2nd GNLU Moot On Securities and Investment 2016

 

Code-104

ND

2

  GNLU  MOOT  ON  SECURITIES  

AND  INVESTMENT  LAW,  2016

BEFORE

THE TH E  HONOURABLE  SUPREME  COURT  OF  INDIA 

CIVIL  APPEAL  FILED   UNDER   15Z  OF  TH THE E  SEBI  ACT,  1992

DREAMSELLERS   LIMITED (APPELLANT)

V.

SECURITIES   AND  EXCHANGE  BOARD   OF  INDIA (RESPONDENT)

COUNSEL  APPEARING  ON  BEHALF  OF  TH THE E  RESPONDENT

MEMORIAL  ON  BEHALF  OF  TH THE E  RESPONDENT

 

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- R espond sponde ent TABLE  OF  CONTENTS 

............................................ .................................................. .............................................. .....................................I ................I  TABLE  OF CONTENTS ................... LI LIS S T OF ABBREVIATIONS ABBREVIATIONS .................................................. ........................................................................... ................................................. ........................ II  INDEX OF  AUTHORITIES ..................... .............................................. ................................................. .............................................. ........................... ..... IV 

STATEMENT STATE MENT OF FACTS ........................................... .................................................................... .............................................. ................................... .............. X  ARGUMENTS ARG UMENTS PRESENTED .............................................. ...................................................................... .............................................. ..........................XII ....XII  ............................................ .................................................. ............................................ ................... XII XIIII  SUMMARY OF ARGUMENTS ................... ............................................. ................................................. .............................................. ........................ .. XII XIIII  ARGUMENTS  ADVANCED .................... 1. THAT  TH THE E  PROVISIONS  OF REGULATION  23 OF  TH THE E  NEW TAKEOVER   REGULATIONS   RELATING  TO  WITHDRAWAL  OF OPEN  OFFER   COULD  NOT NOT BE  APPLIED  TO AN  OPEN  OFFER   MADE  UNDER   TH THE E  1997 TAKEOVER   REGULATIONS. ............................................ ................... ................................................. .............................................. ............................................... ................................................. ................................. ......... 1  1. 1.1. 1. That That the provisions provisions of Regulat Regulation ion 23 of the New Ne w Takeover Take over Regu Re gulatio lations ns relating to withdrawa with drawa l of ope ope n offer ca nn nnot ot be given a retrospective retrospect ive operation..................................1  1.2. Arguen Arguendo: do: That That Regu Regullat ation ion 23(1)(d) 23(1) (d) of 2011 Takeo Takeover ver Reg Regul ulat atiio ns is to be interpreted inter preted in light of Regulation Re gulation 27(1)(d) o f 1997 Takeover Regul Regulaa tions. tions. ....... ....................... ................5  2. THAT  IT  CAN BE  SAID  THAT  TH THE E  APPELLANT  FAILED  TO  EXERCIESE  DU DUE E  DILIGENCE  AND TH THE E  FACTS  RELATING  TO TH THE E  FRAUD  WERE  NOT „KNOWN‟ OR   „COULD  HAVE  BEEN   KNOWN‟ BY  DREAMSELLERS,  IF DREAMSELLERS   HA HAD D  EXERCISED PROPER  „DUE  DILIGENCE‟. ..................... .............................................. .................................................. ............................. .... 6  2.1. The The Due Diligence Requi Req uireme remen nt ............................................ ..................................................................... ..................................... ............ 7  2. 2.2. 2. Appell Appe llant‟ ant‟ss fai failu lure re to conduct due d ue dil dilig igee nce ca cann nnot ot be b e all allowed as an excuse to  prejudicc e the interests of Artemis‟s shareh  prejudi share holders ..................... .............................................. .......................................... .................9  2.3. Insider Insider Tradi Trad ing Regul Regulat atiio ns do not restrict the scope of Due Due Diligence Diligence for Open Offer Off er un under der the Takeo ver Regulat Regulat ions .............................................. ...................................................................... ............................... ....... 11  3. THAT NO VIOLATION VIOLATION OF PRINCIPLES PRINC IPLES OF O F NATURAL NATURAL JUSTICE HAS BEEN DONE DO NE BY SEBI IN THE THE PRESENT CASE C ASE WHILE PASSIN PASS ING G ITS ORDER REJECTIN REJECTING G THE APPLIC APPL ICATION ATION TO WITHD WI THDRAW RAW THE OPEN O OFFER. FFER.................... ............................................ .................................... ........... 11  3. 3.1. 1. That That SEBI whil whilee passin pas sing g its order orde r rejecting reje cting the t he appli ap plica cation tion to wi withdraw thdraw the open offer has acted in accordance with wit h the princi princ iples o f natural justi just ice. ........................... ................................ ..... 11  I | Pa g e

 

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3.2. That That no prejudice prejudice has been caused to the the appel appe llants and there there is no case for for remand remand ............................................... ...................... .................................................. .............................................. .............................................. ............................................. ....................14  4. THAT THAT REGULATION REGULATION 27 (1) (D) OF THE 1997 TAKEOVER TAKEOVER REGULA REGULATION TIONS S IS TO TO BE GIVEN GIVEN AN INTERPRETATION INTERPRETATION WHEREBY, WHEREBY, THE WORDS “SUCH CIRCUMSTANCES AS IN THE OPINION OF THE BOARD MERIT WITHDRAWA L” WITHDRAWA L” ARE TO BE READ  EJUSDEM GENERIS WITH THE OTHER PROVISIONS OF REGUL RE GULATION ATION 27 (1) OF THE SAID CODE CO DE I.E. AS CIRCUMSTANCES CIRCUMSTAN CES WHERE IT IS IMPOSSIBLE IMPOSSIBL E TO PERFORM THE OPEN OFFER OFFER?? .......................................... ............................................................. ...................15  4.1. Legislat Legislat iv ivee Histor History y of o f Reg Re g. 27 (1) ............................... ........................................................ .............................................. .....................17  4.2. Object O bject,, P urpose an a nd Sc heme of o f tth he Takeover Takeover Regulations ....................... ....................................... ................ 18  4. 4.3. 3. Sans the the appli ap plica cation tion of Ejusdem Generis, open ope n offer offer made in the present pres ent case cas e still still does not me rit withdr withdraa wal ............................................. ..................................................................... .............................................. ........................... ..... 19  PRAYER ..................... ............................................. ................................................. ............................................... ............................................... .................................. ......... XII XIIII 

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LIST OF ABBREVIATIONS

1.

&

And And

2.

§/ S.

Secti Sec tion on

3.

¶

Paragraph Para graph

4.

A.I.R.

Al Alll India India Reporter

5.

Adv.

Advocate

6.

Al Alll E.R.

All England England Reports Repo rts

7.

Anr.

Another

8.

Art.

Article Article

9.

BOD

Board of Di Directors rectors

10.

Bom

Bombay

11.

BSE

Bombay Stock Sto ck Exchange Exchange

12.

Cal.

Calcutta

13.

CCI CC I

Competiti Competitio o n Commi Commiss ssiio n of India India

14.

CIT

Com Co mmi miss ssioner ioner of Income Tax

15.

Cl.

Clause

16.

Co.

Company

17.

Comp Co mp LJ

Company Co mpany Law Journal

18.

DD

Due Dilige Diligence nce

19.

Del. Del.

Delaware

20.

Ed.

Edition Edition

21.

Engg Engg..

Engi Enginee neerr ing

22.

Gen.

General

23.

H.C.

Hi High gh Court

24.

ILR

Indian Indian Law Reporter

25.

Inc.

Incorporation

26.

Ker.

Kerala

27.

Ltd.

Li Lim mited

28.

M&A

Mergers and Acquisiti Acquisitio o ns

29.

MAC

Material Adverse Change Change

30.

MB

Merchant Banker

31.

Mfg. Mfg.

Manu Manufactu facturr in ing g II | P a g e

 

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32. 32.

Mum

Mumbai

33.

Ors.

Others

34.

P&H

Pun Punjab jab and Haryana Haryana

35.

PA

Publ Publiic Annou Announceme nceme nt

36.

PIPE PIP E

Private Invest Investm me nt in Public Public Equity Equity

37. 38.

PIT PNB PN B

SEBI (Prohibition (Prohibition of Insider Insider Trading Trading)) Regu Regullati at io ns, 1992 1992.. Punjab Punjab Nati Na tional onal Bank

39.

Pvt./(P)

Priv Private ate

40.

Reg.

Regul Regulat atiio n

41.

SAST

Substanti Substantiaa l Acquisit Acquisitiio n of Shares and Takeovers

42.

SAT

Se Securiti curities es and Appell Appe llate ate Tribunal Tribunal

43.

S.C.C. S.C.C .

Supreme Supreme Court Cases

44.

S.C.

Suprem Supremee Court

45.

SCL

SEBI SEBI and Corporate Law

46. 47.

SCR SEBI

Supreme Court Reporter Se Securiti curities es and Exchange Exchange Board of India

48.

TRAC

Takeover Take over Regulat Regulation ionss Advisory Advisory Co Comm mmittee ittee

49.

UoI

Union Union of India

50.

U.P.

Uttar Pradesh

51.

U.S.

Un Unit ited ed States

52.

U.K.

Uni United Kingdom Kingdom

53.

v.

Versus

54.

viz. viz.

Namel Na mely y

55. 56.

Vol. WTM

Volume Volume Whole Time Time Member 

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- R espo sponde ndents nts INDEX  OF  AUTHORITIES

Cases  

Akshyaa IInfrastructure Akshy nfrastructure (P) Ltd v. S EBI, [2014] 44 taxmann.com taxmann.com 444 (SC)............................. 10 Amar Am ar C handra Chakraborty v. Co ll llector ector of Excise, (1972) 2 SCC 442, 447. ..................... ......................... .... 16 Assistant Assi stant Collector Collector of Central Ex Excise, cise, Guntur Guntur v. Ramdev Ramdev Tobacco Toba cco Company, Company, (1991) (1991 ) 2 SCC 119, 125............................................................... ....................................................................................... ................................................. ........................................ ................16 Banaras Ban aras i Debi v. I TO, AIR 1964 SC 1742, 1745. ............................................ ..................................................................... .........................5 Bhagat Bhag at Raja v. Union U nion of o f India, AIR 1967 SC 1606............................................. 1606................................................................. ....................13 Bipinc Bipinch ha ndra Parshottam Pa rshottamdas das Patel v. State Sta te of o f Gujarat (2003) 4 SCC 642, 657-658. 657 -658............... 18 Canara Can ara Bank Bank v.VK Awa Awa sthy, (2005) 6 SCC 321, 335....................................... 335............................................................ ....................... 13 Carborun Carb orundum dum Uni Universal versa l Lim Limited v. Central Board of Direct Direct Taxes, Taxes, 1989 Supp Supp (2) SCC 462. ............................................... ...................... ................................................. .............................................. ............................................... ................................................. ........................12 Chander Chan der Ka nta Bansal v. Rajinder Singh An A nand, [(2008) 5 SCC 117]. .................................... .................................... 8 Chandravathi Chan dravathi PK v. CK C K Saji, (2004) 3 SCC SC C 734, 749. ............................................. .............................................................. .................2 GL Sultania Sulta nia v. Sec Secu urities & Exc Exc ha nge Board of o f India, India, (2007) (2007 ) 5 SCC 133, 152- 153. 153.............. ............. 14 Grasim Grasim IIn ndustries Lt Ltd d v. Coll Co llector ector o f Cu C usto ms, Bombay, (2002) 4 SCC 297, 304. ...............16 Harinarayan Harinaray an G Bajaj v. Union Union of o f IIn ndia, (2008) 2 Bom CR 780, 818. .......................................3 Hasan Nurani Mal Ma lad v. S M Ismail, Isma il, Assistant Charity Comm Co mmiss issiioner, [1967] 1 SC R 110. ...... 4 Hukam Chand v. Union U nion of o f IIn ndia, (1972) 2 SCC 601, 604......................................................... 604.........................................................1 Income Income Tax Offi O fficer, cer, Alleppey v. MC Ponnoose, (1969) 2 SCC 351. ..................... ....................................... ..................1 India India S ug ugar ar Refineries Ltd v. S tate of M My ysore, AIR 1960 Mys M ys 326. ...................... ........................................ ..................1 Iri Iridium dium In I ndia Telecom Telecom Lt Ltd d v. Mo torola In I nc, (2005) 2 SCC 145.............................................. 145..............................................17 Jai Prakash v. S tate of UP, (2004) 13 SCC SC C 390, 398. ............................................... .............................................................. ............... 17 Kanwaa r Natwar S ingh v. Kanw v. Director Director of o f Enforcement, Enforcement, [2010] 104 SCL SC L 88. ................... ............................... ............ 14 Keshav Kesh av v. State of Bombay, AIR 1951 SC 128. ......................... .................................................. ............................................... ......................2 Land Lan d Acq uist uistiion O ffi fficer cer an a nd Mandal Revenue Officer O fficer v. JT J T 2001 (3) SC 157, 161. ............. 18 Maharashtra Universit University y of Health Sciences v. Satchikitsa Satchikitsa Prasa Prasarak rak Mandal, (2010) 3 SCC SC C 786, 791............................................................... ....................................................................................... ................................................. ........................................ ................15 Manage Man age me nt Comm Co mmittee ittee v. Jt Director o f Education, Kan Ka npur, AIR 1999 AII 49. ..................14 Maniklaa l Majum Manikl Maj umdar dar v. Guaranga Chandra De y, (2005) 2 SC SCC C 400, 407. .............................. .............................. 18 Mayaa Devi v. Raj Kumar Batra, (2010) 9 SCC May SC C 486. ........................................... ............................................................... ....................15 MC Mehta v. Union U nion of o f IIn ndia, (1999) 6 SCC SC C 237. ................ ........................................ .............................................. ........................... ..... 15 Mithilesh Mithil esh K umar umar i v. Prem P rem Beh Be hari Khare, (1989) (1989 ) 2 SCC 95. ............................................ ..................................................... ......... 2 IV | P a g e

 

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MJ S iva iva ni v. State o f Kar nataka, (1995) 6 SCC 289. ............................................... .............................................................. ............... 13 Mukes Mu kes h K Tripathi v. Se ni nior or Divisional Ma nager, (2004) SCC 387, 401. ............................ .............................. 18  Nandaram  Nand aram Hunatram v. Union of India, AIR 1966 SC 1922................................................... 1922...................................................13  National Insu Ins urance Co Ltd v. v. An A njana Shyam Shya m, (2007) 7 SCC 445, 451. ...................... .................................. ............ 18  Nirma  Ni rma Industries Ltd v. SEBI, (2013) (2013) 8 SCC 20, 48. ...................... ............................................... .................................. ......... 15, 17  Nirma Industries Ltd v. SEBI, (2013)  Nirma (2013) 8 SCC 20, 49-50. 49- 50..................... ............................................. ..................................... ............ 16  Nirma  Ni rma Industries Ltd v. SEBI, (2013) (2013) 8 SCC 20, 51. ...................... ............................................... ........................................ ............... 20  Nirma  Ni rma Industries Ltd v. SEBI, (2013) (2013) 8 SCC 20. ............................................. ................................................ ... 6, 7, 10, 12, 16  Nirma  Ni rma Industries Ltd v. SEBI, (2013) (2013) 8 SCC 20. 45-47. 45- 47..................... ............................................. ..................................... ............ 19 Orienta Ori entall Insurance Co Ltd L td v. Hansrajbhai v. Kodal Koda la, (2001) 5 SCC 175, 184........................ 184........................ 17 Panchi Pan chi Devi v. State Sta te of o f Rajasthan, (2009) 2 SCC 589, 591....................................... 591....................................................... ................1 Pramod Pramo d Jain Ja in v. SEBI, [2014] 48 ta xmann.com xmann.com 226 (SAT - Mumbai)....................................... Mumbai)....................................... 9 Raghunath Raghun ath Rai Ra i Bareja v. Punjab P unjab National Nationa l Bank, (2007) (2007) 2 SCC 230, 245. .................. ................................ .............. 3 Ram Parkash v. Sa vitri Devi, ILR I LR (1957) 2 P&H P &H 1859, 1872..................... 1872. ............................................. .............................. ..... 2 RS Das v. Union o f India, AIR A IR 1987 SC 593. .............................................. ....................................................................... ........................... .. 12 Sahara Sah ara I ndia, Lucknow v. CIT, CI T, Central-I, Central-I, (2008) 14 SCC 151, 167. ................................... ..................................... .. 13 SEBI v. Akshya Infrastructure I nfrastructure (P) Ltd, (2014) 11 SCC 112, 127. .................................... .................................... 14, 17 SEBI v. Akshya Infrastructure I nfrastructure (P) Ltd, (2014) 11 SCC 112, 128. .......................................... .......................................... 20 SEBI v. Akshya Infrastructure I nfrastructure (P) Ltd, (2014) 11 SCC 112. ........................................ ........................................6, 10, 16 SEBI v. Indiabulls Indiab ulls Securities Lt Ltd., d., [2011] 105 SCL 7 (SAT) (SA T).. ............................................. .................................................. ..... 8 Secretary Andhra Pradesh Prades h v. Pin P indiga diga Sridh Srid har, (2007) 13 SCC 352......................................... 352......................................... 14 Sh Shri ri Ram Ra m Labhaya v. Munici M unicipal pal Corp C orp of Delhi, (1974) 4 SCC 491, 493. ............................... ............................... 17 Sie Sie mens Engg & Mfg v. v. Uni U nio o n o f India, AIR 1976 SC 1785 1785.. ................ ........ ................. ................ ............... ................ ........ 13 SL Kapoor v. Jagmohan Jagmoha n, AIR 1981 SC 136. ........................... ................................................... ................................................ ........................14 SMS Holdings Pvt Ltd v. Securities Sec urities a nd Exchang Excha ngee Board o f India, India, [2003] [2003 ] SAT 10. ........... 2, 4 Souther Sou thern n Railway O Offi fficers cers Associati Associat ion v. Union Union o f IIn ndia, (2009) 9 SCC 24. ........................ ........................13 State of J harkhand v. Shiv S hiv Karam Kara mpal Sahu, (2009) 11 SCC 453, 459. .....................................1 State of Punjab P unjab v. Mo ha r S ingh Pr Pratap atap Singh, AIR 1955 SC 84, 88. ........................................ ........................................4 State of UP v. Pradh Prad ha n Sangh Ksh Ks he tra Samiti, AIR A IR 1995 SC 1512. ................... ....................................... ....................13 State of Uttar Pradesh Pr adesh v. Va n Organic Organic C he mica mica ls Lim L imited, ited, (2010) 6 SCC 222, 229. ............... ............... 2 Su Sudhir dhir Gupta v. State, (2013) 204 DLT D LT 249..................... 249. ............................................ ................................................. ............................... ...... 12 Union Uni on o f IIn ndia v. J esus Sale Sa le Corp, AIR A IR 1996 SC 1509. .............................................. .......................................................... ............ 12 United P la nters Associat United Association ion of Southern India v. KG Sangm Sa ngmeswa eswaran, ran, (1997) 4 SCC 741. .... 13 Universall Imports Universa Imports Agency v. C hi hiee f Co ntroller of Im I mports po rts and Exports, [1961] 1 SCR 305..... 305. .... 4 V | Pa g e

 

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Vija Vijay y Mallya v. C Ch hairman Securities & Exchange Board of o f India, [2003] SAT 19. ................4 Vishes Vishesh h Kumar v. Sh S ha nti Prasad, (1980) 2 SCC SC C 378, 384. ..................................................... ..................................................... 17 Statutes/Regulations

SEBI ([P ROHIBITION OF] I NS ......................................... ................ 11 11  NSIDER IDER TRADING)  R EGULATIONS EGULATIONS, 1992. ......................... SEBI (M ERCHANT BANKERS)  R EGULATIONS 13........................................................... ................7 EGULATIONS, 1992, § 13........................................... SEBI  (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVER )  R EGULATIONS EGULATIONS, 1997, § 24(2). ............................................... ...................... ................................................. .............................................. ............................................... ............................................. ....................7, 11 SEBI  (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVER )  R EGULATIONS EGULATIONS, 1997, § 27(1)(d)...................................... 27(1)( d)............................................................ ............................................... ................................................. ............................................ ....................16 THE MOTOR VEHICLES ACT, 1988, §163-A........................................ §163-A............................................................. ...................................... .................17 Internet Resources  

Aparna Ravi,  Insi  Insider der Trading and the Risks Risks of Due Due Diligence Diligence Access, I NDI  NDIA A CORP LAW BLOG,  (Jully 15, 2016), ht (Ju http: tp://indiacorp //indiacorplaw.blo law.blo gspot.in/2015/01/ spot. in/2015/01/insider insider-trad -trad ing-a ing-a nd-risks-o d- risks-o fdu due.ht e.html ml.. ............................................ ..................................................................... .............................................. .............................................. ..................................... ............ 11 Association Asso ciation of Investment Bankers Of O f India,  Due Diligence Diligence Manual, Manual,  (Aug. 2012), http://www ttp ://www.aibi.org.in/AIBI%20Due% .aibi.org.in/AIBI%20Due%20D 20Dili iligence%20Manual.pdf. gence%20Manual.pdf. ..................... ................................... ..............8 JEFFREY M. WEINER ,  DUE DILIGENCE IN M&A  TRANSACTIONS:  A  CONCEPTUAL FRAMEWORK ,  12-30 (Th (Thomson omson Reuters/Aspato Reuters/Aspatore, re, U.S.A) (2010), avail availab ablle at http://w ttp://www.steptoe.com/assets/ht ww.steptoe.com/assets/html mldoc doc ume ume nts/Je nts/Je ffrey%20Weiner%2 ffrey%20Weiner%20C 0Ch hapter%20Busin apter%20Busi nes s%20Due%20Diligence%20Strategies%202010.pdf..................................... s%20Du e%20Diligence%20Strategies%202010.pdf.......................................................... ........................ ... 9 Umakanth Varotill, Overhauling the Insider Trading Regulations: Part 1, I ND  NDIA IA C ORP LAW BLOG (Dec.  21, 2013),  http://indi ttp ://indiacorp acorp law.b logspot.in/search ogspot.in/searc h?q=insi ?q=ins ider+trading+du der+trading+d ue+diligence. ......................... ......................... 11 Circulars and Reports  

Report of the Reconvened Reconvened Commi Committee on Substantia Substantia l Acquisitio Acquisitions ns of Shares and Takeo Takeovers, vers, (May 2002), available at  htt http p ://www.sebi. ://www.sebi.g gov.in/takeover/ ov.in/takeover/takeoverreport.pdf. takeoverreport.pdf. .................10 Report Repo rt of the Takeover Take over Regulat Regulations ions Advisor Advisory y Comm C ommittee ittee Regul Regulat ations ions,, (July 19, 2010), 201 0), available at  .............................................................. ..................................................................................... ................................................. ................................. ........5, 10 Report Repo rt of the Takeover Take over Regulat Regulations ions Advisor Advisory y Comm Co mmittee ittee un under der the Chairm Chairmans anship hip of Mr. C. Achuthan, Achuth an, (July 19, 2010) 201 0) available at   http://www ttp ://www.sebi. .sebi.g gov.in/cms/sebi_data/attachdocs/1287826537018.pdf. ov.in/cms/sebi_data/attachdocs/1287826537018.pdf. ............................... ............................... 2 VI | P a g e

 

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SEBI Orders  

SEBI Order In the Matter of Brooks Labor Laboratories atories Lim Limited, WTM/SR/IVD/ID-4 WTM/SR/IVD/ID-4/06/201 /06/2014, 4, ¶ 11.9 available available at http://www.seb http://www.seb i. gov.in/cms/sebi_data/attachdo ov.in/cms/s ebi_data/attachdocc s/1402402106617.p s/1402402106617.pdf df ... 7 SEBI Order In the Matter of Brooks Labor Laboratories atories Lim Limited, WTM/SR/IVD/ID-4 WTM/SR/IVD/ID-4/06/201 /06/2014, 4, ava ava ilable at http://www http://www.seb .seb i.gov.in/cms/sebi .gov.in/cms/seb i_data/attachdocs/1402402106617.pdf _data/attachdocs/1402402106617.pdf............. .............9 SEBI Order Orde r In the Matter of o f HSBC Securiti Securities es and Capi Cap ital Markets Mar kets (Indi (India) a) Private Private Lim Limited, WTMO/14/CFD/12/03, available at http://www ttp ://www.sebi. .sebi.g gov.in/cms/sebi_data/attachdocs/1293009715417.pdf. ov.in/cms/sebi_data/attachdocs/1293009715417.pdf. ............................. ............................. 11 SEBI Order Ord er In the Matter of Open Ope n Offer Offer of o f M/s Jyoti Jyoti Limi Limited, WTM/SR/CFD/39/08/2016 WTM/SR/CFD/39/0 8/2016,, available at  http://www ttp ://www.sebi. .sebi.g go v.in/cm .in/c ms/sebi_dat s/seb i_dataa /attachdocs/1470054168949.pdf /attachdocs/1470054168949.pdf,, ¶4.5. .. 5 Journals  

Ashwin Ashwi n Mathew, Anshuma Anshuma n Sa Sakle kle and Arunadhri Iyer,  Non-Di  Non-Disclosu sclosure re by a Sell Seller er  —  An  An analysis,, (2011) P.L. analysis P. L. (CL) (C L) Marc March h S-24................. S- 24.......................................... .............................................. ........................................ ...................8 Sambhav Sogani, Pledging of Shares Share s and The Management‟s Appetite - Fall Outs and Desired Chang Cha nges es in Takeover Code, [2010] 104 SC L 1 (MAG). (M AG). .......................................... ..........................................6 Tarun M. Stewart Ste wart & Cyril Cyril S. S . Shroff, Investing in Indian Indian PIPEs, PIP Es, (2007) (20 07) 10 Journal of Priv Private ate Equity 87. .............................................. ....................................................................... .............................................. .............................................. ................................... ..........6 Umakanth Varotill,  Due Diligence Diligence in Share Acquisitions: Acquisitions: Nav Navigating igating The Insi Insider der Trading  Regime  Reg ime,, NUS Working Work ing Paper 2016/004, 9. .............................................. ....................................................................... ........................... .. 11 Umakanth Varottil, The Nature Of The Market For Corporate Control C ontrol In India, India,  NUS Law Law Working Paper Ser ies Dec. 2015, 17. ............................................ .................................................................... ........................................ ................8 V. Keshav Kesha vdev, Till Pledge Do Us Apart, BUSINESS O UTLOOK ,  June 09, 2012, at 3.................. 3. .................6 Vikrant Pachnanda & Vineet Unnikrishnan,  Due Dili Diligence gence Issues That Face M&As, M&As, (2011) PL November S-2. ......................................... ............................................................... ............................................... .................................................. ........................... 8 SAT Cases  

M/s. Keynote Corporate Co rporate Se Servi rvices ces Ltd. v. SEBI, SEBI, SAT Appeal No. 84 of 2012, (19/02/2014), (19/02/201 4), available at   http ttp://www ://www.sebi. .sebi.g gov.in/cms/sebi_data/attachdocs/1392868424104.pdf. ov.in/cms/sebi_data/attachdocs/1392868424104.pdf. .. 6, 8, 9 Books   th G.P. SINGH, PRINCIPLES O F STATUTORY I NTE LexisNe sNexis xis  NTERP RPRE RETATION TATION 119 (12  ed., Lexi

Butterworths Butterwor ths Wadhwa Wadhwa Nag Na gp ur 2011). .............................................. ....................................................................... ................................... .......... 18

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th G.P. SINGH, PRINCIPLES O F STATUTORY I NTE LexiisNe sNexis xis  NTERP RPRE RETATION TATION 35 (12  ed., Lex

Butterworths Butterwor ths Wadhwa Wadhwa Nag Na gp ur 2011). .............................................. ....................................................................... ................................... .......... 18 Dictionary 

BLACK ‟S LAW DICIONARY 594 (9t h  ed. 2009)............................................... ....................................................................... ........................... .. 16

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STATEMENT OF JURISDICTION

CASE CONC CO NCERNING ERNING WITHDR WITHDRAWAL AWAL OF OPEN OFFER OFF ER UNDER THE SEBI SEBI TAKEOVER REGULATIONS, 1997.

DREAMSELLERS LTD. 

… Petitioner

V.

SECURITIES AND AN D EXCH EXCHANGE ANGE BOARD OF INDIA IND IA 

… Res  Respondent pondent

The Respondent has the honour to submit before the Hon‟ble Supreme Court the memorandum for respondent in the present case under Section 15Z of the Securities and  Exchange  Ex change Board Board of India Act, 1992. The appeal has been filed against the decisi decision on of the Securities Appellate Tribunal disallowing the appellant to withdraw its open offer under  Regulation  Re gulation 27(1) (d) of Securities and Exchange Ex change Board Board (Substantial Acquisi Acquisition tion of Shares and Takeov er) Regulations, Regulations, 1997.

IN THE SUPREME COURT OF INDIA

THE RESPONDENT RESPOND ENT HUMB HUMBLY LY AND RESPECTFUL RESPECTFULLY LY SUBM ITS TO THE THE JURISDICTION OF THIS HON’BLE COURT IX | P a g e

 

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- R esp spond onde ents -

STATEMENT OF FACTS INTRODUCTION  

  Pledge Agreement: On January 30, 2009, the Promoters of Artemis Ltd (hereinafter,



„Artemis‟), a company listed on the BSE, borrowed a sum of Rs.100 Crore from Dreamsellers Ltd. (hereinafter  (hereinafter , „Appell „Appellant‟) and pledged the equity shares of Artemis Limited Limited as securi sec urity. ty. A Pledge agreement a greement was entered entere d into into in thi thiss re regard. gard.

  Default: On June 10, 2010, appellant, in terms of the enforcement provisions contained in



the agreement, issued a letter calling upon them to repay the debt within a period of 30 days, failing failing whi which ch the appe appell llant ant would would be constrain constr ained ed to inv invoke oke the pl pledge. edge.

  Invocation of Pledge: The debt was not repaid in the given time limit. Upon default by



the Promoters of Artemis to repay the debt, the pledge was invoked by appellant on July 22, 2010, 201 0, which which made latter entitled entitled to 12.5 12. 5 per cent equity shares in Artemis.

  Inability to service debt: Even after the invocation of the pledge, Dreamsellers had



reservations about Artemis‟s ability to pay back the debt unless it had a say in the decision making of Artemis. The Promoters of Artemis kept promising to the appellant about abo ut servi ser vicing cing their d deb ebtt obligat obligation ion but in in vain. vain.   OPEN OFFER

  Voluntary Offer: Along with the invocation of pledge, which got only 12.5 per cent



equity shares, appellant decided to voluntarily make an open offer under Regulation 10 SEBI (SAST Regulations), 1997 1 997 (hereinafter “1997 Takeover Regulations”) to acquire upto 37.6 per cent equity shares s hares in Artemis. Artemis.

  Public Announcement: Appellant made a Public Announcement dated October 1, 2010,



for the proposed Open Offer to acquire upto 37.6 per cent equity shares of Artemis in the requi req uisite site newspap newspapers ers..

The associated assoc iated formaliti formalities es were wer e duly duly complied complied with along with the

Draft Letter Lette r of Offer bein be ing g sent s ent to the the Board Boar d by appell app ellant‟ ant‟ss merchant erc hant banker b anker..   FRAUD IN TARGET COMPANY

  Special Inve Investigative stigative Audit: Audit: Mea Meanwh nwhile, ile, on co conti ntinu nuo o us demands o off the creditor of



Artemis, Artemi s, the indep independent endent directors directo rs of o f the co. directed directe d an a n interna internall audit of Artemis‟ Artemis‟ operati opera tions ons and fi finan nancc ia ls. Certai Certa in irregul irregular aritie itiess between 2005 and 2008 were discovered. Thereafter, the Audi Auditt comm co mmittee ittee directed directe d a special spe cial invest investiga igatt ive audit.

  Fr Fraud aud and Syphoning of of F Fund undss :  An in indep dependen endentt Audi Auditt firm firm so appoin app ointed ted submi submitted tted in



its repo report rt on Septe Septem mber 30, 2011, that throug through h fraudul fraudulee nt transactions, Rs. 300 crores crore s had had X | Pa g e

 

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 been siph siphon oned ed of offf an and d embezz embezzled by the the Promoters Promoters of Artem Artemiis Lim Limited. After After delibera deli berati tio o ns by the board of directors, on Oct Oc t 25, 2011, the inv investigat estigative ive report repor t was was made public. public. Public Public disseminatio disseminat ion n of the contents of the report repor t res resul ulted ted in sharp de decli cline ne in market price of shares of Artemis.

  Request to Withdrawal of Open Offer: Quite promptly, the appellant wrote through its



merchant bankers to SEBI (hereinafter, (hereinafter, „ Respondent‟)  Respondent‟)  seeking to withdraw the open offer that it had voluntarily made. It was argued by it that it had only made an open offer voluntarily and extraordinary facts have since emerged and therefore, it should be  permiitted to with  perm withdraw draw th thee open of offfer. As an altern alternati ativ ve and and with withou outt-preju prejudi dice ce argu argument, ent, it sought that SEBI should pass an order permitting re-pricing of the open offer price in view of the new facts that have become known, which the market did not know earlier, and because of which the market price had been much higher than what it would have  been had had the price price become become kn known own.. ORDER ORD ER OF SEBI’S ADJUDICATING OFFICER OFFICER AND APP APPE EALS THEREOF

  Board’s Response: To this the SEBI responded, issuing its observations on Draft Letter



of Offer (after a very long delay) stating that acquirers should conduct their due diligence

 before  bef ore decidi decidin ng on wheth whether er to make an open off offer. Havi Having made it once, once, they they can cann not withdraw it, since only circumstances similar to the death of the acquirer or statutory approvals not being provided could be grounds for withdrawal. Meanwhile, the SEBI SAST Regulations, 2011 had been notified and thereafter made applicable. SEBI also stated that Regulation 23 of the New Takeover Regulations would not be applicable at all since the open offer had been made under the provisions of the 1997 Takeover Regulations. Being g aggrieved by the SEBI Or Order der,, Dream Drea msellers selle rs filed filed an appeal app eal before   Appeal to SAT: Bein



the Securi Sec urities ties Appell Appe llate ate Tribunal Tribunal un under der Sec S ection tion 15T 15 T of the the SEBI Act, 1992. The The SAT after hearing hearing both the parties passed passe d an order dismissing dismissing the appe appeal al fil filed.

  Reasoning issued by SAT: The SAT inter alia held that the 2011 Takeover Regulations



cannot be extended extended to the present case. cas e. Gi Giving ving a restrictive restrictive interpretat nterpretation ion to Reg Regul ulat atiio n 27(1)(d) 27(1)( d) of SAST, 1997, an off offer once made made cannot cannot be withdrawn withdrawn.. Th That at the appell appellant ant oughtt to do proper ough pro per due dil dilig igee nce before making the open ope n off offer. er. Being g aggrieve aggrieved d by the O rder rde r of the SAT, Dreamsell Dre amsellee rs   Appeal to the Supreme Court: Bein



filed filed an appeal app eal before the Hon‟ble Supre Supreme me Court Co urt un unde derr Sect S ection ion 15Z of the SEBI Act, 1992.. The 1992 The matter is under under consideratio consideration n by a larger bench. XI | P a g e

 

-A r g um ume ents P r ese sented nted -

- R esp spond onde ents ARGUMENTS PRESENTED

I. 

THAT THE PROVISIONS OF REGULATION 23 OF THE NEW TAKEOVER REGULATIONS RELATING TO WITHDRAWAL OF OPEN OFFER CAN BE APPLIED TO AN OPEN OFFER MADE UNDER THE 1997 TAKEOVER REGULATIONS.

II. 

THAT IT CANNOT BE SAID THAT DREAMSELLERS HAD FAILED TO EXERCISE DUE DILIGENCE AND THE FACTS RELATING TO THE FRAUD WERE “KNOWN” OR “COULD HAVE BEEN KNOWN” BY DREAMSELLERS, IF DREAMSELLERS HAD EXERCISED PROPER PRO PER “DUE “DUE DILIGENCE”.  DILIGENCE”.  

III.  

THAT SEBI HAD VIOLATED THE PRINCIPLES OF NATURAL JUSTICE IN THE PRESENT CASE WHILE PASSING ITS ORDER REJECTING THE APPLICATION TO WITHDRAW THE OPEN OFFER WITHOUT HEARING DREAMSELLERS.

IV IV..  

THAT REGULATION 27 (1) (D) OF THE 1997 TAKEOVER REGULATIONS IS  NOT TO BE GIV GIVEN EN AN INTE INTERPR RPRET ETAT ATION ION WHERE WHEREBY BY,, THE THE WORDS WORDS “SUCH CIRCUMSTANCES

AS

IN

THE

OPINION

OF

THE

BOARD

MERIT

WITHDRAWAL” ARE TO BE READ EJUSDEM GENERIS WITH THE OTHER PROVISIONS OF REGULATION 27 (1) OF THE SAID CODE I.E. AS CIRCUMSTANCES WHERE IT IS IMPOSSIBLE TO PERFORM THE OPEN OFFER.

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SUMMARY  OF  ARGUMENTS

1. That the provisions of Regulation 23 of the new takeover regulations relating to withdrawal of open offer cannot be applied to an open offer made under the 1997 takeover takeov er regulation regulationss -

a)  SEBI has not been empowered to make regulations with retrospective effect and in the absence of clear specific power empowering to make regulations with retrospective eff effec ect, t, regu re gulatio lations ns ca cann nnot ot be broug bro ught ht in to force with with retrospec retros pectiv tivee eff effect ect..  b)  It is a cardinal principle of construction that every statute  prima facie is prospective unless unless it is is expressly o orr by necessary implicatio n made to have have retrosp retrospectiv ectivee operati opera tion. on. c)  Regulation 35(2)(c) of the 2011 Takeover Regulations provides that any open offer for which a public announcement has been made under the repealed regulations shall be required to be continued and completed under the repealed regulations, therefore withdrawal of the open offer in the present case ought to be done under 1997 Takeover Regulations. d)  It is the date of the cause of action, not the date on which SEBI passes the order, that decides the applicability of the Regulations, and cause of action in this case offer of Dreamsellers to acquire shares of Artemis Regulation, which was done under the 1997 Takeover Regulations. 2. That the appellant failed to exerciese due diligence and the facts relating to the fraud were not ‘known’  ‘known’  or ‘could ‘could have been bee n known’ known’ if it had exe ex e rcise rcised d proper proper ‘due diligence’. dilige nce’.   a) The appellant failed to fulfill the due diligence requirement. Due Diligence does not mean

 passiv  passi vely ely reporti reporting th thee facts as represented. represented. It is based on the the caveat emptor  pri  prin ncipal cipal.. The The scope of due diligence is to carry out review of information and an independent examination of facts and docum doc uments ents such that that there are no material omissions or misstatements.  misstatements.   b)  Appellant‟s failure to conduct due diligence cannot be allowed as an excuse to allow

 prejudi  preju dice ce the the interests terests of innocent ocent sh shareh arehol olders ders of Artem Artemiis. The The appell appellant ant shou shoulld have ave done done due diligence before deciding to invoke the pledge and refrained themselves from invoking their pled pledge ge if if circumsta circumstances nces so requi req uired red c) Insider Trading Regulations cannot be cited as an excuse to not doing due diligence. The

argument that the appellant was not in a position to exercise due diligence regarding the

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financial status of the target company due to interplay of insider trading regulations cannot be sustained. 3. That no violation of principles of natural justice has been done by SEBI in the present casee w cas while hile passing pass ing it itss or order der rejecting the application to withdra ithdra w the open offer.

a)  The correspondence between Dreamsellers and SEBI, and the discussions between Dreamsellers Dreamsell ers‟‟ merchant banker and SEBI addressed addresse d all necessary neces sary issues.  b)   Not bein being given th thee opportu opportunity of oral hearin earing cann cannot alway alwayss be equated equated to a situatio situ ation n where no opportuni opp ortunitt y is giv given en to a party par ty to submit submit an explanation at al all. l. c)  The plea of the appellants that no opportunity has been provided to them is to be rejected rejecte d where the appel appe llate authority authority has considered considered the enti entire re fact situati situatio o n. d)  It satisfies the requirement of giving reasons if relevant reasons have been given for the order, though some of the reasons which were argued before the court had not  been expressl expressly y consi considered dered by the the au auth thori ority ty.. e)  The appellants have failed to place on the record the prejudice that has been caused by non-obser non-ob servance vance of Rules Rules of Natural Na tural Justice and thu thuss their case ca se cannot cannot be su sustained. stained. 4. That Regulation 27(1)(d) of the 1997 Takeover Regulations is to be given an interpretation whereby, words “such circumstances as in the opinion of the board merit withdrawal” are to be read ejusde usdem m generi neri s with other provisions of regulation 27(1) -

a)  Reg. 27 (1) (b) and (c) enlist a condition for withdrawal if there has been a refusal of statutory approval, and the sole acquirer has died, thus, constituting a genus of impossibility. So, 27 (1) (d) should also be understood to be a part of the same genus of impossibility.  b)  The legislative history of Reg. 27 (1) also suggests that 27 (1) (d) should be read ejusdem generis with 27 (1) (b) and (c). The omission of clause (a) solidifies the conclusion that an open ope n offer offer once made made can only only be withdrawn withdrawn if itit is im impos possible sible to complete complete it. c)  The object, purpose and scheme of the takeover regulations as evinced by its provisions and judicial decisions illustrate that Reg. 27 (1) (d) should be given a strict interpretation, so as to safeguard safeguard the interests interests of the shareholders. shareholders. d)  Arguendo, sans that that application of ejusdem generis, open offer in the present case can‟t  be with withdraw drawn n. With Withdraw drawal al of an of offfer on th thee groun round of econom economiic losses woul would give rise rise to un unscrupulo scrupulous us and specul spec ulative ative practi prac tices ces in the securiti securities es market. arke t.

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-A r g um ume ents A dvance vancedd-

-R esp spond onde ents ARGUMENTS  ADVANCED

1. THAT  TH THE E  PROVISIONS   OF  REGULATION   23  OF  TH THE E  NEW  TAKEOVER   REGULATIONS  RELATING  TO  WITHDRAWAL  OF  OPEN   OFFER   COULD   NOT  BE  APPLIED   TO  AN  OPEN  OFFER   MADE  UNDER   TH THE E  1997  TAKEOVER   REGULATIONS. 1.1. That the provisions of Regulation 23 of the New Takeover Regulations relating to withd ithdrawal rawal of open offer cannot be given give n a retrospective retrospe ctive operation. o peration.

1.1.1. That ordinarily a subordinate or delegated legislation is prospective in nature 1   and it should not be construed to be retrospective in operation. 2   The underlying principle is that unlike Sovereign Legislature which has power to enact laws with retrospective operation, authority vested with the power of making subordinate legislation has to act within the limits of its power and cannot transgress the same. The initial difference between subordinate legislation and the statute laws lies in the fact that a subordinate law-making body is bound  by the the terms terms of its deleg delegated ated or deriv derived auth authori ority ty and and that that Cou Court rt of law, as a general eneral rul rule, wil will not give effect to the rules, thus made, unless satisfied that all the conditions precedent to the validity of the rules have been fulfilled.3   Thus, where any rule or regulation is made by any  person or auth authori ority ty to whom whom su such ch powers powers have ave been deleg delegated ated by the the Le Leg gislatu slature re it may not  be possibl possiblee to make th thee same same so as to give retrospecti retrospectiv ve operati operation on unless the the respect respectiive statutory provision in express terms or by necessary implication empowers the authority concerned to make a rule or regulation with retrospective effect. 4   In the absence, however, of an express or necessarily implied power to that effect, subordinate legislation, be it a rule, a  bye-law  by e-law,, or a noti notifi fication, cation, cann cannot hav avee retrospecti retrospectiv ve operati operation. on. 5   1.1.2. That while Section 30 of the Act empowers SEBI to make regulations, and whilst Section 21 of the General Clauses empowers the SEBI to amend Takeover regulations from time to time, no power is conferred on it either expressly necessary implication, to make regulations with

retrospective effect.

Consequently,

the SEBI Regulations cannot be

retrospectively applied, as SEBI has not been empowered to make regulations with retrospective effect and in the absence of clear specific power empowering to make

1 2

 Panchi Panc hi Devi v. State Stat e of Rajasthan Rajast han , (2009) (2009) 2 SCC SCC 589, 591.  State Stat e of Jharkhan Jha rkhand d v. Shiv Karampal Sahu, Sahu , (2009) (2009) 11 SCC 453, 453, 459.

3 4  Hukam 5

Chan d v. Union o f India, (1972) (1972 ) nnoo 2 SCC SC C  Incom Inco me Chand Tax Officer, Off icer, Alleppey Allepp ey v. MC Ponn Po oos s e,601, (1969) (196604. 9) 2 SCC SCC 351.  India Sugar Refineries Refineries Ltd v. State of Myso re, AIR 1960 1960 Mys 326. 326.

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regulations with retrospective effect, regulations cannot be brought in to force with retrospective effect.6   1.1.3. That even when there is power to make a retrospective rule or notification, in absence of express words or necessary implication a rule or notification takes effect from the date it is issued and not from any prior date,7   since it is a cardinal principle of construction that every statute  prima facie is prospective unless it is expressly or by necessary implication made to havee retrospecti hav retrospec tive ve operati opera tion. on.8   1.1.4. That this presumption against retrospective operation is strong in cases in which the statute, if operated retrospectively, would prejudicially affect vested rights, or interfere with an existing contract, or impose new duty or attach new disability in respect of past transactions or consideration already passed. 9   Moreover, neither a right or a liability which was created for the first time can be given a retrospective effect nor a benefit already given can be withdrawn retrospectively. 10   It is humbly submitted that the Regulation 23 of the New Takeover Regulations with the introduction of Regulation 23(1)(c) impairs the vested rights of the shareholders of an exit-opportunity by providing the acquirer an right of withdrawal of the open offer in cases of non-attainment of any condition stipulated in the agreement that attracted the open offer obligation. 1.1.5. That a statute should not be given retrospective operation unless its words are so clear, strong and imperative that no other meaning can be annexed to them, or unless the intention of the Legislature could not be otherwise satisfied. 11   In the instant case, the 2011 Takeover Regulations neither expressly nor by necessary implication provide that they are to be applied retrospectively, rather there exists a contrary intention. Report of the Takeover Regulations 12

Advisory Committee   which includes the draft text of the 2011 Takeover Regulations unmistakably shows that these regulations were purported to be applied prospectively. Regulation 1(2) of the draft text text that says “These regulations shall come into force on 1[▪]” is followed followed by a footnote:

6

 SMS Holdings Holdings Pvt Ltd Ltd v. Securities Securities and Ex Exchange chan ge Board of India, [2003 [2003]] SAT 10. 10.  Chan dra drava vath thii PK v. CK Saji, (2004) 3 SCC 734, 749. 8  Kesha Kes hav v v. State Stat e of Bomba Bombay, y, AIR 1951 SC 128. 9  Mithilesh Mith ilesh Kum Ku mari v. Prem Behari Beha ri Khare, (1989) (1989) 2 SCC SCC 95. 10  State Stat e of Utta Uttarr Prad Prades es h v. Van Organic Organ ic Che Chem micals Lim Limited, ited , (2010) (2010) 6 SCC SCC 222, 222, 229. 7

11 12 Ram

Parka Parkas s h v. Savitri Sav itri Devi, ILR (1957) 2 P&H 1859, Report of the Takeover Regulati Regu lation ons s Adv isory Comm Com mittee1872. und er the Chairm Chairmans ans hip of Mr. C. Achuth Ach uthan, an, (July 19, 2010) available at   http://www.sebi.gov.in/cms/sebi_data/attachdocs/1287826537018.pdf. http://www.sebi.gov.in/cms/sebi_data/attachdocs/1287826537018.pdf.

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“It is recommended that these regulations be given effect from a prospective date to avoid any inad inadverte vertent nt breaches bre aches and a nd to ensure ensure clarity on the date of eff effec ect.” t.”   In the actual 2011 Takeover Regul Regulat atiio ns, Regul Regulat atiio n 1(2) reads: “These regulations shall come into force on the thirtieth day from the date of their publication in the Offici Officiaa l Gazette.” Gazette .”   Thus in light of the recommendations of the Mr C. Achuthan Committee‟s re port, re port, it must be construed that the 2011 Takeover regulations shall prospectively come into force on the thirtieth day from the date of their publication in the Official Gazette, i.e. from October 22, 2011. 1.1.6. That the Regulation 35(2)(c) of the 2011 Takeover Regulations in clear and un unambiguo ambiguous us term t erm provi provides des that: “any open offer for which a public announcement has been made under the repealed regullati regu at io ns shall shall be required required to be continu continued ed and completed completed under under the repea repealled regu regullations. ations . ”  It is humbly submitted that the rules of interpretation other than the literal rule would come into play only if there is any doubt with regard to the express language used and where the words are unequivocal, there is no scope for importing any rule of interpretation. 13   In the instant case, Dreamsellers made a Public Announcement dated October 1, 2010 for the  proposed  propose d Open Offer Offer to acqui acquire upto 37.6 per cent cent equi equity shares shares of Artemi Artemis Regu Regulation ation un under der the 1997 Takeover Regulations and thus by the virtue of Regulations 32(2)(c) of the 2011 Takeover Takeo ver Regul Regulat atio ions ns the open ope n offer offer can c an be withdra withdrawn wn onl only y under the repealed rep ealed regulat regulations. ions. 1.1.7. Where the petitioner contended that since the there was a lacunae in the 1994 Takeover Regulations which after been recognized by Bhagwati Committee has been removed in the 1997 Takeover Regulations, the 1997 Takeover Regulations are to be applied to a transaction made under 1994 Takeover Regulations, Supreme Court rejected the submission and held that Regulation 47 (identical wording to that of the Regulation 35(1)&(2)(a) of the 2011 Takeover Regulations) of the 1997 Regualtions nowhere provide for retrospective application of those Regulations.14   Similarly, where an inquiry was pending at the time of repeal of the 1994 Regulations, it was held that under regulation 47 of the 1997 Takeover Regulations SEBI is empowered to continue and complete the said inquiry and pass necessary orders in 13 14

Ragh unath Raghun ath Rai Bareja Bareja v. v . Punjab Pun jab National Nation al Bank, (2007) (2007) 2 SCC 230, 245. Harinarayan Harinaray an G Bajaj v. Union Union of Ind India, ia, (2008 (2008)) 2 Bom Bom CR 780, 818. 818.

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respect thereof under the 1997 Takeover Regulations. 15   It has also been held that Regulation 23 of the SEBI Amendment Regulations, 2002 (identical wording to that of Regulation 35(2)(a) of the 2011 Takeover Regulations) does not even purport to make the amendment regulations retrospective and the effect of this provision in the saving clause in the Amendment Regulations, 2002 does not affect the liabilities incurred before the amendment  became eff  became effectiv ective; su such ch liabil abiliti ties es are kept al aliive by the the virtue rtue of the the Secti Section on 6 of the the Gen General eral 16 Clauses Act, 1897.   1.1.8. 1.1 .8.

That unl unless ess a dif d ifferent ferent intenti intention on appears appe ars in the repeali repe aling ng Act, any legal legal procee pro ceedin ding, g, by

virtue of Section 6 of the General Clauses Act, can be instituted and continued in respect of any matter pending under the repealed Act as if that Act was in force at the time of repeal. 17   There is no contrary intention in the 2011 Takeover Regulations, and rather Saving Clause in the form of Regulation 35(2)(b) is in consonance of the Section 6 of the General Clauses Act. Therefore, by virtue of Regulation 35(2)(b) withdrawal proceedings for an open offer made un under der 1997 1 997 Takeo Takeover ver Regul Regulat atiio ns are to be continued continued under under those Regul Regulati at io ns onl only. y. 1.1.9.. That the words „things done‟ have been interpreted by the Supreme Court to mean not 1.1.9 only things done but also the legal consequences flowing therefrom since otherwise the saving clause would become unnecessary. 18   Thus, the result of a saving clause is that the preexisting law continues to govern the things done before a particular date from which the repeal of such a pre-existing law takes effect. 19   Thus, since the Public Announcement for the offer was made under the 1997 Takeover Regulations, the application for withdrawal of this offer off er is to be un under derstoo stood d as a s a legal consequence co nsequencess fl flowing owing therefrom. 1.1.10. That merely because the application for the withdraw of the open offer was made after the 2011 Takeover Regulations came into force doesn‟t mean that those regulations would be applicable to an offer made under 1997 Takeover Regulations.  It is the date of the cause of action, not the date on which SEBI passes the order, that decides the applicability of the Regulations,20   and cause of action in this case offer of Dreamsellers to acquire shares of Artemiss Regulatio Artemi Regulation, n, which which was wa s done un under der the 1997 Takeover Take over Regulatio Regulatio ns.

15

Vijay ijay Mallya v. Cha Chairm irman an Securities Secu rities & Ex Exch chang ang e Board Boa rd of Ind India, ia, [200 [2003] 3] SAT 19. SMS Holdings Holdings Pvt Ltd Ltd v. Securities and a nd Ex Exchan ge Board of India, [2003] [2003] SAT SA T 10. 17 State of Punjab v. v . Mohar Sing Singh h Pratap Singh, Singh , AIR 1955 1955 SC 84, 88. 16

18 19 Univers al 20

Im Impo ports rts Age A genc y v.Ismail, Chief Controll Contro ller er C of oharity f Impo Imports anissioner, d Ex po ports rts [1967 , [1961] [196 SCR 305. 30 Hasan Nurani Malad v.ncy SM Ismai l, As sis sistant tant Charity Comm Crts ommiss ioner, [19 67]]1]1 1SCR SC R 11 110. 0.5. SMS Holdings Holdings Pvt Ltd Ltd v. Securities and a nd Ex Exchan ge Board of India, [2003] [2003] SAT SA T 10.

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1.2. Arguend Arguendo: o: That That Regulat Re gulation ion 23(1)(d) 23(1)(d) of 2011 Takeove r Re Regulat gulation ionss is to be interp interpreted reted in light of Reg Regul ulation ation 27(1)(d) 27(1)(d) of 1997 Takeove r Re gulation gulations. s.

1.2.1. That even if it is accepted that the provisions of regulation 23 of the new takeover regulations relating to withdrawal of open offer could not be applied to an open offer made under the 1997 takeover regulations, the Regulation 23(1)(d) of 2011 Takeover Regulations is to be given the same interpretation as provided to Regulation 27(1)(d) of 1997 Takeover Regulations. It is a well settled rule of construction that when once certain words in an Act of Parliament have received a judicial construction in one of the superior courts, and the Legislature has repeated them without alteration in a subsequent statute, the Legislature must  be taken to have ave used th them em accordin according to th thee mean eaniing whi which a court court of com competen petentt juri jurisdi sdicti ction on has given given to them.21   1.2.2. Report of the Takeover Regulations Advisory Committee 22   further shows that there is no change in legi legisla slatt ive in intent tent in this this regard: regard : “Committee Deliberations: 6.2 Ordinarily, once  once  an open offer is made, its inexorable conclusion ought to be the completion of the open offer. However, there could be circumstances where the open offer cannot be completed. These circumstances can be classified into two types viz. (a) where it is rendered impossible for the open offer to continue  –   for example, death of an acquirer who is an individual, or rejection of any statutory approval required for the offer; and (b) non-attainment of any condition stipulated in the agreement that attracted the open offer obligation for reasons beyond the control of the acqui acq uirer rer,, resul re sulting ting in the agreem agree ment itself not being ac acted ted u upon.” pon.”   It is crystal clear from these deliberations that under 2011 Takeover Regulations an offer can  be with withdrawn drawn in only only abovem abovemen ention tioned ed ci circu rcum mstan sta nces or oth other sim similar ilar circu circum mstances. stances. 1.2.3. In the Matter of Open Offer of M/s Jyoti Limited 23   where the Acquirers had sought to withdraw the Open Offer on the grounds that the proceedings before the Hon‟ble BIFR were long drawn along with the inability of SEBI to clear the draft Letter of Offer, SEBI, while noting notin g that the

provi pro visions sions of Regulation Regulation 23(1) of the the Takeover Takeo ver Regulati Regulations, ons, 2011, 201 1, ar aree simil similar ar

to the provisions of Regulation 27(1) of the Takeovers Regulations, 1997 and consequently,

21 22

Bana ras i Debi Banaras Deb i v. ITO, AIR 1964 SC 1742, 1745. Report of o f the Takeover Takeove r Regulations Ad visory viso ry Comm Committee Regulations , (July 19, 19, 2010) 2010),, available at  

23 http://www.sebi.gov.in/cms/sebi_data/attachdocs/1386758945803.pdf.

SE SEBI BI Order In the Matter Mat ter of Open Open Offer of M/s Jyoti Jyot i Lim imited, ited, WTM/ SR SR/CFD /CFD/39/0 /39/08/2016, 8/2016, available at   http://www.sebi.gov.in/cms/sebi_data/attachdocs/1470054168949.pdf,  ¶4.5.  ¶4.5.

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the ratio laid down by in the matters of  Nirma Industries Limited 24  and  and Ak  Akshya shya Infrastruct Infrastructure ure  Private Limited 25   with respect to Regulations 27(1) of the Takeover Regulations, 1997 are squarely applicable to the provisions of Regulation 23(1) of the Takeover Regulations, 2011, held that an Open Offer can be withdrawn only in circumstances where it is rendered impossible for such Open Offer to continue, or in cases of Non – attainment attainment of any condition stipulated in the Agreement that attracted the Open Offer obligation, or o r other “such circumstances”, which has to be read in accordance with the first two conditions. Therefore, even the scheme of things under the Takeover Regulations, 2011 is such that application of the petitioner for the withdrawal of open offer on grounds of economic unviability, delay by SEBI, and denial denial of natural natural justice, justice, etc. cannot be accepted. accepted . 2. THAT  IT  CA CAN N   BE  SAID   THAT  TH THE E  APPELLANT  FAILED   TO  EXERCIESE  DUE  DILIGENCE  AND  TH THE E  FACTS  RELATING  TO  TH THE E  FRAUD  WERE  NOT  ‘KNOWN’  OR   ‘COULD  HAVE  BEEN  KNOWN’  BY  DREAMSELLERS,  IF  DREAMSELLERS  HAD HA D   EXERCISED  PROPER   ‘DUE  DILIGENCE’. DILIGENCE’.  

It is our submission that in the present case, no fraud has been played on the appellants as such. On the the foll follow owii ng grounds: grounds: A) The appellant chose to enter into a pledge agreement 26 , invoke the pledge and make a  

voluntary   pu  publ bliic ann annou oun ncemen cementt for takeover takeover on th thee basis basis of an inform ormed ed busi busin ness deci decisi sion on.. 27   It cannot be permitted to wriggle out of its commitments just because the offer is not econom eco nomica ically lly viable/ viable/is is a bad bargai bar gain n for it. it.28   B) Facts  Facts  relating to the fraud were „known‟ or „could be known‟ in the exercise of due diligence. The appellant had been dealing with Artemis since 2009. 29   Artemis was a party to the pledge agreement30   entered in 2009 along with its promoters and the appellant. Notably, the fraud perpetrated in Artemis between 2005 and 2008. The appellant was in a good  positi  posi tion on to do du duee di dilligen ence ce in matters atters of th thee target. target.31   In other words, the appellant had the

24

 Nirm  Nirmaa Indust Indu st ries ries Ltd Ltd v. SEBI, SEBI, (2013 (2013)) 8 SCC SCC 20 20.. SE SEBI BI v. v . Akshya Aksh ya Infras tructu truc ture re (P) Ltd, (2014 (2014)) 11 SCC SCC 112. 26  V Kesh Keshavdev avdev,, Till Pledge Do Do Us Apart, BUSINESS OUTLOOK , Jun Junee 09, 2012 2012,, at 3. 27  M/s Keynote Keyno te Corporate Services Ltd. Ltd. v. SEBI, SEBI, SAT App A ppeal eal No. No. 84 of 2012, 2012, (19/02/20 (19/02/2014), 14), available at   http://www.sebi.gov.in/cms/sebi_data/attachdocs/1392868424104.pdf. 28 SE SEBI BI v. v . Akshya Aksh ya Infras tructu truc ture re (P) Ltd, (2014 (2014)) 11 SCC SCC 112. 29 Moot Propos ition ition ¶1.

25

30

Sambhav Sogani, Pledgi Pledging of Shares and The Management‟ Management‟ss A ppetite - Fall Fall Outs and Desired Desired Changes in in Takeover Code, [2010] 104ngSCL 1 (MAG).  (MAG). Tarun M. Stewart & Cyril Cyril S. Shroff, Invest Inve st ing in in Indian PIPE PIPEs, s, (2007 (2007)) 10 Journal Jou rnal o f Privat Privatee Equity 87.

31

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capacity to verify the veracity and adequacy of representations by the promoters of Artemis. 32   In the like manner in 2010, at the time of voluntary public announcement, if not the fraud itself, but at the very least facts relating to it could have been known in exercise of proper due diligence.33   C) The appellant cannot be permitted to take advantage of its own inability to justify seeking withdrawal of the public offer. If allowed to withdraw its offer, it would be unfairly  prejudi  preju dici cial al to the the interests terests of th thee smal smalll sh shareh arehol olders ders and and investors estors of Art Artem emiis who who wer weree neither nei ther fraudulent fraudule nt nor lax lax in in their their conduct. c onduct. 34   Therefore, respondent hereby pleads that the acquirer cannot be allowed to withdraw the offer under regulation 27 (2) of the Takeover Regulations, 1997 because, A. The appellant failed to fulfill the due diligence requirement. B.  Appellant‟s failure to conduct due diligence cannot  be all allowed as an ex excu cuse se to al alllow  preju  prejudi dice ce th thee interests terests of Artem Artemiis‟s shareh sharehol olders ders  C. Insider Trading Regulat Regulations ions cannot be cited as an excuse to not not doing doing due dil dilig igee nce. 2.1. The Due Diligence Requirement

In the Takeover Regulations35 , Regulation 24(2) provides that the merchant banker shall do submit due diligence certificate to the SEBI for the acquirer. It was therefore the duty of the appellant‟s merchant banker [Hereinafter, MB] to do due diligence. diligence.  Regulation 13 of Merchant Banker Regulations36   lays down do wn code of conduct for merchant bankers. In the present case, the appellant had full knowledge about the poor state of financials of target, nevertheless, it chose to invoke the pledge and further make a voluntary public announcement for takeover. Appellants made hostile takeover bid knowing fully the past conduct of promoters of Target Company and were not innocent investors and should have known consequences of their public offer; is to construed as meaning that entities who make  bids  bids for hostil ostile takeover takeover of other other compan companiies do th thiis at then then own peril peril and and shou shoulld not expect expect any assistance from Respondent. Due Diligence is derived from the caveat emptor   pri  prin ncipl ciple; e; “let the buyer beware beware””.37   It is the  buy  bu yer's responsi responsibi billity to coll collect al alll informati ormation on from the the sel selller that that a pru pruden dentt man woul would need

32

Imperial Imperial Corporate Corpo rate Finan Finance ce and Services Priva Private te Lim Limited v . SE SEBI BI [2005] [2005] 61 SCL SCL 197 (SAT).  Nirm  Nirmaa Indust Indu st ries ries Ltd Ltd v. SEBI, SEBI, (2013 (2013)) 8 SCC SCC 20 20.. 34  Id.  Id. 35 CQUISITI ITI ON OF SHARES AND TAKEOVER ) R EGULATIONS EGULATIONS, 1997, § 24(2).  SEBI  (SUBSTANTIAL A CQUIS

33

36 37  SEBI 

ANKERS) R EGULATIONS EGULATIONS, 1992, § 13. (MERCHANT  Umakanth Varottil, BThe Nature Na ture Of Of The Market For Corporate Control In In India , NUS Law Worki W orking ng Paper Series Dec. 2015, 17.

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to make an informed choice about the article being bought. 38   If the buyer fails in this responsi respo nsibilit bility y he faces the risk of loss. 39   In the absence of any a ny statutory definition of „Due Diligence‟ and reasonable due diligence 40 , Hon‟ble Supreme Court held in Chander Kanta Bansal   v.  Ra  Rajender jender Singh Anand 41   and further affirmed in following judgments is that due diligence in law means reasonable 42

diligence and doing doing “everything “everything reasonable, not everything possible” . The appellant herein cannot be said to have done reasonable due diligence in the given meaning. There is no material to show that the appellant had taken any proactive step at all to find out the correct information or to independently verify the information available, it relied on representations  presented  presen ted by the the target target In JM In JM Mutual Fund and JM Capital Management Pv Pvt. t. Ltd . v. SEBI 43 , Due diligence had been taken as “such a measure of prudence, activity activity or assiduity, as is properly to be expected, and ordinarily exercised by, a reasonable and prudent man under the particular circumstances; not measured by any absolute standard, but depending on the relative facts of the special case- as defined in Black‟s Black‟s Law Dictionary. In  Keynote 44 , and subsequently it was held and is a settled law that better standards of performance of due diligence is expected from professionals, and this standard of professionalism should be higher than a reasonable man with ordinary  pruden  pru dence. ce. Extracts pertaining to Due Diligence as mentioned in the Due Diligence Manual of AIBI 45 , it is stated that….`the scope of due diligence is to carry out review of information and an independent examination of facts and documents….such that there there are no material omissions or misstatements. misstatements.‟‟46   Had the appellant cannot be said to have conducted a review or independent review of information; it merely relied on representations of the target. If not the fraud, facts in connection connection to the inconsi inconsiss te tencies ncies could could be known known by the the appell appellant. ant.

38

Ash wi win n Mathew, Ans human Sakle Sakle and Arunadhri Iyer, Non Iyer, Non-Disclosure -Disclosure by a Selle S ellerr —  An  An analysis, analysis, (2011) P.L. (CL)) Ma (CL March rch S-24. 39  Vik  Vikrant rant Pachnand Pachna ndaa & Vineet Unnikrishn Unnikrishnan an,, Due Dili gence gen ce Issues Issues That Face Fac e M&As, M&As , (2011) PL Novembe Nov emberr S2. 40 Chanderr Kanta Bans Chande Bans al v. Rajinde Rajinderr Singh Anan A nand, d, [(20 [(2008 08)) 5 SCC SCC 117]. 117]. 41  Ibid.    Ibid.  42  SEBI SEBI v. Ind Indiabu iabull llss Securities Sec urities Ltd., Ltd ., [2011] [2011] 105 SCL SCL 7 (SAT). 43   M/s Keynote Corporate Services Ltd v. SEBI, SAT Appeal No. 84 of 2012, (19/02/2014), available at   http://www.sebi.gov.in/cms/sebi_data/attachdocs/1392868424104.pdf. 44  Ibid .   Ibid. 45

 As so sociati ciation on of Investment Bankers Bankers Of India, Due India, Due Diligen Dili gence ce Manual Man ual , (Aug  (Aug.. 2012), 2012), http://www.aibi.org.in/AIBI%20Due%20Diligence%20Manual.pdf. 46  Ibid.    Ibid.

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Due diligence does not mean passively reporting whatever is reported to but to carry out review of information and an independent examination of facts and documents furnished by the issuer.47   Object of due diligence is that the buyer should also be aware and acquaint himse himself lf with all the existing existin g and po potential tential li liab abilit ilities ies that itit would get into. into. 48   In the instant case, the Appellant only relied only on the representations made by the 49

company and thus failed to adopt reasonable care and due diligence.   Merely referring to Public information, without satisfying itself about all aspects of the company it was to acquire, checking the veracity and adequacy of disclosures is a failure on the appellant‟s  part.50   In present case Appellant had failed to exercise due diligence. 51   The appellant understood well about the financial health and prospects of the target company. Clearly, the appellants decided on invoking the pledge on the shares of the target company with open eyes and suffi suf ficient cient knowl knowledge edge about a bout the affairs affairs of the target company. c ompany. Or otherwise were wer e lax in in their conduct to have not known it. 2.2. Appellant’s failure to conduct due diligence cannot be allowed as an excuse to pre pre jud udice ice the interests interes ts of Arte Artem mis is’s ’s s har haree hold holdee rs rs  

The appellant should have done due diligence before deciding to invoke the pledge and refrained themselves from invoking their pledge if circumstances so required, or that the appellants should have partially invoked the pledge. They did not stop here, the appellant made a voluntary public offer 52   knowing fully well the poor state of financials of the target, which was an informed business decision. 53   Circumstances arising out of omission on the part of the acquirers to have taken due precaution or business misfortunes are not reasons suffi suf ficc ient ie nt enough to merit wi withdrawa thdrawa l of the open offer. offer. 54   The appellant took no proactive step to check the veracity and authenticity of warranties and representations by the target to enter into the pledge agreement in 2009, invoke the pledge in 47

 M/ M/ss . Keynot Keyn otee Corporate Corpo rate Services Serv ices Ltd. v. v . SEBI, SEBI, SAT Appeal App eal No. 84 of 2012, 2012, (19/02/2014), available at   http://www.sebi.gov.in/cms/sebi_data/attachdocs/1392868424104.pdf. 48  JEFFREY M. W EINER , DUE DILIGENCE IN M&A  TRANSACTIONS: A  CONCEPTUAL FRAMEWORK , 12-30  (Thomson Reuters/As Reuters/ As pat patore, ore, U.S.A) U.S.A) (2010), (2010), available at http://www.steptoe.com/assets/htmldocuments/Jeffrey%20Weiner%20Chapter%20Business%20Due%20Dilige nce%20Strategies%202010.pdf. 49  SE  SEBI Or Order der In the Matter Matte r of Brooks Brooks Laboratories abo ratories Lim Limited, WTM/SR WTM /SR/IV /IVD/ID-4 D/ID-4/06/2 /06/2014, 014, available at http://www.sebi.gov.in/cms/sebi_data/attachdocs/1402402106617.pdf 50 51

Imperial Imperial Corporate Corpo rate Finan Finance ce and Services Privat Privat e L Lim imited ited v . SE SEBI BI [2005] [2005] 61 SCL SCL 197 (SAT).  Supra Supra no  note te 12 at ¶20.

52 53  Mo ot 54

Propos ition ition  Pramod PramodPropos Jain v. SEBI, SE¶5. BI, [2014] [2014] 48 taxman taxmann.co n.com m 226 (SAT - Mumbai).  Aks hy hyaa Infras tructu truc ture re (P) Ltd Ltd v. v . SE SEBI, BI, [2014] [2014] 44 taxman taxmann.co n.com m 444 (SC). (SC).

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2010 and subsequently for public announcement in 2011. The above facts would seem to be enough to provide the appellants had knowledge regarding the financial health and prospects of the target company. Clearly, the appellants decided on invoking the pledge on the shares of the target company with open eyes and sufficient knowledge about the affairs of the target company. The argument of the appellants that they had no prior clue about the adverse financial information relating to the target company and were contained in the later investigative audit report cannot be accepted.55   In this view, Regulation 24(2) mandates that the merchant  banker  ban ker shal shalll furn rniish to th thee Board Board a du duee di dilligen ence ce certif certificate whi which shal shalll accom accompan pany y the the draf draftt letter of offer. The aforesaid regulation clearly indicates that any enquiries and any due diligence that has to be made by the acquirer have to be made prior to the public announcement. It is, therefore, not possible to accept the contention of the appellant. This court in  Nirm  Ni rmaa56 was correct in holding that the appellants are faced with as the result of lack of due diligence and/or sheer business misfortune. They are only trying to wriggle out of a bad  bargai  barg ain n whi which is not permi permissible ssible under Regu Regulation 27(1)(d) 27(1)(d) of the the Ta Takeov keover er Regu Regulatio ation ns.57   That the appellants cannot be permitted to wriggle out of the obligation of a public offer under the Takeover Regulation. Permitting them to do so would deprive the ordinary shareholderss of their valuable right shareholder right to have an exit exit option o ption under under the tak takeo eover ver regulat regulations. ions. 58   The SEBI Regulations are designed to ensure that public announcement is not made by way of speculation and to protect the interest of the ordinary, innocent shareholders. A conspectus of the Takeover Regulations 59   would show that the scheme of the Takeover Regulations is (a) to ensure that in the process of the substantial acquisition or takeover, the security market is not distorted or manipulated and (b ( b) to ensure that the small investors are given an option to exit, that is, they are offered a choice to choice  to either offload their shares at a price as determined in accordance with the Takeover Regulations or to continue as shareholders under the new

55

 M  Moot oot Propos Propos ition ition ¶17. ¶17.  Nirm Nirma Indus Ind us tries Ltd Ltd v. v . SE SEBI, BI, (2013) 8 SCC SCC 20. 57  SEBI SEBI v. Aks hy hyaa Infras tructu truc ture re (P) Ltd, (2014) (2014) 11 SCC 112. 58  R  Repo eport rt of the Takeover Regulations A dv dvisory isory Comm Committee Regulations , (July 19, 19, 2010), 2010), available at   56

59 http://www.sebi.gov.in/cms/sebi_data/attachdocs/1386758945803.pdf.

 R  Repo eport rt of the Reconven Recon vened ed Comm Committee ittee on Subst Sub stant antial ial Acquisitions Acq uisitions of Shares Shares and a nd Takeovers, Takeov ers, (May 2002 2002), ), available at  http://ww http://www. w.seb sebi. i.gov.in/takeover/tak gov.in/takeover/takeoverreport. eoverreport.pdf. pdf.

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dispensation. In other words, the Takeover Regulations is meant to ensure fair and equal treatment treatm ent of all shareholders shareholders in relation to substantial ac acquisi quisition tion of shares and tak takeovers. eovers. 60   2.3. Insider Trading Regulations do not restrict the scope of Due Diligence for Open Offer und under er the the Takeove r Regulat Re gulation ionss

The argument that the appellant was not in a position to exercise due diligence regarding the financial status of the target company due to interplay of insider trading regulations 61   cannot  be su sustai stain ned. Regu Regulation ation 3B (2)of th thee PIT Regu Regulation ationss prov proviides for def defence ence to a compan company y which is in possession of unpublished price sensitive information for acquisitions of shares of a listed company for SEBI (SAST) Regulations, 1997. 62   Meaning that, the appellant had the liberty to verify the adequacy and veracity of representations presented by promoters of the target.63   Also, general practice has been such that for due diligence purposes parties enter into nondisclosure agreement to bind the other against publishing such information. 64   SEBI does not appear to have initiated legal action against any company for violation of insider trading regulat regul ations ions merely on account acc ount of facilita facilitatt ing a due diligence diligence.. 65   The appellant cannot be permitted to take the garb of Insider Trading Regulations as its inability nability to conduct conduct reasonable rea sonable due dil diligence. genc e. 3. THAT THAT NO V VIOLAT IOLATION ION OF PRIN PRINCIPL CIPLES ES OF NATU NATURAL RAL J JUSTICE USTICE HAS BEEN DONE DON E BY SEBI IN T THE HE PRESENT CASE WHILE PASSING PASSIN G ITS ORDER REJECTING REJ ECTING THE APPLICATI APPLICATI ON TO WITHDR WITHDRAW AW THE OPEN OFF OFFER. ER. 3.1. That SEBI while passing its order rejecting the application to withdraw the open offerr has acted in accordance offe accordance with the prin principles ciples of natural natural justice justice..

3.1.1. That there was no violation of the principles of natural justice in the present case. The correspondence between Dreamsellers and SEBI, and the discussions between betwee n Dreamsellers‟ merchant banker and SEBI addressed all necessary issues. Since all the necessary information 60

 SEBI Or  SEBI Order der In the Matter Mat ter of HSB HSBC C Securities Securities and Capital Capital Markets (India) Private Private Lim imited, ited, WTMO/14/CFD/12 WTMO/14/CF D/12/03, /03, available at htt http://www p://www.seb .sebi. i.gov gov .i .in/cms/s n/cms/s ebi_data/a ebi_da ta/attach ttach docs/129 doc s/12930 3009 0971 71541 5417.pd 7.pdf. f. 61  NSIDER TRADING) R EGULATIONS EGULATIONS, 1992. [ Hereinafter,  SEBI  ([PROHIBITION OF] I NSIDER  Hereina fter, PIT  PIT Regulations]. 62 CQUISITI ITI ON OF SHARES AND TAKEOVER ) R EGULATIONS EGULATIONS, 1997, § 24(2).  SEBI  (SUBSTANTIAL A CQUIS 63  Umakanth Varotill,  Due Diligen Dili gence ce in Sh are Acquisition Acquisit ions: s: Naviga Navi gatin ting gT The he Insid Insider er Trading Regime , NUS Worki Wo rking ng Paper Pape r 2016/004, 2016/004, 9. 64  NDIA CORP LAW BLOG,  (July 15, 2016),  Aparna Ravi,  Insider Tradi ng and th e Risk s of Due Due Diligence Dilige nce Access, I NDIA 65 http://indiacorplaw.blogspot.in/2015/01/insider-trading-and-risks-of-due.html.

 Umakanth Varotill, Overhauling the Insider Trading Regulations: Regulatio ns: Part 1 1,, I NDIA CORP LAW BLOG (Dec.  21,  2013),  http://indi http://indiacorplaw acorplaw.bl .blogs ogs pot.in/search?q=insider+tradi pot.in/search?q=insider+trading+due+dil ng+due+diligence. igence.

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was available before SEBI for taking a decision as to whether the withdrawal of the Letter of Offer would fall within the purview of Regulation 27(1) (d), the submission that substantial  justi  justice ce has not been done done in the the case of the the appell appellan ants ts cann cannot be accepted accepted.. 66   3.1.2. That the rules of natural justice are not rigid rules, they are flexible and their application depends upon the facts and circumstances of each case. 67   When principles of natural justice require an opportunity to be heard before an adverse order is passed on any appeal or application, it does not in all circumstances mean a personal hearing. The requirement is complied with by affording an opportunity to the person concerned to present his case before such quasi-judicial authority.68   Where the opportunity to make written representation is available and the decision is taken after considering such representation,  personal  person al hearin earing can be di dispen spensed sed with with..69   Thus, not being given the opportunity of oral hearing cannot always be equated to a situation where no opportunity is given to a party to submit an explanation at all70   and any order passed after taking into consideration the points raised in the application shall not be held to be invalid merely on the ground that no personal hearing had been bee n aff afford orded. ed. 71   3.1.3. That violation of principles of natural justice on account of not providing personal hearing cannot possibly vitiate SEBI‟s order because beca use appellants had never themselves sought  personal  person al hearin earing whi while wri writi tin ng to SEBI. SEBI.72   Also, it cannot be said that the appellants had been condemned unheard as the entire material on which the appellants were relying was placed  before  bef ore SEBI. SEBI. It is upon consi considerati deration on of th thee en enti tire re matter that that the the off offer of the the appel appelllants ants was rejected. Therefore, it cannot be said that the appellants have been in any manner prejudiced  by the the non on-gran -grantt of the the opportu opportunity of personal personal hearin earing. 3.1.4. That the Securities Appellate Tribunal Tribunal while dealing with the appeal against SEBI‟s order under Section 15 T of the SEBI Act, had passed a speaking order only after providing the appellants a proper opportunity of being heard on every issue raised by them. Hence, the  plea  plea of the the appell appellants ants th that at no opportu opportunity has been provi provided to them them is to be rejected rejected wh where ere the appellate authority has considered the entire fact situation. 73   In a proceeding where an

66

 Nirm Nirma Indus Ind us tries Ltd v . SE SEBI, BI, (2013) 8 SCC SCC 20.  RS Das v. Union of o f India, AIR A IR 1987 1987 SC 593. 593. 68  Union of India v. Jes Je s us Sale Corp, AIR 1996 1996 SC 1509. 1509. 69  Carborund Carboru ndum um Univers al Lim Limited ited v. Central Centra l Board of Direct Direct Taxes, 1989 1989 Supp Sup p (2) (2) SCC SCC 462. 462. 70  Nirm Nirma Indus Ind us tries Ltd v . SE SEBI, BI, (2013) 8 SCC SCC 20. 67

71 72  Union 73

India Jes J es us Sale AIR 1996 1996 SC 1509. 1509.  Sudhir Sud hir of Gup Gupta ta v. v v. . State, State , (2013) (201 3)Corp, 204 DLT DL T 249.  Sout  Sout hern Railw Railway ay Officers Officers As so sociation ciation v. Union of India, (2009) (2009) 9 SCC SCC 24 24..

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employee adduced evidence before the appellate authority the opportunity of hearing  proviided to the  prov the empl employ oyee ee at th thee appell appellate stage stage was held eld to suf sufficien cientl tly y meet his dem deman ands ds for a just and proper inquiry.74   Also, in urgent matters, a post-decisional hearing is regarded as a sufficient compliance of the audi alteram partem rule 75   and the principles can even be excluded when a statute contemplates a post-decisional hearing amounting to full review of 76

the original order on merit.   Lastly, it is humbly submitted that post-decisional hearing is held to be adequate in cases where no prejudice can be shown from a lack of pre-decisional hearing.77   3.1.5. 3.1 .5.

That itit satisf sa tisfies ies the requirement of gi givi ving ng reasons rea sons if relevant reas reasons ons have have been g giv iven en

for the order, though the authority has not set out all the reasons or some of the reasons which were argued before the court had not been expressly considered by the authority. 78   When the rule prescribes recording of reasons, it is not suggested that the authority shall make an elaborate order discussing the arguments of the appellants in the manner of a court of law, 79   rather appropriate brief reasons are adequate for a valid order. 80   Also, where the facts are so notorious that the reasons for the decision are too obvious the fact that no reasons were given  by the the auth authori ority ty may not viti tiate ate action action.. 81   It is humbly submitted that the submission of the appellants for the repricing of the open offer price cannot be accepted since the determination of the open offer price is to be done at a stage prior to the making of the public announcement and not thereafter. Thus, SEBI's order cannot vitiated on the mere ground that it was silent on the issue issue of o f reprici rep ricing. ng. Moreover Mor eover,, itit has has been categoricall cat egorically y held held that: “There is nothing in the Regulations which requires the Board to pass a reasoned order for all it does as a regulator. Being a regulator the Board has to take various steps, issue directions from time to time and pass appropriate orders… If there is material on record to show that the Board applied its mind to the offer made and considered it in the light of the relevant  proviision  prov sionss of the the Regu Regulati ation onss an and d al alll factors en enu umerated therei therein n, its deci decisi sion on to approv approvee the the

74

 U  United nited Plante Planters rs As so ciation of Sout Sout hern India v. KG Sangmeswaran, (1 (1997 997)) 4 SCC SCC 741. 741.  State Stat e of UP v. Pradhan Pradh an Sangh Sang h Kshetra Ksh etra Samiti, Samiti, AIR 1995 1995 SC 1512. 1512. 76  Sahara Saha ra India, Luc Lucknow know v. CIT, Central-I, Cent ral-I, (2008) (2008) 14 SCC SCC 151, 167. 167. 77  Canara Bank v.VK Awas A wasth thy, y, (2005) (2005) 6 SCC SCC 321, 321, 335. 335. 78  Bhagat Bhag at Raja Raja v. Union of o f India, AIR A IR 1967 1967 SC 1606. 1606.

75

79 80  Siemen Siemenss 81

& eMfg v. Union Unioka, n of(1995) India, Ind ia, 6AIR 19289. 76 .SC 1785. 1785.  MJ Sivani SivanEngg i v. State Stat of Karnataka, Karnata (19 95) SCC SCC1976 289  Nandaram Nand aram Hunatram Hun atram v . Union o f India, Ind ia, AIR 1966 SC 1922. 1922.

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offer price to be incorporated in the letter of offer cannot be faulted on the ground that it has not passed a reasoned order.”82   3.2. That no pre pre judice udice has bee been n cause caus e d to th thee appe appe llants and there is no case for reman remand d

3.2.1. That the appellants have failed to place on the record the prejudice that has been caused  by non on-observ -observan ance ce of Rul Rules of Natural Natural Ju Justi stice, ce, if any any. It is by now settled settled proposi propositi tion on of law that to sustain the complaint of the violation of natural justice one must establish that he was  prejudi  preju diced ced for non on-observ -observan ance ce of th thee prin princi cipl ples es of natural atural justi justice ce 83   since there is no such thing as a merely technical infringement of natural justice. 84   Therefore, where the respondent had asked ask ed for for an opportuni opp ortunitt y of hearing but none none was granted granted,, Suprem Supre me Court Co urt85  observed: “But the question that arises is as to whether this is sufficient to nullify the decision of SEBI. In our opinion, the respondent has failed to place on the record either before SAT or before this Court the prejudice that has been caused by not observing rules of natural justice. It is by now settled proposition of law that mere breach of rules of natural justice is not sufficient. Such breach of rules of natural justice must also entail avoidable prejudice to the respondent.”   respondent.” 3.2.2. That in matters where observance of principles of natural justice would have made no difference and the admitted or indisputable or irrefutable facts speaking for themselves lead to a situation where only one conclusion is possible under the law, the issuance of writ to compel observance of natural justice is not at all called for. 86   The court does not compel the observance of natural justice in such cases, not because it approves the non-observance of natural justice but because beca use courts do not issue issue futile futile writs.87   3.2.3. That though the Supreme Court has followed the principle that “once natural justice was violated violated

no other prejudice need be proved" in several cases case s earlier, earlier, yet the Court has has

not committed itself to this principle irrevocably and has not laid down any absolute rule. It is therefore clear that if on the admitted or indisputable factual position, only one conclusion is  possibl  possi blee and and permi permissibl ssible, e, th thee court court need not issue ssue a writ writ merely erely because because there there is violati olation on of the principle principle of natural natural justice.88  

82

 GL Sultan Su ltania ia v. v . Securities Secu rities & Ex Exchang cha ngee Board of o f India, (2007) 5 SCC SCC 133, 152-153. 152-153.  Secretary Secret ary Andh An dhra ra Prades h v. Pindiga Sridhar, Sridha r, (2007) (2007) 13 SCC SCC 352. 84  Kanwar Natwar Na twar Sing Singh h v. Direct Director or of o f Enfo Enforcement rcement , [2010] [2010] 104 SCL SCL 88. 85  SEBI SEBI v. Aks hy hyaa Infras tructu truc ture re (P) (P) Ltd, (2014) (2014) 11 SCC 112, 127. 83

86 87  Manag  Managem ement ent 88

Com moh ittee Jt Dir D irecto ector r o136. f Edu Education, 1999 AII 49. 49.  SL Kapoor Kapo or v. v .Comm Jagm Jag m ohan an,, v. AIR 1981 1981 SC 136 . cation, Kanpur, AIR 1999  MC Mehta Meh ta v. Union of o f Ind India, ia, (1999) (1999) 6 SCC SCC 237.

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3.2.4. That an appellate court while deciding an appeal can examine the matter on merits and finally decide the same at the appellate stage. Whether or not the appellate court should remit the matter is discretionary with the appellate court and would largely depend upon whether remand is going to result in avoidable prolongations of the litigation between the parties. Remands are usually avoided if the appellate court is of the view that it will prolong the 89

litigation.   4. THAT REGULATION 27 (1) (D) OF THE 1997 TAKEOVER REGULATIONS IS TO BE GIVEN AN INTERPRETATION WHEREBY, THE WORDS “SUCH

CIR CUMST CUMSTANCES ANCES AS I N THE OPINI ON OF THE B OARD ME ME RI T WI WI THDRAW THDRAWA A L” ARE TO BE READ EJU SDEM GENERIS WITH THE OTHER PROVISIONS OF REGULATION 27 (1) OF THE SAID CODE I.E. AS CIRCUMSTANCES WHERE IT IS IMPOSSIBLE TO PERFORM THE OPEN OFFER?

The Respondent most respectfully submits that Reg. 27 (1) (d) should be read ejusdem generis with sub-clauses (b) and (c) of Reg. 27 (1). The object, purpose and scheme of the takeover regulations as evinced by its provisions and judicial decisions illustrate that Reg. 27 (1) (d) should be given a strict interpretation, so as to safeguard the interests of the shareholders. The three sub-clauses of Reg. 27 (1) are exceptions to the general rule (that an open ope n offer offer made ad e cannot be b e wi withdrawn), thdrawn), and therefore, have to be constr construed ued very strictly s trictly.. 90   Ejusdem Generis: The expression “ejusdem generis” which means “of the t he same kind or

nature” is a principle of construction, meaning thereby when general words in a statutory text are flanked by restricted words, the meaning of general words are taken to be restricted by implication with the meaning of restricted words. This This is a principle which arises “from the linguistic implication by which words having literally a wide meaning (when taken in isolation) are treated as reduced in scope by the verbal context”. 91   Black‟s Law Dictionary defines this term as: “A cannon of construction const ruction holding that when a general word or phrase follows a list of specifics, the general word or phrase will be interpreted to include only items of the same class as listed.”92  

89

 Maya Ma ya Devi v. Raj Kum Ku mar Batra, (2010) (2010) 9 SCC SCC 486. 486.

90 91  Nirma Nirma 92

Indus Ind us tries Ltd v. SEBI, SEB I, (2013) 8 SCCv. 48. tsaa Prasarak  Maharas htra University o f Health Sciences v .20, Satchikits Satchiki Prasa rak Mandal, Mand al, (2010 (2010)) 3 SCC SCC 78 786, 6, 791. 791. th  BLACK ‟S LAW DICIONARY 594 (9  ed. 2009).

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In Assistant Collector of Central Excise, Guntur v. Ramdev Tobacco Company, 93   the question before this court was that whether the departmental action by the Appellant should  be cov covered ered under th thee ex expressi pression on “other other leg egal al proceedin proceeding” as used in Sec. 40 (2) in the Central Central Excises and Salt Act, 1944. It was held that since this term, is is succeeded by the terms “suit” and “prosecution”, it should be read ejusdem generis with these terms, and since the specific words denote an action which has been lodged only before a court of law, “departmental action” being an executive action would not  not   be covered covered under the the term “other other legal egal  proceedin  proceedi ng”. The ejusdem generis rule strives to reconcile the incompatibility between specific and general words. 94   This doctrine applies when (i) the statute contains an enumeration of specific words; (ii) the subjects of the enumeration constitute a class or category; (iii) that class or category is not exhausted by the enumeration; (iv) the general term follows follows the enumerat enumeration; ion; and (v) there there is no indi indica catt ion of a differe different nt leg legislat islatii ve intent.” intent.” 95   This court in Nirma case,96   made it clear that: “Applying the aforesaid tests, we have no hesitation in accepting the conclusion that.....the term “such circumstances in clause (d) would also be restricted in situation which would make it impossible for the acquirer to  perform  perf orm the public offer.” This decision has also been approved by the Hon‟ble Court in the case of Akshya v. SEBI.97   It is undisputed that Reg. 27 (1) (b) and 27 (1) (c) contain an enumeration of specific words (i.e. refusal of statutory approval and death of the acquirer) which constitute a genus of impossibility to consummate the open offer, 98   this genus of impossibility is not exhausted by enumeration, since there can be a number of circumstances which may arise making it impossible to complete a public offer. 99   The general term i.e. “such circumstances as in the opinion of the Board”, 10 0   follows the aforementioned specific terms. Lastly, there isn‟t any indication of a different legislative intent, and this can be deduced from a number of factors viz. legislative history; object, purpose and scheme of the takeover takeo ver regul regulati at io n, etc.

93

 As s ist istan antt Collector of Central Centra l Ex Excise , Gun untu turr v. Ramde Ramdev v Tobacc Tob acco o Compan Company y , (1991 (1991)) 2 SCC SCC 119, 119, 125.  Amar Chandra Chan dra Chakraborty Chakrab orty v . Collect Collector or of o f Excise , (1972) (1972) 2 SCC 442, 442, 447. 447. 95  Grasim ras im Indu In duss tries Ltd Ltd v. Collector of Custo Cus tom ms , Bomba Bombay, y, (2002) (2002) 4 SCC SCC 297, 304. 96  Nirm Nirma Indus Ind us tries Ltd Ltd v. SEBI, SEBI, (2013) 8 SCC SCC 20. 97  SEBI SEBI v. Aks hy hyaa Infras tructu truc ture re (P) Ltd, (2014) (2014) 11 SCC 112.

94

98 99  Nirma Nirma

Indus us SEB  Nirma Nirma Ind Ind Indus us tries tries Ltd Ltd v. v. SEBI, SEBI, SEBI, I, (2013) (2013) 8 8 SCC SCC 20, 20, 49-50. 49-50. CQUISIT ITION ION OF SHARES AND TAKEOVER ) R EGULATIONS EGULATIONS, 1997, § 27(1)(d).  SEBI  (SUBSTANTIAL A CQUIS

100

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4.1. Legislative History of Reg. 27 (1)

The legislative history of a statutory enactment may be looked into for the purpose of interpreting an expression in any statute, if the statutory provision is ambiguous. 10 1   In a number of cases such as, Shri Ram Labhaya v. Municipal Co. of Delhi, 10 2   Vishesh Kumar v. Shanti Prasad,10 3   Iridium India Telecom Ltd. v. Motorola Inc, 10 4   this court delved into the 10 5

legislative history of the statutes. In Oriental Insurance Co. Ltd. v. Hansrajbhai v. Kodala,   while interpreting Sec 163-A10 6   the court observed that: “….for arriving at the proper conclusion, it would be necessary to cull out legislative intent by referring to the legislative history as well as objects and and reasons for inserting the said prov ision.” ision.”   The Appellant may contend that prior to the amendment of Reg. 27 (1) in 2002, it also incorporated clause (a) which read as: “the withdrawal is consequent upon any competitive  bid”  bid”.. Sin Since thi this clau clause se permi permitted for withdrawal of an offer even when it is not impossible to consummate it, there was no genus of impossibility between all the clauses of Reg. 27, and therefore the rule of ejusdem generis cannot be applied. However, this contention of the Appellant would be devoid any substance, since in the Nirma case, 10 7   this court made it clear that: “Since clause (a) has been omitted, we are required to interpret only the scope and ambit of clauses (b), (c) and (d).” Further, it would also be pertinent to note the reaso ns for which clause (a) was omitted, as legislative history can be a relevant means for inferring the intention of the legislature (as has already been submitted above). In Akshya case, 10 8   this court observed that: “The very purpose for deleting Reg. 27 (1) (a) was to remove any misapprehension that an offer once made can be withdrawn, if it becomes economically not viable”. It was also held that, the deletion of clause (a) reinforces the conclusion that an open offer once made can only be withdrawn in circumstances stipulated under Reg. 27 (1) (b), (c) and (d). Therefore, in view of the legislative history of Reg. 27 (1), it is amply clear that an open offer once made can only be withdrawn in exceptional circumstances. Thus, the application of ejusdem generis for the purpose of interpreting Reg. 27 (1) (d) as adopted by this court in its earlier decisions needs no reconsideration. 101

 Jai Prakash v. State of UP, (2004) (2004) 13 SCC 390, 390, 398.  Shri Ram Lab Labhay hay a v. Municipal Mun icipal Corp of Delhi, (1974) 4 SCC SCC 491, 493. 103  Vish ishes es h Kumar v. v . Shanti Shan ti Prasad, Prasa d, (1980 (1980)) 2 SCC SCC 378, 384. 384. 104  Iri Iridium dium India Ind ia Telecom Teleco m Ltd Ltd v. Moto Mo torola rola Inc, (200 (2005) 5) 2 SCC SCC 145. 105  Orient Orient al Ins urance uran ce Co Co Ltd Ltd v. v . Han Hanss rajbhai rajbha i v. Kod ala, (2001) (2001) 5 SCC SCC 175, 175, 184. 184.

102

106 107  THE M OTOR VEHICLES A CT , 1988, 108

§163-A.  Nirma Nirma Ind Indus us tries Ltd v. SEBI, SEBI, (2013) 8 SCC 20, 48.  SE SEBI BI v. Akshya Aksh ya Infrastruc Infras tructu ture re (P) Ltd, (2014) (2014) 11 SCC 112, 127.

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4.2. Obj Obje ct, Pu Purrpose and Scheme of the the Take Takeove overr Re Regulat gulation ionss

The words of a statute, when there is a doubt about their meaning, are to be understood in the sense in which they best harmonise with the subject of the enactment and the object which the Legislature has in view. The meaning is found not so much in a strict grammatical or etymological propriety of language, nor even in its popular use, as in the subject or in the 10 9

occasion on which they are to be used, and the object to be attained.   The courts have declined to be bound by the letter, when it frustrates the patent purposes of the statute. 11 0   It is a recognised rule of interpretation of statutes that expressions used therein should ordinarily  be understood derstood in a sense sense in whi which th they ey best harmon armoniise with with the the object of the the stat statu ute, and and which effectuate the object of the legislature. 11 1   Therefore, when two approaches are feasible the court will prefer that which advances the remedy and suppresses the mischief as the Legislature envisioned.11 2   Further, it is also submitted that when question arises as to the meaning of a certain provision in a statute, it is not only legitimate but proper to read that provision in its context. 11 3   To ascertain the meaning of a clause in a statute, the court must look at the whole statute, at what  precedes and and at wh what at su succeeds cceeds an and d not merely erely at the the clau clause se itself tself. 11 4   The court must ascertain the intention of the legislature by directing its attention not merely to the clauses to be construed but to the entire statute; it must compare the clauses with the other parts of the law, and the setting in which which the clause clause to be in interp terprete reted d occurs. occ urs. 11 5   This Court in Nirma case rightly construed the object and purpose of the Takeover Regulations, by reading the Regulations as a whole and referring to a number of provisions. The court observed that under the SEBI Act, Board has been entrusted with the fundamental duties of ensuring orderly development of the securities market as a whole and to protect the integrity of the securities market. The court examined various provisions in the takeover regulations viz. Reg. 7, 8, 8-A, 10, 11, 12, 13, 14, 15, 16, 17, 18, 20, 21, 24, etc. and took the view that, a conspectus of the aforesaid Regulations would show that the scheme of the Takeover Regu Regullatio at ions ns is  –   109

 Mukes Mu kesh h K Tripa Tripath thii v. Senior Divisional Division al Manag Ma nag er, (2004) (2004) SCC 387, 387, 401. 401. th ERPRE PRETATION TATION  119 (12  ed., Lex  G.P. SINGH, PRINCIPLES OF STATUTORY I NT ER LexisNex isNexis is Butterworths Wadhwa Wad hwa  Nagpurr 2  Nagpu 201 011). 1). 111  Land Acqu Ac quistio istion n Offi Officer cer and Man Ma n dal Revenue Reven ue Officer Officer v. v . JT 2001 2001 (3) SC 157, 157, 161. 112 Bi Bipinc pinchan han dra Parsho Pars hotta ttam mda dass Patel v. State of Gujarat Gujarat (2003) (2003) 4 SCC SCC 642, 657-658. 657-658. 113 th ERPRE PRETATION TATION  35 (12  ed., L  G.P. SINGH, PRINCIPLES OF STATUTORY I NT ER Lex exisNexi isNexiss Butterworths Wad hwa 110

114  Nagpu  Nagpur r2 201 011).  National Nation al1). Ins urance uran ce Co Co Ltd Ltd v. v . An Anjana jana Shyam, (2007 (2007)) 7 SCC SCC 445, 451. 115  Man ikl iklal al Majumdar Ma jumdar v. Guara Guarang ngaa Chandra Chand ra Dey, (2005) (2005) 2 SCC SCC 400, 400, 407. 407.

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(a) To ensure that the target company is aware of the substantial acquisition; (b) To ensure that in the process of the substantial acquisition or takeover, the security market is not distorted or manipulated, and (c) To ensure that the small investors are given an option to exit, that is, they are offered a choice to either offload their shares at a price as determined in accordance with the Takeover Regulations or to continue as shareholders under the new dispensation. In other words, the Takeover Regulations is meant to ensure fair and equal treatment of all shareholders in relation to substantial acquisition of shares and takeovers and that the process does not take place in a clandestine manner without protecting the interest of the shareholders. It is keeping in view the aforesaid aims and objects of the Takeover Regulations that we shall have to interpret Regulations 27(1). 11 6   Therefore, by reading the Takeover Regulations as a whole, we can safely conclude that object, purpose and scheme the Takeover Regulations, necessitate that an open offer made should only be withdrawn in exceptional circumstances, or otherwise the security market maybe distorted and the interests of the sm small all shareholder shareholderss may be compromi compro mised sed.. 4.3. Sans the application of Ejusdem Generis, open offer made in the present case still does not m mee rit withdrawal ithdrawal

Arguendo, the Respondent most respectfully submits that even if it be assumed that Reg. 27 (1) (d) should not be read ejusdem generis with the other provisions of Reg. 27 (1), then also open offer made in the present case does not merit withdrawal. It is because the ground on which the Appellant seeks to withdraw the open offer is sharp decline in the share prices of Artemis, 11 7   i.e. it is economically unviable to consummate the open offer. However, as has already been submitted, a conspectus of the takeover regulations and the decision of this court in the Nirma Case, lucidly illustrates the viewpoint that the purpose, object and scheme of these Regulations is to ensure the integrity of the securities market and to protect the interests of the small shareholders. The orderly development of the securities market as a whole requires that public offers once made ought not to be allowed to be withdrawn on the ground of fall in share price of the target company, which is essentially a business misfortune or a financi financial al decision of the acqui acq uirer rer having having gone gone wrong. In essence, esse nce, the subm s ubmission ission made  by the the Appell Appellant ant is th that at unless th they ey are al alllowed to walk walk away from the the publ publiic off offer they they would have to bear losses which would otherwise have been shared by the erstwhile 116 117

 Nirma Nirma Ind Indus us tries Ltd v. SEBI, SEBI, (2013) 8 SCC 20. 45-47.  Moot Propos ition ition ,  , ¶  ¶ 9.

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shareholders of the target company. Accepting such a proposition would be contrary to the aims and objectives of the Takeover Regulations which is to ensure transparency in acquisition of a large percentage of shares in the target company. It would also encourage un undesirab desirable le and specul spec ulative ative practices in the stock market. market. 11 8   Accepting such a submission, would give a field day to unscrupulous elements in the securities market to make Public Announcement for acquiring shares in the Target Company, knowing perfectly well that they can pull out when the prices of the shares have been inflated, due to the public offer. Such speculative practices are sought to be prevented by Regulation 27(1) (b), (c) and (d).11 9   The Appellant may contend that since the open offer has  been volu oluntaril tarily made in th thee present present case, no prejudi prejudice ce has been caused to the the shareh sharehol olders ders of Artemis. However, in Akshya case, the Hon‟ble Court held that t here can be no distinction  between  betw een a trig triggered pu publ bliic of offfer an and d a vol olu untary pu publ bliic off offer. Both Both have ave to be con consi sidered dered on an equal footing. The consequences of both kinds of offers to acquire shares in the Target Company,, at a particular Company particular price, are a re the same.12 0   Thus, the Respondent humbly submits that an open offer once made can only be withdrawn if it is impossible to complete it. Arguendo, economic losses or commercial unreasonableness of the acq acqui uirer rer is not not a factor which merits merits withdra withdrawa wall of an ope open n of offer. fer.

118 119  Nirma Nirma 120

us tries Ltd v.tructu SEBI, SEB I,re(2013) SCC  SE SEBI BI v.Ind Akshya Aksh ya Infrastruc Infras ture (P) Ltd,8 (2014) (2 014)20, 1151. SCC 112, 128.  Ibid.

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-Pr -P r ayer yer -

-R espo spondents ndents PRAYER

IN THE LIGHT OF ARGUMENTS ADVANCED AND AUTHORITIES CITED, THE APPELLANTS

HUMBLY

SUBMIT

THAT

THE

HON‟BLE

COURT

MAY

BE

PLEASED TO ADJUDGE AND DECLARE THAT: A.  THE BOARD AND SAT WERE RIGHT IN DISMISSING THE APPELLANT‟S REQUEST FOR WITHDRAWAL OF PUBLIC ANNOUNCEMENT. B.  REGULATION 23 OF THE 2011 TAKEOVER REGULATIONS CANNOT BE APPLIED

TO

AN

OFFER

MADE

UNDER

THE

1997

TAKEOVER

REGULATIONS. C.  THE WORDS „SUCH CIRCUMSTANCES   AS IN THE OPINION OPINION OF THE BOARD BOARD  MERITS  MER ITS WITHDR WITHDRAWAL AWAL‟‟ AS USED IN REGULATION 27 (1) (D) OF THE 1997 TAKEOVER REGULATIONS ARE TO BE READ  EJUSDEM GENERIS   WITH THE TH E OTHER OTHER PROVISIONS P ROVISIONS OF REG REGUL ULATIO ATION N 27(1). D.  THE 1997 TAKEOVER REGULATIONS HAVE BEEN WELL INTERPRETED BY THIS COURT IN ITS PREVIOUS RULINGS. E.  FACTS RELATING TO EMBEZZLEMENT IN THE TARGET COULD HAVE BEEN BE EN KNOW KN OWN N HAD THE APPELLAN APPELLANT T CO CONDUCTED NDUCTED DUE DILIG DILIGENCE ENCE.. F.  THAT THERE WAS NO VIOLATION OF NATURAL JUSTICE IN THE PRESENT CASE. AND ANY OTHER RELIEF THAT THIS HON‟BLE COURT MAY BE PLEASED TO GRANT GRA NT IN THE INTERESTS INTERESTS OF EQUITY, JUSTICE AND AN D GOOD GOO D CONS CO NSCIENC CIENCE. E.  ALL OF WHICH IS RESPECTFULLY SUBMITTED SUBMITTED Sd/ON BEHA BEHALF LF OF SECURITIES SECURITIES AND EXH EXHCHANGE CHANGE BOARD OF INDIA COUNSELS FOR THE RESPONDENT

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