Case Law Details
The Supreme Court vide its order dated December 2, 2016, in the case of SEBI versus Burren Energy India Limited (Civil Appeal No. 361 of 2007), clarified on the term ‘offer period’ under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (“Takeover Regulations, 1997“).
The facts of the case was as under:
Ø Burren Energy India Limited (“Burren”) was incorporated under laws of England and Wales to acquire the entire shareholding of Unocal Bharat Limited, a company incorporated in Mauritius (“UBL“).
Ø The shares of UBL was held by Unocal International Corporation, a California-based Company (“UIL“), which was acquired in September 1996.
Ø UBL was holding 26.01% shareholding in Hindustan Oil Exploration Company Limited, an Indian listed company (“Target Company“).
Ø Burren entered into a share purchase agreement (“SPA“) with UIL on February 14, 2005 (“Execution Date“) to acquire entire shareholding of UBL and consequently indirectly acquired 26.01% shareholding in Hindustan Oil Exploration Company Limited through UBL.
Ø As the indirect acquisition would have entitled Burren to hold more than 15% shareholding in the Target Company, open offer obligations were triggered under the Takeover Regulations, 1997 and Burren alongwith UBL (person acting in concert) made a public announcement for purchase/sale of 20% shares of Hindustan Oil Exploration Company Limited to the public on February 15, 2005 (“PA date”).
Ø On the Execution Date, Burren appointed two directors to the board of UBL and UBL appointed the same two persons as directors in the Target Company.
Ø The appointment of directors in the Target Company was held to be a violation of Regulation 22 (7) of Takeover Regulations, 1997 by SEBI and by an order dated August 25, 2006, SEBI held Burren and UBL guilty of violation of Regulation 22(7) of Takeover Regulations, 1997 and imposed a penalty of 25 lakhs on each of them.
Ø On appeal to SAT, the order of SEBI was reversed and set aside.
Ø SEBI challenged the order of SAT before the Supreme Court by way of an appeal.
Regulation 22(7) of Takeover Regulations, 1997 says that an acquirer or PAC cannot be appointed as directors of the target company whose shares are involved under open offer during the offer period.
According to Regulation 2(1)(f) of Takeover Regulations, 1997 ‘offer period’ has been defined to mean the period between the date of entering into Memorandum of Understanding or the public announcement, as the case may be and the date of completion of offer formalities relating to the offer made under these regulations”
Thus according to SEBI, offer period had commenced from the Execution Date and not the PA date.
However, SAT interpreted the term “MOU” as per dictionary meaning and concluded that as there was no MOU entered between parties, the PA date was to be considered as the date of commencement of offer period. As appointments of directors were made prior to public announcement, Burren along with UNOCAL had not violated Regulations 22(7).
The appeal before Supreme Court:
SEBI’s argument between Supreme Court was that a Memorandum of Understanding may also include a concluded contract/agreement between parties. Hence, even if the fact is that the parties had not executed an MOU, the offer period had to commence from Execution Date. PA date would have relevance for determining offer period in a case where the acquirer had acquired shares from the stock market and there was no concluded written contract or MOU between parties.
Arguments of Burren and UBL was that the provisions of Regulation 22(7) would apply only if the acquirer were individuals and not corporate bodies. Further, Execution Date would be starting point of offer period under Takeover Regulations, 2011 (under the Takeover Regulations, 2011, the word ‘MOU’ has been replaced with the word ‘agreement’) and not under the Takeover Regulations, 1992 as it existed in 2002.
According to Supreme Court, the definition of ‘person acting in concert’ under Takeover Regulations, 1997 includes corporate entities and it’s directors and associates. Hence argument of Burren and UBL with respect to the non application of Regulation 22 (7) to them was not accepted by SC.
SC was of the view that if an MOU which is yet to fructify into an agreement can trigger an offer period, then a concluded agreement i.e. the SPA, can also trigger an offer period (in this case the Execution Date being the date of commencement of offer period).
Thus, the Supreme Court set aside the order of SAT and upheld the order of SEBI dated August 25, 2006.
Conclusion:
The Supreme Court’s view has clarified on the concept of ‘offer period’ as under:
i. In the event, an MOU has been entered into between the acquirer and persons in control of the target company prior to entering into a share purchase agreement or making a public announcement, the date of MOU shall be considered as the date of commencement of offer period.
ii. In the event, no MOU has been entered into between the acquirer and persons in control of the target company, but a share purchase agreement has been entered prior to making a public announcement, the date of share purchase agreement shall be considered as the date of commencement of offer period.
iii. In the event, neither an MOU nor share purchase agreement has been entered into between the acquirer and persons in control of the target company prior to making a public announcement, the date of public announcement shall be considered as the date of commencement of offer period.
