SECURITIES AND EXCHANGE BOARD OF INDIA v. SUNIL KRISHNA KHAITAN AND OTHERS

The Judgment of the Court was delivered by SANJIV KHANNA, J. B This common judgment would decide the aforesaid two appeals preferred by the Securities and Exchange Board of India 1, whereby it has challenged the order of the Securities Appellate Tribunal2 dated 19th June 2013 in Appeal No. 23 of 2013 titled ‘Sunil Krishna Khaitan and Others v. Securities and Exchange Board of India’; and the order dated 31st October 2013 in Appeal No. 2 of 2013 titled ‘Smt. Madhuri C S. Pitti and Others v. Securities and Exchange Board of India’.

2Copy pinpoint2. Primary questions of law raised in these appeals relates to the interpretation of Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997;3the power and exercise of the power by the Board under Regulations 44 readwith 45 of the Takeover D Regulations, 1997; and the power and jurisdiction of the Appellate Tribunal under Section 15T of the Securities and Exchange Board of India Act, 1992.4 A. Background facts: E I) Appeal No. 23 of 2013 (Sunil Krishna Khaitan’s case)

3Copy pinpoint3. Khaitan Electrical Limited,5 a company incorporated in 1975, listed on BSE Limited and National Stock Exchange Limited, is engaged in the business of manufacturing and marketing of electrical goods.

4Copy pinpoint4. KEL was founded by late Shri Krishna Khaitan (R12 in the F appeal), who had passed away on 04th November 2012 and is represented by his legal representatives. The promoter group consists of his family member/relative and associate entities, which include other respondents in the appeal, namely Sunil Krishna Khaitan, M/s. KhaitanLefin Limited and M/s. The Oriental Mercantile Company Limited (R11st, R13rd and R14th respectively). G

1 The ‘Board’, for short. 2 The ‘Appellate Tribunal’, for short. 3 Hereinafter referred to as ‘Takeover Regulations 1997’. 4 For short, the ‘Act’. 5 For short, ‘KEL’. H

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5Copy pinpoint5. In the Extraordinary General Meeting held on 23 rd March 2006, the shareholders of KEL had approved issuance of 10,00,000 equity share warrants with the face value of Rs. 10/- each at a premium of Rs. 50/- each on preferential basis to the respondents. The warrants were to be converted into equity shares within a period of eighteen months from the date of allotment. B

6Copy pinpoint6. In the Extraordinary General Meeting held on 29th November 2006, the shareholders had approved issuance of 10,00,000 warrants with face value of Rs. 10/- each with premium of Rs. 121/- each on preferential basis to M/s. Khaitan Lefin Limited (R13),6 an identified member of the promoter group, to be converted into equity shares within C a period of eighteen months. This Extraordinary General Meeting had also approved issuance of 25,00,000 equity shares of face value of Rs. 10/- each at a premium of Rs. 125/- each on preferential basis to strategic investors. However, in this appeal, we are not concerned with the issue of shares to the strategic investors.

7Copy pinpoint7. On 12th March 2007, the respondents acquired 13,00,000 shares in KEL in two tranches i.e., 5,00,000 in one transaction and 8,00,000 shares in the other. Upon receipt of the full consideration in terms of the warrants, KEL had issued shares to the respondents consequent to which the shareholdings of the respondents and the promoter group underwent E a change, which are required to be noted and are reproduced :

8Copy pinpoint8. The respondents were served with the show-cause notice dated 26 th March 2012 issued by the Board with respect to violation of 6 H For short, ‘KLL’.

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KRISHNA KHAITAN AND OTHERS [SANJIV KHANNA, J.]

Regulations 10 and 11(1) of the Takeover Regulations 1997, calling upon them to show cause why suitable directions under Sections 11 and 11B of the Act and Regulations 44 and 45 of the Takeover Regulations 1997 read with corresponding provisions of Regulations 33 and 35 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 7 should not be issued against them. Violation of Regulation 10 was predicated on the ground that on 12th March 2007, shareholding of KLL (R13) had individually increased from 10.52% to 17.16% and thereby it was mandatory for KLL to make a public announcement in accordance with the provisions of Regulation 10 read with Regulation 14(1) of the Takeover Regulations 1997 within four working days from 12 th March

2007. Further, on 12th March 2007, the collective shareholding of the promoter group, including the acquirers, had increased from 25.83% to 34.21% and, therefore, the acquirers collectively were required to make a public announcement in accordance with the provisions of Regulation 11(1) read with Regulations 14(1) of the Takeover Regulations 1997 within four working days from 12th March 2007. D

9Copy pinpoint9. The respondents contested the show-cause notice on various grounds, which we will be canvassing subsequently.

10Copy pinpoint10. The Whole Time Member8 of the Board did not agree with the submissions made by the respondents and vide his order dated 31st December 2012 held that there was violation of Regulations 10 and E 11(1) of the Takeover Regulations 1997 and, therefore, the respondents shall make a combined public announcement to acquire shares of the target company,9 namely KEL, in terms of Regulations 10 and 11(1) of the Takeover Regulations 1997 within forty-five days of the order. Further the respondent, along with the consideration amount, shall pay interest @ 10% per annum from 16th June 2007 till the date of payment to the F shareholders who were holding shares in KEL on the date of violation, and whose shares shall be accepted in the open offer, albeit after adjustment of dividend, if any, paid. The effect of the aforesaid direction in the order dated 31 st December 2012 would be examined by us subsequently. G 7 Hereinafter referred to as the ‘Takeover Regulations 2011’. 8 See Section 4(1)(d) of the Act: “The Board shall consist of the following members, namely: (d) five other members of whom at least three shall be the whole-time members.” 9 Regulation 2(1)(o): “target company” means a listed company whose shares or voting rights or control is directly or indirectly acquired or is being acquired. H

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11Copy pinpoint11. The respondents preferred an appeal before the Appellate Tribunal, which by the impugned order has been partly allowed. The Appellate Tribunal has held that Regulation 10 was not violated, but Regulation 11(1) was violated albeit the direction with regard to issue of public announcement and open offer was not sustainable at a belated stage. There was a delay of about 5 years in issuing show-cause B noticerelating to acquisition/incidents which pertain to the year 2006-07, and as the impugned order came to be passed only on 31st December 2012, the directions of the Whole Time Member for issue of public announcement and open offer were set aside. However, monetary penalty of Rs. 25,000,00/- has been imposed. C II) Appeal No. 2 of 2013 (Madhuri S. Pitti’s case)

12Copy pinpoint12. Pitti Laminations Ltd.10 was incorporated in the year 1983 under the Companies Act, 1956 and its six promoters, namely, Mr. Sharad B. Pitti, Ms. Madhuri Pitti (R21), Mr. Akshay S. Pitti (R23),Pitti Electrical EquipmentPvt. Ltd (R22), Mrs. Shanti B. Pitti and Mr. Sharad B. Pitti D have been controlling the affairs of PLL since its inception.

13Copy pinpoint13. On 22nd June 2005, PLL allotted 3,90,000 shares and 4,10,000 warrants convertible into equity shares to R23. On 26th April 2006, R23 converted some warrants into equity shares which increased his individual shareholding in PLL from 11.87% to 16.25%. E

14Copy pinpoint14. On 11th April 2007, R23 converted the remaining warrants into equity shares of PLL, which again increased his individual shareholding in PLL from 14.88% to 15.77%.

15Copy pinpoint15. At the Annual General Meeting of PLL on 11th August 2011, a F preferential allotment of 40,50,000 equity shares to R21 andR22was authorised by the shareholders of PLL.This resulted in increase in the total shareholding of the three respondents (R21, R22 and R23) with that of Mr. Sharad Pitti from 41.70% to 59.21%.

16Copy pinpoint16. Accordingly, a public announcement was made on 09 th September 2011 and simultaneously, a Draft Letter of Offer was filed G before the Board for its approval on 19th September 2011.

17Copy pinpoint17. On a query by the Board,R23 on 28th November 2011, wrote a letter denying his failures to make public announcement at the time of acquisition of shares by him on 22nd June 2005, and 26th April 2006. 10 H Hereinafter referred to as “PLL”.

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Subsequently, on 19th March 2012 a hearing was afforded to him in this A regard. Thereafter, R23had submitted replies on three occasions on the respect of his purported failure to make public announcement at the time of acquisition of the shares in 2005 and 2006.

18Copy pinpoint18. After a lapse of more than one year, the Board through Assistant General Manager, Corporate Finance Department, Division of Corporate B Restructuring issued the letter dated 17th December 2012,mandating the Merchant Banker of the respondents to inter alia revise the schedule of the offer by taking into account the acquisitions made by R23 on 26th April, 2006 and 11th April, 2007 and thereby, revise the offer price to the shareholders. C

19Copy pinpoint19. The respondents challenged the letter before the Appellate Tribunal, which vide impugned order dated 31st October 2013 allowed the appeal and permitted the respondents to continue with their offer excluding the Board’s directions relating to the acquisitions by R23 in the years 2006 and 2007. The impugned order observes that the Board by such letters could not issue directions to listed companies, by terming it as a mere advice without giving any choice in the matter. Further, placing reliance on the impugned order herein in Sunil Khaitan v. SEBI, Appeal No. 23 of 2013 decided on 19th June 2013, the Appellate Tribunal observed that to determine whether or not the limit under Regulation 10has been crossed, shareholdings of all members of the group of persons acting in concert would have to be reckoned as a whole.11 B. Contentions of the appellant/Board:

20Copy pinpoint20. On 12th March 2007, individual shareholding of KLL (R13)in KEL had increased from 10.52% to 17.16%, whereas shareholding of the promoter group had collectively increased from 25.83% to 34.21%. F Thus, there was a violation of both Regulation 10 and Regulation 11(1) of the Takeover Regulations 1997. 11 In Appeal No. 2 of 2013 (Madhuri S. Pitti’scase), there is no specific order under Regulation 44 by the Whole Time Member, albeit, as noticed above, directions were issued by the Board to amend the draft letter of offer submitted by PLL for the Board’s approval on 19 th September 2011, vide the Board’s letter dated 17 th December 2012. G The Appellate Tribunal has adversely commented on the Board’s conduct in issuing the said direction by directing amendment of the draft letter of offer. During the course of arguments, the Board has not specifically challenged the observations and the adverse finding of the Appellate Tribunal that such directions could not have been issued by the Board vide letter dated 17 th December 2012. We will not make any comments or give findings in this regard. H

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21Copy pinpoint21. On 26th April 2006, shareholding of R23 in PLL had increased from 11.87% to 16.25%. Again, on 11th April 2007, shareholding of R23 had increased from 14.88% to 15.77%. However, no public announcement for open offer was made by R23 or by the acquirer group within the period of four days from the respective dates.

22Copy pinpoint22. The objective of the Takeover Regulations 1997 is to bring to the knowledge of the shareholders of the company any change in substantial ownership of the company and to provide an exit opportunity through an open offer in case of such substantial change.

23Copy pinpoint23. Regulations 10 and 11(1) have to be read accordingly and in line with the objective of the Takeover Regulations 1997.

24Copy pinpoint24. Regulations 10, 11 and 12 operate in three distinct fields in which the acquirer of shares or voting rights of the company is required to make a public announcement and make an open offer to acquire shares of existing shareholders. These Regulations may overlap in some cases as in the present case, but are not mutually exclusive, as has been held by this Court in Swedish Match AB and Another v. Securities &Exchange Board of India and Another.12

25Copy pinpoint25. Impugned judgment and reasoning given by the Appellate Tribunal is contrary to the objective of Regulation 10, which is to ensure that an exit option is provided to the existing shareholders once any person, whether individually, and or along with any another person acting in concert with each other, acquires shares that cross the 15% threshold. Such acquirer or group, as the case may be, would be able to exercise sufficient degree of control over the management of the company, which may not be in the interest of the company and, therefore, exit option should be given to the existing shareholders.

26Copy pinpoint26. In contrast, the objective of Regulation 11 is to provide an opportunity to the shareholders to exit in case an acquirer of shares, having 15% or more but less than 55% of the shares or voting rights, either individually or with persons acting in concert, increases their shareholding or voting rights over 5% at any given point in a financial year. As such acquisition enables the individual or the person acting in concert with others to yield greater influence over management of the company, and Regulations 11(1) of the Takeover Regulations 1997 provides for an exit option to the existing shareholders. 12 H (2004) 11 SCC 641.

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27Copy pinpoint27. Regulation 3(3) of the Takeover Regulations 2011 makes A explicit what was already implicit in the Takeover Regulations 1997, that in a case an individual within the group crosses the stipulated minimum shareholding threshold, such an individual shall make a public offer even when there is no change in aggregate shareholdings of the group, that is, persons acting in concert. Reference is made to the report of the B Takeover Regulation Advisory Committee headed by Mr. C. Achuthan, which exhibits that Regulation 3(3) is to clarify the requirement that was already existing in the Takeover Regulations 1997.

28Copy pinpoint28. There is no estoppel against a statute and, therefore, the respondents in appeals herein cannot take any advantage and plead that the Board is deviating from its earlier stance. Reference is made to C Sanjiv Coke Manufacturing Company v. M/s. Bharat Coking Coal Limited and Another.13 In fact, the interpretation given by the Board in these appeals has been accepted by the Appellate Tribunal in certain cases.

29Copy pinpoint29. The Board has been conferred with powers under the Act in terms of Section 11 thereof to issue appropriate direction for protection of interest of the shareholders; under Section 15-H read with Section 15-I to impose monetary penalty on the defaulter; and under Section 24 to criminally prosecute the defaulter for contravention of the provisions of the Act or regulations thereunder. These are separate powers vested with the Board with distinct objectives, which can sometimes be overlapping but are not identical, as has been held by this Court in Prakash Gupta v. Securities &Exchange Board of India.14 The Board being an expert body is entitled to exercise the aforesaid powers to subserve the interest of the investors as well as to promote orderly and healthy growth of the securities market. F

30Copy pinpoint30. The Appellate Tribunal should not have interfered with the directions to make an open offer, which are in line with the objective of Sections 11 and 11-B of the Act read with Regulation 44 of the Takeover Regulations 1997. The order passed by the WholeTimeMember directing making of public announcement for open offer along with paying interest G to the shareholders of the target company, was made with the larger objective of protecting interests of the shareholders who have a right and expectation to be provided with the opportunity to exit the company 13 (1983) 1 SCC 147 14 2021 SCC OnLine SC 485. H

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A in case the shareholding/voting rights of a person and/or persons acting in concert crosses the stipulated threshold at any point of time.

31Copy pinpoint31. Scope of power of the Appellate Tribunal enumerated in Section 15-T does not extend to substituting directions issued under Sections 11 and 11B of the Act with monetary penalty under Section 15-H of the B Act. The scope of power of the Appellate Tribunal is wide but cannot be exercised in a manner which is inconsistent with the scheme of the Act. Further, the directions issued for public announcement and open offer are in line with the objectives of the Act which states that as soon as the contravention of the statutory obligation is established, penalties must follow. This is a distinct objective envisaged in Sections 11 and 11B of C the Act read with Regulation 44 of the Takeover Regulations 1997, as has been held in several decisions of this Court in Zile Singh v. State of Haryana and Others,15Chairman, SEBI v. Shriram Mutual Funds and Another16 and Securities and Exchange Board of India v. Saikala Associates Limited.17

32Copy pinpoint32. The Appellate Tribunal does not exercise jurisdiction under Article 226 of the Constitution of India and is a creation of the statute and, therefore, cannot pass any order inconsistent with the scheme of the Act. Thus, imposition of monetary penalty for violation of Regulation 11(1) of the Takeover Regulations 1997, as directed by the Appellate E Tribunal, is contrary to law and would also result in weakening of investor confidence in securities market as defaulters would be able to escape the obligation.

33Copy pinpoint33. Lastly, the delay in issue of show-cause notice itself would not exonerate the defaulters under the Act and the relevant Regulations, F as has been held in Adjudicating Officer, Securities and Exchange Board of India v. Bhavesh Pabari.18

34Copy pinpoint34. For brevity, we are not reproducing the submissions made by the respondents as they would be noticed subsequently and are inferable from our reasoning, which upholds the orders by the Appellate Tribunal G on the interpretation of Regulation 10 of the Takeover Regulations 1997.Secondly, we have upheld the order of the Appellate Tribunal setting aside the directions of public announcement with open offer given by 15 (2004) 8 SCC 1 16 (2006) 5 SCC 361 17 (2009) 7 SCC 432 18 (2019) 5 SCC 90 H

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the Whole Time Member under Regulation 44 for violation of Regulation A 11(1) of the Takeover Regulation,1997 in the case of Sunil Kumar Khaitanin Appeal No. 8249 of 2013. However on the aspect of the power of Appellate Tribunal under Section 15T of the Act, we have expressed our reservation and disagreed with the Appellate Tribunal for the reasons set out below. B C. Relevant Provisions:

35Copy pinpoint35. We begin by reproducingthe relevant provisions of the Takeover Regulations 1997 which are as under: “2. Definitions. C

2. (1) In these Regulations, unless the context otherwise requires: xx xx xx (b) “acquirer” means any person who, directly or indirectly, acquires or agrees to acquire shares or voting 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; xx xx xx (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 co-operate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company. F (2) Without prejudice to the generality of this definition, the 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 G 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; (iii) directors of companies referred to in sub-clause (i) of clause (2) and their associates; H

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A (iv) mutual fund with sponsor or trustee or asset management company; (v) foreign institutional investors with sub-account(s); (vi) merchant bankers with their client(s) as acquirer; B (vii) portfolio managers with their client(s) as acquirer; (viii) venture capital funds with sponsors; (ix) banks with financial advisers, stock brokers of the acquirer, or any company which is a holding company, subsidiary or relative of the acquirer : C Provided that sub-clause (ix) shall not apply to a bank 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 availability of funds, handling acceptances and other registration work; (x) any investment company with any person who has an interest as director, fund manager, trustee, or as a shareholder having not less than 2 per cent of the paid-up 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. Note : For the purposes of this clause ¯associate means,— (a) any relative of that person within the meaning of section 6 F of the Companies Act, 1956 (1 of 1956); and (b) family trusts and Hindu undivided families; xx xx xx

6. Transitional provision. (1) Any person, who holds more than five per cent shares or G voting rights in any company, shall within two months of notification of these regulations disclose his aggregate shareholding in that company, to the company. (2) Every company whose shares are held by the persons referred to in subregulation (1) shall, within three months from the date of H

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notification of these regulations, disclose to all the stock exchanges on which the shares of the company are listed, the aggregate number of shares held by each person. (3) A promoter or any person having control over a company shall within two months of notification of these regulations disclose the number and percentage of shares or voting rights held by him and by person(s) acting in concert with him in that company, to the company. (4) Every company, whose shares are listed on a stock exchange shall within three months of notification of these regulations, disclose to all the stock exchanges on which the shares of the company are listed, the names and addresses of promoters and/ or person(s) having control over the company, and the number and percentage of shares or voting rights held by each such person.

7. Acquisition of 5 per cent and more shares or voting rights of a company. D (1) Any acquirer, who acquires shares or voting rights which (taken together with shares or voting rights, if any, held by him) would entitle him to more than five per cent or ten per cent or fourteen per cent 2 [or fifty four per cent or seventy four per cent] shares or voting rights in a company, in any manner whatsoever, shall disclose at every stage the aggregate of his shareholding or voting rights in that company to the company and to the stock exchanges where shares of the target company are listed. (1A) Any acquirer who has acquired shares or voting rights of a company under sub-regulation (1) of regulation 11, 1 [or under second proviso to sub-regulation (2) of regulation 11] shall disclose purchase or sale aggregating two per cent or more of the share capital of the target company to the target company, and the stock exchanges where shares of the target company are listed within two days of such purchase or sale along with the aggregate shareholding after such acquisition or sale. G Explanation.—For the purposes of sub-regulations (1) and (1A), the term acquirer‘ shall include a pledgee, other than a bank or a financial institution and such pledgee shall make disclosure to the target company and the stock exchange within two days of creation of pledge. H

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A (2) The disclosures mentioned in sub-regulations (1) and (1A) shall be made within two days of — (a) the receipt of intimation of allotment of shares; or (b) the acquisition of shares or voting rights, as the case may be. (2A) The stock exchange shall immediately display the information received from the acquirer under sub-regulations (1) and (1A) on the trading screen, the notice board and also on its website. (3) Every company, whose shares are acquired in a manner referred to in subregulations (1) and (1A), shall disclose to all the stock exchanges on which the shares of the said company are listed the aggregate number of shares held by each of such persons referred above within seven days of receipt of information under sub-regulations (1) and (1A).

8. Continual disclosures. (1) Every person, including a person mentioned in regulation 6 D who holds more than fifteen per cent shares or voting rights in any company, shall, within 21 days from the financial year ending March 31, make yearly disclosures to the company, in respect of his holdings as on 31st March. (2) A promoter or every person having control over a company E shall, within 21 days from the financial year ending March 31, as well as the record date of the company for the purposes of declaration of dividend, disclose the number and percentage of shares or voting rights held by him and by persons acting in concert with him, in that company to the company. F (3) Every company whose shares are listed on a stock exchange, shall within 30 days from the financial year ending March 31, as well as the record date of the company for the purposes of declaration of dividend, make yearly disclosures to all the stock exchanges on which the shares of the company are listed, the changes, if any, in respect of the holdings of the persons referred G to under subregulation (1) and also holdings of promoters or person(s) having control over the company as on 31st March. (4) Every company whose shares are listed on a stock exchange shall maintain a register in the specified format to record the information received under subregulation (3) of regulation 6, sub- H

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regulation (1) of regulation 7 and subregulation (2) of regulation A 8. xx xx xx

10. Acquisition of fifteen per cent or more of the shares or voting rights of any company. No acquirer shall acquire shares or voting rights which (taken B 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 rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the regulations. C

11. Consolidation of holdings. (1) No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15 per cent or more but less than fifty five per cent (55%) of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5% of the voting rights, with post acquisition shareholding or voting rights not exceeding fifty five per cent., in any financial year ending on 31st March unless such acquirer makes a public announcement to acquire shares in accordance with the regulations. (2) No acquirer, who together with persons acting in concert with him holds, fifty-five per cent (55%) or more but less than seventy- five per cent (75%) of the shares or voting rights in a target company, shall acquire either by himself or through or with persons acting in concert with him any additional shares entitling him to exercise voting rights or voting rights therein, unless he makes a public announcement to acquire shares in accordance with these Regulations: Provided that in a case where the target company had obtained listing of its shares by making an offer of at least ten per cent (10%) of issue size to the public in terms of clause (b) of sub-rule (2) of rule 19 of the Securities Contracts (Regulation) Rules, 1957, or in terms of any relaxation granted from strict enforcement of the said rule, this sub-regulation shall apply as if for the words and H

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A figures seventy-five per cent (75%), the words and figures ninety per cent (90%) were substituted. Provided further that such acquirer may, notwithstanding the acquisition made under regulation 10 or sub-regulation (1) of regulation 11, without making a public announcement under these B Regulations, acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him upto five per cent. (5%) voting rights in the target company subject to the following: (i) the acquisition is made through open market purchase in normal segment on the stock exchange but not through bulk deal /block deal/ negotiated deal/ preferential allotment; or the increase in the shareholding or voting rights of the acquirer is pursuant to a buyback of shares by the target company; (ii) the post-acquisition shareholding of the acquirer together with persons acting in concert with him shall not increase beyond seventy five percent. (75%). (2A) Where an acquirer who (together with persons acting in concert with him) holds fifty-five per cent (55%) or more but less than seventy-five per cent (75%) of the shares or voting rights in E a target company, is desirous of consolidating his holding while ensuring that the public shareholding in the target company does not fall below the minimum level permitted by the Listing Agreement, he may do so by making a public announcement in accordance with these regulations:

F Provided that in a case where the target company had obtained listing of its shares by making an offer of at least ten per cent (10%) of issue size to the public in terms of clause (b) of sub-rule (2) of rule 19 of the Securities Contracts (Regulation) Rules, 1957, or in terms of any relaxation granted from strict enforcement of the said rule, this sub-regulation shall apply as if for the words and figures seventy-five per cent (75%), the words and figures ninety per cent (90%) were substituted. (3) Notwithstanding anything contained in regulations 10, 11 and 12, in case of disinvestment of a Public Sector Undertaking, an acquirer who together with persons acting in concert with him, has made a public announcement, shall not be required to make

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another public announcement at the subsequent stage of further acquisition of shares or voting rights or control of the Public Sector Undertaking provided:— (i) both the acquirer and the seller are the same at all the stages of acquisition, and (ii) disclosures regarding all the stages of acquisition, if any, are made in the letter of offer issued in terms of regulation 18 and in the first public announcement. Explanation. — For the purposes of regulation 10 and regulation 11, acquisition shall mean and include — (a) direct acquisition in a listed company to which the regulations apply; (b) indirect acquisition by virtue of acquisition of companies, whether listed or unlisted, whether in India or abroad. C

12. Acquisition of control over a company. Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company, unless such person makes a public D announcement to acquire shares and acquires such shares in accordance with the regulations: Provided that nothing contained herein shall apply to any change in control which takes place in pursuance to a special resolution passed by the shareholders in a general meeting: E Provided further that for passing of the special resolution facility of voting through postal ballot as specified under the Companies (Passing of the Resolutions by Postal Ballot) Rules, 2001 shall also be provided. Explanation — For the purposes of this regulation, acquisition F shall include direct or indirect acquisition of control of target company by virtue of acquisition of companies, whether listed or unlisted and whether in India or abroad.” D.Interpretation of Regulation 10 of the Takeover Regulations, 1997: G

36Copy pinpoint36. Regulation 6, a transitional provision, states that any person who holds more than 5% shares or voting rights in a company shall, within two months of the notification of the Takeover Regulations 1997, disclose the aggregate shareholding to the company.19 Every company 19 Regulation 6(1) of the Takeover Regulations, 1997. H

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A is required to, within three months of the notification of the Takeover Regulations 1997, disclose, to all stock exchanges in which the shares of the company are listed, the aggregate number of shares held by such person.20 A promoter or person having control over the company is required to, within two months, disclose the number and percentage of voting rights held by him and the persons acting in concert with him to B the company.21 In turn, the company is, within three months, required to disclose to all stock exchanges in which the shares of the company are listed, the names and addresses of the promoters or the persons having control of the company, the number and percentage of shares or voting rights held by each such person.22

37Copy pinpoint37. Regulation 7 states that any acquirer who acquires shares or voting rights, taken together with the shares or voting rights already held by him, which would entitle him to more than 5% or 10% or 14% or 54% or 74% shares or voting rights of the company in any manner whatsoever, disclose at every stage, aggregate of his shareholding or voting rights to the company and to the stock exchanges where the shares are listed.23 Sub-regulation 1A to Regulation 7 states that any acquirer who has acquired shares or voting rights of the company, under sub-regulation 1 to Regulation 11 or under second proviso to sub-regulation 2 to Regulation 11, shall disclose the purchase or sale aggregating 2% or more of the share capital of the target company to the target company, and to the stock exchanges where the shares of the target company are listed within two days of such purchase or sale along with aggregate of shareholding after such acquisition or sale. The explanation to Regulation 7(1) and (1A) states that the term ‘acquirer’ for sub-regulation (1) and (1A) shall include a pledgee, other than a bank or financial institution. Such pledgee shall make a disclosure to the target company and the stock exchange within two days of creation of the pledge. Sub-regulation (2A) to Regulation 7 states that the stock exchange shall immediately display the information received from the acquirer under sub-regulation (1) and (1A) on the trading screen, the notice board and also on its website. Sub-regulation (3) requires every company whose shares are acquired in the manner referred to in sub-regulation (1) and (1A) to disclose to all stock exchanges, on which the shares of the said company are listed, 20 Ibid Regulation 6(2). 21 Ibid Regulation 6(3). 22 Ibid Regulation 6(4). 23 H Ibid Regulation 7(1).

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the aggregate number of shares held by such persons referred above, within seven days of receipt of information under sub-regulation (1) and (1A) of Regulation 7 of the Takeover Regulations 1997.

38Copy pinpoint38. Regulation 6 exposits transparency and openness which is required in the form of disclosure to be made by the shareholders, promoters or a person having control over the company, as well as the company in which they hold the shares. The information is not only given to the stock exchanges where the shares of the company are listed but are also put in the public domain so as to inform the shareholders and others. Similar transparency and openness is mandated by Regulation 7 which uses the expression ‘acquirer’, and applies when the ‘acquirer’ acquires shares or voting rights of the specified percentage in the company. Regulation 6 consciously uses the terms ‘person’, ‘promoter’, or ‘a person having control over the company’, and does not use the term ‘acquirer’, as the term ‘acquirer’ has been given, as noticed below, a specific legal meaning by the Takeover Regulations 1997. Regulation 7, on the other hand, expressly uses the term ‘acquirer’. D

39Copy pinpoint39. When we turn to Regulation 8 which deals with ‘continuous disclosures’, the regulation uses the term ‘person’, ‘promoter’, and ‘every person having control over the company’, which are the terms used in Regulation 6. Regulation 8 stipulates every person, which includes the person mentioned in Regulation 6, who hold more than 15% shares of voting rights as on 31st March shall make a disclosure to the company within 21 days from the end of the financial year. There is a similar stipulation in sub-regulation (2) to regulation 8 which requires a promoter or every person having control over a company to make a disclosure within 21 days from the end of the financial year, as well as the record date of the company for declaration of dividend, to make a disclosure of the number and percentage of shares or voting rights held by him and by persons acting in concert with him in that company to the company.The expression ‘person acting in concert’ has been defined in clause (e) to Section 2(1) of the Regulation, which clause has been examined and interpreted by us subsequently, also finds reference in the expression G ‘acquirer’ defined by clause (b) in Regulation 2 to the Takeover Regulations 1997. Every company whose shares are listed in the stock exchange is mandated by Regulation 8(3)to make a disclosure to all stock exchanges where their shares are listed, within 30 days of the end of the financial year as well as the record date for the purpose of H

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A declaration of dividend as to the holdings of the persons covered by sub- regulations (1) and (2) of Regulation 8. Regulation 8(4) states that every company, whose shares are listed, shall maintain a register in the specified format to record the information received under sub-regulation (3) to Regulation 6, sub-regulation (1) to Regulation 7 and sub-regulation (2) to Regulation 8. B

40Copy pinpoint40. The expression ‘acquirer’, as defined in the Takeover Regulations 1997, is broad, wideand is given an expansive definition. An ‘acquirer’ is a person who directly or indirectly acquires or agrees to acquire shares or control over the target company by himself or with any person acting in concert with him. The phrase ‘directly or indirectly’ C as well as the expressions ‘acquired shares or voting rights’ and ‘with any person acting in concert with the acquirer’underlines the extensiveand widespread ambit of the term ‘acquirer’. The term ‘acquirer’ is not restricted to the person or individual shareholder as it encompasses any other person acting in concert with the ‘acquirer’.

41Copy pinpoint41. The expression ‘person acting in concert’ as defined in clause (e) to Section 2(1) is again broad and expansive. The expression ‘person acting in concert’ as per sub-clause (1) to Clause (e) includes a person, who for a common object or for purpose of substantial acquisition of shares, voting rights, gaining control over the company, pursuant to an agreement or understanding formal or informal, directly or indirectly, cooperate by acquiring or agreeing to acquire shares or voting rights in a target company or to take control over a target company.Sub-clause 2 to clause (e) to Section 2(1) incorporates legal fiction as it states that the persons enumerated in clauses (i) to (x) shall be deemed to be persons acting in concert with other persons in the same category.The note to sub-clause (e) to Clause 2(1) explains the expression ‘associate’ as a relative of the person within the meaning of Section 6 of the Companies Act, 1956, family trust and Hindu Undivided Families. However, the presumption raised vide sub-clause (2) to Regulation 2(1)(e) is qualified and subject to- ‘unless the contrary is established’. Therefore, if the contrary is established, the presumption raised vide clauses (i) to (x) may not apply in enterity or only apply in part limited to specific shareholder(s) or the persons mentioned in clauses (i) to (x) who in concert acquire shares or voting rights of a target company. The factual matrix is determinative as clause (e)vide sub-clause (1) to Regulation 2(1) of the Takeover Regulations 1997 lays down a derivativeor spin-off H

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rule of interpretation, and even when the presumption under sub-clause A (2)arises, the adjudicator will not applythe presumption when the fact to the contrary are established. The presumptionis to be looked as “the bats of law, flitting in the sunlight but disappearing in the sunshine of fact”. 24

42Copy pinpoint42. The object of the aforesaid wide definitions is to ensure that B no one is able to dribble past and defeat the Takeover Regulations 1997 by resorting to camouflage and subterfuge.

43Copy pinpoint43. Interpreting Regulation 10 the Appellate Tribunal in the case of Madhuri S. Pitti, by referring to their earlier decision in the case of Sunil Krishna Khaitan, has opined: C “21. The first ingredient of the regulation in question is “acquirer”, the second is “shares or voting rights, if any, held by him or by persons acting in concert with him”; and the third is “entitle such acquire to exercise fifteen percent or more of the voting rights in a company”. The definitions of “acquirer” and “persons acting in concert” as given in the Code of Conduct, 1997 are reproduced below for the sake of convenience”: “2(b) “acquirer” means any person who, directly or indirectly, acquires or agrees to acquire shares or voting 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; 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 cooperate 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 following persons will be deemed to be persons acting in concert with other persons in the same category, unless the contrary is established:……” 24 Words from the Full Bench decision of the Andhra Pradesh High Court in G. Vasu v. Syed Yaseen Sifuddin Quadri, AIR 1987 AP 139. H

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A 22. A simple reading of the definition of the word “acquirer” makes it clear that an acquirer may act alone or as part of a group of persons acting inconcert. On the other hand, the definition of “persons acting in concert” reveals that people who cooperate with each other in order to acquire substantial voting rights in a particular company would be considered persons acting in concert. B At this point, we find it necessary to quote paragraph 31 from Sunil Khaitanvs SEBI (Appeal No. 23 of 2013 decided on 19.06. 2013) mentioned herein below: “31. In this connection, it may also be pertinently noted that the SAST Regulations, 1997 allow certain persons/ entities to act in concert for the purpose of acquisition. Even the definition of “persons acting in concert” as provided in Regulation 2 (e)(1) clearly provides that this expression includes persons who agree to cooperate with each other to acquire shares/voting rights in a target company or control over the target company pursuant to a formal or informal understanding between them, directly or indirectly. Thus, the definition is wide enough and gives ample scope to persons to act in concert as one unit for the purpose of acquisition of shares/voting rights. Further, Regulation 2(e)(2) also enumerates various persons who could act in concert and they, inter alia, include a company, its holding company, a E subsidiary, directors, mutual fund with sponsor or trustee, foreign institutional investors, merchant bankers, so on and so forth. In this context, if we look at the new SAST Regulations, 2011, we note that Regulation 3(3) specifically provides that acquisition of shares by any person within the meaning of sub- F regulations 3(1) and 3(2) would be attracting the obligation to make an open offer for acquiring shares of the target company irrespective of its aggregate shareholding with persons acting in concert if the shareholding of such individual person exceeds the threshold limit prescribed by regulation 10. It is pertinent to note that such a specific and unambiguous provision making G an individual liable to make a public offer in case the individual shareholding increases during the course of the acquisition even while acting in concert with other persons is conspicuously missing in the SAST Regulations, 1997. KLL was, therefore, not required to make a public offer and the finding in the H Impugned Order qua appellant no. 3, i.e., KLL is hereby set

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aside. At any rate, since the amendment of the Takeover Code A and the inclusion of regulation 3(3) in the SAST Regulations, 2011 the discussion regarding the applicability of regulation 10 of the SAST Regulations, 1997 has been rendered academic. Having said that, in the facts and circumstances of the present case, KLL cannot be called upon to make an open offer by B applying regulation 3(3) of the new Takeover Code retrospectively.”

23. Therefore, it is evident that the framers of the Takeover Regulation, 1997 intended to bring out a clear distinction between individual acquiring of shares on one hand and shares acquired by persons acting in concert on the other. The benchmark of 15% C would, thus, apply to an individual when the individual is acquiring shares/voting rights on his behalf alone. Similarly, when we attempt to determine whether or not the said limit has been crossed, shareholdings of all members of the group of persons acting in concert would have to be reckoned as a whole. Any other interpretation which would serve to dilute the distinction between an individual acquirer and a group of “persons acting in concert” as an acquirer. It would, indeed, make the concept of “persons acting in concert” nugatory, which could never have been the intention of the law makers. We, therefore, find Appellant No. 3 free of any blame with respect to provisions of regulation 10 of the SAST Regulations, 1997 regarding his acquisitions in the years 2006 and 2007.” (Emphasis Added)

44Copy pinpoint44. We agree with the interpretation.Regulation 10 states that no F ‘acquirer’ shall acquire voting rights, which taken together with the shares or voting rights held by him or by a ‘person acting in concert’ would entitle the ‘acquirer’ to exercise 15% or more of the voting rights in the company, unless such ‘acquirer’ makes public announcement to acquire shares in accordance with the regulations. The word ‘acquirer’ used in Regulation 10 takes its meaning from the definition clause (b) to Regulation G 2(1),which refers to the shareholder as an individual and also ‘person acting in concert’ with the him, which expression has been very widely defined vide clause (e) to Regulation 2(1) of the Takeover Regulations

1997. The Appellate Tribunal has, therefore, rightly held that the word H

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A ‘acquirer’, which is a term of art,25 should not be restricted to shares or voting rights of the individual shareholder as the term as defined includes the ‘person acting in concert’ with the shareholder. The shareholding/ voting rights of the ‘acquirer’, that is the individual shareholder together with the ‘person acting in concert’ decides whether the ‘acquirer’ is required to make apublic offer/announcementin terms of Regulation 10, B which applies when the voting rights of the ‘acquirer’ before acquisition were less than 15 %, but on fresh acquisition exceed15%of the voting rights in the company. Regulation 10 does not apply when the collective voting rights of the individual shareholder and the ‘person acting in concert’, taken together is 15% or more on the date when fresh shares or voting rights are acquired.The bracketed portion of Regulation 10, namely “taken together with shares or voting rights, if any, held by him or by persons acting in concert with him” affirms and endorses this interpretation.

45Copy pinpoint45. When a word/term has been defined in a statute in a particular manner then the interpreter can assume the word/term must be understood in the stipulated sense. The principle applies with greater vigour when the definition ofthe word/term is given a legal and substantive meaning, different from the common meaning, as then the writer demands that the reader should understand the term/word in the sense defined.When the content and meaning given is technical, theinterpreter is entitled to infer that the intention of the draftsmen is to deviate and depart from the ordinary, literalor customary meaning. Therefore, when a statutory enactment consciously defines a word or expression by enlarging or restricting the ordinary meaning, in the absence of clear indication to the contrary, the term as defined shall cover what is proposed, authorised, done or referred to in the enactment.26 This principle can be also discarded when the definition readand applied would not agree with the subject and context thereby making the provision unworkable or otiose.

46Copy pinpoint46. In the context of Regulation 10, we do not think that the draftsmen had committed a mistake or had forgotten the definition clauseswhile wording Regulation 10, wherein they have consciously used 25 Lord Nicholls has defined the phrase‘termof art’ in a legal sense as a term with one specific and precise meaning for the purposes of the enactment- see Brooks Vs. Brooks (1995) 3 All ER 257. 26 Lord Lowry,Wyre Forest District Council v. The Secretary of State for Environment, H 1990 2 AC 357.

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the expression ‘acquirer’, after having defined the same, instead of the word a ‘person’, which word has been used in Regulations 6 and 8 of the Takeover Regulations 1997.To accept the interpretation given by the Board, we would have to stretch the language of Regulation 10 and not read it as it reads, by assuming that the intent is to apply Regulation 10 in two situations(i) when the acquirer as a single entity, without taking into consideration the shareholding or voting rights of the person(s) acting in concert; as well as (ii) when the single entity together with the person(s) acting in concert, acquire voting rights,and in either case to cross the stipulation of 15% of the voting rights.But this would require us to ignore or rewrite the word ‘acquirer’ which as defined includes the ‘person(s) acting in concert’. It defeats the object and purpose behind the ‘term of art’ definition. Regulation 10 applies to the ‘acquirer’ acquiring voting rights, with reference to the existing holding as a person and in concert with other persons, because the acquisition is to be “taken together with shares or voting rights held by the acquirer himself or by person acting in concert with him”. The combined holding of the person and the ‘person acting in concert’ determines application of Regulation 10. If an ‘acquirer’ already holds more than 15 % shares or voting rights in concert with other persons, such holding is not be fragmented to calculate the shares or voting rights of the ‘acquirer’ in his personal capacity under Regulation 10.

47Copy pinpoint47. The language and the wording of Regulation 10 clearly differs from the language and wording of Regulation 11(1) of the Takeover Regulations 1997. In Regulation 11(1), an acquirer, either himself or through or with any person acting in concert with him, has 15% or more but less than 55% shares/voting rights, is required to make a public announcement in accordance with the Regulation when he, either by himself or through or with persons acting in concert with him, acquire additional shares or voting rights entitling him to exercise more than 5% of the voting shares in addition to already acquired shares/voting rights.

48Copy pinpoint48. Thus Regulation 10 does not apply when the ‘acquirer’ already holds more than 15% shares or voting rights in the target company. The G ‘acquirer’, for the purpose of the said Regulation, not only means the individual person but also the ‘person acting in concert’ with the individual person. In such cases, Regulation 11(1) may apply when the ‘acquirer’ who hold between 15% to 55% of shares or voting rights, post the acquisition of the additional shares or voting rights is entitled to exercise more than 5% of the voting rights. H

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49Copy pinpoint49. The contention of the Board that the interpretation by the Appellate Tribunal defeats the object and purpose of the Takeover Regulations 1997 is a feeble and evanescent argument. The interpretation, does not render Regulation 10 ineffective to deal with cases where an individual, parts ways with the ‘person(s) acting in concert’ to acquire shares beyond the threshold of 15% with the intend to gain control or stake in the target company. The argument overlooks the wording of Regulations 2(1)(b) and (e). A ‘person acting in concert’ as defined in clause (e) to Regulation 2(1) is a fluctuating and not a fixed body of persons. When there are divisions and differences between or amongst the ‘person acting in concert’, or even otherwise, an acquirer acts at his own behest or in concert with a different persons or group, Regulation 10 may catch up. Definitions of the terms, ‘acquirer’ and ‘person acting in concert’ are situation and fact specific. The legal fiction vide sub- clause 2 to Section 2(1)(e), specifically stipulates- unless contrary is established. Yes, there could be situations when the ‘person(s) acting in concert’ holding more than 15% voting rights post the said acquisition may part ways, but Regulation 10 is not attracted and applicable to such situations. To argue that public shareholders can predict such events and therefore the Board’s interpretation is more acceptable is imaginative but an uncompelling and a weak argument.Risk taking is essential to an an active market, and in fact the secruties marketthrives on legitimate changes in management, flexibility and willingness to accept change, which may not predicitable. Good regulation, it is said, should promote and allow for the effective management of risk and not striffle risk taking. Regulator should ensure that capital and other prudential requirements are sufficient to address appropriate risk taking, and check excessive risk taking.27 Therefore, the apprehension of the Board, which is more in the nature of skepticism and qualm,is misconceived and should be rejected.

50Copy pinpoint50. There is ample material, and it is accepted by the Board that they had read the expression ‘acquirer’ in Regulation 10 to mean and include the shareholder along with ‘person acting in concert’. Meaning thereby, there would not be any violation of Regulation 10 if the ‘acquirer’, G which would include the ‘person acting in concert’, acquires new shares or voting rights when he individually or along with the ‘person in concert’, already hold more than 15% shares in the target company. This interpretation was accepted and even communicated by the Board to 27 See Objectives and Principles of Securties Regulation- Objectives of Securities H Regulation 4.2.3 International Organisation of Securities Commissions,- May,2003.

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third parties.Adjudicating Officer(s) have accepted this interpretation A and dropped penalty proceedings, which orders have attained finality and accepted by the Board. Relevant portions of some communications/ orders passed are reproduced below:

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51Copy pinpoint51. Thus, the Board as well as the Adjudicating Officer have treated the expression ‘acquirer’, for the purpose of Regulation 10, to include a ‘person acting in concert’ and the combined shareholding were taken into consideration for deciding whether there was a breach of Regulation 10. Where the ‘acquirer’, including the ‘person acting in concert’, already had shares or voting rights in excess of the prescribed G limit, they were not held guilty of violating Regulation 1028. 28 Under sub-section (3) to Section 15-I, the Board has the power to call for and examine records of any proceedings if it considers the order passed by the adjudicating officer is erroneous to the extent it is not in the interests of the securities market and after causing or making an inquiry pass an order enhancing the quantum of penalty if the circumstances of the case so justify. The second proviso states that an order under sub-section (3) can H

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52Copy pinpoint52. It is important for the regulator to be consistent and A predictable.Further regulations must be clear as ambiguous regulations cause confusion and uncertainty. Regularity and predictability, along with certainty, are hallmarks of good regulation and governance. These principles underpinthe ‘rule of law’, check arbitrariness and are read as the intent of the legislation, which the Courts, if need be, will enforce as B a principle of interpretation.The Board is entrusted to preform legislative, executive, investigative and adjudicatory functions. A regulator when it executes statutory functions interprets the enactment and gives meaning and, in that sense, lays down what is believes is the rule. As a legislator who constructs and states at the first instance what is the rule, the Board tacitly promises and prophecies the interpretation that appeals to them. C Any good regulatory system must promote and adhere to principle of certainty and consistency,providing assurance to the individual as to the consequence of transactions forming part of his daily affairs.29 Lord Diplock has aptly said “unless men know what the rule of conduct is they cannot regulate their actions to confirm to it.” Otherwise the regulator”fails in its primary function as a rule” maker.30 This does not mean that the regulator/authorities cannot deviate from the past practice, albeit any such deviation or change must be predicated on greater public interest or harm. This is the mandate of Article 14 of the Constitution of India which requires fairness in action by the State, and non-arbitrariness in essence and substance.Therefore to examine the question of inconsistency, the analysis is to ascertain the need and functional value of the change, as consistency is a matter of operational effectiveness. Sometimes changes are desiable and necessary.Referring to these aspects, in some cases, the Indian courts have applied the doctrine of be passed by the Board after expiry of period of three months from the date of the order passed by the adjudicating officer or disposal of the appeal under Section 15-T, whichever is earlier. 29 Union of India v. Raghubir Singh, (1989) 2 SCC 754. Also see, The Nature of the Judicial Process, Benjamin N. Cardozo, page 33: “I am not to mar the symmetry of the legal structure by the introduction of inconsistencies and irrelevancies and artificial exceptions unless for some sufficient reason, which will commonly be some consideration of history or custom or policy or justice. Lacking such a reason, I must be logical just as I must be impartial, and upon like grounds. It will not do to decide the same question one way between one set of litigants and the opposite way between another.” 30 Franics Bennion, Bennion on Statutory Interpretation, Fifth Edition (Indian reprint), Section 266 at page 801.

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A substantive legitimate expectation31 observing that the change in policy should not be irrational or perverse or one which no reasonable person could have made. In other words, principles of Wednesbury’s reasonableness would apply. Such a principle stems, but is somewhat different from the foundational idea of procedural legitimate expectation, which applies where a particular mode is prescribed for doing an act and there is no impediment in adopting the procedure, the deviation to act in similar manner without any reasonable principle, can be labelled as arbitrary.32

53Copy pinpoint53. In Punjab Communications Ltd. v. Union of India and Others,33 it is observed that for a legitimate expectation to arise, the decisions of the administrative authority must affect the person by depriving him of some benefit or advantage which he had in the past been permitted by the decision-maker to enjoy, and which he can legitimately expect to be permitted to continue to do until he has been communicated some rational grounds for withdrawing it andhe has been given an opportunity to comment. It also means that the assurance given by the decision maker will not be withdrawn, without giving him an opportunity of advancing reasons to contend that they should not be withdrawn. Reference can also be made to a recent decision of this Court in State of Jharkhand and Others v. Brahmputra Metallics Ltd., Ranchi and Another34 wherein reference was made to earlier judgment in National Buildings Construction Corporation v. S. Raghunathan and Others35 to reiterate that claims based on legitimate expectations have been held to acquire reliance on the representations and resulting detriment to the complainant in the same way as claims based on promissory estoppel. 31 See, Council of Civil Service Unions v. Minister for the Civil Service, 1985 AC 374, F wherein it was observed in that case that for a legitimate expectation to arise, the decisions of the administrative authority must affect the person by depriving him of some benefit or advantage which either (i) he had in the past been permitted by the decision-maker to enjoy and which he can legitimately expect to be permitted to continue to do until there has been communicated to him some rational grounds for withdrawing it on which he has been given an opportunity to comment; or (ii) he has received G assurance from the decision-maker that they will not be withdrawn without giving him first an opportunity of advancing reasons for contending that they should not be withdrawn. 32 Bannari Amman Sugars Ltd. v. Comercial Tax Officers and Others, (2005) 1 SCC 625. 33 (1999) 4 SCC 727 34 (2020) SCC Online SC 968 35 H (1998) 7 SCC 66

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54Copy pinpoint54. In the context of the present case, it is to be noted that the A Board is the draftsman of the legislationhaving enacted the Takeover Regulations 1997 and hence, their interpretation and understanding of the Regulations is of importance and relevance. In the context of the present case, the Board, nearly five years after the transactions, had issued the show-cause notice and then passed an order taking a view on interpretation of Regulation 10, which was contrary to the view expressed by it in several communications as also orders passed by the adjudicating authority.Past is passe and not present, and by giving ‘retroactive’ operation without good reason and ground36, the direction violates fundamental notions of predictability and legal stability. 37

55Copy pinpoint55. We also feel that the principle of doubtful penalisation would be applicable in the present case. Way back in 1955, this Court in Tolaram Relumal and Another v. State of Bombay38 had held that it is a well settled rule of construction of penal statutes that if two views and reasonable constructions can be put on a provision, the court must lean in favour of construction which exempts the subject from penalty rather than one which imposes penalty.39 In Bipin chandra Parshottamdas Patel (Vakil) v. State of Gujarat and Others,40 a three Judges’ Bench of this Court had referred to this principle and quoted the following passage from Mohammad Ali Khan and Others v. Commissioner of Wealth Tax, New Delhi,41 which reads: E “6. It is a cardinal principle of construction that the words of a statute are first understood in their natural, ordinary or popular 36 See our findings below. 37 Methew P. Harrington: Foreward: The Dual Dichotomy of Retroactive Lawmaking. 38

(1955) 1 SCR 158

39 Ibid, para 8: “The question that needs our determination in such a situation is whether Section 18(1) makes punishable receipt of money at a moment of time when the lease had not come into existence, and when there was a possibility that the contemplated lease might never come into existence. It may be here observed that the provisions of Section 18(1) are penal in nature and it is a well-settled rule of construction of penal statutes that if two possible and reasonable constructions can be put upon a penal provision, the court must lean towards that construction which exempts the subject from penalty rather than the one which imposes penalty. It is not competent to the court to stretch the meaning of an expression used by the legislature in order to carry out the intention of the legislature. As pointed out by Lord Macmillan in London and North Eastern Railway Co. v. Berriman [1946 AC 278, 295] “where penalties for infringement are imposed it is not legitimate to stretch the language of a rule, however, beneficient its intention, beyond the fair and ordinary meaning of its language”. 40 (2003) 4 SCC 642 41 (1997) 3 SCC 511 H

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A sense and phrases and sentences are construed according to their grammatical meaning unless that leads to some absurdity or unless there is something in the context or in the object of the statute to suggest the contrary. It has been often held that the intention of the legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said B as also to what has not been said. As a consequence a construction which requires for its support addition or substitution of words or which results in rejection of words as meaningless has to be avoided. Obviously the aforesaid rule of construction is subject to exceptions. Just as it is not permissible to add words or to fill in a C gap or lacuna, similarly it is of universal application that effort should be made to give meaning to each and every word used by the legislature.” Reference was thereafter made to Francis Bennion’s Statutory Interpretation which observes that the principle of doubtful penalisation, D often limited to criminal statutes, in fact, extends to any form of detriment. The jurist has opined that it is a principle of legal policy that a person should not be penalised except under clear law. We, when considering in relation to the facts of the instant case, wherein the opposing constructions of the enactment is possible, should presume that the legislature intended to observe this principle. The courts, therefore, try to avoid adopting a E construction which penalises a person where the legislature’s intention to do so is doubtful.

56Copy pinpoint56. We would quote Section 278 from the Bennion on Statutory Interpretation, 5th Edition, Indian Reprint, which reads as under:

F “Section 278. Statutory interference with economic interests One aspect of the principle against doubtful penalisation is that by the exercise of state power the property or other economic interests of a person should not be taken away, impaired or endangered, except under clear authority of law.” G In the comments in Section 278 of the treatise, it is stated that the presumption against imposition of statutory detriment to a person’s property or other economic interest has been recognised and explained in Entick v. Carrington42 by Brat C.J. in the following words: 42 (1765) 19 State Tr 1029 at 1060. H

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“The great end for which men entered into society was to secure their property. That right is preserved sacred and incommunicable in all instances where it has not been abridged by some public law for the good of the whole.”

57Copy pinpoint57. The principle of doubtful penalisation has limited value when interpreting beneficial or remedial statutes where the adjudicator may adopt a liberal and a purposive interpretation.43 The principle can be ignored when other interpretative factors, like interest of public law and good of the society, weigh heavily to tilt the scales against application of the principle.44 The law of interpretation and court decisions applying the law of interpretation recognise pluralism in interpretation. 45 Legal meaning of the enactment/provision in question often involves applications of divergent principles, rules, cannons and presumptions, which are resolved by weighing and balancing the conflicting interpretative criteria and factors.46 Clearly, a straitjacket approach should not be adopted without reference to the context, the subject matter and the object of the provision. Only then the court can interpret and give meaning which the legislature wanted to achieve and convey.

58Copy pinpoint58. We have already, while referring to the principle of legitimate expectation, referred to the exceptions when the court may not apply the said principle.

59Copy pinpoint59. The Board has drawn our attention to the decision of this E Court in Swedish Match (supra) wherein Mr. Justice S.B. Sinha, who is

43 FranicsBennion, Bennion on Statutory Interpretation, Fifth Edition (Indian reprint), Section 271 at page 827. 44 See Her Majesty The Queen ex rel. Linda Merk v. International Association of Bridge, Structural, Ornamental and Reinforcing Iron Workers, Local 771, 2005 SCC F 70; R. v. Hasslewander, [1993] 2 S.C.R. 398; R. v. Goulis (1981), 125 D.L.R. (3d) 137; Sullivan, Ruth. Sullivan and Driedger on the Construction of Statutes, 4th ed. Markham, Ont.: Butterworths, 2002 at page 387: “The rule [of strict construction] is difficult to reconcile with federal and provincial Interpretation Acts which provide that all legislation is to be deemed remedial and given a liberal and purposive interpretation. In the clearest possible language, this statutory directive requires doubts and ambiguities in penal legislation to be resolved in a manner that promotes the purpose of the legislation, G regardless of the impact on accused persons.”; Côté, Pierre André. The Interpretation of Legislation in Canada, 3rd ed. Scarborough, Ont.: Carswell, 2000 at page 477; Graham, Randal N. Statutory Interpretation:Theory and Practice. Toronto: Emond Montgomery,

2001. at pp. 210-15. 45 FranicsBennion, Bennion on Statutory Interpretation, Fifth Edition (Indian reprint). 46 Ibid. H

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A also the author of the judgment in Bipinchandra (supra), had not applied the principle of doubtful penalisation with reference to Regulation 11 of the Takeover Regulations 1997. The Hon’ble Judge in Swedish Match (supra) has explained that in the said case there was a clear violation and failure on the part of the persons statutorily obliged to comply with the imperative statutory provisions. With reference to this decision, the B Board had referred to one line in paragraph 7747 which refers to Regulation 10 and states that the same would apply as no public announcement was made in its compliance. It is to be noted that Regulation 10 was not invoked by the Board in Swedish Match (supra) and its violation was not alleged. In the subject appeal before this Court in Swedish Match C (supra), reliance was placed on Regulation 12 to get over the mandate of Regulation 11, which contention was rejected. One stray sentence in paragraph 77 that Regulation 10 would apply should not be read as ratio decidendi of the said decision and as a finding on the interpretation of Regulation 10.48 Decision dated 25th July 2012 of the Appellate Tribunal D 47 "77. With a view to advert to the question, the admitted facts may be noticed: Swedish Match Singapore agreed to acquire majority shareholding in Haravon and Seed subsequent to 17-12-1997 wherefor the public offer was made. SMS comprising Haravon and Seed had 28.28% and 10.33% whereas the Jatia Group comprising AVP and Plash had 5% and 15% respectively whereas public/others had 41.39% shares. In concert with each other the two groups acquired shares from public. On or about 25-8-1999 by acquiring preferential shares the Swedish Match Group obtained 52.11% and the Jatia E Group obtained 24.11% as a result whereof in Wimco the shares held by public/others came down to 23.78%. Both the Swedish Group and the Jatia Group were exercising joint control. By reason of the Jatia Group opting out of the joint control by transfer of shares in favour of Swedish Match Singapore, a subsidiary of Swedish Match AB (a part of the Swedish Match Group) obtained 74% of shares whereas Haravon — 46.18%, Seed — 5.93% and SMS — 21.89%. Thus, the extent of shares of the Jatia Group came F down to 2.22%. The Jatia Group sold its shares to the public as a result whereof shares of the public became 23.78%. SMS is a subsidiary of the Singapore Match Group. Swedish Match is the holding company being the owner of 100% shares of SMS. It stands categorically admitted by the appellants herein that acquisition of shares from the Jatia Group in favour of SMS was done by the Swedish company as a group and not as an individual company. Factually, therefore, it is not correct to contend, although in its notice dated 28-1-2002, SEBI had given indication thereof, that SMS had acquired G 21.89% shares of its own. Even if SMS had done so, Regulation 10 would apply as no public announcement was made therefor.” 48 See Natural Resources Allocation, In re, Special Reference No. 1 of 2012, (2012) 10 SCC 1: “70. Each case entails a different set of facts and a decision is a precedent on its own facts; not everything said by a Judge while giving a judgment can be ascribed precedential value. The essence of a decision that binds the parties to the case is the principle upon H

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KRISHNA KHAITAN AND OTHERS [SANJIV KHANNA, J.]

in Hanumesh Realtors Private Limited v. Securities and Exchange A Board of India49 is per incuriam as it has referred to the decision in Swedish Match (supra), which decision relates to and interprets Regulation 11(1). In the present reasoning, we are not dealing and interpreting Regulation 11(1) but Regulation 10 of the Takeover Regulations,1997. B

60Copy pinpoint60. Contention of the Board that there is no estoppel against law is well known, but the said principle is not applicable for several reasons. First, the interpretation accepted by the Appellate Tribunal is not only plausible but more acceptable than the interpretation propounded by the Board. Secondly, the Board, which has the power to enact the Regulations, interpret and apply them, adjudicate and also pass a penalty C order in case of violation for good and substantial reasons had interpreted regulations in the same manner in earlier instances as interpreted by the Appellate Tribunal. Thirdly, the adjudication orders in the present case were passed well after the Takeover Regulations 1997 were repealed with the enactment and enforcement of the Takeover Regulations 2011. D In the present case, therefore, we are dealing with a legacy issue. Regulation 10 of the Takeover Regulations 1997, as interpreted and applied by the Board for over ten years, is sought to be overturned by the Board, thereby, creating penal consequences. This should not be permitted and is hardly acceptable when we apply the principle of good governance and regulation. E

61Copy pinpoint61. The argument of the Board that Takeover Regulations 2011 are retrospective is to be only noted and rejected. The impugned order passed by the Appellate Tribunal in the case of Madhur S Pitti(Appeal No. 2 of 2013) specifically records that the Board had conceded that Takeover Regulations 2011 do not have any retrospective application.50 F which the case is decided and for this reason, it is important to analyse a decision and cull out from it the ratio decidendi……..

73. It is also important to read a judgment as a whole keeping in mind that it is not an abstract academic discourse with universal applicability, but heavily grounded in the facts and circumstances of the case. Every part of a judgment is intricately linked to others constituting a larger whole and thus, must be read keeping the logical thread G intact……….” 49 Before Securities Appellate Tribunal, Mumbai, Appeal No. 66 of 2012, Date of Decision: 25.07.2012. 50 “27. We agree with the Respondent to the extent that the SEBI Act is certainly a social welfare legislation. But this does not take away from the undeniable fact that Regulations 3(3) of the SAST Regulations, 2011 introduced the provision stating that even in case of an individual’s shareholding crossing the stipulated threshold, which is H