Featured image for Supreme Court Judgment dated 13-07-2017 in case of petitioner name Laurel Energetics Pvt. Ltd. vs Securities and Exchange Board
| |

SEBI Takeover Regulations: Supreme Court Upholds Higher Offer Price for Share Acquisition

The Supreme Court of India recently ruled on an important case involving the Securities and Exchange Board of India (SEBI) and Laurel Energetics Pvt. Ltd., interpreting Regulation 10 of the SEBI Takeover Regulations, 2011. The case revolved around the question of whether an inter-se transfer of shares among promoters was exempt from open offer obligations. The Court’s ruling upheld SEBI’s position that the acquirers were required to offer a higher price per share to minority shareholders in an open offer.

Background of the Case

The case originated from share acquisitions involving Indiabulls Real Estate Ltd. (IBREL), which was incorporated in 2006 and later entered the power generation business in 2009. IBREL set up a subsidiary, Rattan India Infrastructure Ltd. (referred to as the Target Company), which was demerged from IBREL in 2011.

Laurel Energetics Pvt. Ltd., a company owned by Mr. Rajiv Rattan, acquired 18% of the Target Company’s shares in July 2014 at Rs.6.30 per share. In October 2015, the company, along with other entities acting in concert, made an open offer to acquire additional shares at Rs.3.20 per share.

SEBI rejected this lower offer price, stating that the 2014 acquisition was not exempt under Regulation 10 and that the open offer should be made at Rs.6.30 per share, the highest price paid for earlier acquisitions.

Arguments of the Petitioner (Laurel Energetics Pvt. Ltd.)

The petitioners, represented by senior counsel, argued that:

  • Regulation 10 of the SEBI Takeover Regulations allows inter-se transfers among promoters to be exempt from open offer obligations.
  • Since the promoters of IBREL remained the same even after the demerger, the exemption should apply.
  • The objective of Regulation 10 was to provide stability to companies where promoters had remained in control for three years or more.
  • The lower price of Rs.3.20 per share should be accepted as the valid offer price for the open offer.

Arguments of the Respondent (SEBI)

SEBI countered these claims with the following arguments:

  • The exemption under Regulation 10 applied only if the promoters had held shares in the Target Company for at least three years.
  • The Target Company was listed only in July 2012, and the acquisitions in 2014 were within three years of listing.
  • The promoters could not claim exemption based on their status in IBREL before the demerger.
  • Regulation 10 required that the higher price of Rs.6.30 per share be applied for the open offer.

Supreme Court’s Analysis and Judgment

The Supreme Court examined the key legal issue: whether the 2014 acquisitions were exempt under Regulation 10, thereby allowing the open offer at a lower price.

The Court observed:

“Persons must be named as promoters in the shareholding pattern filed by the Target Company in terms of the listing agreement for not less than three years prior to the proposed acquisition.”

Since the Target Company was listed in July 2012 and the acquisition took place in 2014, the exemption did not apply because three years had not passed.

The Court ruled:

  • The exemption under Regulation 10 was not applicable to the 2014 acquisitions.
  • The open offer price must be revised to Rs.6.30 per share.
  • The acquirers were also required to pay interest at 10% per annum on the revised offer price to shareholders.
  • The decision of the SEBI Appellate Tribunal, which had upheld SEBI’s order, was affirmed.

Final Verdict

The Supreme Court upheld SEBI’s decision, ensuring that minority shareholders received fair compensation based on the highest price paid for earlier share acquisitions.

Implications of the Judgment

This ruling has significant implications for corporate acquisitions and SEBI’s regulatory framework:

  • Reinforces SEBI’s authority to ensure fair treatment of minority shareholders.
  • Clarifies the conditions under which inter-se transfers among promoters are exempt from open offer obligations.
  • Ensures that companies cannot manipulate open offer pricing by structuring acquisitions to avoid higher offer prices.
  • Sets a precedent for similar cases involving corporate restructuring and promoter share transfers.

This judgment strengthens investor protection and enhances transparency in the Indian securities market, ensuring that minority shareholders are not disadvantaged in takeover transactions.

Don’t miss out on the full details! Download the complete judgment in PDF format below and gain valuable insights instantly!

Download Judgment: Laurel Energetics Pv vs Securities and Excha Supreme Court of India Judgment Dated 13-07-2017.pdf

Direct Downlaod Judgment: Direct downlaod this Judgment

See all petitions in Corporate Governance
See all petitions in Mergers and Acquisitions
See all petitions in Shareholder Disputes
See all petitions in Judgment by Rohinton Fali Nariman
See all petitions in Judgment by Sanjay Kishan Kaul
See all petitions in dismissed
See all petitions in supreme court of India judgments July 2017
See all petitions in 2017 judgments

See all posts in Corporate and Commercial Cases Category
See all allowed petitions in Corporate and Commercial Cases Category
See all Dismissed petitions in Corporate and Commercial Cases Category
See all partially allowed petitions in Corporate and Commercial Cases Category

Similar Posts