended to Regulation 12, the F
question of application of Regulation 12 would not arise inasmuch as by
reason thereof a transfer of control from joint owners (Swedish Match A.B.
and Jatia Group) to a single sole owner (Swedish Match Group) stands
excluded from the concept of "Change in Control".
Mr. Raval would submit that although the Board has accepted the G
position that there was no violation of Regulation 12, relying on or on the
basis of proviso appended thereto, the Tribunal has clearly held that there
has been no change in control in tenns of the Regulations and in that view
of the matter the opinion of the Tribunal shall prevail over that of the
Board. Reliance in this connection has been placed on S. Shanmugavel H
762
SUI-REME COURT REPORTS (2004] SUPP. 3 S.C.R.
A Nadar v. State of TN., (2002] 8 sec 361.
The learned counsel would strenuously urge that the application of
Regulation 11 cannot be excluded by bringing the transaction in question
as having been made under Regulation 12 in terms whereof an additional
B liability was required to be incurred by the Appellants. It was pointed out
that no disclosure has ever been made by the Appellants that in fact they
had intended to purchase the shares belonging to the Jatia Group at a price
of Rs. 35 as against the then prevailing market price of Rs. 9.55 per equity
share. In fact the stand of the Appellants had all along been that they would
not sell the shares below the market price and, thus, indicating that the
C shares would be sold at the prevailing market price.
Mr. Raval would urge that the Appellants withheld a very valuable
information from the shareholders i.e. the actual price of share being paid
to Jatia Group which would have otherwise become known to them if a
D public announcement of offer was made. If it is to be held that even in a
case of this nature no public announcement is to be made, the intent and
purport of the legislature in bringing Regulations 10, 11 and 12 to the
statute book with a view to protect the interest of the investors shall be
frustrated.
E
The learned counsel would further submit that the regulations were
amended only for the purpose of plugging the loopholes which existed in
the 1994 Regulations in terms of the recommendations of a C
0
ommittee
consisting of experts in the fields of law, securities market, accounts,
finance, management etc. and, thus, if the interpretation of regulations as
F suggested by Mr. Nariman, is accepted, the same would frustrate the object
of bringing the said regulations.