Rajagopal Viswanathan vs Securities And Exchange Board Of India

Dr. C.K.G. Nair, Member

This appeal has been preferred challenging the order of the Whole Time Member (“WTM†for convenience) of the Securities and Exchange

Board of India (“SEBI†for convenience) dated February 28, 2019 whereby SEBI granted exemption from complying with the requirements of

Regulations 3 and 4 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, (“SAST

Regulations†for convenience) in respect of the acquisition of the shares/ voting rights in the target company, Dredging Corporation of India Limited

(“DCILâ€​ for convenience).

The appellant is a small investor holding 13000 shares of DCIL and submits that despite the mandate of protecting minority shareholders’

interest, by arbitrarily granting exemption through the impugned order minority shareholders like him have been penalized by SEBI. Further, it was

contended that the reasons provided in the impugned order for granting such an exemption are untenable as there is nothing called indirect control by

the Government and when the Government divested its stake it has lost control over DCIL because though the Central Government has the power to

appoint the Chairman and Deputy Chairman of the four Port Trusts which acquired those stakes there is also a provision for electing some of the

trustees. Moreover, the four Port Trusts are statutorily autonomous as per the provisions of the Major Port Trusts Act, 1963. Therefore, the

Government holding 73% of the shares of DCIL and the four Major Port Trusts to whom those shares have been transferred holding the same and

thereby controlling the target company DCIL means quite different impact on minority shareholders in terms of assured dividend etc. Therefore, the

exemption granted by SEBI to the four acquirers of the divested Government stake in DCIL was not in public interest and is against the interest of the

minority shareholders.

Shri Shyam Mehta, Learned Senior Counsel representing SEBI took us though the background of the entire issue in re the decision of the Cabinet

Committee on Economic Affairs regarding divesting the Government stake in DCIL; application made by the four acquirers, namely, Visakhapatnam

Port Trust, Paradip Port Trust, Jawaharlal Nehru Port Trust and Deendayal Port Trust because of the positive linkages between the operations of the

target company and the acquirers; the application made by these acquirers to SEBI seeking exemption from the obligation to make an open offer and

SEBI’s considerations in granting the exemption. On the last point, it was further submitted by the learned senior counsel that though the proposal

was not covered under Regulation 10 of the SAST Regulations which are general exemptions the matter is squarely covered under Regulation 11(1)

which provides SEBI the powers to give such exemptions on a case to case basis by explicitly giving reasons for providing such exemptions.

It was further contended by the learned senior counsel that the impugned order in paragraph 5D clearly articulates the reasons for providing the

exemption as recorded therein. Since the four acquirers are public sector undertakings controlled by the Central Government, the target company also

would be indirectly controlled by the Central Government irrespective of whether the Government holds the shares of DCIL or these four entities hold

the same. Therefore, the entire issue was of a larger public interest and as decided by the Government. SEBI clearly having powers to provide

exemptions have used the same power in a reasonable and logical manner to provide the given exemption.

Having heard the parties, we find no reason to intervene in the impugned order. SEBI has issued the order giving exemption to the four public

sector companies who have acquired the shares of DCIL held by the Central Government through a disinvestment process. The reasons recorded by

SEBI in the impugned order in paragraph 5D are legitimate and valid. For convenience paragraph 5D is reproduced below:

“5D. Having regard to the facts of the instant Application, I find that the proposed acquisition will change the nature of control exercised by the

GOI from direct to indirect control as the direct control would be with the 4 Port Trusts governed by the Board of Trustees appointed by the GOI. It

will however, not have the effect of a change in control of the Target Company, from a takeover perspective, since the GOI shall continue to exercise

supervisory control over the Target Company through the Acquirers 1â€"4 as detailed at paragraph 4(iv) of page 4. I also note that the proposed

acquisition is necessitated as part of the strategic disinvestment of the Target Company as approved by the GOI. Further, I note that the preâ€

acquisition and postâ€"acquisition shareholding of the Promoter and Promoter Group in the Target Company will remain the same and there will also

be no change in the public shareholding of the Target Company. I also note that the Target Company shall continue to be in compliance with the

minimum public shareholding requirements under the Securities Contracts Regulation Rules, 1957 (“SCRRâ€) and the SEBI (Listing Obligations

and Disclosure Requirements) Regulations, 2015.â€​

Regulation 11(1), which grants powers to SEBI to give exemptions is reproduced below for convenience:

“Exemptions by the Board.

11.(1)

The Board may for reasons recorded in writing, grant exemption from the obligation to make an open offer for acquiring shares under

these regulations subject to such conditions as the Board deems fit to impose in the interests of investors in securities and the securities

market.â€​

Further the appellant has not given any reason as to how the exemption granted by SEBI has adversely affected the minority shareholders, except

stating that an open offer might have helped him. Given these reasons we find no merit in the appeal.

Appeal is dismissed with no orders on costs.