Supreme Court of India
DAIICHI SANKYO COMPANY LTD.versusJAYARAM CHIGURUPATI & ORS.
- Citation
- 2010 INSC 374
- Decided
- 8 July 2010
- Disposal
- Appeal(s) allowed
- Bench
- S H KAPADIA
Holding
Ranbaxy was not a "person acting in concert" with Daiichi at the time of its Zenotech share purchase, so Regulation 20(4)(b) does not apply and the offer price of Rs.113.62 per share is valid.
Summary
Daiichi Sankyo acquired a controlling stake in Ranbaxy, which had earlier bought shares of Zenotech at Rs.160 per share. When Daiichi made a public offer to acquire Zenotech shares, it offered Rs.113.62 per share, citing the market price as the highest of the methods prescribed under Regulation 20(4)(c). The respondents argued that Ranbaxy, as a subsidiary of Daiichi, was a "person acting in concert" and that the price paid by Ranbaxy should be used under Regulation 20(4)(b), requiring a higher offer price. The Supreme Court examined the definition of "person acting in concert" under Regulation 2(e) and held that the relationship between a parent and its subsidiary does not automatically create such a concert unless there is a common objective to acquire the target company. Consequently, Ranbaxy was not a person acting in concert with Daiichi at the time of its Zenotech purchase, and Regulation 20(4)(b) did not apply. The Court therefore affirmed that the offer price of Rs.113.62 was correctly determined and set aside the Security Appellate Tribunal’s order.
Issues considered
- The applicability of Regulation 20(4)(b) of the SEBI Takeover Regulations to determine the offer price in an indirect takeover.
- Whether Ranbaxy, as a subsidiary of Daiichi, qualifies as a "person acting in concert" with Daiichi under Regulation 2(e)(1) and (2).
- The correct interpretation of Regulation 20(12) regarding the dates to be considered for pricing in an indirect acquisition.
- The scope and effect of the deeming provision in Regulation 2(e)(2) on the definition of "person acting in concert".
Legislation cited
- Securities and Exchange Board of India Act, 1992s. 30
- Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997s. Regulation 14(4), s. Regulation 20(12), s. Regulation 20(4)(a), s. Regulation 20(4)(b), s. Regulation 20(4)(c), s. Regulation 2(e)(1), s. Regulation 2(e)(2)
Subjects
Takeover Regulationspersons acting in concertindirect acquisitionoffer price determinationSEBIshare purchase agreementregulatory interpretationcorporate law
Judgment
[2010] 8 S.C.R. 251
DAIICHI SANKYO COMPANY LTD. A
v.
JAYARAM CHIGURUPATI & ORS.
(Civil Appeal No. 7148 of 2009)
JULY 08, 2010
B
[S.H. KAPADIA, CJI, AFTAB ALAM AND SWATANTER
KUMAR, JJ.]
Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997: C
Regulations 20(4)(b), 20(12), 2(e)(1) and (2) - Offer price
for acquisition of shares in case of indirect takeover of a
company - Determination of - Ranbaxy acquired shares of
Zenotech in January 2008 at a price of Rs. 160 per equity D
share - On June 16, 2008, Daiichi made public
announcement to the shareholders of Ranbaxy to acquire
shares - Daiichi acquired more than 50% of share capital of
Ranbaxy on October 20, 2008 and Ranbaxy became
subsidiary of Daiichi - On January 19, 2009, Daiichi mad~
public announcement to acquire shares of Zenotech @ E
Rs. 113. 62 per equity share - Whether Ranbaxy was a 'person
acting in concert' with Daiichi and therefore whether the price
paid by Ranbaxy to the shareholders of Zenotech in January
2008 was relevant for determining exit price offered by Daiichi
to Zenotech's shareholder under Regulation 20(4)(b) - Held: F
Ranbaxy did not qualify as 'persons acting in concert' under
·Regulation 2(e)(1) for the acquisition of shares of Zenotech
as Ranbaxy and Daiichi did not have any common object or
purpose to acquire the shares or voting rights of the Zenotech
when the agreement was executed between Ranbaxy and G
Daiichi on June 11, 2008 - Acquisition of Zenotech's shares
by Daiichi was only consequential to the acquisition of
Ranbaxy and was not a concerted action - Any acquisition
of Zenotech shares made by Ranbaxy earlier at a time when
251 H
252 SUPREME COURT REPORTS [2010) 8 S.C.R.
A it was not a 'person acting in concert' with Daiichi was of no
consequence and price paid by Ranbaxy for Zenotech shares
at that time would not attract clause (b) of Regulation 20(4) -
Securities and Exchange Board of India Act, 1992.
Regulation 2(e)(1} - Concept "person acting in concert"
8 - Held: The concept is based on a target company on the one
side, and on the other side two or more persons coming
together with the shared common objective or purpose of
substantial acquisition of shares etc. of the target company -
Unless there is a target company, substantial acquisition of
C whose shares etc. is the common objective or purpose of two
or more persons coming together, there can be no "persons
acting in concert".
Legislation: Delegated legislation - Legislative practice
0 in India that unlike an Act, a Regulation or the later
amendments introduced in it are not preceded by the "Object
and Purpose" clause - Absence of "Object and Purpose"
clause in the Regulations creates difficulties for Courts in
properly construing the provisions of Regulations dealing with
E the complex issues - Need for change in old practice and to
add at the beginning the object and purpose clause to the
delegated legislations as in the case of the primary
legislations.
On October 3, 2007 Ranbaxy entered into a Share
F Purchase and Share Subscription Agreement (SPSSA)
jointly with Zenotech and its promoter whereby Ranbaxy
agreed to purchase a large block of equity shares
representing 27.35% of the company's fully paid up
equity share capital, at a negotiated price of Rs.160 per
G equity share and to subscribe to 54.89 lacs fully paid up
equity shares at the same price under a preferential
allotment of Zenotech. On October 5, 2007, Ranbaxy
made public announcement whereby it sought to acquire
from the public shareholders, equity shares of Zenotech
H constituting 20% of its expanded share capital. In the
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 253
CHIGURUPATI & ORS.
public announcement, Ranbaxy quoted offer price of A
Rs.160 per equity share. On November 23, 2007,
Zenotech duly allotted 54.89 lacs fully paid up shares to
Ranbaxy. The open offer made by Ranbaxy for Zenotech
shares in terms of Securities and Exchange Board of
India (Substantial Acquisition of Shares and Takeover) B
Regulations, 1997 (the Takeover Code or Takeover
Regulations) closed on November 15 2008. Following the .
completion of the open offer formalities, Ranbaxy issued
a post offer announcement on January 30, 2008. The
announcement disclosed that though in the public c
announcement it offered to purchase shares amounting
to 20% of Zenotech's capital, it actually received only
2.2% of the expanded share capital of the company and
the promoters still retained large portion of their
shareholding in Zenotech. D
On June 11, 2008, Daiichi (appellant) entered into
SPSSA jointly with Ranbaxy and its promoter whereby
Daiichi agreed to acquire 30.91% of the fully paid up
equity share capital of Ranbaxy by buying a sufficiently
large block of shares from the company's promoters. E
Daiichi also agreed to subscribe to the shares
representing in the aggregate 11 % of fully paid up equity ,
share capital of Ranbaxy and 238 lacs share warrants
each warrant exercisable for one equity share of
Ranbaxy. On June 16, 2008, Daiichi made a public F
announcement to the shareholders of Ranbaxy (other
than sellers under SPSSA) to acquire in the aggregate
22.01% of the fully paid share capital of Ranbaxy.
Daiichi's control over Ranbaxy consummated on
October 20, 2008, when it acquired more than 50% of the G
share capital of Ranbaxy and from that date, Ranbaxy
became a subsidiary of Daiichi. Daiichi made the public
announcement in regard to Zenotech on January 19,
2009. In the public announcement, Daiichi offered
Rs.113.62 for each share of Zenotech. The offer price was
H
254 SUPREME COURT REPORTS (2010] 8 S.C.R
A based on the price of Zenotech shares quoted on the
stock exchange.
Complaints were filed to SEBI by one of the
promoters of Zenotech and another shareholder of
Zenotech claiming that the offer price for Zenotech
8
shares could not be less than Rs.160 per share and
requested the SEBI to direct Daiichi to revise the offer
price. The claim was rejected. Security Appellate
Tribunal (SAT) allowed the appeals and directed Daiichi
to offer Rs.160 per share to the shareholders of Zenotech.
C Aggrieved by the decision of SAT, Daiichi filed the
appeals.
Allowing the appeals, the Court
HELD: 1.1. Regulation 2(b) of the Securities and
D Exchange Board of India (Substantial Acquisition of
Shares and Takeover) Regulations, 1997 (the Takeover
Code or Takeover Regulations), defines the term
'acquirer'. In terms of the definition, on entering into the
SPSSA on June 11, 2008, Daiichi became the acquirer
E (directly) of Ranbaxy and also of Zenotech (indirectly
through the acquisition of Ranbaxy). Regulation 20(12) of
the Takeover Code says that the offer price for the shares
of a company being taken over indirectly and as a
consequence of the acquisition of the primary target,
F would be determined with reference to two dates, one
when the public offer was made in regard to the "Parent
company" (that is, the company, the acquisition of which
resulted in the takeover of the secondary target company)
and the other when the public offer is made for the
G secondary target company and the higher of the two
would be taken as the offer price. In terms of the said sub-
regulation, therefore, the share price of Zenotech was
required to be determined as on June 16, 2008 (the date
of the public announcement for Ranbaxy, the parent
H company) and as on January 19, 2009 (the date of the
DAIICHI SANKYO COMPANY LTD. v. JAYARAM ', 255
CHIGURUPATI & ORS.
public announcement for Zenotech, the indirectly target A
company). Regulation 20(12) mentions the dates with
reference to which the offer price is to be determined but
it does not say as to how the offer price is to be ·,
determined. Sub-regulations (4) and (5) remained
unchanged and did not undergo any amendments s
following the introduction of sub-regulation (4) in
regulation 14 and sub-regulation (12) in regulation 20.
This is to say that the provision$ of sub-regu'lations (4)
and (5) applied both to cases of direct and indirect
takeover; they were not designed only for cases of c
indirect takeover. [Paras 11, 12, 25) (267-E-G; 280-G-H;
281-A-E]
1.2. Sub-regulation (4) of regulation 20 prescribes
three ways for determining the share price with the
stipulation that the highest among them would be the D
offer price. Clause (a) of sub-regulation (4) refers to the
negotiated price un~er the agreement. This would clearly
apply to a case of direct takeover and shall have no
application to a case of indirect takeover like the present
one. Clause (b) is based on the price paid by the acquirer E
or persons acting in concert with him for acquisition of
shares of the target company within the period of twenty
six weeks prior the date of the public announcement and
clause (c) is based on the price of the shares of the target
company as quoted on the stock exchange. The F
appellant worked out the share price of Zenotech as on
June 16, 2008 and January 19, 2009, following the
different modes provided under regulation 20(4)(c) and,
in the public announcement, offered Rs.113.62 per share,'
that being the highest among all. [Paras 26, 27] [281-F- G
H; 282-A, D-E]
1.3. On the date Daiichi entered into the SPSSA with
Ranbaxy, it became acquirer both in relation to Ranbaxy
and Zenotech directly in case of the former and indirectly
in case of the latter. Regulation 20(4)(b) speaks of the · H
256 SUPREME COURT REPORTS [2010] 8 S.C.R.
A price paid by the acquirer or persons acting in concert
with him for acquisition of shares, if any, during the
twenty six weeks period prior to date of public
announcement. It does not speak of any agreement to
acquire shares or of any voting rights or control over the
B target company but the actual price paid for acquisition
of its shares. The Appellate Tribunal proceeded on the
basis that since Daiichi and Ranbaxy were "persons
acting in concert" on the date of the public
announcement made by Daiichi for Zenotech shares,
c clause (b) of regulation 20(4) would be attracted
regardless of the fact that the two were not in that
relationship on the dates of purchase of Zenotech shares
by Ranbaxy. [Para 20 and 40) [272-G-H; 289-A-C, E-F]
1.4. The concept of "person acting in concert" under
D regulation 2(e)(1) is based on a target company on the
one side, and on the other side two or more persons
coming together with the shared common objective or
purpose of substantial acquisition of shares etc. of the
target company. Unless there is a target company,
E substantial acquisition of whose shares etc. is the
common objective or purpose of two or more persons
coming together there can be no "persons acting in
concert". The other limb of the concept requires two or
more persons joining together with the shared common
F objective and purpose of substantial acquisition of shares
etc. of a certain target company. Two or more persons
may join hands together with the shared common
objective or purpose of any kind but so long as the
common object and purpose is not of substantial
G acquisition of shares of a target company they would not
comprise "persons acting in concert". The idea of
"persons acting in concert" is not about a fortuitous
relationship coming into existence by accident or
chance. The relationship can come into being only by
H design, by meeting of minds between two or more
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 257
CHIGURUPATI & ORS.
persons leading to the shared common objective or- A
purpose of acquisition of substantial acquisition of
shares etc. of the target company. The common objective
or purpose may be in pursuance of an agreement or an
understanding, formal or informal; the acquisition of
shares etc. may be direct or indirect or the persons acting B
in concert may cooperate in actual acquisition of shares
etc. or they may agree to cooperate in such acquisition.
Nonetheless, the element of the shared common
objective or purpose is the sin qua non for the
relationship of "persons acting in concert" to come into c
being. Therefore, on signing the SPSSA, ·Daiichi and
Ranbaxy did not come within the relationship of persons
acting in concert within the meaning of regulation 2(e)(1)
of the Takeover Code. [Paras 43, 44 and 45] [290-D-H; 291-
A-H] .D
2.1. The deeming provision as contained in clause (2)
of Regulation 2(e) cannot do away either with the target
company or the common objective or purpose of
substantial acquisition of shares etc. of the target
company shared by two or more persons because to do E
so would be destructive of the very idea of "persons
acting in concert" as defined in clause (1) of Regulation
2(e). Therefore, clause (2) of Regulation 2(e) containing
the deerping clause cannot be seen as a 'stand alone'
provision, independent of clause (1) of Regulation 2(e). F
The deeming provision under clause (2) operates only
within the larger framework of clause (1) of regulation
2(e). The deeming provision simply says that in case of
nine specified kinds of1relationships, in each category, the
person paired with the other would be deemed to be G
acting in concert with him/it. What it means is that if one
partner in the pair makes or agrees to make substantial
acquisition of shares etc. in a company it would be
presumed that he/it was acting in pursuance of a common
objective or purpose shared with the other partner of the H
258 SUPREME COURT REPORTS [2010) 8 S.C.R.
A pair. Something more is required to comprise "persons
acting in concert" than the mere relationship of a holding
company and a subsidiary company. Merely because a
company has a subsidiary company, the two cannot be
dubbed as "persons acting in concert" unless another
B company is identified as the target company and either
the holding company or the subsidiary make some
positive move or show some definite inclination for
substantial acquisition of shares etc. of the target
company. [Paras 46, 47] (292-A-C; D-H; 293-A-B]
c 2.2. The deeming provision under sub-clause (2)
would give rise to the presumption that Daiichi and
Ranbaxy were "persons acting in concert", only from
'Jctober 20, 2008, the date on which Ranbaxy became a
subsidiary of Daiichi and not before that, provided of
D course the other conditions were also satisfied. Hence,
the purchase of Zenotech shares by Ranbaxy in January
2008 cannot be said to be by a "person acting in concert"
with Daiichi. The Appellate Tribunal was in error in
proceeding on the basis that the material date for
E Ranbaxy and Daiichi to be acting in concert was the date
. of the public announcement for the Zenotech shares.
[Paras 48, 49, 50] [293-B-H; 294-A-G; 295-A]
3. The Appellate Tribunal's error is the result of
F mixing up the provisions of sub-regulations (12) and (4)
of Regulation 20. Sub-regulation (12) came to be
introduced in Regulation 20 as a consequence of
extension of time for making public announcement for
the secondary and indirectly targeted company by
insertion of sub-regulation (4) in Regulation 14. Sub-
G regulation (12) of Regulation 20 obliges the acquirer to
work out the best value for the shares of the indirectly
targeted company as obtaining on the date of the public
announcement for the parent target company as well as
on the date of the public announcement for the indirectly
H targeted company concerned and then to offer the
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 259
CHIGURUPATI & ORS.
shareholders the better of the two values, so that the A
extension allowed for making the public announcement "
for the indirectly targeted company should not cause any
prejudice to its shareholders. Sub-regulation (12) does
not in any way affect sub-regulation (4) which remains
unamended and it certainly does not alter the meaning 8'J
of "person acting in concert" as used in that sub-section.
[Para 51] (295-D-G]
4. For application of Regulation 20(4)(b) it 1s not
relevant or material that the acquirer and the other
person, who had acquired the shares of the target C
company on an earlier date, should b·e acting in concert
at the time of the public announcement for the target
company. What is material is that the other person was
acting in concert with the acquirer at the time of purchase
of shares of the target company. So far as Zenotech was D
concerned, Ranbaxy was not acting in concert with
Daiichi either from the date of the SPSSA or even aftert
becoming a subsidiary of Daiichi and the acquisition of
Zenotech shares by Ranbaxy in the month of January
2008 did not come within the ambit of Regulation 20(4)(b). E
The offer price in the public announcement for Zenotech
shares made by Daiichi was correctly worked out. [Paras
52, 55] (295-H; 296-A-B; F-H)
5. As per the legislative practice in India, unlike an
Act, Regulations or any amendments introduced in it are F
not preceded by the "Object and Purpose" clause. The
absence of the object and purpose in the Regulations or
the later amendments introduced in it only adds to the
difficulties of the court in properly construing the
provisions of Regulations dealing with complex issues. G
The court, so to say, has to work in complete darkness
without so much as a glimpse into the mind of the maker
of the regulation. Regulations are brought in and later
subjected to amendments without being preceded by any
reports of any expert committees. Now, with more and H
260 SUPREME COURT REPORTS [2010] 8 S.C.R
A more of the regulatory regime where highly important
and complex and specialised spheres of hum<)n activity .
·are governed by regulatory mechanisms framed under
delegated legislation, it is high time to change the old
practice and to add at the beginning the "Object and
B Purpose" clause to the delegated legislations as in the
case of the primary legislations. [Para 57] [297-D-H; 298-
A-B]
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
7148 of 2009.
c
From the Judgment & Order dat.__ed 7.10.2009 of the
Securities Appellate Tribunal, Mumbai ih Appeal No. 137 of
2009.
WITH
D
C.A. No. 7314 of 2009
G.E. Vahanvati, A.G., Fali S. Nariman, Arvind Datar, C.A.
Sundaram, Shyam Divan, Ashok Desai, Anand S. Pathak, Nitin
Wadhwa, Amit Mishra, Subhash Sharma, Siddharth Dutta, G.
E Adarsh, Rajshekhar Rao, Rahul Kumar, Karan Laihri, Senthil
Jagadeesan, G. Ramakrishna Prasad, B. Suyodhan, Amarpal,
Bharat J. Joshi, Pratap Ve~gopal, Surekha Raman, Dileep
Poolakkot (for K.J. John & Co.) Somasekhar Sundareasan,
Ananya Kumar, Ankur Saigal, Bina Gupta, Gaurav Singh, Tripti
F Ray, J.N. Bhushan, John Mathew, S. Dutta for the appearing
parties.
The Judgment of the Court was delivered by
I.
AFTAB ALAM, J. 1. Whether the offer of rupees one
G hundred thirteen and paise sixty two only (Rs.113.62) per share
made by the appellant, Mis Daiichi Sankyo Company Ltd. in
its public announcement dated January 19, 2009 for acquisition
.. of the shares of Zenotech Laboratories Ltd. was fair and lawful
br whether the offer price could not be less than rupees one
H hundred and sixty only (Rs.160.00) per share? This is the
'
I
DAIICHI SANKYO COM PAN'( LTD. v. JAYARAM 261
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
question that falls for consideration in these two appeals. A A ·
correct answer to the question requires a proper construction
and understanding of certain provision of the Securities and
Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997 (the SEBI Takeover Regulations
or Takeover Code). B
2. The facts of the case are fairly simple and are admitted
on all sides. The two appeals arise from almost identical facts
but in this judgment we would be referring to the paper book
of Civil Appeal No.7148 of 2009.
c
3. On October 3, 2007 Ranbaxy Laboratories Limited
(respondent no.3), a company incorporated and registered
under the Indian Companies Act, entered into a Share
Purchase and Share Subscription Agreement jointly with
Zenotech (respondent no.4) and its promoter, Dr. Jairam D
Chigurupati (respondent no.1 in Civil Appeal No.7148). The
agreement provided for Ranbaxy to purchase from Zenotech's
promoters a large block of equity shares (78,78,906 in number),
· representing 27.35% of the company's fully paid-up equity
share capital, at the negotiated price of rupees one hundred E
and sixty (Rs.160.00) per equity share and to subscribe to
54,89,536 fully paid-up equity shares at the same price (rupees
one hundred and sixty per share) under a preferential allotment
by Zenotech. Having entered into the agreement to acquire
shares that would entitle it to exercise voting rights in Zenotech F
far in excess of the statutorily prescribed limit of fifteen percent
(and, in all likelihood, control over it) Ranbaxy was legally
obliged to make a public announcement to acquire shares of
the company from the ordinary shareholders. It did so on
October 5, within four days of the agreement as required by G
law. In the public announcement it sought to acquire from the
public shareholders, equity shares of Zenotech constituting
twenty percent of its expanded share capital. In the public
announcement Ranbaxy quoted offer price of rupees one
hundred and sixty only (Rs.160.00) per equity share as the
negotiated price under the agreement (SPSSA) was the H
262 SUPREME COURT REPORTS [201C] 8 S.C.R.
A highest of the prices arrived at by the different ways prescribed
by law. On November 8, 2007 the share purchase transaction
between Ranbaxy and the promoters of Zenotech (Dr.
Chigurupati and his family) was completed and at the annual
general meeting of Zenotech held on the same day, the
B shareholders of Zenotech approved the preferential allotment
of shares to Ranbaxy. On November 23, 2007 Zenotech duly
allotted (by way of preferential allotment) 54,89,536 fully paid-
up shares to Ranbaxy. The 'open offer' made by Ranbaxy for
Zenotech shares, in terms of the Takeover Regulations, closed
c on November 15, 2008. Following the completion of the open
offer formalities, Ranbaxy issued a post offer announcement on
January 30, 2008. The announcement disclosed that though in
the public announcement it offered to purchase shares
amounting to twenty percent of Zenotech's capital it actually
D received shares comprising only 2.2 percent of the expanded
share capital of the company and further that on completion of
all transactions Ranbaxy's shareholding in Zenotech stood at
46.85% of the latter's share capital. It may be stated here that
even after the sale in terms of the agreement the promoters (Dr.
Chigurupati and his family) retained a large portion of their
E shareholding in Zenotech.
4. It needs to be stated here that up to this stage Daiichi
was nowhere on the scene. It is no one's case that the
acquisition of Zenotech's shares and control by Ranbaxy was
F at the instance of Daiichi or it was in furtherance of some overt
or covert understanding between the two.
5. On June 11, 2008 Daiichi (the appellant in these two
appeals) entered into a Share Purchase and Share
G Subscription Agreement (the 'SPSSA') jointly with (i) Malvinder
Singh and others, the promoters of Ranbaxy, and (ii) Ranbaxy
Laboratories Ltd. Under the agreement, Daiichi would acquire
30.91 % of the fully paid-up equity share capital of Ranbaxy by
buying a sufficiently large block of shares from the company's
promoters. In addition, Daiichi would subscribe to (i) shares,
H
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 263
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
representing in the aggrega•e 11 % of the fully paid-up equity A
share capital of Ranbaxy, and (ii) 2,38,34,333 share warrants,
each warrant exercisable for one equity share of Ranbaxy. On
the same day Ranbaxy informed the Stock Exchanges that in
the meeting held on that date its Board of Directors had ratified
the terms of the SPSSA and had decided to seek the approval B
of the company's shareholders for issuance of the shares and
the warrants to Daiichi, on preferential basis, as. stipulated in
the SPSSA. In this letter dated June 11, 2008, addressed to
the Stock Exchanges it was also stated that, since Ranbaxy was
holding 46.85 percent of the equity shares of Zenotech, the c
SPSSA "has also triggered an 'Open Offer' to be made by
· 'Daiichi Sankyo' to the public shareholders of 'Zenotech' to
acquire a minimum of 20% of the Equity Shares of 'Zenotech'
at a price to be determined under the applicable SEBI
Regulations". In order to complete its takeover of Ranbaxy as D
envisaged under the SPSSA, Daiichi went through the gamut
of the statutory prescriptions. On June 16, 2008 it made a public
announcement ('open offer') to the shareholders of Ranbaxy
(other than the Sellers under the SPSSA) to acquire in the
aggregate 22.01% of the fully paid-up equity share capital of E
Ranbaxy. The offer price in the public announcement, was
rupees seven hundred and thirty seven only (Rs.737.00) for
each share, which was the price Daiichi had paid to the
company's promoters for acquisition of the shares under the
agreement and which worked out to be the highest of the prices
reckoned by the different ways prescribed by the law. Daiichi's F
control over Ranbaxy consummated on October 20, 2008 when
it acquired more than fifty percent of the share capital of
Ranbaxy (as it stood on that date) and on and from that date
Ranbaxy became a subsidiary of Daiichi. The relation in which
Ranbaxy came with Daiichi had another consequence, to which G
an allusion was made in the letter that Ranbaxy had addressed
to the Stock Exchanges on the date of the SPSSA. Whether
intended or not, as a result of its takeover (direct) of Ranbaxy,
Daiichi also (indirectly) acquired control of 46.85% of the equity
share capital in Zenotech, held by Ranbaxy. What on the date H
264 SUPREME COURT REPORTS [2010] 8 S.C.R.
A of the SPSSA was an anticipated consequence, on October
20, 2008 became the reality and this date became the starting
point for reckoning the period during which the "acquirer'',
Daiichi must make the public announcement (open offer) to the
shareholders of Zenotech. Daiichi duly made the public
8 announcement in regard to Zenotech on January 19, 2009. In
the public announcement, Daiichi offered rupees one hundred
thirteen and paise sixty two (Rs.113.62) for each share of
Zenotech. The offer price was based on the price of the
Zenotech shares quoted on the stock exchange.
C 6. In regard to the offer price of rupees one hundred
thirteen and paise sixty two (Rs.113.62) made in the public
announcement by Daiichi, N. Narayanan respondent no.1 in
Civil Appeal No.7314 of 2009, who was holding 63000 shares
in Zenotech made a complaint to the Securities and Exchange
D Board of India (SEBI) (vide. letters dated January 19, March
5, April 1, April 15, and May 7, 2009). He claimed that the offer
price for Zenotech shares could not be less than rupees one
hundred and sixty (Rs.160.00) per share and requested the
SEBI to direct Daiichi to revise the offer price accordingly and
E also to pay interest @ 15% for the delay in coming out with the
public announcement.
7. Respondent no.1 in Civil Appeal No.7148 of 2009, Dr.
Chigurupati who was the Director, founder and promoter of
F Zenotech and who along with his wife was holding 26% equity
shares in Zenotech made a similar complaint to SEBI through
a detailed representation dated January 27, 2009.
The SEBI afte~ due consideration of the matter turned down
the claim of the respondents (vide letter dated June 18, 2009
G in the case of N. Narayanan's complaint and letter dated June
22, 2009 in the case of the complaint of Dr. Chigurupati).
8. Against the decision of the SEBI, Dr. Chigurupati and
N. Narayanan preferred separate appeals, being Appeal
Nos.137 and 139 respectively of 2009 before the Security
H
DAIICHI SANKYO COMPANY LTD. v. 'JAYARAM 265
CHIGURUPATI & ORS. [AFTAB ALAM, J.)
Appellate Tribunal. The SecurityAppellate Tribunal upheld the A
claim of the respondents and by order dated October 7, 2009
allowed the appeals, reversed the decision df the SEBI,
modified the letter of offer (sic) issued by Daiichi and directed
Daiichi to offer rupees one hundred and sixty (Rs.160.00) per
share to the shareholders of Zenotech. Daiichi has now brought B
the matter in appeal before this Court.
9. Since the offer price for the Zenotech shares quoted in
the public announcement is the bone of contention between the
parties, we need to see some clauses in the public offer in some ·
detail. In paragraph 1.2 it was stated as follows: C
"1.2 There are no 'Persons Acting in Concert' within the
meaning of Regulation 2(1)(e)(1) of the Regulations in
relation to this offer. However, due ta the applicability of
Regulation 2(1)(e)(2) of the Regulations, there could be
certain entities deemed to, be Persons Acting in Concert D
with the Acquirer."
Paragraph 4 was about "Reason for Acquisition and Offer
and .Future Plan about the Target Company" and in paragraph
4.1 it was stated as follows:
E
"4.1 As stated in Para(s) 1.4 and 1:g_above, as a resultof
the acquisition of- its stake in RLL, together with the
acquisition of control in RLL, the Acquirer has indirectly
acquired 46.85% of the fully paid up equity share capital
of the Target Company held by RLL, which in turn has F
resulted in an indirect substantial acquisition of shares and
voting rights in the Target Company by the Acquirer for the
purposes of Regulation 1O and 12 of the Regulations.
Accordingly, this Offer is being made pursuant to
Regulations .10 and 12 of the Regulations."
G
And the offer price was calculated and quoted in paragraph
1.9 as follows:
· "1.9 The shares of the Target Company are frequently
traded on the SSE within the meaning of Regulation 20(5) H
of the Regulations.
266 SUPREME COURT REPORTS [2010) 8 S.C.R.
A The Offer price of Rs.113.62 per equity share is justified
in terms of Regulation 20(4) of the Regulations as it is the
higher of the following:"
i. The negotiated price under the SPSSA# N.A.
B ii. Highest price paid by Acquirer for any
acquisition (including by way of allotment
in a public or rights or preferential issue)
during the 26 weeks prior to the date of
the public announcement to shareholders
c of RLL
iii. The average of the weekly high and low Rs. 113.62
of the closing prices of shares of the
Target Company on BSE during the 26
weeks pe.riod preceding the date of
D public announcement to shareholders of
RLL.
iv. The average of the daily high and low Rs. 103.51
prices of the shares of the Target
Company on BSE during the 2 week
E period preceding the date of public
announcement to shareholders of RLL
v. Highest price paid by Acquirer for any N.A.
acquisition (including by way of allotment
in a public or rights or preferential issue)
F during the 26 weeks prior to the date of
the P.A.
vi. The average of the weekly high and low Rs.106.03
of the closing prices of shares of target
company on BSE during the 26 weeks
G period preceding the date of the P.A.
vii. The average of the daily high and low Rs.109.52
prices of shares of target company on
BSE during the 2 weeks period
preceding the date of the P.A.
H
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 267
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
10. Now is the time to take a look at the statutory A
provisions controlling and regulating such transactions and to
see how far the steps taken by Daiichi/Ranbaxy were in
conformity with the mandates of the law. The relevant provisions
are to be found in the Securities And Exchange Board of India
(Substantial Acquisition Of Shares And Takeover) Regulations, B
1997 (the Takeover Code or the Takeover Regulations) framed
under section 30 of the Securities and Exchange Board of
India Act, 1992. The Takeover Code was first notified by SEBI
in November 1994. This was replaced by the 1997 Takeover
Code after undergoing a number of amendments made in C
light of the recommendations of the first Bhagwati Committee's
report of January 18, 1997. The 1997 Takeover Code provided
for the regulatory mechanism for indirect acquisition of the
kind we see in the present case. The 1997 Takeover Code
underwent further amendments by the SEBI (Substantial
Acquisition of Shares and Takeovers) (Second Amendment) D
Regulations, 2002, with effect from September 9, 2002 in light
of the recommendations made by the second Bhagwati
Committee's report submitted in May 2002.
11. Now, to the relevant provisions of the Takeover Code: E
regulation 2 has the definition clauses and sub-regulation (b)
defines acquirer as follows:
"2(b) "acquirer" means any person who, directly or
indirectly, acquires or agrees to acquire shares or voting
F
rights in the target company, or acquires or agrees to
acquire control over the target company, either by himself
or with any person acting in concert with the acquirer;"
12. Thus, in terms of the definition, on entering into the
SPSSA on June 11, 2008 Daiichi became the acquirer G
(directly) of Ranbaxy and also of Zenotech (indirectly, through
the acquisition of Ranbaxy).
13. Regulation 2(c) defines control and regulation 2(e)
defines "Person acting in concert" which is as follows: H
268 SUPREME COURT REPORTS [2010) 8 S.C.R.
A "2 (e) "person acting in concert" comprises,-
(1) persons who, for a common objective or purpose of
substantial acquisition of shares or voting rights or gaining
control over the target company, pursuant to an agreement
or understanding (formal or informal), directly or indirectly
B co-operate by acquiring or agreeing to acquire shares or
voting rights in the target company or control over the target
company.
(2) Without prejudice to the generality of this definition, the
c following persons will be deemed to be persons acting in
concert with other persons in the same category, unless
the contrary is established :
(i) a company, its holding company, or subsidiary or such
company or company under the same management either
D
individually or together with each other; ·
(ii) a company with any of its directors, or any person
entrusted with the management of the funds of the
company;
E
(iii) directors of companies referred to in sub-clause (i) of
clause (2) and their associates;
(iv) mutual fund with sponsor or trustee or asset
management company;
F
(v) foreign institutional investors with sub-account(s};
(vi) merchant bankers with their client(s) as acquirer;
(vii) portfolio managers with their client(s) as acquirer;
G
(viii) venture capital funds with sponsors;
(ix) banks with financial advisers, stock brokers of the
acquirer, or any company which is a holding company,
H subsidiary or relative of the acquirer :
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 269
!
, CHIGURUPATI & ORS. [AFTAB ALAM, J.] .
Provided that sub-clause (ix) shall not apply to a bank A
whose sole relationship with .the acquirer or with any
company, which is a holding company or a subsidiary of
the acquirer or with a relative of the acquirer, is by way of
providing normal commercial banking services or such
activities in. connection with the offer such as confirming B
. availability of funds, handling acceptances and other
registration work;
(x) any investment company with any person who has an
interes( as director, fund manager, trustee, or as a
. shareholder having not less than 2 per cent of the paid-up C
capital of that company or with any other investment
company in which such person or his associate holds not
less than 2 per cent of the paid-up capital of the latter
company.
D
Note : For the purposes of this clause "associate•
means,-
(a) any relative of that person within the meaning of section
6 of the Companies Act, 1956 (1 of 1~56); and E
(b) family trusts and Hindu undivided families; "
14. We shall presently examine the j,rovisions of regulation
2(e) in greater detail as the result of the case would depend ~l
good deal on how we understand the meaning of "persons F
acting in concert" and what meaning is put to regulation 2(e)(1)
. and especially 2(e)(2l(i).
15. Regulation 2(o) defines "Target Company" as follows:
"2(o) "target company" means a listed company whose G
shares or voting rights or control is directly or indirectly
acquired or is being acquired;"
16. Thus, on the date of the SPSSA both Ranbaxy and
Zenotech became "Target Companies" for Daiichi, the acquirer, H.
270 SUPREME COURT REPORTS [2010) 8 S.C.R.
A the former directly and the latter indirectly.
17. Chapter II of the Takeover Code deals with
"Disclosures Of Shareholding And Control In A Listed
Company" and Chapter Ill contains provisions dealing with
"Substantial Acquisition Of Shares Or Voting Rights In And
8
Acquisition Of Control Over A Listed Company". Chapter Ill
begins with regulation 10 that makes it obligatory for an
"acquirer" acquiring, in aggregate, fifteen percent or more of
the voting rights in a company whether by acquisition of shares
or voting rights to make a public announcement to acquire
C shares of that company in accordance with the provisions of
the Takeover Regulations. Regulation 10, along with its marginal
heading, reads as follows:
"Acquisition of [fifteen] per cent or more of the shares or
D voting rights of any company.
10. No acquirer shall acquire shares or voting rights which
(taken together with shares or voting rights, if any, held by
him or by persons acting in concert with him), entitle such
acquirer to exercise fifteen per cent or more of the voting
E
rights in a company, unless such acquirer makes a public
announcement to acquire shares of such company in
accordance with the regulations."
18. Regulation 11 has the marginal heading,
F "Consolidation of holdings" and it lays down the obligations of
an "acquirer'' who, together with persons acting in concert with
him, has acquired, in accordance with the provisions of law,
fifteen percent or more but less than fifty five percent of the
shares or voting rights in a company. At the end of regulation
G 11 there is an explanation that applies both to regulations 10
and 11. The explanation is relevant for our purpose and it reads
as follows:
"Explanation. - For the purposes of regulation 10 and
regulation 11, acquisition shall mean and include,-
H
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 271
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
(a) direct acquisition in a listed company to which the A
regulations apply;
(b) indirect acquisition by virtue of acquisition of
companies, whether listed or unlisted, whether in India or
abroad." B
19. Regulation 10, as seen above makes it obligatory for
an "acquirer" acquiring fifteen per cent or more of shares or
voting rights in a listed company to make a public
announcement to acquire shares of that company. Regulation
14 prescribes the time limit within which the public C
announcement stipulated in regulation 10 is to be made.
Regulation 14 along with its marginal heading reads as follows:
"Timing of the public announcement of offer.
14. (1) The public announcement referred to in regulation D
10 or regulation 11 shall be made by the merchant banker
not later than four working days of entering into an
agreement for acquisition of shares or voting rights or
deciding to acquire shares or voting rights exceeding the
respective percentage specified therein: E
Provided that in case of disinvestment of a Public Sector
Undertaking, the public announcement shall be made by
the merchant banker not later than 4 working days of the
acquirer executing the Share Purchase Agreement or F
Shareholders Agreement with the Central Government or
the State Government as the case may be for the
acquisition of shares or voting rights exceeding the
percentage of shareholding referred to in regulation 10 or
regulation 11 or the transfer of control over a target Public G
Sector Undertaking.
(2) In the case of an acquirer acquiring securities, including
Global Depository Receipts or American Depository
Receipts which, when taken together with the voting rights,
H
272 SUPREME COURT REPORTS [2010] 8 S.C.R.
A if any already held by him or persons acting in concert with
him, would entitle him to voting rights, exceeding the
percentage specified in regulation 10 or regulation 11, the
public announcement referred to in sub-regulation (1) shall
be made not later than four working days before he
B acquires voting rights on such securities upon conversion,
or exercise of option, as the case may be.
Provided that in case of American Depository Receipts or
Global Depository Receipts entitling the holder thereof to
exercise voting rights in excess of percentage specified
c in regulation 10 or regulation 11, on the shares underlying
such depository receipts, public announcement shall be
made within four working days of acquisition of such
depository receipts.
D (3) The public announcement referred to in regulation 12
shall be made by the merchant banker not later than four
working days after any such change or changes are
decided to be made as would result in the acquisition of
control over the target company by the acquirer.
E
(4) In case of indirect acquisition or change in control, a
public announcement shal/ be made by the acquirer ·
within three months of consummation of such c;icquisition
or change in control or restructuring of the parent or the
company holding shares of or control over the target
F company in India."
(emphasis added)
20. It is noted above that on the date Daiichi entered into
G the SPSSA with Ranbaxy, it became the "acquirer'' both in
relation to Ranbaxy and Zenotech, directly in case of the former
and indirectly in case of the latter. The period of time within
which Daiichi was required to make the public announcement
in respect of the two target companies (the former directly and
H the latter indirectly) were prescribed in sub-regulation (1) (not
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 273
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
later than four working days of entering into an agreement for A
acquisition of shares or voting rights) and sub-regulation (4)
(within three months of consummation of such acquisition or
change in control.. .... ) respectively of regulation 14.
21. It needs to be stated here that sub-regulation (4) was 8
inserted in regulation 14 by the Second Amendment
Regulation 2002 with effect from September 9, 2002 and
before that date regulation 14 ended at sub-regulation (3).
This means that before September 9, 2002 the Takeover
Code in regulation 14(1), allowed only four days time for C
making the public announcement as required under
regulation 10 for both direct and indirect acquisitions. In
other words, in case the direct acquisition of a company
would lead to the indirect acquisition of another target
company the acquirer would be obliged to make the public
announcements for both the target companies (direct and D
indirect) not later than four working days of entering into
the agreement for acquisition of shares or voting rights in
the directly targeted company. This would sometimes give
rise to a number of practical difficulties. The problem was
considered by the second Bhagwati Committee and in its E
report submitted in May 2002, the Committee made the
following observations and recommendation:
"21. lnrlirect acquisition of a company through chain
principle . F
The Committee was of the opinion that the public offer for
the company which gets acquired as a consequence of the
takeover of the target company is triggered only upon the
successful completion of the acquisition of the target. At
the time of making the offer for the target company, such G
a takeover or rather its success is contingent and
prospective and in the event of its failure, the consequent
offer does not arise. Though the public announcement for
the consequent offer could be made simultaneously, it
would be conditional upon the successful completion of the H
274 SUPREME COURT REPORTS [2010] 8 S.C.R.
A first offer. Such conditional offer has its own impact on the
market and is not without practical and procedural
difficulties. Hence the public announcement for the
consequent offer can be allowed to be made within a pre-
specified time period of say three months from the date
B of closure of the first offer.
The Committee recommended that:
1. The offer for a company which gets acquired as a result
of acquisition of a target company can be subsequent to
C the successful completion of the takeover of the target by
the acquirer. It should be made within 3 months of
consummation of restructuring or arrangement by parent
or holding company."
D Sub-regulation (4) thus got inserted in regulation 14 in
pursuance of the recommendation of the second Bhagwati
Committee's report. The introduction of sub-regulation (4) in
regulation 14 led to further consequential additions/
amendments in the Takeover Regulation that we shall see
E presently. 22. Regulation 16 deals with the "Contents of the
public announcement of offer" and clause (ix) provides as
follows: "(ix) the object and purpose of the acquisition of the
shares and future plans, if any, of the acquirer for the target
company, including disclosures whether the acquirer proposes
F to dispose of or otherwise encumber any assets of the target
company in the succeeding two years except in the ordinary
course of business of the target company: Provided that where
the future plans are set out, the public announcement shall also
set out how the acquirers propose to implement such future
plans:
G
Provided further that the acquirer shall not sell, dispose of
or otherwise encumber any substantial asset of the target
company except with the prior approval of the
shareholders;"
H
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 275
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
23. Then comes regulation 20 which deals with the "offer A
:xice" and is very important for our purpose. In so far as relevant
'or the present it is reproduced below:
"Offer price.
20.(1) The offer to acquire shares under regulation 10, 11 B
or 12 shall be made at a price not lower than the price
determined as per sub-regulations (4) and (5).
(2) The offer price shall be payable-
(a) in cash;
c
(b) by issue, exchange and/transfer of shares (other than
preference shares) of acquirer company, if the person
seeking to acquire the shares is a listed body corporate;
or D
(c) by issue, exchange and, or transfer of secured
instruments of acquirer company with a minimum 'A' grade
rating from a credit rating agency registered with the ·
Board;
(d) a combination of clause (a), (b) or (c) :
Provided that where the payment has been made in cash
to any class of shareholders for acquiring their shares
unqer any agreement or pursuant to any acquisition in the F
open market or in any other manner during the
immediately preceding twelve months from the date of
public announcement, the letter of offer shall provide an
option to the shareholders to accept payment either in cash
or by exchange of shares or other secured instruments G
referred to above:
Provided further that the mode of payment of consideration
may be altered in case of revision in offer price or size
subject to the condition that the amount to be paid in cash
H
276 SUPREME COURT REPORTS [2010] 8 S.C.R.
A as mentioned in any announcement or the letter of offer is
not reduced.
(3) In case the offer price consists of consideration payable
in the form of securities issuance of which requires
approval of the shareholders, such approval shall be
B
obtained by the acquirer within [seven] days from the date
of closure of the offer:
Provided that in case the requisite approval is not
obtained, the acquirer shall pay the entire consideration
c in cash.
(4) For the purposes of sub-regulation (1 ), the offer price
shall be the highest of-
(a) the negotiated price under the agreement referred to
D in sub-regulation (1) of regulation 14;
{b) price paid by the acquirer or persons acting in concert
with him for acquisition, if any, including by way of allotment
in a public or rights or preferential issue during the twenty-
E six week period prior to the date of public announcement,
whichever is higher;
(c) the average of the weekly high and low of the closing
prices of the shares of the target company as quoted on
the stock exchange where the shares of the company are
F most frequently traded during the twenty-six weeks or the
average of the daily high and low of the prices of the
shares as quoted on the stock exchange where the shares
of the company are most frequently traded during the two
weeks preceding the date of public announcement,
G whichever is higher:
Provided that the requirement of average of the daily high
and low of the closing prices of the shares as quoted on
the stock exchange where the shares of the company are
H most frequently traded during the two weeks preceding the
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 277
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
date of public announcement, shall not be applicable in A
case of disinvestment of a Public Sector Undertaking.
Explanation.-ln case of disinvestment of a Public Sector
Undertaking, the relevant date for the calculation of the
average of the weekly prices of the shares of the Public 8
Sector Undertaking, as quoted on fhe stock exchange
where its shares are most frequently traded, shall be the
date preceding the date when the Central Government or
the State Government opens the financial bid.
(5) Where the shares of the target company are C
infrequently tr.:~ed, the offer price shall be determined by
the acquirer and the merchant banker taking into account
the following factors:
(a) the negotiated price under the agreement referred to D
in sub-regulation (1) of regulation 14;
(b) the highest price paid by the acquirer or persons acting
in concert with him for acquisitions, if any, including by way
of allotment in a public or rights or preferential issue during
the twenty-six week period prior to the date of public E
announcement;
(c) other parameters including return on net worth, book
value of the sl'lares of the target company, earning per
share, pri~e earning multiple vis-a-vis the industry average F
Provided that where considered necessary, the Board may
require valuation of such infrequently traded shares by an
independent merchant banker (other than the manager to G
the offer) or an independent chartered accountant of
minimum ten years' standing or a public financial
institution.
Explanation.-
H
278 SUPREME COURT REPORTS [2010] 8 S.C.R.
A (i) For the purpose of sub-rwulation (5), shares shall be
deemed to be infrequently traded if on the stock exchange,
the annualised trading turnover in that share during the
preceding six calendar months prior to the month in which
the public announcement is made is less than five per cent
B (by number of shares) of the listed shares. For this purpose,
the weighted average number of shares listed during the
said six months period may be taken.
(ii) In case of disinvestment of a Public Sector
Undertaking, the shares of such an undertaking shall be
c deemed to be infrequently traded, if on the stock exchange,
the annualised trading turnover in the shares during the
preceding six calendar months prior to the month, in which
the Central Government or the State Government as the
case may be opens the financial bid, is less than five per
D cent (by the number of shares) of the listed shares. For this
purpose, the weighted average number of shares listed
during the six months period may be taken.
(iii) In case of shares which have been listed within six
E months preceding the public announcement, the trading
turnover may be annualised with reference to the actual
number of days for which the shares have been listed.
(6) xxxxxxxxxxxx
F (7) xxxxxxxxxxxx
(8) xxxxxxxxxxxx
(9) xxxxxxxxxxxx
G (10)xxxxxxxxxxx
(11) The letter of offer shall contain justification or the basis
on which the price has been determined.
H
I
DAIICHI SANKYO COMPANY LTD. v.·\l~YARAM 279
CHIGURUPATI & ORS. {AFTAB ALAM, J.]
Explanation.? A
(i) The highest price under clause (b) or the average price
under clause (c) of sub-regulation (4) may be adjusbd for
quotations, if any, on cum-rights or cum-bonus or cum-
dividend basis during the said period. ·
B
(ii) Where the public announcement of offer is pursuant to
acquisition by way of firm allotment in a public issue or
preferential allotment, the average price under clause (c)
of sub-regulation (4) shall be calculated with reference to
twenty-six week period preceding the date of the board C
resolution which authorised the firm allotment or
preferential allotment.
(iii) Where the shareholders have been provided with an
option to accept payment either in cash or by way of D
exchange of security, the pricing for the cash c1ffer could
be different from that of a share exchange offer or offer for
exchange with secured instruments provided that the
disclosures in the letter of offer contains suitable
justification for such differential pricing and the pricing is E
subject to other provisions of this regulation.
(iv) Where the offer is subject to a minimum level of
acceptance, the acquirer may, subject to the other
provisions of this regulation, indicate a lower price for the
minimum acceptance up to twenty per cent, should be the F
offer not receive full acceptance.
(12) The offer price for indirect acquisition or control shall
be determined with reference to the date of the public
announcement for the parent company and the date of the G
public announcement for acquisition of shares of the target
company, whichever is higher, in accordance with sub-
regulation (4) or sub-regulation (5).
24. In order to clearly understand the ways in which the offer
H
280 SUPREME COURT REPORTS [2010] 8 S.C.R
A price is to be determined in the case of an indirect takeover of
a company, as in the present case, it would be useful to
examine regulation 20 from the rear end, that is to say starting
from sub-regulation (12). This may sound a little strange but it
is because sub-regulation (12) was introduced in the Takeover
B Code later, along with and as a consequence of insertion of
sub-regulation (4) of regulation 14 to deal specifically with the
offer pricing of the shares of a target company the acquisition
of which takes place as a result of the direct takeover of some
other company. We have seen above that the second Bhagwati
c Committee had, for good reasons, recommended for a
separate and extended time period for making the public offer
for a company that gets taken over following the acquisition of
a target company. While making the recommendation, the
Committee took care to see that the extended period for
making the public offer does not act to the detriment of the
0
ordinary shareholders of the company that gets taken over as
a result of acquisition of a target company. It, accordingly, went
on to observe and recommend as follows:
"However, the investors of tl'e 2nd company should get
E benefit of the best price ava:lable and for the purpose the
reference dates of the public announcement for the first as
well as the second offer may be taken for determining the
offer price."
The Committee recommended that:
F
'The price shall be determined as highest of the two prices
determined as per the provisions of the Regulations, with
reference to the date of the public announcement for the
target company and the date of public announcement for
G the company which is consequently acquired."
25. Thus came sub-regulation (12) of regulation 20. Now,
if we read regulation 20(12), it plainly says that the offer price
for the shares of a company being taken over indirectly and as
H a consequence of the acquisition of the primary target, would
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 281
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
be determined with reference to two dates, one when the public A
offer was made in regard to the "Parent company" (that is, the
company, the acquisition of which resulted in the takeover of
the secondary target company) and the other when the public
offer is made for the secondary target company and the higher
of the two will be taken as the offer price. In terms of sub- B
regulation (12) of regulation 20, therefore, the share price of
Zenotech was required to be determined as on June 16, 2008
(the date of the public announcement for Ranbaxy, the parent
company) and as on January 19, 2009 (the date of the public
announcement for Zenotech, the indirectly target company). c
Regulation 20(12) tells us the dates with reference to which the
offer price is to be determined but it does not tell us how the
offer price is to be determined. For that it refers us back to sub-
regulations (4) and (5). It needs to be stated here-that sub-
regulations (4) and (5) remained unchanged and did not D
undergo any amendments following the introduction of sub-
regulation (4) in regulation 14 and sub-regulation (12) in
regulation 20. This is to say that the provisions of sub-
regulations (4) and (5) apply both to cases of direct and indirect
takeover; they were not designed only for cases of indirect E
takeover.
26. Sub-regulation (5) of regulation 20 lays down the
method for determining the offer price for a company the
shares of which are infrequently traded. That is not the case
with Zenotech; hence, we may leave out sub-regulation (5). This F
takes us to sub-regulation (4) of regulation 20. Sub-regulation
(4) prescribes three ways for determining the share price with
the stipulation that the highest among them would be the offer
price. Clause (a) of sub-regulation (4) refers to the negotiated
price under the agreement. This would clearly apply to a case G
of direct takeover and shall have no application to a case of
indirect takeover like the present one. Clause (b) i~\based on
the price paid by the acquirer or persons acting in concert with
him for acquisition of shares of the target company witlTI~ the
period of twenty six weeks prior the date of the''Public H
282 SUPREME COURT REPORTS [2010] 8 S.C.R.
A announcement and clause (c) is based on the price of the
shares of the target company as quoted on the stock exchange.
27. According to Daiichi, the appellant in these two
appeals, regulation 20(4)(a) had no application in determining
8 the offer price of Zenotech as there was no negotiated price
under any agreement; its takeover of that company was indirect
being a consequence and a fall out of its takeover of Ranbaxy.
Regulation 20(4)(b) had similarly no application because neither
Daiichi nor anyone acting in concert with it had purchased any
C shares of Zenotech within the period of twenty six weeks prior
to the dates of the two public announcements, first for the
shares of Ranbaxy and the second for the Zenotech shares.
The only provisions, therefore, applicable in the case were
those contained in clause (c) of regulation 20(4) under which
the offer price was required to be determined on the basis of
D prices of the shares of Zenotech, the target company as quoted
on the stock exchange. The appellant worked out the share
price of Zenotech as on June 16, 2008 and January 19, 2009,
following the different modes provided under regulation 20(4)(c)
and, in the public announcement, offered rupees one hundred
E thirteen and paise sixty two (Rs.113.62) per share, that being
the highest among all.
28. Here the respondents join issue with the appellant.
According to the respondents, the provisions of regulation
F 20(4)(b) are fully applicable to the case and the appellants were
completely wrong in disregarding it. The respondents contend
that Daiichi and Ranbaxy came together as "persons acting in
concert" on June 11, 2008 when the SPSSA was signed
between the two companies or, in any event, on October 20,
G 2008 when Ranbaxy finally became a subsidiary of Daiichi.
They continued in that relationship on January 19, 2009 when
Daiichi made the public announcement for the shares of
Zenotech. Further, Ranbaxy had paid rupees one hundred and
sixty (Rs.160.00) per share for the Zenotech shares in January
H 2009 which falls within the period of twenty six weeks looking
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 283
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
back from June 16, 2008, the date on which Daiichi had made A
the public announcement for Ranbaxy shares. In terms of
regulation 20(12) the date of the public announcement for the
parent company (June 16, 2008) is one of two relevant dates
with reference to which the offer price for acquisition of the
shares of the target company (Zenotech) is to be determined. B
Thus, according to the respondents, clause (b) of regulation
20(4) was clearly attracted and the price (Rs.160.00) under that
clause being higher than the price (Rs.113.62) worked out in
terms clause (c) that alone could form the offer price in the
public announcement. c
29. The Securities Appellate Tribunal accepted the
respondents' contention obser.1ing and holding as follows:
"It is Daiichi's own case, as is clear from the public
announcement made to the shareholders of the target D
company, that Ranbaxy became its subsidiary on October
20, 2008 when the acquisition of Ranbaxy got completed.
Being a subsidiary, Ranbaxy shall be deemed to be acting
in concert with Daiichi with effect from that date as per
Regulation 2(1)(e)(2)(i) of the Takeover Code. According E
to this Regulation, "person acting iii conceit" comprises a
company, its holding company or subsidiary unless the
contrary is established. There is no question of the contrary
being established in the instant case because Daiichi itself
had made it known in the public announcement to the F
shareholders of the target company that Ranbaxy had
become its subsidiary on October 20, 2008. It is, thus,
clear that on January 19, 2009, the material date on which
the offer price for indirect acquisition is being worked out,
Ranbaxy, being a subsidiary, was acting in concert with G
the Daiichi and that it (Ranbaxy) had paid Rs.160 per share
to the shareholders of the target company during January
16 and January 28, 2008 when it acquired their shares
under the Ranbaxy-Zenotech deal which period falls within
twenty-six weeks prior to June 16, 2008. In other words,
H
•
284 SUPREME COURT REPORTS [2010] 8 S.C.R.
A Ranbaxy, a person acting in concert with Daiichi on
January) 9, 2009, had paid during twenty-six weeks prior
to June 16, 2008, Rs.160 per share to the shareholders
of the target company. In this view of the matter, the price
paid by Ranbaxy to the shareholders of the target company
B has to be reckoned with in terms of sub-regulation 4(b)
read with sub-regulation (12) of Regulation 40 while
determining the offer price for tne indirect acquisition of
the target company."
30. Mr. F. S. Nariman, learned senior counsel appearing
C on behalf of the appellant, contended that the Appellate
Tribunal grossly erred in holding that since Ranbaxy was a
"person acting in concert" with Daiichi on the date of the public
pffer for acquisition of the shares of Zenotech, the price paid
by it for acquisition of Zenotech shares in the past when the
D two companies were indisputably not in the relationship of
"persons acting in concert" would be relevant for determining
the offer price for Zenotech shares in terms of regulation
20(4)(b) read with regulatiqn 20(12). Ranbaxy indeed became
a subsidiary of Daiichi from October 20, 2009 but it did not
E acquire any share of Zenotech after that date or, even before
that, after entering into the SPSSA with Daiichi on June 11,
2008. Any acquisition of Zenotech shares made by Ranbaxy
earlier at a time when it was not a "person acting in concert"
with Daiichi was of no consequence and the price paid by
F Ranbaxy for Zenotech shares at that time would certainly not
attract sub-regulation (b) of regulation 20 (4) of the Takeover
Regulations.
31. Mr. Ashok Desai, senior counsel appearing on behalf
G Ranbaxy fully supported the appellant's case.
32. The SEBI, though itself not in appeal against the
judgment of the Appellate Tribuna1 and only impleaded as
respondent in the two appeals, strongly defended its stand in
rejecting the complaints made by the respondents before it. The
H
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 285
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
learned Attorney General appearing for the SEBI submitted that A
the judgment of the Appellate Tribunal coming under appeal was
based on a complete misinterpretation of the expression
"person acting in concert" as defined in regulation 2(e) of the
Takeover Regulations. Taking a position even more forthright
than the appellant, the learned Attorney General contended that B
the Daiichi and Ranbaxy never came within the definition of
"person acting in concert". He submitted that the Appellate
Tribunal erred in assuming that "being a subsidiary, Ranbaxy
shall be deemed to be acting in concert with Daiichi as per
regulation 2(e)(2)(i) of the Takeover Code". The Appellate c
Tribunal also missed the true import of the words "unless the
contrary is established" at the conclusion of regulation 2(e)(2).
The Attorney General submitted that the deeming provision
under regulation 2(e)(2) needs to be read and understood in
context and as part of the whole definition of "person acting in D
concert". He submitted that there may be two companies, one
being the subsidiary of the other and yet no occasion may arise
where they can be said to comprise "persons acting in concert"
within the meaning of the Takeover Code. He submitted that
the definition of a "person acting in concert" required something E
more than the mere relationship of a parent company and a
subsidiary company.
33. Mr. C. A. Sundaram, and Mr. Shyam Divan, senior
advocates representing respondent no.1 in Civil Appeal
No.7148 of 2009 and respondent no.1 in Civil Appeal No.7314 F
respectively, strongly defended the judgment of the Appellate
Tribunal. Mr. Sundaram submitted that though according to the
Tribunal, Daiichi and Ranbaxy came within the relationship of
"persons acting in concert" [in terms of regulation 2(e)(2)(i)] on
. October 19, 2008 when Ranbaxy became a subsidiary of G
Daiichi, as a matter of fact the two companies comprised
"persons acting in concert" ,within the meaning of regulation
2(e)(1) itself on signing the SPSSA on June 11, 2008. On
signing the SPSSA Daiichi "agreed" to takeover Zenotech
through the acquisition of Ranbaxy and the fact was further H
286 SUPREME COURT REPORTS (2010] 8 S.C.R.
A acknowledged in the letter sent by Ranbaxy to the Stock
Exchanges on the same day. Referring to the definitions of
"acquirer" [regulation 2(b)] and "persons acting in concert"
[regulation 2(e)(1)] Mr. Sundaram contended that the mere
agreement for acquisition of Zenotech would bring the two
B companies within the relationship of "persons acting in concert".
Thus, Daiichi and Ranbaxy com!)rised "persons acting in
concert" in terms of regulation 2(e)(1) from the date of the
SPSSA itself even without taking the aid of the. deeming
provision in regulation 2(e)(2). Mr. Sundaram further submitted
C that the period from January 16 to 28, 2008 fell well within twenty
six weeks from June 11, 2008 and hence, the price paid by
Ranbaxy for acquisition of Zenotech shares in January 2008
must be taken into reckoning for determining the offer price in
the public offer made for its shares by Daiichi.
D 34. The submission, which Mr. Sundaram called his
alternate submission, does not need much discussion to be
rejected. This is for the simple reason that regulation 20(4)(b)
uses the words ".... during the twenty six week period prior to
the date of public announcement, ... ". It does not say "prior to
E date on which the acquirer and the purchaser came into the
relationship of persons acting in concert".
35. The main argument of Mr. Sundaram, however, was
that the expression 'persons acting in concert" used in regulation
F 20(4)(b) refers to a person who is in praesenti, that is, at the
time of the public announcement acting in concert with the
acquirer. This is exactly the basis of the Appellate Tribunal's
judgment and if that is accepted the conclusion arrived at by
the Tribunal simply follows. Ranbaxy was a person acting in
G concert with Daiichi on January 19, 2008, the date of the public
announcement made by the latte~ for the Zenotech shares.
Ranbaxy had purchased Zenotech shares during the period
January 16 to 28, 2008 that fell within the twenty six weeks
period from June 16, 2008, the date of the public announcement
made by Daiichi for Ranbaxy shares. Hence, attracting
H
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 287
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
regulation 20(4)(b). A
36. Mr. Divan made additional submissions in support of
the view taken by the Appellate Tribunal upholding the
respondents' claim. He submitted that regulation 2(1 )(e)(1)
expressly contemplates a situation where the parties agree to
8
· acquire shares or voting rights in the future. Hence, an
agreement was sufficient to comprise "persons acting in
concert" and no actual acquisition was necessary. He further
pointed out that the definition of "persons acting in concert" in
regulation 2(1 )(e)(1) applies not only to acquisition of shares C
but also extends to voting rights. Hence, even an agreement
between two parties to exercise the existing voting rights in
cooperation with each other would bring them under the
definition of "persons acting in concert" without any subsequent
acquisition of shares. Mr. Divan contended that in the facts of
this case, by virtue of the agreement dated June 11, 2008, D
Daiichi agreed to acquire voting rights to the extent of 46.85%
in Zenotech, already held by Ranbaxy. On June 11, 2008,
Daiichi might not have held any power over any voting rights in
Zenotech but starting with October 20, 2008, Daiichi acquired
absolute power over 46.85% voting rights in Zenotech. Thus, E
even if the requirement of a subsequent acquisition of voting
rights was necessary, as argued on behalf of SEBI, it was
satisfied on October 20, 2008.
37. Countering the submission made on behalf of the F
appellant and SEBI that for a holding company and its
subsidiary to fulfil the test of "persons acting in concert' there
must be an acquisition of shares subsequent to the holding-
subsidiary relationship coming into existence. Mr. Divan gave
an interesting example that may be noted here:
G
38 .. In Mr. Divan's example 3 persons, A, B and C,
strangers to each other, make purchases of blocks of shares
. of a certain company X (which is listed and whose shares are
frequently traded on the stock exchange), on different dates at
.H
288 SUPREME COURT REPORTS [2010] 8 S.C.R.
A different prices. The purchase by each of them (A: 4%, B: 4%
and C: 4.5%) being below 5%, the threshold for disclosure,
none of them is obliged to make any disclosure of their
acquisitions. Further, since the purchases were not by persons
acting in concert, the acquisitions cannot be aggregated and
B there would be no obligation on any one to make an open offer
for the shares of company X. Later on, all the three persons
come together. They agree to pool the benefits of their shares
with one another and to takeover company X, and they further
agree that they would vote together going forward. C, having
C the largest stake, is nominated as the lead investor and all three
enter into a shareholders' agreement on how to acquire more
shares and make a public announcement under the takeover
regulation. Following the agreement between them, C enters
into an agreement with a financial institution to acquire another
D 5% block of shares of the company X at a price much lower
than the price paid by A or B for their earlier acquisitions. Mr.
Divan submitted that if the submission of the appellant and the
SEBI are accepted than the result would be as follows:
1. Since there is no fresh acquisition and C has only
E entered into an agreement with the financial institution for
the acquisition of shares, the three persons are not yet in
concert.
2. Since the earlier purchases were made before A, B
or C came together as "persons acting in concert" their
F
earlier acquisitions (4%+4%+4.5%) cannot be aggregated
with the proposed fresh acquisition of 5% by them after
having entered into the agreement. Consequently,
Regulation 10 of the Takeover Code would not come into
play and there would be no requirement to make a public
G
announcement.
39. He contended that such a simple ploy would defeat the
whole object and purpqse of the Takeover Code. We shall
presently consider the illustration given by Mr. Divan and the
H validity of the inferences drawn by him on that basis.
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 289
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
40. From the rival contentions it is clear that the real A
controversy among the parties is about the applicability of
regulation 20(4)(b) to determine the offer price for Zenotech
shares in the public announcement made by Daiichi. Regulation
20(4)(b) speaks of the price paid by the acquirer or persons
acting in concert with him for acquisition of shares , if any, B
during the twenty six weeks period prior to date of public
announcement. It does not speak of any agreement to acquire
shares or of any voting rights or control over the target company
but the actual price paid for acquisition of its shares. Here a
question arises, to what point in time does the expression c
"person acting in concert" used in regulation 20(4)(b) refer?
Should the person be acting in concert with the acquirer at the
time of the public announcement or at the time of acquisition
of shares of the target company? To make the matter more
explicit, assuming that Daiichi and Ranbaxy together comprised D
"persons acting in concert" on the date Daiichi made the public
announcement for Zenotech shares, was it sufficient that they
were in that relationship on that date or for the application of
regulation 20(4)(b) it was necessary that Daiichi and Ranbaxy
should have been in that relationship when Ranbaxy had made E
acquisition of Zenotech shares. The Appellate Tribunal has of
course proceeded on the basis that since Daiichi and Ranbaxy
were "persons acting in concert" on the date of the public
announcement made by Daiichi for Zenotech shares sub-
regulation (b) of regulation 20(4) would be attracted regardless
of the fact that the two were not in that relationship on the dates F
of purchase of Zenotech shares by Ranbaxy.
41. On behalf of the respondents much argument was
made to show that even before Ranbaxy became a subsidiary
of Daiichi the two were covered by the definition of "persons G
acting in concert" on signing the SPSSA. Whether Ranbaxy
became a persons acting in concert with Daiichi on signing the
SPSSA or on becoming its subsidiary is one aspect of the
matter but if the basis on which the Appellate Tribunal has
proceeded is correct then it hardly matters if Ranbaxy was H
290 SUPREME COURT REPORTS [2010) 8 S.C.R.
A acting in concert with Daiichi on signing the SPSSA or on
becoming its subsidiary, as long as it was in that relationship
with Daiichi when Daiichi made the public announcement for
Zenotech shares.
42. We now proceed to examine the question whether
8
Daiichi and Ranbaxy came together in the relationship of
"persons acting in concert" as claimed by the respondents and
connected with it the larger question as to the stage when the
relationship of "persons acting in concert" must be in existence
C for the applicability of regulation 20(4)(b) of the Takeover Code.
For this, we must first understand what is the true meaning of
"persons acting in concert" as defined in regulation 2(e).
43. To begin with, the concept of "person acting in concert"
under regulation 2(e)(1) is based on a target company on the
D one side, and on the other side two or more persons coming
together with the shared common objective or purpose of
substantial acquisition of shares etc. of the target company.
Unless there is a target company, substantial acquisition of
whose shares etc. is the common objective or purpose of two
E or more persons coming together there can be no "persons
acting in concert". For, dehors the target company the idea of
"persons acting in concert" is as irrelevant as a cheat with no
one as victim of his deception. Two or more persons may join
hands together with the shared common objective or purpose
F of any kind but so long as the common object and purpose is
not of substantial acquisition of shares of a target company they
would not comprise "persons acting in concert".
44. The other limb of the concept requires two or more
persons joining together with the shared common objective and
G purpose of substantial acquisition of shares etc. of a certain
target company. There can be no "persons acting in concert"
unless there is a shared common objective or purpose
between two or more persons of subst(lntial acquisition of
shares etc. of the target company. For, dehors the element of
H
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 291
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
the shared common objective or purpose the idea of "person A
acting in concert" is as meaningless as criminal conspiracy
. without any agreement to commit a criminal offence. The idea
of ."persons acting in concert" is not apout a fortuitous
relationship coming into existence by accident or chance. The
relationship can come into being o~ly by design, by meeting B
of minds between two or more persons leading to the shared
common objective or purpose. of atquisition of substantial
acquisition of shares etc. of the targJt company. It is another
matter that the common objective or purpose may be in
pursuance of an agreement or an understanding, formal or c
informal; the acquisition of shares etc. may be direct or indirect
or the persons acting in concert may cooperate in actual
acquisition of shares etc. or they may agree to cooperate in
such acquisition. Nonetheless, the element of the shared
common objective or purpose is the sin qua non for the
0
relationship of "persons acting in concert" to come into being.
45. The submission made on behalf of the respondents that
· on signing the SPSSARanbaxy became a person acting in
· concert with Daiichi overlooks this basic precondition and
ingredient of the relationship. The consequential takeover of E
Zenotech and its acknowledgment are not same thing as the
shared common objective or purpose of substantial acquisition
of shares or voting rights or gaining control over Zenotech. As
stated above, the relationship of "persons acting in concert" is
not a fortuitous relationship. It can come into -being only by F
. design. Hence, unless it is shown that Daiichi and Ranbaxy
entered into the SPSSA for the common objective or purpose
of substantial acquisition of shares or voting rights or control
. over Zenotech they can not be said to have come in the
relationship of "persons acting in concert". This is not even. the G
case of the respondents. The inevitable conclusion, therefore,
is that on signing the SPSSA Daiichi and Ranbaxy did not
come within the relationship of persons acting in concert within
the meaning of regulation 2(e)(1) of the Takeover Code.
H
292 SUPREME COURT REPORTS [2010] 8 S.C.R.
A 46. We may now proceed to the deeming provision as
contained in sub clause (2) of regulation 2(e). Here, it would
be better to restate the obvious that the deeming provision can
not do away either with the target company or the common
objective or purpose of substantial acquisition of shares etc.
s of the target company shared by two or more persons because
to do so would be destructive of the very idea of "persons acting
in concert" as defined in sub-clause (1) of regulation 2(e). We,
therefore, see no merit in the submission, as urged at one
stage, on behalf of the respondents that sub-regulation (2) of
c regulation 2(e) containing the deeming clause should be seen
as a 'stand alone' provision, independent of sub-regulation (1)
of regulation 2(e). The deeming provision under sub-regulation
(2) operates only within the larger framework of sub-regulation
(1) of regulation 2(e). ,
D 47. Then what does the deeming provision do? The
deeming provision simply says that in case of nine specified
kinds of relationships, in each category, the person paired with
the other would be deemed to be acting in concert with him/it.
What it means is that if one partner in the pair makes or agrees
E to make substantial acquisition of shares etc. in a company it
would be presumed that he/it was acting in pursuance of a
common objective or purpose shared with the other partner of
the pair. For example, if a company or its holding company
makes or agrees to make a move for substantial acquisition
F of shares etc. of a certain target company then it would be
presumed that the move is in pursuance of a common objective
and purpose jointly shared by the holding company and the
subsidiary company. But the mere fact that two companies are
in the relationship of a holding company and a subsidiary
G company, without any thing else, is not sufficient to comprise
"persons acting in concert". The Attorney General is quite right
in his submission that something more is required to comprise
"persons acting in concert" than the mere relationship of a
holding company and a subsidiary company. There may be
H hundreds of instances of a company having a subsidiary
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 293
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
company but to dub them as "persons acting in concert" would A
be quite ridiculous unless another company is identified as the
target company and either the holding company or the
subsidiary make some positive move or show some definite
inclination for substantial acquisition of shares etc. of the target
company. B
48. It needs further to be noted that the presumption
created by virtue of the deeming provision is expressly left
open to rebuttal as indicated by the concluding words "unless
the contrary is established" occurring in sub-regulation (2). It is
important to point this out here because the Appellate Tribunal C
has clearly misunderstood the nature and scope of the provision
of rebuttal in observing . tollows:
/
"There is no question of the contrary being established in
the instant case because Daiichi itself had made it known D
in the public announcement to the shareholders of the
target company that Ranbaxy had become its subsidiary
on October 20, 2008."
Regulation 2(e)(2) defines "person acting in concert". It is
E
a deeming provision. It has to be read in conjunction with
regulation 2(e)(1) which states that person acting in concert
comprises of persons who in furtherarce of a common objective
or purpose of substantial acquisition of shares or voting rights
or gaining control over the target company, pursuant to an
agreement or understanding (formal or informal), directly or F
indirectly cooperate by acquiring or agreeing to acquire shares
or voting rights in the target company or to acquire control over
the target company. The word "comprises" in regulation 2(e)
is significant. It applies to regulation 2(e)(2) as mucli as to
regulation 2(e)(1). A fortiori, a person deemed to be acting in G
concert with others is also a person acting in concert. In other
words, persons who are deemed to be acting in concert must
have the intention or the aim of acquisition of shares of a target
company. It is the conduct of the parties that determines their
H
294 SUPREME COURT REPORTS (2010) 8 S.C.R.
A identity. Whether a person is or is not acting in concert with
the acquirer would depend upon the facts of each case. In order
to hold that a person is acting in concert with the acquirer or
with another person it must be established that the two share
the common intention of acquisition of shares of some target
B company. For example, there is no hard and fast rule that every
foreign institutional investor (Fii) would share with the sub-
account(s) the common objective of acquiring substantial
stakes or control in some target company. Whether in a given
case an Fii and his sub-account(s) have a common objective
c of making investment in India to earn profits in unit holders or
whether they have a common objective of acquiring substantial
stakes or control in some target company would depend on the
facts of each case. In the former case regulation 2(e)(2)(v)
would not apply whereas in the latter case the said sub-
D regulation would apply. The above illustration brings out the true
purport of the expression "unless the contrary is established"
which expression finds place in regulation 2(e)(2).
49. Somethihg else that is of utmost importance is to
understand that the deeming fiction under sub-regulation (2) can
E only operate prospectively and not retrospectively. That is to
say the deeming provision would give rise to the presumption,
as explained above, only from the date two or more persons com
together in one of the specified relationships and not from any
earlier date. Thus, in the case in hand, the deeming provision
F under sub-regulation (2) would give rise to the presumption that
Daiichi and Ranbaxy were "persons acting in concert", provided
of course the other conditions as explained above were also
satisfied, only from October 20, 2008, the date on which
Ranbaxy became a subsidiary of Daiichi and not before that.
G Hence, the purchase of Zenotech shares by Ranbaxy in January
2008 cannot be said to be by a "person acting in concert" with
Daiichi.
50. In light of the discussion made above, we are of the
view, that the Appellate Tribunal was in error in proceeding on
H
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 295
CHIGURUPATI & ORS. [AFTAB ALAM, J.]
the basis that the material date for Ranbaxy and Daiichi to .be A
acting in concert was the date of the public announcement for
the Zenotech shares. The Tribunal Observed:
"It is, thus, clear that on January 19, 2009, the material date
on which the offer price for indirect acquisition is being
B
worked out, Ranbaxy, being a subsidiary, was acting in
concert with the Daiichi and that it (Ranbaxy) had paid
Rs.160 per share to the shareholders of the target
company during January 16 and January 28, 2008 when
it acquired their shares under the Ranbaxy-Zenotech deal
which period falls within twenty-six weeks prior to June 16, C
2008."
51. The Appellate Tribunal's error is the result of mixing
up thP. provisions of sub-regulations (12) and (4) of regulation
20. As explained earlier sub-regulation (12) came to be D
introduced in regulation 20 as a consequence of extension of
time for making public announcement for the secondary and
indirectly targeted company by insertion of sub-regulation (4)
in regulation 14. Sub-regulation (12) of regulation 20 obliges
the acquirer to work out the best value for the shares of the E
indirectly targeted company as obtaining on the date of the
public announcement for the parent target company as well as
on the date of the public announcement for the concerned
indirectly targeted company and then to offer the shareholders
the better of the two values. This is for the simple reason that F
the extension allowed for making the public announcement for
the indirectly targeted company should not cause any prejudice
to its shareholders. Sub-regulation (12) does not in any way
affect sub-regulation (4) which remains unamended and it
certainly does not alter the meaning of "person acting in concert" G
as used in that sub-section.
52. We are clearly of the view that for the application of
regulation 20(4)(b) it is not relevantor material that the acquirer
and the other person, who had acquired the shares of the target
H
296 SUPREME COURT REPORTS [2010) 8 S.C.R
A company on an earlier date, should be acting in concert at the
time of the public announcement for the target company. What
is material is that the other person was acting in concert with ,
the acquirer at the time of purchase of shares of the target
company.
B
53. The true meaning of the idea of "persons acting in
concert", as explained above will also clear all the doubts sought
to be created by Mr. Divan's illustration as noted above. In that
illustration, persons A, B and C earlier purchased shares of
company A separately and as strangers. Those purchases
C were, therefore naturally not by "persons acting in concert". But
later on, all the three persons came together. They agreed to
pool the benefits of their share with one another and to
takeover company X, and they further agreed that they would
vote together going forward. Thus the earlier purchases were
D brought within the concept subsequently by an express
agreement between the three persons even though at the time
of purchase the purchasers were not acting in concert. Hence,
the earlier purchases too would fully attract the regulatory
provisions of the Takeover Code.
E
54. This is how we are able to follow the correct meaning
of the expression "person acting in concert" as defined in
regulation 2(e) and as used in regulation 20(4)(b) of the
Takeover Code.
F
55. In light of the discussion made above the inevitable
conclusions are that in so far as Zenotech is concerned
Ranbaxy was not acting in concert with Daiichi either from the
date of the SPSSA or even after becoming a subsidiary of
Daiichi arn:l the acquisition of Zenotech shares by Ranbaxy in
G the month of January 2008 did not come within the ambit of
regulation 20(4)(b). The offer price in the public announcement
for Zenotech shares made by the appellant was correctly
worked out. It follows that the judgment of the Appellate Tribunal
is unsustainable and it has to be set aside.
H
DAIICHI SANKYO COMPANY LTD. v. JAYARAM 297
CHIGURUPATI & ORS. [AFTAB ALAM, J.)
56. It was submitted on behalf of the respondents that the A
Takeover Code was meant to safeguard and protect the
interests of the shareholders. Therefore, in case there were two
possible views of the matter the court should lean in favour of
the one supporting the shareholders. The Attorney General
strongly refuted the submission that the Takeover Code was B
intended solely to protect the shareholders interests. We,
however, need not go into that question because in light of the
above discussion, we find that the controversy is completely
free from any confusion and the view canvassed on behalf of
the respondents is not even a remotely possible view of the c
matter.
57. Before parting with the records of the case we would
like to say that in arriving at the correct meaning of the
provisions of the Takeover Code specially regulation 14(4) and
20(12) we were greatly helped by the reports of the two D
Committees headed by Justice Bhagwati. We mention the fact
especially because as per the legislative practice in this country,
unlike an Act, a regulation or any amendments introduced in it
are not preceded by the "Object and Purpose" clause. The
absence of the object and purpose in the regulation or the later E
amendments introduced in it only adds to the difficulties of the
court in properly construing the provisions of regulations dealing
with complex issues. The court, so to say, has to work in
complete darkness without so much as a glimpse into the mind
of the maker of the regulation. In this case, it was quite apparent F
that the 1997 Takeover Code and the later amendments
introduced in it were intended to give effect to the
recommendations of the two Committees headed by Justice
Bhagwati. We were, thus, in a position to refer to the relevant
portions of the two reports that provided us with the raison d'etre G
for the amendment(s) or the introduction of a new provision and
thus helped us in understanding the correct import of certain
provisions. But this is not the case with many other regulations
framed under different Acts. Regulations are brought in and
later subjected to amendments without being preceded by any H
298 SUPREME COURT REPORTS [2010] 8 S.C.R.
A reports of any expert committees. Now that we have more and
more of the regulatory regime where highly important and
complex and specialised spheres of human activity are
governed by regulatory mechanisms framed under delegated
legislation it is high time to change the old practice and to add
B at the beginning the "object and purpose" clause to the
delegated legislations as in the case of the primary legislations.
58. In the result, the appeals are allowed but with no order
as to costs.
D.G. Appeals allowed.
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