Continuing Failure To Give Public Announcement Of Open Offer As Required Under Takeover Regulations, Attracts Penalty In Hands Of Reliance Industries Aka Ambani Brothers

SEBI imposes penalty of Rs. 25 Crore to be paid jointly and severally by Reliance Industries, its partners and others related functionary u/s 15H of SEBI Act, 1992 for violation of Regulation 11(1) of Takeover Regulations.

The Board noted that no quantifiable figures or data are available on record to assess the disproportionate gain or unfair advantage and amount of loss caused to an investor or group of investors as a result of the default committed by the Noticee. However, the fact remains that the Noticees by their failure to make public announcement, deprived the shareholders of their statutory rights/ opportunity to exit from the company.

It is admitted fact that there has been no compliance with Regulation 3(1)(c) of the Takeover Regulations. Owing to the non-compliance, the Noticees cannot claim that their acquisition was exempted under the said provision from making open offers.

Further, the Noticees have not made the pre-acquisition filing under Regulation 3(3) of Takeover Regulations and post-acquisition filing under Regulation 3(4) of Takeover Regulations. Moreover, the said filings have not been made till date.

The Board noted that compliance with Regulations 3(1)(c), 3(3) and 3(4) of Takeover Regulations are necessary to avail of exemption from open offer obligation under provisions of Regulation 11(1) of the Takeover Regulations. In the absence of exemption, the acquisition was illegal for failure to make a public announcement of the open offer.

It is settled law that an acquisition in violation of Regulation 11 is ipso facto null and void, that it is an absolute bar in law unless the requirement to give a public announcement of an open offer is made. The acquisition of shares which gives rise to voting rights thereon is a continuous contravention of the bar in law contained in Regulation 11 as the Acquirers and Persons acting in Control are not ‘entitled’ in law to lawfully exercise the voting rights based on such a null and void acquisition.

The SEBI Act, 1992 is social welfare legislation for the protection of investors and it is the paramount duty to interpret its provisions and to adopt such an interpretation that would further the purposes of law and if possible, eschew the one which frustrates it. Hence, it is necessary to uphold the obligation to give a public announcement of open offer to investors at large which obligation has not been complied with till date.

Acceptance of any argument for not making a public announcement of an open offer would tantamount to total disregard to the concerns of the public share-holders as the violation is not one of mere procedural nature but goes against the very grain of the statute under consideration.

Thus, the Noticees by not making a public announcement has violated and has been continuing to violate the provisions of Regulation 11(1) of the Takeover Regulations.

The Board clarified that u/s 15H of the SEBI Act, 1992, is the failure to make a public announcement which is punishable, which has never been complied with till date in the present case. The statutory minimum penalty introduced in 2014 has retrospective effect in view of the law laid down in the matters Maya Rani Punj v Commissioner of Income Tax, [AIR 1986 SC 293]

Case Title: SEBI Adjudication Order No. Order/KS/AE/2021-22/11266-11299