Wednesday, September 11, 2013

Update on Delisting of Fresenius Kabi Oncology Limited

[The following post is contributed by Yogesh Chande, who is a Consultant with Economic Laws Practice, Advocates & Solicitors. Views of the author are personal]

On 22 July 2013, the SEBI whole time member passed an order in relation to the proposed voluntary delisting of Fresenius Kabi Oncology Limited (Target Company) by its promoters in accordance with the SEBI (Delisting of Equity Shares) Regulations, 2009 (Delisting Regulations). This order was discussed in a previous post.

Now, the Securities Appellate Tribunal (SAT) by its order dated 10 September 2013 has allowed an appeal by the Target Company to the extent that it may go ahead with the delisting offer without the condition imposed by SEBI regarding compliance with Regulation 17(b)[1] of the Delisting Regulations.

While relying upon a judgment of the Hon’ble Delhi High Court, SAT also mentioned that though section 11(2) of the SEBI Act, 1992 casts a duty of protecting the investor’s interests upon SEBI while granting it wide powers, however, wide powers granted to a public authority cannot be construed as allowing it to amend the law on a case to case basis.

SAT was of the view that the law must operate uniformly to maintain its sanctity, and when Regulation 17(b) of the Delisting Regulations categorically mentions that the current shareholding of the promoter group ought to be taken into consideration while making a delisting offer, there can be no question of SEBI specifying a different criterion. The Target Company had contended that the order dated 22 July 2013 is flawed as it imposes the condition on the promoter of taking its shareholding up to 95% in keeping with Regulation 17 of the Delisting Regulation, when the actual position in law is that, based on the current shareholding of the promoter in the Target Company i.e., 81%, the promoter should only be required to take it up to 90.50% [and not 95%].

The concluding paragraph of the order of SAT states that SEBI is, however, at liberty to investigate the complaints made by investors against the Target Company and take necessary action as per law, if so advised. It may be noted that, in the original post, it was also pointed out that the order dated 22 July 2013 did not appear to contain any directive to investigate the allegations, which SAT has taken into consideration in paragraph 22 of its order.

SAT, while allowing the appeal, has also taken into consideration the fact that no documents were brought on record by SEBI to lend any credibility to the accusations i.e. that the investors who bought the 9% shareholding in the OFS might have acted in collusion with the Target Company so as to sell those shares off when the delisting offer is made and ensure the successful completion of the delisting process[2].

The concluding paragraph of the SAT order also states that, in an eventuality of the investigation being conducted by SEBI into the complaints, SEBI is expected to act and take a decision expeditiously after investigating the complaints in question so that the Target Company is not put to unnecessary delay.

Though the SAT order has now permitted delisting of the Target Company without the condition imposed by SEBI[3] regarding compliance with Regulation 17(b) of the Delisting Regulations, the purpose of the order dated 22 July 2013 imposing the said condition was in view of the complaints received by SEBI from investors [not investigated prior to passing the said order] alleging that the entities who purchased shares in the OFS may have participated in the OFS with an intent to subsequently tender their shares at an artificial price in the bids for the delisting offer, which will be in collusion with the promoters of the target company, and thus enable the promoters to successfully delist the target company.

The words “ that the Target Company is not put to unnecessary delay” in the concluding paragraph of the SAT order seems to suggest that, the delisting offer can be launched only subject to the outcome of the investigation of the said complaints by SEBI.

- Yogesh Chande

[1] Dealing with the minimum number of equity shares to be acquired by the promoter for a delisting to be considered successful
[2] Paragraph 22 of the SAT order
[3] The pre-OFS promoter shareholding [90% and not 81%] be considered for computing the percentages under regulation 17

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