Sufficiency of opportunity to submit explanation, when regulation does not provide for opportunity of oral hearing

 Natural justice - Oral hearing - Sufficiency of opportunity to submit explanation, when regulation does not
provide for opportunity of oral hearing - Need to show prejudice - Rejection of request for withdrawal from public offer -
Held, not being given opportunity of oral hearing cannot always be equated to a situation where no opportunity is given to
a party to submit explanation at all - Consequences of denial of permission to submit explanation is not comparable to
consequences arising out of denial of oral hearing - Regn. 27 having not provided for giving oral hearing to party seeking
to withdraw from public offer, appellants were not given oral hearing - On their part, neither appellants nor their merchant
bankers sought opportunity of personal hearing - Appellants were asked to submit explanation, and they have submitted
a detailed explanation - Each and every circumstance mentioned by appellants in their submission was considered by
SEBI - Therefore held, appellants were not prejudiced by non-grant of opportunity of personal hearing,



Nirma Industries Ltd. v. SEBI, (2013) 8 SCC 20
Securities, Markets and Exchanges
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
Regns. 3(1) & 4, 10, 24 and 27(1)(d) - Withdrawal of public offer - When permissible - Impossibility of performance by
acquirer/offeror - What is - Withdrawal of offer in view of phrase such circumstances as in the opinion of SEBI merit
withdrawal in Regn. 27(d) - Scope of - Withdrawal of public offer to acquire equity shares of target company on ground
of subsequent fall in market price of shares and that acquirer (appellant) would incur loss if purchase was made - SEBI
not permitting withdrawal, holding that appellant acquirer ought to have conducted due diligence prior to making public
offer - Sustainability - Order of SEBI, whether bad for not granting opportunity of oral hearing, before rejecting request for
withdrawal of public offer - Appellant's request for withdrawal of public offer to acquire up to 20% of shares of company
S (target company) at Rs 18.60 per share, contending that it had discovered certain facts subsequent to making of public
announcement and share price of target company had fallen due to fraud perpetrated by promoters of said Company -
SEBI rejected said request holding that acquirer ought to have exercised due diligence before invocation of pledge - On
appeal, Securities Appellate Tribunal (SAT) confirmed order of SEBI - Held, withdrawal of public offer is permitted only in
circumstances which are impossible to be performed as enumerated under Regns. 27(1)(b), (c) & (d) of 1997 Takeover
Code - Term such circumstances in Regn. 27(1)(d), thus, is restricted to situations which would make it impossible for
acquirer to perform public offer - Hence, discretion of SEBI to permit withdrawal of public offer, held, is limited to
circumstances which are impossible for acquirer to perform said public offer - In present case, appellants had made a
business decision in deliberately purchasing 15% of shares of target company and proposed open offer to acquire up to
20% of shares at Rs 18.60 per share - Said price was arrived at as per Regn. 20(4), which is applicable to frequently
traded shares - Hence, held, rejection of request for withdrawal from public offer or exemption under Regn. 27(1)(d)
cannot be said to be an order causing adverse civil consequences - Fall in market price of target company far below the
offer price or possibility that acquirer would end up making losses if public offer is proceeded with would not bring the
situation within realm of impossibility to attract Regn. 27(1)(d) - Further, question of fraud does not arise since appellants
were fully aware of financial health and prospects of target company much prior to issuing of public offer - Appellants
acquired shares on the basis of informed business decision - Hence, they cannot be permitted to take advantage of their
own laxity to justify withdrawal of public offer, (2013) 8 SCC 20-
Regn. 27 - Natural justice - Oral hearing - Sufficiency of opportunity to submit explanation, when regulation does not
provide for opportunity of oral hearing - Need to show prejudice - Rejection of request for withdrawal from public offer -
Held, not being given opportunity of oral hearing cannot always be equated to a situation where no opportunity is given to
a party to submit explanation at all - Consequences of denial of permission to submit explanation is not comparable to
consequences arising out of denial of oral hearing - Regn. 27 having not provided for giving oral hearing to party seeking
to withdraw from public offer, appellants were not given oral hearing - On their part, neither appellants nor their merchant
bankers sought opportunity of personal hearing - Appellants were asked to submit explanation, and they have submitted
a detailed explanation - Each and every circumstance mentioned by appellants in their submission was considered by
SEBI - Therefore held, appellants were not prejudiced by non-grant of opportunity of personal hearing, (2013) 8 SCC 20-
B
Administrative Law
Natural Justice
Generally - Meaning, Nature, Scope and Applicability - Right to hearing - Entitlement to - Causing of civil consequences,
whether entails opportunity of hearing suo motu to affected party - Formal request for hearing - When necessary -
Burden of proof of showing prejudice - Reiterated, burden to prove prejudice caused by non-grant of opportunity of
hearing lies on person challenging order concerned on the ground that it is causing civil consequences, (2013) 8 SCC
20-C
Securities, Markets and Exchanges
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
Regns. 3(1) & 4, 10 and 24(2) - Public announcement making open offer to acquire equity shares from shareholders -
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The Practical Lawyer
Due diligence to be made by acquirer - Mandatoriness of - Held, enquiries and due diligence are mandatory prior to
public announcement and merchant banker of acquirer must furnish SEBI due diligence certificate accompanying draft
letter of offer, (2013) 8 SCC 20-D
Securities, Markets and Exchanges
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
Generally - Held, 1997 Takeover Code is a self-contained code for issuing open offers by acquirers - It is meant to
ensure transparent, fair and equal treatment of all shareholders in relation to substantial acquisition of shares and
takeovers and to protect interest of small investors by giving an option to exit at a price determined as per Takeover
Code, (2013) 8 SCC 20-E
Securities, Markets and Exchanges
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
Regn. 27(1) - Exceptions in which withdrawal of public offer is permitted - Construction of - Permitting withdrawal of
public offer would deprive ordinary shareholders of their valuable right of exit option - Hence, held, abovesaid exceptions
are to be construed very strictly - They cannot be construed in such a manner that would destroy the general rule,
(2013) 8 SCC 20-F
Securities, Markets and Exchanges
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
Regn. 20 - Valuation of share price - Determination of lowest price - Held, once public offer for acquiring of shares is
made, offer price is frozen - Hence, determination of lowest price must be done prior to making of public announcement
but not thereafter - Contention of appellants for determination of lowest price by independent valuer after public offer had
been made, thus, rejected, (2013) 8 SCC 20-G
Securities, Markets and Exchanges
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
Regn. 3(1)(f)(iv) vis--vis 27(1) - Acquisition of shares by banks and public financial institutions and others - Distinction
between, explained, (2013) 8 SCC 20-H
Securities, Markets and Exchanges
Securities and Exchange Board of India Act, 1992
S. 15-Z - Appeal to Supreme Court - New plea not going to root of matter, held, cannot be entertained, (2013) 8 SCC
20-I
Securities, Markets and Exchanges
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
Regns. 18 and 27 - Scheme of Regn. 18, explained - On facts held, there was no delay attributable to SEBI in
approving the draft letter of offer, (2013) 8 SCC 20-J

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