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14 September 2016

Withdrawal of public offer when not possible

Consequent to the open offer made by the acquirers, intending to acquire 75% equity share of the target company, the target company informed SEBI of it being registered with BIFR and stating that it was a sick company. The representation made by the target company was forwarded to the lead managers of the open offer. Subsequently, SEBI also received complaints about acquisition of shares of target company by various entities connected to the acquirers.
 
The target company through a miscellaneous petition filed before the BIFR requested BIFR to declare the detailed public statement and the public announcement issued by the acquirers null and void. Through an interim order, BIFR directed the target company to maintain status quo on the operations of the company, controlling stake and management of the company. Later, BIFR declared the target company sick on grounds that it fulfilled the criteria of sickness under SICA. The order was forwarded to SEBI and therefore, SEBI had put open offer on hold.
The acquirers then preferred an appeal against the interim order of BIFR, which was dismissed on grounds that there was no illegality or infirmity in the order passed by BIFR. The acquirers were now of the view that since the proceedings before the BIFR are long drawn along with the inability of SEBI to clear the draft Letter of Offer, they are entitled to withdraw the open offer under Regulation 23(1) of the Takeover Regulation, 2011.
 
SEBI, on 1-8-2016, placing its reliance on the decision of the Apex Court in Nirma Industries Limited v. SEBI (Civil Appeal No. 6082 of 2008 – Judgment dated September 9, 2013), noted that the wordings in clauses (a), (b), (c) of Regulation 23(1) of the SEBI Takeover Regulations, 2011, denote circumstances which pertain to a class, category or genus and that the common thread which runs through them is the impossibility in carrying out the public offer. It was held that since withdrawal of open offer in the instant proceedings only attracts the provisions of Regulation 23(1)(d) of SAST Regulations, the phrase ‘such circumstances’ has to be read in accordance with the conditions stipulated in Regulations 23(1)(a), (b) and (c) of the SAST Regulations.
 
SEBI finally held that the condition of impossibility cannot be said to have arisen in the present case till proceedings are pending with BIFR and till the order of status quo with respect to the target company has attained finality, and accordingly the acquirers did not have the legal right to withdraw from the open offer.