Restraining the withdrawal of open offers

May 09 2014, 04:12 IST
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SummaryIn a landmark judgment that will have a major impact on India Inc, the Supreme Court has held that companies can no longer withdraw

In a landmark judgment that will have a major impact on India Inc, the Supreme Court has held that companies can no longer withdraw open offers that have become commercially unviable. Even any delay by market regulator Sebi in clearing an open offer cannot be a ground to back out, as such a delay cannot be equated to the refusal of approvals required from other independent bodies such as RBI and other regulatory statutes including foreign exchange regulations.

In a recent ruling Akshya Infrastructure vs Sebi, the apex court held that an open offer voluntarily made through a public announcement for purchase of shares of the target company cannot be permitted to be withdrawn at a time when the voluntary open offer has become uneconomical to be performed. Moreover, Regulation 27 of the Sebi Takeover Code makes it clear that there can be no distinction between a triggered public offer and a voluntary public offer. The two have to be considered on an equal footing, the apex court clarified in its judgment that will cheer investors who are stuck in similar litigations with companies such as Golden Tobacco, AP Paper, Goldstone Infratech, DISA India.

Experts feel that a public offer under the takeover code, once triggered voluntarily or otherwise, is the rule and its withdrawal an exception.

In this case, promoter entity Akshya Infra had made an open offer in October 2011 to the Chennai-based Marg shareholders so as to give them an opportunity to exit at the offer price of R91 per equity share. The open offer was made to acquire 20% stake (76.5 lakh shares) in Marg to consolidate the company's holdings.

Akshya filed the ‘draft letter of offer’ with Sebi, along with relevant documents. The regulator detected violations of the takeover code that prevents acquisition of shares in excess of 5% a year. This had triggered the mandatory open offer.

However, due to the long lapse of time in securing Sebi’s approval for the open offer, the company had sought to withdraw the offer but that was not granted.

Sebi found that that permitting Akshya Infra to withdraw the public offer would be detrimental to the overall interest of the shareholders. Akshya challenged it before the SAT, which permitted Akshya Infra to withdraw open offer for acquiring stake in Marg in view of Sebi’s ‘silence for months’ in approving the draft letter of the offer.

The judgment is in line with apex court’s last

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