In what circumstances can a takeover offer, once made, be withdrawn? This issue has occupied the attention of the Supreme Court in two previous cases, Nirma Industries v. Securities and Exchange Board of India and Securities and Exchange Board of India v. Akshya Infrastructure Pvt. Ltd. In these cases, the Supreme Court took a strict view and held that the acquirers were not permitted to withdraw their offers (see discussion here and here respectively). Thereafter, in Pramod Jain v. Securities and Exchange Board of India, the Securities Appellate Tribunal (SAT) was constrained by the Supreme Court rulings and refused to permit a withdrawal of an offer even where there was a two-year delay in obtaining SEBI’s approval of the offer and in the meantime the target’s promoters were alleged to have encumbered the most valuable asset of the company and to have siphoned company funds (see discussion here).
It recently came to my attention that the SAT’s decision in Pramod Jain had been appealed to the Supreme Court, which issued its verdict last November. Unsurprisingly, the Supreme Court followed the same line of reasoning in treating takeover offers as sacrosanct and did not permit the acquirer to withdraw the offer, thereby confirming the ruling of SAT, and the earlier ruling of the Securities and Exchange Board of India (SEBI). Legal counsel for the acquirers (who the were appellants before the Supreme Court) sought to distinguish Nirma Industries and Akshya Infrastructure, primarily on two grounds. First, there were significant delays at SEBI’s end (of nearly two years) that made the offer economically unviable. The delays were as a result of several complaints filed before SEBI against both the acquirer as well as the target. Second, given that the acquirer had made a hostile offer for the target, the target’s management had indulged in defensive tactics (such as by siphoning the assets of the company). However, the Supreme Court did not accept the reasoning provided by the acquirer.
The Court found it appropriate to adhere to its decision and reasoning in the earlier two cases. Although it agreed with the SAT’s finding that there was undue delay on the part of SEBI in dealing with the offer, this by itself was not sufficient to merit a withdrawal of the offer by the acquirer. Circumstances relating to the offer have been specifically provided in the SEBI Takeover Regulations (in this case the earlier version of 1997 applied), and the present case did not fall within any of them. Moreover, the Supreme Court also observed that the consequence of any wrongful conduct on the part of the target or its management is not an automatic withdrawal of the offer, and that appropriate remedies are available to the acquirer to pursue as an aggrieved party.
Disputes relating to takeover regulations have on occasion found their way to the Supreme Court, which has played the role of interpreting ambiguities in the regulations. As regards withdrawal, regulation 27 of the SEBI Takeover Regulations of 1997 has been the subject matter of three different decisions of the Supreme Court, as discussed herein. All have been unanimous in circumscribing the ability of the acquirer to withdraw the offer, thereby reinforcing the sanctity of takeover offers. Given such a strict approach adopted by the Supreme Court, it is incumbent upon SEBI to deal with and dispose of issues pertaining to takeover offers in a timely manner.