Appeal No. 111 of 2008. Case: 1. Eight Capital Master Fund Limited, 2. Spinnakar Global Opportunity Fund Limited, 3. Spinnakar Global Emerging Markets Fund Limited, 4. Spinnakar Global Strategic Fund Limited Vs Securities and Exchange Board of India. Securities and Exchange Board of India
| Case Number | Appeal No. 111 of 2008 |
| Counsel | P. N. Modi, J. J. Bhatt, Harshada Nagare |
| Judges | N. K. Sodhi (Presiding Officer) & Samar Ray (Member) |
| Issue | Companies Act, 1956 - Section 81(1A) |
| Judgement Date | July 22, 2009 |
| Court | Securities and Exchange Board of India |
Judgment:
N. K. Sodhi (Presiding Officer)
Pennar Industries Limited is the target company. It is registered and incorporated under the Companies Act, 1956 with its registered office in Hyderabad. Its shares are listed on the Bombay Stock Exchange Limited (BSE). On March 3, 2006 the board of directors of the target company (hereinafter referred to as BoD) passed a resolution to convene an extraordinary general meeting (EGM) for seeking the approval of its shareholders for allotting convertible debentures to the appellants on preferential basis in order to raise additional resources amounting to Rs.122.40 crores to be utilized for returning the target company's debt and also for additional working capital requirements. A notice dated March 3, 2006 was issued under section 81(1A) of the Companies Act, 1956 to the shareholders, inter alia, informing them that an EGM would be held on March 27, 2006 for seeking their approval for allotment to the appellants on preferential basis 50, 32, 700 Part A convertible debentures of Rs.100 each carrying interest of 7 per cent per annum which will be compulsorily and automatically converted within 18 months from the date of allotment into 3, 41, 20, 000 equity shares of Rs.5 each at a premium of Rs.9.75 per share. Further, as regards Part B optionally convertible debentures, the appellants had the option to convert them into equity shares of Rs.5 each at a conversion price of Rs.50 per share. We are not concerned with these Part B optionally convertible debentures in the present appeal. The EGM was held as scheduled on March 27, 2006 and the resolutions were passed. For the issue of convertible debentures and optionally convertible debentures, the target company also made an application to BSE seeking its in-principle approval for the same in terms of its listing agreement. On June 26, 2006 BSE gave its in-principle approval.
2. In pursuance to the approval granted by the shareholders for the allotment of Part A convertible debentures, the Debenture Committee of the BoD allotted to the appellants debentures in its meeting held on July 21, 2006. On the same day, a debenture subscription agreement was executed between the target company and the appellants. As already noticed above, the debentures could be converted into equity shares at any time within 18 months from the date of their allotment but they had necessarily to be converted on the expiry of 18 months.
3. Appellants no. 3 and 4 partly exercised their conversion option on December 24, 2007 with respect to 19, 05, 641 and 4, 24, 210 Part A convertible debentures respectively. Accordingly 1, 29, 19, 600 and 28, 76, 000 equity shares were allotted to Appellants no. 3 and 4 respectively. This allotment represented 14.6 per cent (less than 15 per cent) of the expanded paid up equity share capital of the target company. On January 26, 2008 when the 18 months period expired, the remaining debentures with the appellants were automatically converted into equity shares raising their total shareholding in the target company from 14.6 per cent to 26 per cent. It is common ground between the parties that all the four appellants while acquiring the debentures/shares of the target company were acting in concert with each other.
Regulation 10 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (for short the takeover code) provides that no acquirer shall acquire shares which, taken together with shares already held by him or by persons acting in concert with him, entitles such acquirer to exercise 15 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 takeover code. Regulation 14 of the takeover code prescribes the timing of the public announcement of offer. In the case of an acquirer acquiring securities, the public announcement in terms of Regulation 10 has to be made not later than 4 working days before he acquires the voting rights on such securities upon conversion or exercise of option as the case may be. Since post conversion of the Part A convertible debentures on January 26, 2008 raised the shareholding of the appellants to 26 per cent, Regulation 10 of the takeover code got triggered and the appellants were required to make a public announcement to acquire further shares of the target company. They made a public announcement through YES Bank Ltd. as their merchant banker on January 22, 2008 (4 days before the conversion on January 26, 2008) to acquire shares from the public shareholders upto 2, 52, 95, 496 fully paid up equity shares of the face value of Rs.5 each representing 20 per cent of the...
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