tag:blogger.com,1999:blog-3202774368551476669.post2083549726836560377..comments2023-09-15T16:21:31.980+05:30Comments on INDIAN CORPORATE LAW: Supreme Court on Withdrawal of a Takeover OfferUmakanth Varottilhttp://www.blogger.com/profile/12438677982004444359noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-3202774368551476669.post-3573501176621286532014-05-29T20:26:18.683+05:302014-05-29T20:26:18.683+05:30Readers, who are following this case may want to r...Readers, who are following this case may want to read a further development pertaining to this case. <br /><br />http://www.sebi.gov.in/cms/sebi_data/attachdocs/1401103811112.pdf<br /><br />Rushab Dhandokia<br />Studet, Institute of Law- Nirma University.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-3202774368551476669.post-24091309361900456032013-06-03T22:42:38.895+05:302013-06-03T22:42:38.895+05:30The target should have been wound up. Nirma shouls...The target should have been wound up. Nirma shouls have filed petition for winding up and got order appointing OL in target. This would create legal impossibility for open offer. No point trying to just used SASTVijayhttps://www.blogger.com/profile/07310187931119187684noreply@blogger.comtag:blogger.com,1999:blog-3202774368551476669.post-44002218548565033252013-06-01T11:48:41.982+05:302013-06-01T11:48:41.982+05:30Mangesh Patwardhan
I think the Supreme Court reac...Mangesh Patwardhan<br /><br />I think the Supreme Court reached the right result but, it is submitted with respect, through partially flawed analysis. The policy underlying open offer requirement is that when I buy shares in company, I do not look at it legalistically (as an investment in a juristic entity with perpetual succession etc….). Rather I repose my Berle-Meansian faith in the current promoter group. If there is a change in control, I should have the right to exit. It is a sort of statutorily granted tag along right to the non-promotor shareholders. It is undeniable that change in control did take place, triggering this right. The issue whether Nirma was defrauded by the target company promoters, and if so what remedies it has against THEM is totally distinct from the one involved here. Therefore, in my humble view, the Court could have avoided the remarks on Nirma walking into the situation with `open eyes’ and still reached the same result. <br /><br />Even otherwise, allowing Nirma to withdraw the open offer or reduce the offer price does not change anything for the target company promoters. Only that the burden of their alleged fraudulent conduct is redistributed by putting some of it on the minority shareholders. With your analogy, it is like allowing the blind man (who was robbed) to rob someone else to recoup part of his losses, while the robber goes away scot free! This of course is an atypical case, arising out of invocation of pledge by a non-bank / FI. In the normal case, the acquirer would be able to void the original acquisition agreement if fraud is discovered, also eliminating the need to make an offer.<br /><br />However, I do agree with you that the erstwhile Regulation 27 is superfluous, for the reasons stated by you.<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-3202774368551476669.post-68072847430779550872013-06-01T00:17:24.133+05:302013-06-01T00:17:24.133+05:30Imagine a blind person walking on a busy road know...Imagine a blind person walking on a busy road known to be a busy one (and therefore risky for the blind man) but one in which traffic rules apply. At a red signal, the traffic is expected to stop. The blind man is forced to comply with certain requirements like using his white stick, which he scrupulously does. Then imagine the blind man getting knifed and robbed. <br /><br />Holding that the brunt of a corporate fraud that belies all known and published information is to be borne by an innocent acquirer who makes an informed decision trusting the information available to him, and which information turns out to be fraudulent and even worse, far more adverse than what it purports to be, is like saying the blind man should have been up and ready for being robbed and knifed and that he deserves no protection because (a) he should have been able to see despite blindness; (b) despite being blind, he walked on a risky busy road full of traffic; and (c) being knifed and robbed is excusable because traffic could have in any case killed him.<br /><br />Every man is liable to suffer business losses on the basis of informed decisions taken by him using the information legitimately available to him. No man should be condemned to being cheated and defrauded with no protection from the law in a mature and civil society.<br /><br />Curtailing SEBI's power to permit withdrawal to only cases of legal impossibility is unbelievably illogical. An action that is legally impossible to perform does not need permission for not being performed. The law prohibits it from being performed in any case!<br /><br />The Supreme Court is always right because it is final. It is not final because it is right.<br /><br />Disclosure: I was involved in the appeal against the SEBI Order rejecting the withdrawal.Somasekhar Sundaresanhttps://www.blogger.com/profile/04744606756966518697noreply@blogger.comtag:blogger.com,1999:blog-3202774368551476669.post-300790780816382362013-05-30T13:11:55.354+05:302013-05-30T13:11:55.354+05:30@Rushab. Thanks for your observations. I would lik...@Rushab. Thanks for your observations. I would like to clarify as follows.<br /><br />First,<br /><br />The statement and the proposal in the post is intended to cover only acquisition of shares per se (your Situation A), and not acquisition through enforcement of a pledge of shares (your Situation B). Although the present case before the Supreme Court involved a pledge, most acquisitions are through a straightforward purchase of shares where the conditional approach may be adopted. In case of a lending and pledge scenario, the risk allocation mechanism is somewhat different as the lender becomes tied into the security at the time of lending itself (and assumes a certain amount of risk on the target) and not at the time of enforcement (by which time it is tied into the deal).<br /><br />Second,<br /><br />Reg. 23(1)(c) only stipulates where the condition (such as a MAC clause) must find its place and not the time when it can be invoked. It must be contained in the agreement that triggered the offer. If all the conditions are met and the acquisition under the agreement is completed before the offer, then it is a fait accompli and no condition can be invoked thereafter. Hence, if MAC risk is to be avoided, the agreement is to be structured such that it must not be completed until the open offer itself is completed so that both are kept conditional whereby the acquirer is not exposed to the interim MAC risk. In other words, acquisitions under both the agreement and open offer must be completed simultaneously which underscores the “all-or-none” principle enunciated in the post. This approach is also expressly recognised under the Takeover Regulations in Reg. 22 where private acquisitions triggering the offer can be completed only after the offer period, although there is an exception if the acquirer places 100% of the open offer consideration in escrow.Umakanth Varottilhttps://www.blogger.com/profile/12438677982004444359noreply@blogger.comtag:blogger.com,1999:blog-3202774368551476669.post-67144535855387133952013-05-30T11:55:35.184+05:302013-05-30T11:55:35.184+05:30Hello Sir,
I have two observations.
First,
The a...Hello Sir,<br /><br />I have two observations.<br /><br />First,<br />The article states- "Hence, it is now possible to include a condition in the acquisition agreement that could provide for a “material adverse change” (MAC) clause. In the event that the MAC clause is attracted, the acquisition agreement need not be completed by the acquirer, and that can be a ground for withdrawal of the offer. This scheme of things is also consistent with the policy arguments discussed above. In such a situation, both the acquisition that triggered the offer as well as the offer itself would fail making it an “all-or-none” deal."<br /><br />The statement, I assume, is limited to cover only those situations where the intention is to Acquire, hence we have the "Acquisition Agreement" ("Situation A"). Whereas in the present case the open offer was triggered because Nirma invoked the pledged shares only to recover their loan amount, and not to Acquire ("Situation B").<br /><br />MAC clauses would be beneficial for cases like Situation A. How good will the MAC clause benefit to cases like Situation B, because anyways they will have to invoke the pledged shares to recover their loan amount. <br /><br />Hence, Reg. 23(1)(c) of the 2011 Regulations, which states "..in the agreement for acquisition.." too would not serve any benefit for cases like Situation B. Thus, even the new regulations do not favor cases where the open offer is triggered for invoking the pledged shares.<br /><br />Second,<br />MAC clauses, even if inserted in Acquisition Agreements, would come to rescue to only those situations where as per Reg. 23(1)(c) of the 2011 Regulations "any condition stipulated in the agreement for acquisition attracting the obligation to make the open offer is not met". Which means, only those conditions which, if not met Before making the open offer, qualifies one to withdraw the mandatory open offer. <br /><br />However, what about cases, like the present case where the condition is not met After the open offer is made? Thus, if all the conditions stipulated in the Acquisition Agreement are met Before the open offer is made there would be no reason to withdraw the open offer if something contrary happens After the open offer is made. <br /><br />Hence another reason why the 2011 Regulations, would not come to any benefit for cases like Nirma.<br /><br /><br /> Rushab Dhandokia<br /> 4th year Law student<br /> Nirma University<br /><br />Rushab Dhandokianoreply@blogger.com