Judges: Ruma Pal, Dr. Arijit Pasayat and C.K. Thakker, JJ.

Facts:

This case involves five parties which are:

1. The appellant, Technip, a company incorporate in France 
2. Coflexip, a company incorporate in France
3. IFP and its subsidiary ISIS, a company incorporated in France. IFP through its subsidiary was a shareholder in Technip and Coflexip.
4. SEAMEC, a company incorporated and registered in India and a subsidiary of Coflexip which controls the majority shareholding of the company through a chain of wholly-owned subsidiaries
5. Shareholders of SEAMEC

Technip had taken over Coflexip and so, acquired control of SEAMEC through Coflexip. As per the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ('SEBI Regulations') consequent of change of control of SEAMEC, Technip is bound to offer purchase of the shares of the minority shareholders in SEAMEC. As the same has not been done, some shareholders of SEAMEC have filed a complaint against Technip before the Securities and Exchange Board of India (SEBI) under the SEBI Act, 1992. SEBI held that French law applied to the takeover of Coflexip and to determine as when such takeover was effected. By applying the French Law, SEBI found that the Technip had obtained control of Coflexip in July 2001. It had violated Regulations 10 and 12 of the Regulations thereby acquiring 58.24% of the shares/voting rights and control in SEAMEC in July 2001 without making any public offer. Thus, Technip was directed by SEBI to make a public announcement as required under the Regulations within 45 days of its order taking 3rd July, 2001 as the specified date for calculation of the offered price. Technip was also directed to pay interest at the rate of 15% per annum to the willing minority shareholders of SEAMEC, for the delayed public announcement.

The Shareholder preferred an appeal before Securities Appellate Tribunal (SAT) to challenge the date to takeover decided by SEBI. SAT held that Indian law was applicable to the transition, and the relevant date of takeover was 12th April, 2000 not July, 2001. SAT, therefore, directed Technip to pay SEAMEC shareholders the difference between the price of the shares between July 2001 and April 2000 together with a 15% rate of interest on such difference. The appellant has, thus, approached the Present Court. A separate appeal has also been preferred by IFP to challenge the decision of SAT.

Issues:

(i) Whether Technip acquired control of SEAMEC through Coflexip in April, 2000, or in July, 2001?

(ii) Whether the finding of facts by the Tribunal can be interfered by this Court and so whether the present appeal is maintainable?

(iii) Whether the transaction in question is to be judged according to French Law or Indian Law?

Law:

SEBI Act, 1992 - Section 15Z - Allows any person aggrieved by the decision or the order of the Securities Appellate Tribunal to file an appeal to the Supreme Court on any question of law arising out of such order.

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 - Regulation 10 - No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights if any, held by him or by persons acting in concert with him), entitle such acquirer or exercise fifteen percent or more of the voting right in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the Regulations.

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 - Regulation 11 - (1) No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, not less than 15% not more than 75% of the shares or voting rights in a company, shall acquire either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 2% of the voting rights, in any period of 12 months, unless such acquirer makes a public announcement to acquire shares in accordance with the Regulations.

(2) No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise more than 51% of the voting rights in a company, unless such acquirer makes a public announcement to acquire share of such company in accordance with the Regulations.

Explanation: For the purposes of Regulation 10 and Regulation 11, acquisition shall mean and include; (b) direct acquisition in a listed company to which the Regulations apply; (c) indirect acquisition by virtue of acquisition of holding companies, whether listed or unlisted, whether in India or abroad.

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 - Regulation 12 -Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company, unless such person makes a public announcement to acquire shares and acquires such shares in accordance with the Regulations.

'Explanation: Where any person or persons has given joint control, such control shall not be deemed to be a change in control so long as the control given is equal as the control given is equal to or less than the control exercises by person(s) presently having control over the company."

Contentions

Appellant: Technip

(i) Since Technip and Coflexip are both registered in France and the takeover of Coflexip by Technip also took place in France, the applicable law is French.

(ii) In terms of French Law, there was no control of Coflexip by Technip in April, 2000 and as such there was no change in control of SEAMEC on that date but in July 2001.

(iii) In any event Regulation 12 of the Regulations did not apply to the takeover because SEAMEC was not the target company and that while taking over Coflexip, Technip neither had the common objective nor was there any agreement between Technip and Coflexip with regard to SEAMEC.

(iv) Although there was no challenge to the rate which was fixed by SEBI, if the Tribunal's order is upheld, then the impact of interest would be much greater. In any event, the dividend paid must be adjusted against the interest claimed.

(v) If April 2000 is to be taken as the date of control, then only those shareholders who were shareholders of SEAMEC on the specified date and continued as such till the offer was made are entitled to the benefit of the Tribunal's order.

IFP

(i) It is a professional body created by decree of the French Government and has been set up as a center for research and industrial development, education, professional training and information for the oil and gas and automotive industries in France. IFP does not carry on any industry or commercial activities nor does it manage or control any listed company. It promotes companies to apply the results of its own research. An unnecessary stigma has been cast by the decision of SAT on it even though the show cause notice issued by SEBI did not make any allegation against IFP.

Respondents

(i) Law applicable to SEAMEC was Indian Law and to determine if there was a change in the management and control of SEAMEC the provisions of the Regulations would apply.

(ii) In terms of Regulations 10, 11 and 12 read with Regulation 2, any person, who acquires shares or voting rights in a registered company which is above 15% of total capital or acquires control over the target company is required to make a public announcement offering to purchase the shares of the other shareholders in the target company.

(iii) According to Indian and French Law de facto control of Coflexip and therefore SEAMEC was taken over by Technip in April, 2000. Technip had in fact applied to SEBI to exempt them from the operation of the Regulations. The application had been rejected. This issue according to the respondent could not, therefore be reopened. It is said that SEAMEC was very much in the contemplation of Technip when it decided to take over Coflexip. Therefore Regulations 10, 11 and 12 of Regulations applied in full measure.

(iv) Technip had not only acted in concert with ISIS, another shareholder of Coflexip, but even by itself was in a position to exercise and in fact exercised control over Coflexip and therefore, on SEAMEC in April 2000.

(v) Public offer made by Technip after SEBI's order was unconditional. It was made to the shareholders who were shareholders as on the date of the public offer.

(vi) It was not open to Technip to question either its liability to pay interest or the rate of interest. Technip had already paid interest to the present shareholders without protest.

(vii) Finding of fact by the Tribunal should not be interfered with unless this Court came to the conclusion under Section 15Z of the Act that it was perverse.

Analysis

Maintainability of Appeal - question of facts and law

(i) Admittedly both Coflexip and Technip were incorporated according to and under the laws of France. They are therefore 'domiciled' in France. Normally, such issue internal affairs were resolved by applying the law of company's domiciled, which in this case is French Law. But it is equally true that SEAMEC which was incorporated in India would be governed by Indian law and the issue in present case related to the Law governing the company which is the question that law and not fact.

(ii) Further, the question "whether Technip acquired control over Coflexip on 12.4.2000" needs to be tested in the light of 2(c) of SEBI Act, which is again question of law. Thus, the issue in present case is of question law and not of facts and so, the present appeal is maintainable.

Applicability of Law - French Law or Indian Law

(i) Sections 355-1 and 356-1 of the French Companies Act, 1966 are the relevant laws so far as takeover of the companies are concerned. The difference between the French law and their regulations relates to the prescribed limits of share holding for control by one company over another. This cannot conceivably make the French law violative of any public policy underlying the Acts and Regulations so as to persuade us to disregard the French Law. Thus, French law must be applied to decide when Technip took control of Coflexip.

Acquisition of SEAMEC by Technip

(i) One aspect that has been lost sight of by SAT is that irrespective of the status of Coflexip and Technip to each other, in order to trigger Regulations 10 to 12 of Regulations, it would have to be established that the purchase of the 29.68% shares by Technip in Coflexip was with the object of taking control of SEAMEC.

(ii) According to the Bhagwati Committee Report to be acting in concert with an acquirer, persons must fulfill certain 'bright line' tests. They must have commonality of objectives and a community of interest and their act of acquiring the shares or voting rights in company must serve this common objective. The commonality of objective which should be established between the acquirer and a shareholder in order to trigger off Regulations 10, 11 and 12 with respect to a subsidiary company is referred to as the "chain principle" in the Report which enunciates that an offer should be made to the shareholders of such a target company if (a) the shareholding in the second company constitutes a substantial part of the assets of the first company; or (b) one of the main purposes of acquiring control of the first company was to secure control of the second company. A similar position obtains in Note 7 to Rule 9.1 of the City Code on Takeovers and Mergers in England

(iii) The "second company" both under the 'chain principle' referred to in the Bhagwati Committee Report as well as in the City Code on Takeovers and Mergers is the target company and the first company is the medium or vessel or vehicle for attaining control on the target company. In the present case Coflexip would be the 'first company' and SEAMEC the actual target and the liability to make an exit offer to the shareholders of SEAMEC would arise only if either one of the two conditions prescribed is fulfilled, it would therefore have to be proved by the shareholders of SEAMEC that Coflexip was taken over (if at all) in April 2000 by Technip with the assistance of ISIS so that control of SEAMEC could be obtained or that Coflexip's shareholding of SEAMEC constituted a substantial part of Coflexip's assets.

(iv) The standard of proof required to establish such concert is one of the probability and may be established if having regard to their relation etc., their conduct, and their common interest, that it may be inferred that they must be acting together: evidence of actual concerted acting is normally difficult to obtain, and is not insisted upon

(v) As per the facts, Technip agreed to acquire 29.68% shares in Coflexip on 11.4.2000 and complied with the requirements of Art 356-1. On 11th October, 2001 Technip acquired control of 99.04% of the share capital of ISIS and 98.36% of the share capital of Coflexip. Coflexip's shares were registered in the name of Technip on 19th October, 2001. In view of above facts, there was no evidence that Technip obtained de facto control of Coflexip in April 2000. The evidence would rather suggest that it was nothing more than a strategic alliance. Further, there is no evidence that Technip acquired Coflexip if it at all did so in April 2000, so as to gain control of SEAMEC. SEBI said that on the material before it, it was difficult to hold that IFP along with ISIS was acting in concert with Technip for the purpose of acquiring shares/voting rights/control of Coflexip so as to indirectly acquire control over SEAMEC in April 2000.

Conclusion:

(i) SEBI's order must prevail and the order of SAT must be set aside. The other issues as to the rate of interest, the adjustment of dividend and the identification of the shareholders of SEAMEC would arise only if SAT's order had been upheld. As we are allowing the appeals of both Technip and IFP it is unnecessary to determine them.