Tribunal overrules SEBI on finance co

The tribunal absolved the company from the charge of violating the takeover regulations in its order dated July 16. The adjudicating officer appointed by the SEBI had earlier imposed a fine saying that the company had not followed the takeover norms stipulated by the regulator. However, the company contested this decision before the tribunal which passed an order in favour of the company.

Fascinating Leasing, the appellant company, had acquired about 67 per cent in the equity share capital of a public limited company, HindustanFinstock Ltd (HFL). The acquisition of these shares was enquired into by the adjudicating officer of the SEBI who came to the conclusion that Fascinating Leasing had violated regulation 10 of the SEBI (substantial acquisition of shares and takeovers) regulations, 1994 and section 15 H of the SEBI Act and imposed a sum of Rs 5 lakh as penalty against the company.

The main issue in this case was whether the share acquisition in a company will attract takeover guidelines before it lists its shares on a stock exchange. While the SEBI officer contended that once a company issues shares, an open market is automatically created, the tribunal refused to accept this argument. In the normal procedure, if somebody acquires over 10 per cent of the equity capital in a company, the acquirer will have to make an offer offer to buy 20 per cent of the shares from the public. The finance firm violated this regulation, SEBI said. However, the tribunal said this SEBI regulation is valid only after listing ofshares.

According to the tribunal, when the appellant purchased the shares of Hindustan Finstock, these shares were not listed on any stock exchange “and that the purchase was not from open market cannot be ignored in the light of the undisputed fact of the case.” The shares were listed for the first time on June 14, 1995 on the Ahmedabad Stock Exchange and thereafter on June 15, 1995 on the Bombay Stock Exchange. “These facts clearly indicate that on the date of acquisition of shares by the appellants, the shares were not listed on any stock exchange,” it said.

“As it is seen, the shares were acquired by the appellants on the basis of MoUs entered into between the parties based on negotiations and further that the shares were delivered to the appellants before listing, it cannot be said that appellants had purchased shares from the open market,” the tribunal said.

“The contention of the SEBI that the shares of public limited companies, by the very nature are marketable and since they aremarketable, the moment the shares are issued an open market automatically springs up and listed on the stock exchange is not necessary to attract regulation 10, is not legally tenable,” the tribunal said while overruling the SEBI officer’s order. The tribunal, with C Achuthan as the presiding officer, held that Fascinating Leasing has not violated the SEBI regulations.