CLARIANT INTERNATIONAL LTD AND EBITO CHEMIEBETEILIGUNGEN AG Vs. SECURITIES AND EXCHANGE BOARD OF INDIA
LAWS(SB)-2003-2-10
SECURITIES APPELLATE TRIBUNAL
Decided on February 21,2003

Appellant
VERSUS
Respondents

JUDGEMENT

C. Achuthan, J. - (1.) COLOUR Chem Ltd. (the target company) is an Indian company and its shares are listed on the Bombay Stock Exchange and National Stock Exchange. Clariant International Ltd.,(Clariant) is a Swiss company. It is a hundred per cent subsidiary of another Swiss company viz. Clariant AG. Hoechst AG (Hoechst) is a German company. Ebito Chemiebeteiligungen AG(Ebito) is a Swiss company in which Clariant held 49% shares and Hoechst held 51% shares. Pursuant to an agreement entered into in mid 1997 between Hoechst and Clariant, Hoechst's German specialty chemicals business was sold and transferred to Clariant. In terms of the said Agreement Hoechst and Clariant entered into negotiations for the purchase/transfer of 583708 equity shares of Rs.100/- each of the target company then held by Hoechst, which constituted 50.1% of the paid up capital of the target company. A Stock Purchase Agreement for the purpose was prepared on 21.11.1997. In this context Clariant sought exemption from the compliance of the requirement of making open offer to the shareholders of the target company in terms of the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the Takeover Regulations). The exemption as sought for was not granted by the Respondent. Since Hoechst had exited from the specialty chemicals business, it was decided by Hoechst to sell off the shares of the target company held by it to Ebito, a company floated on 19..5.2000 as a special purpose vehicle. On 13.10.2000 Hoechst sold and transferred the shares to Ebito. It has been stated that as a consequence of the scheme of financial reorganization/reconstruction effected, Ebito which held 50.1% of the share capital of the target company, became a 100% subsidiary of Clariant. It was in the said context the Respondent received a complaint alleging that the Appellants had violated the provisions of the Takeover Regulations as they acquired 50.1% shares/voting rights and control in the target company without making public announcement in accordance with the regulations. The Respondent responded to the complaint and conducted an enquiry into the matter. After the enquiry, the Respondent came to the conclusion that the Appellants had actually acquired the control over the target company on 21.11.1997. The impugned order dated 16.10.2002 was made in the light of said findings. After discussing the factual position and the relevant provisions of the Takeover Regulations it has been recorded in the order that "Thus, when the Acquirer, in the instant case, expressed its intention to acquire the 50.1% shares of the target company by way of entering into Purchase Agreement with Hoechst on 21.11.1997 it constituted an intention to acquire indirectly the control over the target company and thus triggered the Regulations and therefore, the obligation to make Public Announcement arose on that day which was to be made within four working days of 21.11.97, i.e. the date of entering into the said agreement." It has been further observed in the order that the "Acquirer (the Appellants) has violated regulations 10 and 12 read with sub regulations (1) and (3) of regulation 14 as the Acquirer had acquired 50.1% shares/voting rights and control in the target company, without making public announcement to acquire shares/voting rights or control of the target company in accordance with the said regulations." Having come to the said conclusion the Respondent vide its order dated 16.10.2002 directed the Appellants to make public announcement as required in terms of regulations 10 and 12 of the Takeover Regulations, taking 21.11.1997 as the reference date for calculation of offer price. The public announcement was directed to be made within 45 days of the date of the order. In the order it has also been stated that: "in terms of sub regulation (12) of regulation 22, the payment of consideration to the shareholders of the Target company has to be made within 30 days of the closure of the offer. The maximum time period provided in the said Regulations for completing the offer formalities in respect of an open offer, is 120 days from the date of public announcement. The public announcement in the instant case ought to have been made taking 21.11.97 as reference date and thus the entire offer process would have been completed latest by 21.3.98. Since no public announcement for acquisition of shares of the Target company has been made, which has adversely affected interest of shareholders of Target Company, it would be just and equitable to direct the Acquirer to pay interest @ 15% per annum on the offer price. The Acquirer is hereby accordingly directed to pay interest @ 15% per annum to the shareholders for the loss of interest caused to the shareholders from 22.3.98 till the date of actual payment of consideration for the shares to be tendered in the offer directed to be made by the Acquirer."
(2.) The Appellants claiming to be aggrieved by the said order filed the present appeal.. It is a limited purpose appeal as could be seen from the appeal that: "The Appellants whilst being aggrieved with the findings and conclusions arrived at by the said impugned order and whilst not admitting the correctness of the same, are filing a limited Appeal, inter alia, restricting the present Appeal to that part of the order which directs the Appellants to pay interest at the rate of 15% per annum on the offer price from 22nd March, 1998 till the actual payment of consideration for the shares to be tendered in the offer directed to be made by the Appellants." Thus the scope of the present appeal is restricted to seeking relief against the direction to pay interest at the rate of 15% for the delay involved in making payment to the target company's shareholders who tender the shares in the public offer required to be made in terms of the regulations.
(3.) SHRI Aspi Chinoy, learned Senior Counsel, appearing for the Appellants briefly explained the factual position considered relevant to the issues raised in the appeal. He referred to the impugned order in particular the summary of the findings and the direction to the Appellants to pay interest at the rate of 15% per annum on the offer price to the shareholders of the target company for the loss of interest caused to them from 22.3.1998 till the date of actual payment of consideration. SHRI Chinoy submitted that as per the order it was on "just and equitable" grounds the Respondent wanted the Appellants to pay interest @ 15% to the shareholders to compensate the loss of interest due to delay involved in making public offer and the delay in making the payment. He submitted that as the Respondent has admitted that the direction to make payment of interest is on "just and equitable" grounds and the payment is intended to compensate the loss of interest suffered by the shareholders as a result of delay involved in receiving monetary consideration for the shares, from the Appellants. In this context SHRI Chinoy submitted that thus it is clear from the order that the direction to pay interest is to compensate those who suffered and, therefore, those persons who were holding shares on 21.11.1997 and who were in a position to tender the shares held by them in case the Appellants had made a public offer, alone are entitled to be compensated for the loss of interest caused due to the delay. He submitted that a person who purchased the target company's shares in the year 2002, has not lost anything to be compensated due to delayed public offer which according to the Respondent was to be made on 21.11.1997. He submitted that those who held shares on the reference date alone are eligible to receive interest. In this context learned Senior Counsel referred to this Tribunal's decision in Rhodia SA V Securities and Exchange Board of India (2001) 34 SCL 597) and stated that wherein the Tribunal had observed that interest is to be paid by way of compensation and that "a person who was not holding shares and as a result not in a position to tender shares in a public offer which was required to be made by 14.6.2000 (date is specific to Rhodia's case) should not be entitled for any compensation for the delay involved in making the public offer and the consequential delay in the payment of the purchase consideration. He was not in a position to tender shares in response to the public offer had the Appellant made the public offer at that point of time. Therefore, those persons who were holding shares of the Indian company as on 14.6.2000 and to continue to be share holders on the closure day of the public offer made in terms of the directions given by the SEBI vide the impugned order alone should be eligible to receive interest, in case the shares which he was holding on 14.6.2000 are tendered in response to the belated public offer." SHRI Chinoy submitted that the principle laid down by the Tribunal in Rhodia as cited above is applicable to the present case and the Respondent's order be therefore, modified to the said effect. Countering the Respondent's submission that Rohdia's order has been challenged in appeal before the Hon'ble Bombay High Court, SHRI Chinoy submitted that the Hon'ble High Court has not stayed the said order and, therefore, the order is valid and in fact it was incumbent on the Respondent to follow the said principle in the Appellant's case.;


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