25 August 2004
Supreme Court
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SWEDISH MATCH AB Vs SECURITIES & EXCHANGE BOARD,INDIA

Bench: N. SANTOSH HEGDE,S.B. SINHA,A.K. MATHUR
Case number: C.A. No.-002361-002361 / 2003
Diary number: 5857 / 2003
Advocates: Vs BHARGAVA V. DESAI


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CASE NO.: Appeal (civil)  2361 of 2003

PETITIONER: Swedish Match AB & Anr.                                  

RESPONDENT: Securities & Exchange Board, India & Anr.                        

DATE OF JUDGMENT: 25/08/2004

BENCH: N. Santosh Hegde,S.B. Sinha & A.K. Mathur

JUDGMENT: J U D G M E N T

S.B. SINHA, J:

BACKGROUND FACTS:

       Wimco Limited (Wimco) is a target company.  Its shares are listed on  the stock exchanges at Mumbai, Delhi, Calcutta, Kanpur as also on the  National Stock Exchange.   It is engaged in the business of manufacture  and  sale of a broad range of safety matches.   

       The Appellant No. 1 herein (Swedish Match) is incorporated in  Sweden.  It is a holding company of the Appellant No. 2 (S.M.S)  holding its  entire paid up capital.  It is also a holding company of Haravon Investments  Private Limited (Haravon) and Seed Trading Private Limited (Seed).  These  four companies hereinafter would be called and referred to as the Swedish  Match Group.  It had acquired in the target company 52.11% shares, i.e.,  46.18% by Haravon and 5.93% by Seed.  AVP Trading Private Limited  (AVP) and Plash Floods P. Ltd. (Plash) were Indian promoters of the target  company.  They belong to one Jatia Group of companies holding 24.11% of  the share capital of the target company, i.e., AVP holding 6.03% and Plash  holding 18.08%.

       The Swedish Match entered into an agreement with the Jatia Group to  acquire majority shoreholding in Haravon and Seed and to make a public  announcement of offer to acquire 20% shares in Wimco.  The obligation to  make a public announcement of offer arose  in view of indirect acquisition  of more than 10% shares in Wimco (in view of the law as prevailing thence)  attracting the provisions of Regulation 10 of the SEBI (Substantial  Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter called  and referred to for the sake of brevity as "the Regulations").

       On or about 17th December, 1997, the public announcement of offer  was made by S.M.S. together with the Jatia Group of Companies, viz., Plash  and AVP as "acquirers" and "persons acting in concert".  In the letter of  offer, it was specified that both Swedish Match Group and Jatia Group  intend to exercise joint control over the affairs of Wimco.  For the purpose  of the public announcement of offer, ’Haravon’ and ’Seed’ being  subsidiaries of Swedish Match Singapore were deemed to be "persons acting  in concert" in terms of Regulation 2(e)(2)(i) of the ’Regulations’.

       Upon completion of the process of public offer, the share holding in  Wimco was as under : Haravon 28.28%, Seed 10.33%, AVP 5% and Plash  15%.  The aggregate of total share holding of both the groups, thus, came to  58.61%.   

       It is not in dispute that subsequent to April, 1998 the said Groups were  exercising joint control over the affairs of Wimco.  By a Special Resolution

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adopted in this behalf, the target company allotted shares on a preferential  allotment basis to ’Haravon’, ’AVP’ and ’Plash’ purported to be in terms of  Section 81(1)(A) of the Companies Act, 1956 whereupon the share holding  in Wimco came to  as under: Haravon \026 46.18%, AVP \026 6.03%, Plash \026 18.08%.   

       As no preferential shares were allotted to Seed, its shareholding was  diluted to 5.93%.  

Swedish Match Group, thus, held 52.11% and Jatia Group held  24.11% of the total shares in Wimco.  The aggregate shareholding of both  the Groups came to 76.22%.  The Government of India by an order dated 5th  July, 1999 permitted increase in foreign equity participation in the target  company from 38.61% to 52.11%.   

S.M.S. thereafter acquired from Jatia Group (as the latter was desirous  of exiting from the joint control over Wimco) the following extent of share:   AVP \026 5.47%, Plash \026 16.42%, at a price well above the market price.

       Pursuant to or in furtherance of the letter of the Government of India  dated 19th May, 2000 increasing foreign collaboration to the extent of  74.00438%; the Swedish Match Group  acquired 74% shareholding and Jatia  Group was left with 2.22% in Wimco.

       It is also not in dispute that although the market value of each  acquired share of the target company was only Rs. 9.55; the consideration  paid to Jatia Group by the Swedish Match Group was Rs. 35/- per equity  share.  Pursuant to or in furtherance of the said arrangement, the Directors  belonging to Jatia Group resigned as a result whereof, their joint control with  Swedish Match Group ceased leading to sole control of the latter.   Allegedly, the cessation of joint control was approved in a general meeting  of the shareholders of Wimco held on 27th September, 2000.  S.M.S.  thereupon by a letter dated 27th September, 2000 in terms of Regulation 7 of  the Regulations disclosed to WIMCO its holding of more than 5% of the  equity share capital.  The said transaction was also brought to the notice of  the SEBI (the Board) by a letter dated 28th September, 2000.  It also agreed  to adhere to the ’lock-in’ restrictions applicable to the locked in shares  forming part of 21.89% shares purchased from AVP and Plash (Jatia Group  of Companies).  Upon receipt of the said information, SEBI by a letter dated  17th October, 2000 made a query as to whether the said transaction took  place in accordance with Regulation 20 (pricing guidelines), Regulation 7  (mandatory disclosures) and Regulation 12 (change in control) of the  Regulations, in response whereto, Swedish Match by a letter dated 1st  November, 2000 submitted its replies thereto.  An additional query by SEBI  was made as regard calculation of market price and compliance of the  provisions of the Regulations by a letter dated 30th November, 2000; to  which  a reply was given on 8th January, 2001.

PROCEEDINGS BEFORE SEBI :         A show-cause notice was served upon the Appellants by SEBI asking  them to show cause as to why  no public announcement of offer had  been  made in terms of Regulations 10 and 11(1) of the Regulations stating:

"4. As you have acquired the shares of WL in the  manner as stated above without making a public  announcement as required by the provisions of the  captioned regulations, you have, prima-facie,  violated the provisions of Regulation 10  individually and Regulation 11(1) collectively of  the captioned Regulations and, therefore, you are  liable for penal action under the Regulations and  SEBI Act, 1992.

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5. In view of the above, you are called upon to  show cause as to why one or more or all action (s)  under Regulation 44 and Regulation 45(6) of the  Regulations and Section 11B of the SEBI Act  1992, should not be initiated against you for  violation specified above."

       The Appellants herein filed a show cause before the Board.

ORDER OF SEBI :   The Chairman, SEBI upon hearing the Appellants by an order dated  4th June, 2002  observed that Regulation 12 has no application.                  It was, however, held:

"In view of the above, the submission of the  Acquirers that Regulation 11(1) should exclude a  transaction involving a transfer of shares as part of  cessation of participation in joint control,  particularly where such persons in joint control  acquired shares as persons acting in concert is not  tenable.

Therefore, if an Acquirer triggers either of the  Regulations, i.e., Regulations 10, 11 or 12, he has  to make a public announcement unless the  acquisition is specifically exempt in terms of the  Regulations.  Therefore, each of the Regulations  10, 11 & 12 has to be complied with independently  by the Acquirers.  The acquisition falling under  proviso to Regulation 12 is not automatically  exempt from the applicability of Regulations 10 &  11."

       Consequent upon the said findings, the following directions were  issued :

"In view of the above the exercise of the powers  conferred upon me under sub-section (3) of  Section 4 read with Section 11B SEBI Act 1992  (hereinafter referred to as the Act) read with  Regulation 44 & 45 of the Regulations, I hereby  direct the Acquirers to make public announcement  in terms of Chapter III of the Regulations in terms  of sub-Regulation (1) of Regulation 11 taking  27/9/2000 as the reference date for calculation of  offer price within 45 days of passing of this order."

THE TRIBUNAL :         Aggrieved by and dissatisfied with the said order, an appeal was filed  by the Appellants herein before the Securities Appellate Tribunal (Tribunal).   The Tribunal took notice of the Appellant’s letter dated 28.9.2000  contending  "We wish to inform you that we have through our wholly owned  subsidiary Swedish Match Singapore Pte. Ltd. and pursuant to the requisite  approvals acquired an additional 11382800 equity shares from the  aforesaid Indian companies such that we are not in sole control of WIMCO  Ltd."  and held:

"Sequence has been mentioned correctly thus that  they acquired additional shares and thereby  acquired sole control of WIMCO Ltd.  As the

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control is relatable to the shareholding in the  instant case and to nothing else and cessation of  control was due to divesting of the said ownership  of shares in the absence of any other evidence to  the contrary it can be safely concluded that the  Acquirers acquired shares from the Jatia Group  and consequently Jatia Group ceased to be in joint  control of the target company.  Assuming that if  the Jatia Group had been in joint control due to  some other factors, then section 11 would not have  attracted.  In the instant case, it is a clear case of  acquisition of shares and cessation of control  consequential to divestment of shares held by the  person in control."                                         (Emphasis supplied)         Holding that the provisions of Regulations 11(1) and 12 are not in  conflict with each other in any manner and further holding that the  Regulation is a beneficial legislation,  the Tribunal  held:

"The legislative intent behind the Regulations is  clear.  The objective is to protect the interests in  securities.  It is with the said objective that  regulations 10, 11 and 12 have been framed  providing an opportunity to the existing  shareholders of a company under acquisition and  that exit opportunity cannot be denied by resorting  to a narrow and technical interpretation of the  regulations.  As already stated in this order  regulations 10, 11 and 12 are put in position to  meet different situations.  Which one of these  regulations is attracted to an acquisition, would  depend on the specific facts.  In my opinion in the  light of the facts, as the Respondent has held, the  acquisition in question attracts the provisions of  regulation 11(1)."          This appeal has been filed by the Appellants herein before this Court  in terms of Section 15-Z of the Securities and Exchange Board of India Act,  1992 (for short "the Act")

SUBMISSIONS :

       Mr. F.S. Nariman, learned senior counsel appearing on behalf of the  Appellants would contend that although each one of the Regulation 10, 11  and 12 of the Regulations require making of public announcement, but the  same are mutually exclusive and independent of one another as they address  different types of acquisitions (as found by SEBI) and should necessarily,  thus, be limited to the context of the situation with which it deals and should  not be projected into the other.   

       The learned counsel would point out that Regulation 10 applies to  initial acquisition of shares or voting rights by an acquirer whereas  Regulation 11 having been captioned as "Consolidation of Holdings" deals  with consolidation of existing shareholder (s) by way of acquisition of  additional shares, i.e., such acquisition must be by way of combined  shareholding of acquirer and persons who previously acted in concert with  him resulting in increase of more than 5% and in case of Regulation 11(1),  by acquisition of any additional shares.   

       Regulation 11, Mr. Nariman would submit, does not cover purchase  of shares by the acquirer from the persons who have previously acquired  shares in concert with him as in such a case there is no acquisition of  additional shares as the aggregate shareholding of the parties does not  increase at all and far less by 5%.  Elaborating his submission, Mr. Nariman  would argue that as both Swedish Match Group and Jatia Group had 76.22%

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which was reduced to 74%, there had been no acquisition of additional  shares and in that view of the matter the purported admission by the  Appellants in its letter dated 28.9.2000 should be ignored.  Proviso appended  to Regulation 12, according to Mr. Nariman, is squarely attracted in the  instant case, in view of the fact that the shareholders in a general meeting  had approved the change in control in favour of the Swedish Match Group  from the joint control of Swedish Match Group and Jatia Group and in that  view of the matter, no public announcement therefor was required.  In the  alternative it was submitted that Regulation 11 does not envisage inter se  transfer between one group to the another.  The Scheme of the statute is  such, it was urged, that the requirement of public announcement is not  attracted in all cases which would be evident from Regulation 3 of the  Regulations and in that view of the matter it cannot be said that the proviso  appended to Regulation 12 will have no application in the instant case.  In  this connection our attention has also been drawn to the subsequent  amendments made to the regulations.  The learned counsel would argue that  also in a situation like death or bankruptcy of a person in joint control may  lead to sole control of the target company in which event also the rigours of  Regulation 12 will have no application.  Pointing out the difference between  Regulations 11 and 12, it was urged that whereas in terms of Proviso to  Regulation 12 the change in control is exempted from the applicability  thereof (which otherwise requires the making of a public announcement) by  a resolution passed by the shareholders in the General Meeting, but the  necessity of making a public offer under Regulation 11 cannot be condoned  by the shareholders because a right to have the shares offered under the  public offer is conferred upon the remaining shareholders as even a majority  of them cannot barter away the right of a minority.  The position, however,  would be different in a case where change in control of the target company  is approved by the majority of the shareholders in a general meeting, as  therein the question as regard protection of the interest of the shareholders  would fall for cosnideration.

       Regulations 10, 11 and 12 having been intended for the benefit of the  shareholders of the target company, the learned counsel would argue, only a  letter of offer is required to be sent to all the shareholders of the target  company in terms of Regulation 22(3) for the purpose of allowing and  enabling the existing shareholders to avail of the opportunity to offer their  shares for purchase to the acquirers at a price specified in the public  announcement and the letter of offer.  Requirement of change from joint  control to sole control would be fulfilled if all the existing shareholders  approved the change from joint control to sole control, urged Mr. Nariman,  as by reason of such a resolution, the transfer from joint control to the sole  control would be offered which would amount to an election not to exit from  the company and to remain therein under the management of the sole  controller.

       It was urged that Explanations (i) and (ii) are explanations to the  proviso appended to Regulation 12 and not to the main part thereof, which  had been inserted only for the purpose of clarifying the phrase "change in  control" occurring therein.

       The learned senior counsel would submit that where there is a mere  cessor of control by one out of two persons already in control  or where any  person or persons are given joint control and the combined degree of control  is not greater than being presently exercised, a resolution in a general  meeting is not necessary; since there is no change in control and, thus, the  question of any acquisition of control within the meaning of the main part of  Regulation 12 would not arise.  Proviso to Explanation (i) i.e. cessor of  control by one or more persons already in control, according to Mr.  Nariman, imposes a further restriction if the transfer of joint to sole control  is through sale of shares at less than the market value of the shares, in which  an event only a special Resolution is required to be passed at a specially  called meeting of the shareholders of the target company.

       Without prejudice to the submissions as referred to hereinbefore, Mr.

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Nariman would argue that once a direction has been issued by the Board, the  penalties specified in Regulation 44 including (a) criminal prosecution under  Section 24 of the Act; (b) monetary penalty under Section 15H of the Act  and (c) directions under the provisions of Section 11B of the Act may ensue  but in the facts and circumstances of the case penal provisions should not  have been directed to be resorted to having regard to the fact that the  Regulations contained no clear and unambiguous words to indicate the true  legal position.  The penal provisions, it was contended,  are required to be  strictly construed.  Reliance in this connection has been made on Francis  Bennion’s Statutory Interpretation, Third Edition, at page 637, Avais Vs.  Hartford Shankhouse and District Workingmen’s Social Club and Institute,  Ltd. [1969 (1) All ER 130 at 135], The Seksaria Cotton Mills Ltd. Vs. the  State of Bombay [1953 SCR 825 at 834] and State of Bihar Vs. Bhagirath  Sharma and Another[(1973) 2 SCC 257 at 261].

       Mr. Kirit N. Raval, learned senior counsel appearing on behalf of the  Respondent, on the other hand, would contend that the language in  Regulations 10, 11 and 12 of the Regulations being clear and unambiguous,  this Court should apply the principles of literal interpretation.  He would  urge that having regard to Explanation I appended to Regulation 12, the  question of application of Regulation 12 would not arise inasmuch as by  reason thereof a transfer of control from joint owners (Swedish Match A.B.  and Jatia Group) to a single sole owner (Swedish Match Group) stands  excluded from the concept of "Change in Control".

       Mr. Raval would  submit that although the Board has accepted the  position that there was no violation of Regulation 12, relying on or on the  basis of proviso appended thereto, the Tribunal has clearly held that there  has been no change in control in terms of the Regulations and in that view of  the matter the opinion of the Tribunal shall prevail over that of the Board.   Reliance in this connection has been placed on S. Shanmugavel Nadar Vs.  State of T.N. [(2002) 8 SCC 361].

       The learned counsel would strenuously urge that the application of  Regulation 11 cannot be excluded by bringing the transaction in question as  having been made under Regulation 12 in terms whereof an additional  liability was required to be incurred by the Appellants.  It was pointed out  that  no disclosure has ever been made by the Appellants that in fact they  had intended to purchase the shares belonging to the Jatia Group at a price of  Rs. 35 as against the then prevailing market price of Rs. 9.55 per equity  share.  In fact the stand of the Appellants had all along been that they would  not sell the shares below the market price and, thus, indicating that the  shares would be sold at the prevailing market price.

       Mr. Raval would urge that the Appellants withheld a very valuable  information from the shareholders i.e. the actual price of share being paid to  Jatia Group which would have otherwise become known to them if a public  announcement of offer was made.  If it is to be held that even in a case of  this nature no public announcement is to be made, the intent and purport of  the legislature in bringing Regulations 10, 11 and 12 to the statute book with  a view to protect the interest of the investors shall be frustrated.

       The learned counsel would further submit that the regulations were  amended only for the purpose of plugging the loopholes which existed in the  1994 Regulations in terms of the recommendations of a Committee  consisting of experts in the fields of law, securities market, accounts,  finance, management etc. and, thus, if the interpretation of regulations as  suggested by Mr. Nariman, is accepted, the same would frustrate the object  of bringing the said regulations.  Reliance in this behalf has been placed on  Reserve Bank of India Vs. Peerless General Finance & Investment Co. Ltd.  [(1987) 1 SCC 424] and Shashikant Laxman Kale & Ors. Vs. Union of India  and Anr. [(1990) 4 SCC 366].

       The learned counsel would urge that Regulations 14, 15 and 16 clearly  make a distinction in the timing of offer to be made between Regulations 10

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and 11 on the one hand and Regulation 12, on the other, having regard to the  fact that process of action initiating the operation of Regulations 10, 11 and  12 would be different.

       In a given case, Mr. Raval would submit, a transaction may trigger  both Regulations 11 and 12, in which event, an appropriate combined notice  of public announcement of offer may be issued.

Drawing our attention to Regulation 44, the learned counsel would  contend that in terms thereof the Board is not obliged to issue any direction  only in terms of Clauses (a) to (d) thereof as the words "give such directions  as it deems fit including" must be held to be of wide amplitude.  Clauses (a)  to (d) are only illustrative and not exhaustive and in that view of the matter,  the Board was within its jurisdiction to issue the impugned directions.

       It was contended that the penal provisions contained in Section 15H  are not the subject matter of the present proceedings.  Further, an order  which  may be  passed under Section 15H of the Act would be  separate and  distinct.

ISSUE FOR DETERMINATION :

       The core issue which falls for our determination is the interpretation  of Regulations 10, 11 and 12.

STATUTORY PROVISIONS :         The Securities and Exchange Board of India Act, 1992 was enacted to  provide for the establishment of a Board to protect the interests of investors  in securities and to promote the development of, and to regulate, the  securities market and for matters connected therewith or incidental thereto.           Section 11 of the Act provides for functions of the Board which would  include registering and regulating the working of persons specified in  Clauses (b) and (ba).  Section 11A provides for the matters which are to be  disclosed by the companies.  Section 11B empowers the Board to issue  directions as specified therein.           Chapter VIA of the Act deals with penalties and adjudication whereas  Section 15A provides for penalty for failure to furnish information, return  etc., Section 15H provides for penalty for non-disclosure of acquisition of  shares and takeovers which include a case where public announcement to  acquire shares at a minimum price is not made as required under the Act or  the rules or the regulations.  Section 15H of the Act provides for a penalty of  twenty-five crores or three times the amount of profits made out of such  failure, which is higher.  Section 15I confers power upon the Board to  adjudicate in the event a penalty proceeding is directed to be initiated.   Section 15T deals with appeal to the Securities Appellate Tribunal.  Section  15Z, which has been brought in the statute book by Act 59 of 2002, provides  for an appeal to this Court from any decision or order of the Tribunal on any  question of law arising thereunder.                    Regulation 2(e) of the Regulations defines "person acting in concert".   Regulation 3 inter alia contains an exclusionary clause stating that the  matters specified therein shall not apply to Regulations 10, 11 and 12.

       Regulations 10, 11(i) and 12 of the Regulations read as under: "10. Acquisition of [15%] or more of the shares or  voting rights of any company. 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  fifteen percent or  more of the voting rights in a company, unless  such acquirer makes a public announcement to  acquire shares of such company in accordance  with the Regulations.  11. Consolidation of holdings  (1) No acquirer

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who, together with persons acting in concert with  him, has acquired, in accordance with the  provisions of law, 15 per cent or more but less than  75 per cent 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 5% 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.  12. Acquisition of control over a company -  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.  Provided that nothing contained herein shall apply  to any change in control which takes place in  pursuance to a resolution passed by the  shareholders in a general meeting.  Explanation : (i) For the purposes of this  Regulation where there are two or more persons in  control over the target company, the cessor of any  one such person from such control shall not be  deemed to be a change in control of management  nor shall any change in the nature and quantum of  control amongst them constitute change in control  of management.

Provided however that if the transfer of joint  control to sole control is through sale at less than  the market value of the shares, a shareholders  meeting of the target company shall be convened  to determine mode of disposal of the shares of the  outgoing shareholder, by a letter of offer or by  block-transfer to the existing shareholders in  control in accordance with the decision passed by a  special resolution. Market value in such cases shall  be determined in accordance with Regulation 20.

(ii) where any person or persons are given joint  control, such control shall not be deemed to be a  change in control so long as the control given is  equal to or less than the control exercised by  person(s) presently having control over the  company."

       Regulation 14 provides for the timing of public announcement of  offer to the effect that the same shall be made not later than four working  days of entering into an agreement for acquisition of shares or voting rights  or deciding to acquire shares or voting rights exceeding the respective  percentages specified therein.  Clause (3) of Regulation 14 provides for  public announcement referred to in Regulation 12 to be made not later than  four working days after any such change or changes are decided to be made  as would result in the acquisition of control over the target company by the  acquirer.

       Regulation 14 provides for the mode and manner of the public  announcement to be made under Regulations 10, 11 or 12 whereas  Regulation 16 specifies the contents thereof.

       Regulation 44 of the Regulations reads as under:

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"44. Directions by the Board  - The Board may, in  the interests of the securities market, without  prejudice to its right to initiate action including  criminal prosecution under section 24 of the Act  give such directions as it deems fit including :

(a)    ***  

(b)    ***

(c)     directing the person concerned to sell the  shares acquired in violation of the provisions  of these Regulations;"

       Regulation 44, as amended in the year 2002, provides for several  directions.  Clauses (f) and (i) thereof are in the following terms: "44. Directions by the Board. Without prejudice to  its right to initiate action under Chapter VIA  and       section 24 of the Act, the Board may, in  the interest of securities market or  for protection  of interest of investors, issue such directions as it  deems fit  including: -  (f) directing the person concerned to make  public offer to the shareholders of the target  company to acquire such number of shares  at such offer price as determined by the  Board;  (i) directing the person concerned, who has  failed to make a public offer or   delayed the making of a public offer in  terms of these Regulations, to pay to the   shareholders, whose shares have been  accepted in the public offer made after the  delay, the consideration amount along with  interest at the rate not less than the  applicable rate of interest payable by banks  on fixed deposits." ANALYSIS :

       Establishment of independent regulatory agencies and need for expert  regulations were long felt primarily as a response to the growing complexity  in human affairs and trade and business in particular.  It was felt that a  regulator who was aware of the realities of that field should be ready to  regulate that field.  Demand for regulators who were not mere Government  officials but people who are experts in the field came up.  Regulations  framed by an expert body like SEBI was felt to be an effective substitute for  government regulation.  The evolution in respect whereof can be traced back  to the Great Depression of 1930s.  As a part of the new deal, several expert  bodies were established like the Federal Communications Commission and  Securities Exchange Commission.  In the Indian context, this rationale was  invoked for the establishment of an expert body to regulate the securities  market after the Securities Scam in 1992.

The statement of Objects and Reasons of the Act are as under :

"Securities and Exchange Board of India (SEBI)  was established in 1988 through a Government  resolution to promote orderly and healthy growth  of the securities market and for investors’  protection.  SEBI has been monitoring the  activities of stock exchanges, mutual funds,

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merchant banks, etc., to achieve these goals.          The capital market has witnessed tremendous  growth in recent times, characterized particularly  by the increasing participation of the public.   Investors’ confidence in the capital market can be  sustained largely by ensuring investors’ protection.   With this end in view, Government decided to vest  SEBI immediately with statutory powers required  to deal effectively with all matters relating to  capital market.  As Parliament was not in session,  and there was an urgent need to instill a sense of  confidence in public in the growth and stability of  the market, the President promulgated the  Securities and Exchange Board of India  Ordinance, 1992 (Ord. 5 of 1992) on 30th January,  1992.  The Bill seeks to replace the aforesaid  Ordinance".

       Section 30 of the 1992 Act empowers the Board (the expert body) to  make regulations consistent with the Act and the rules made thereunder to  carry out the purposes of the Act inter alia providing for :

"(c) the matters relating to issue of capital, transfer  of securities and other matters incidental thereto  and the manner in which such matters shall be  disclosed by the companies under section 11A;"

        SEBI made Regulations in the year 1994.  The said regulations were  said to have many loopholes and, thus, the Bhagwati Committee consisting  of experts in different fields was set up to suggest amendments therein.   Regulations 1997 indisputably were made pursuant to or in furtherance of  the recommendations made by the said Committee.  It is also not in dispute  that whereas most of the recommendations made by the Bhagwati  Committee were accepted, some were not.         In the aforementioned backdrop, this Court has been called upon to  interpret the scope and ambit of Regulations 10, 11 and 12.   Before we advert to the said question, we must bear in mind that the  said Regulations seek to protect the interests of the shareholders.  Public  announcement of offer is one of the modes of protecting the interests of the  shareholders.   Interpretation \026 Principles of :         It is a well-settled principle of law that where wordings of a statute are  absolutely clear and unambiguous recourse to different principles of  interpretations may not be resorted to but where the words of a statute are  not so clear and unambiguous, the other principles of interpretation should  be resorted to.           SEBI was an expert body.  It made regulations which were meant to  sub-serve the interests of investors as also promote and regulate the  securities market.           Regulations 10, 11 and 12 ex-facie operate in three different fields.   They seek to control creeping acquisition which may lead to substantial  acquisition and ultimately total control of the company.  There may,  however, be a case where control of the company is sought to be taken over  by transfer of share only i.e. by a single transaction, in which event  Regulations 11 and 12 both may apply.   We would at the outset proceed to consider the admitted fact of the  matter that both Swedish Match Group and Jatia Group were acquirers "in  concert with each other".  They were in joint control of Wimco.  Jatia Group  intended to transfer the control of the target company by transferring their  shares in favour of Swedish Group. APPLICABILITY OF REGUALTIONS 11 AND 12:

       With a view to arrive at an answer to the question, we may begin with  Regulation 12.  The said Regulation like Regulations 10 and 11 also speaks

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of public announcement.  Such public announcement is required to be made  irrespective of whether or not there has been any acquisition of shares or  voting rights in a company.  In either of the case, the acquirer is statutorily  required to make public announcement of  acquisition of  shares and control  of the target company in accordance with the regulations.  The proviso  appended to Regulation 12 curves out an exception as regard necessity of  making public announcement.  Explanation appended to Regulation 12,  however, states that it would have no application where a change in control  takes place pursuant to a resolution passed by the shareholders in a general  meeting.  As would be noticed shortly hereinafter, the proviso to Regulation  12 cannot be said to have any application in the instant case as by reason of  the Explanation appended thereto, Regulation 12 would have no  application..  Result in change in control over the target company in terms of  Regulation 12 would come into being in two situations; viz. (i) by   acquisition of share, or voting rights; or (ii) where there has been none.         A control over the target company may be achieved by amending the  memorandum of association or by any other mode which necessitates a  resolution to be passed by the shareholders in a general meeting.  The  expressions "in pursuance to a resolution passed by the shareholders in a  general meeting" are crucial as the proviso will apply only when the change  of control over the target company takes place otherwise than by acquisition  of shares or voting rights.         The primal question would be as to whether Explanation (i) appended  to Regulation 12 would bring the matter out of the purview of the  regulation?  In the fact of the present case, it does.  Explanation appended to  Regulation 12 postulates that where there are two or more persons in control  over the target company (here Swedish Match Group and Jatia Group), the  cessor of any one such person (Jatia Group) from such control shall not be  deemed to be a change in control of management nor shall any change in the  nature and quantum of control amongst them constitute change in control of  management.  By reason of the said Explanation, a legal fiction has been  created pursuant whereto or in furtherance whereof applicability of  Regulation 12 is excluded. Change of control contemplated under  Regulation 12 calls for a public announcement when the same is sought to  be achieved by acquiring shares or voting rights.  A change of control in  terms of Regulation 12 may also take place pursuant to a resolution passed  by the shareholders in a general meeting.  Only in the latter case the proviso  which carves out an exception would be attracted.  The effect and purport of  the first proviso may also be construed having regard to the second proviso  appended thereto.  The second proviso appended to Regulation 12 takes  within its fold a case where the joint control to sole control is through sale at  less than the market value of the share.  It, therefore, speaks of a different  situation, namely, control by transfer of joint control to sole control through  sale was at less than the market value of the shares.  In a case where the  second proviso is attracted, the Explanation (1) will have no role to play.           Situation, however, would be different when the transfer of joint  control to sole control takes place through sale at a price which is higher  than the market value of the shares leading to change in control over the  target company, which cannot be done  pursuant to a resolution passed by  the shareholders in a general meeting in terms of the first proviso.  In other  words, in the event, the change in control is sought to be achieved by sale of  shares at a price higher than the market value of the share, Regulation 12  will clearly be attracted making  public announcement imperative.  Such  public announcement evidently is required to be made having regard to the  fact that the interest of investors is required to be protected; pursuant  whereto and in furtherance whereof the shareholder would be informed of  the value of the share at which the transfer of control would take place so as  to enable him to exercise his option to sell his shares at the price offered by   the acquirer or continue to keep the same.           A general meeting of the shareholders of the target company had  taken place but the same  does not sub-serve the requirements of law  inasmuch as, it would bear repetition to state,  when transfer of control over  the target company takes place by reason of acquisition of shares at a price  higher than the market price the acquirer has a statutory obligation to make  the public announcement.  Such a statutory requirement is not capable of

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being waived by the majority shareholders.  In this case, the records reveal  that the shareholders were not informed that although the market value of  the share was about Rs. 9.55, Jatia Group was offered the price of Rs. 35/-  per equity  share.  It was merely disclosed that such acquisition would not be  at a price lower than the market price.  If such transfer was to take place at a  price less than the market price, the second proviso appended to Regulation  12 would have been attracted.  It was, therefore, obligatory on the part of the  acquirer to furnish correct information as regard the price which was being  offered to Jatia Group.         There may be cases where to some extent Regulations 11 and 12 may  overlap.  But Regulations 14, 15 and 16 clearly postulate that public  announcement is required to be made in relation to transfer of shares  attracting Regulations 10 or 11 not later than four working days of entering  into an agreement for acquisition of shares or voting rights or deciding to  acquire shares or voting rights exceeding the respective percentage specified  therein and in case of acquisition of control in terms of  Regulation 12; not  later than four working days after any such change or changes are decided to  be made as would result in the acquisition of control over the target  company by the acquirer.         In a given situation, a public announcement can be made upon  compliance of both Regulations 11 and 12.         It is also not a case where Regulation 3 will have any application.   Admittedly, the Appellants did not claim any exemption in terms of  Regulation 3 nor were they eligible therefor.  It is also not a case where  change in control had taken place by reason of inheritance or succession but  by reason of conscious act of transfer of shares by one acquirer from  another.  In a case of this nature, thus,  Regulation 12 would not apply, the  logical corollary whereof would be that Regulation 11 will apply. Let us now consider the legal principles as regard ’Proviso and  Explanation’.         In S. Sundaram Pillai, etc. Vs. V.R. Pattabiraman [AIR 1985 SC 582],  a 3-Judge Bench of this Court held that proviso may serve four different  purposes, namely: "(1) qualifying or excepting certain provisions  from the main enactment; (2) it may entirely change the very concept of the  intendment of the enactment by insisting on certain  mandatory conditions to be fulfilled in order to  make the enactment workable; (3) it may be so embedded in the Act itself as to  become an integral part of the enactment and thus  acquire the tenor and colour of the substantive  enactment itself; and (4) it may be used merely to act as an optional  addenda to the enactment with the sole object of  explaining the real intendment of the statutory  provision."

       Proviso to Regulation 12 exempts only a part of the main enactment.   It does not take within its umbrage both the situations contemplated under  Regulation 12.         As regard functions of an Explanation, it was opined: "52\005(a) to explain the meaning and intendment of  the Act itself, (b) where there is any obscurity or vagueness in  the main enactment, to clarify the same so as to  make it consistent with the dominant object which  it seems to subserve, (c) to provide an additional support to the  dominant object of the Act in order to make it  meaningful and purposeful, (d) an Explanation cannot in any way interfere  with or change the enactment or any part thereof  but where some gap is left which is relevant for the

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purpose of the Explanation, in order to suppress  the mischief and advance the object of the Act it  can help or assist the Court in interpreting the true  purport and intendment of the enactment, and (e) it cannot, however, take away a statutory right  with which any person under a statute has been  clothed or set at naught the working of an Act by  becoming an hindrance in the interpretation of the  same."

       The Explanation was inserted evidently with a view to clear the  obscurity occurring in Regulation 12 as regard a class of cases of cessation  of joint control to sole control.         In Laxminarayan R. Bhattad and Others Vs. State of Maharashtra and  Others [(2003) 5 SCC 413] this Court held that the proviso acted as an  exception to the main provision but such an exception must be strictly  construed and confined to the intent of the legislature. [See also Ali M.K. and Others vs. State of Kerala and Others \026 (2003) 11  SCC 632 and Union of India vs. Sanjay Kumar Jain \026 JT 2004 (6)   SC 318].         In Dipak Chandra Ruhidas Vs. Chandan Kumar Sarkar [(2003) 7 SCC  66] it was held that in a case where a legal fiction created in the Explanation  was construed to be validly made as thereby main provision was made  absolutely clear and explicit, the legal fiction so created must also be given  its full effect.         It is true that Regulation 12 could have been better worded but the  application of Regulations 11 and 12 in a case of this nature is free from  doubt.  This is not a case where having regard to the explanations in the  provisos and reading the provision in the manner we have done, it stands  obscure.  The Explanations (i) and (ii) are not Explanations to the provisos  but the main part thereof.           It would, therefore, be not correct to contend that where there is a  mere cessor of control by one out of two persons already in control or where  any person or persons are given joint control and the combined degree of  control is not greater than being presently exercised, a Resolution in general  meeting would sub-serve the purpose, is devoid of any merit as change in  control has taken place by reason of acquisition of shares from another  person in control.  Having regard to the fact that the price offered to Jatia  Group was higher than the market price, a public announcement was  imperative so as to enable the shareholders to elect as to whether to sell their  shares held by them or not.  No exemption from public announcement has  been carved out by reason of the proviso appended to Regulation 12 as in  terms of the Explanation, Regulation 12 would have no application.         The purported resolution dated 27.9.2000 reads as under: "Resolved that the cession of their participation in  the joint control of the company by the Jatia Group  as of the date hereof such that Swedish Match AB  and its subsidiary are in sole control of the  company be and is hereby approved."

       The said resolution is of no avail in the fact of the matter as neither  the proviso nor the second explanation appended to Regulation 12  is  attracted.         Furthermore, only because Regulation 12 also speaks of public  announcement, the same by itself would not exempt the acquirer from  making a public announcement in terms of clause  (1) of Regulation 11.     WAS THERE ANY REQUIREMENT TO COMPLY WITH  REGULATION 11?

       With a view to advert to the question, the admitted facts may be  noticed.         Swedish Match Singapore agreed to acquire majority shareholding in  Haravon and Seed subsequent to 17th December, 1997 wherefor the public  offer was made.  S.M.S. comprising of Haravon and Seed had 28.28% and  10.33% whereas Jatia Group comprising of AVP and Plash had 5% and 15%

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respectively whereas public/others had 41.39% shares.  In concert with each  other the two Groups acquired shares from public.  On or about 25th August,  1999 by acquiring preferential shares the Swedish Match Group obtained  52.11% and Jatia Group obtained 24.11% as a result whereof in Wimco the  shares held by public/others came down to 23.78%.  Both Swedish Group  and Jatia Group were exercising the joint control.  By reason of Jatia Group  opting out of the joint control by transfer of shares in favour of  Swedish  Match Singapore, a subsidiary of Swedish Match AB (a part of Swedish  Match Group) obtained 74% of  shares whereas shares i.e. Haravon \026  46.18%, Seed \026 5.93% and SMS \026 21.89%.  Thus, the extent of shares of  Jatia Group came down to 2.22%.  Jatia Group sold their shares to public as  a result whereof shares of public became 23.78%.  S.M.S. is a subsidiary of  the Singapore Match Group.  The Swedish Match is the holding company  being the owner of the 100% shares of SMS. It stands categorically admitted   by the Appellants herein that acquisition of shares from Jatia Group in  favour of SMS was done by the Swedish company as a group and not as an  individual company.  Factually, therefore, it is not correct to contend,  although in its notice dated 28.1.2002, SEBI had given indication thereof,  that SMS had acquired 21.89% shares of its own.  Even if SMS had done so,  Regulation 10 would apply as no public announcement was made therefor.         S.M.S. was a part of the Swedish Match Group and they acquired  21.89% shares from Jatia Group.  On or about 25th August, 1999,  indisputably, Swedish Group and Jatia Group acted in concert with each  other.  By reason of acquisition made in September, 2000, Swedish Group,  as acquirer, together with Jatia Group, had acquired more than 15% but less  than 75% of shares.  Any of those acquirers whether Swedish Match Group  or Jatia Group, therefore, was prohibited from acquiring by itself any  additional share entitling it to exercise more than 5% of the voting rights.   Regulation 11 does not brook  any other interpretation.  If additional shares  are acquired entitling an acquirer to exercise more than 5% of the voting  rights, the statutory embargo to the effect that the acquirer (in this case  Swedish Match Group) must make a public announcement to acquire shares  in accordance with the Regulation comes into operation. The words "additional shares" are not terms of art.  It speaks of  acquisition of shares in addition to what it had got.  Such acquisition of  additional shares may be either from public or from a person with whom at  one point of time the acquirer had acted in concert.  If such a meaning is not  assigned, the disjunctive clauses contained in the expressions "either by  himself or through or with person acting in concert with him" may not carry  a true and effective meaning.   The pre-conditions attracting Regulation 11 are: (i) that an acquirer  had acquired shares in concert with another; (ii) such acquisition was more  than 15% but less than 50% of the shares or voting rights in a company; (iii)  in the event, the acquirer intends to acquire such additional shares or voting  rights which would allow him to exercise more than 5% of the voting rights  within a period of 12 months, public announcement is required to be made  therefor.  (iv) such acquisition of additional shares contemplates three  different situations, i.e., the acquisition may be by acquirer himself or  through or with the person acting in concert with the person with whom they  had acquired shares earlier in concert with each other.         Regulation 11, therefore, contemplates both situations, namely, where  substantial acquisition of shares may result in change of control and where it  does not.  Only because in a case where acquisition of additional shares may  result in change of control, the same by itself would not exempt the acquirer  from complying with the statutory requirement of Regulation 11.  Primarily,  Regulations 10, 11 and 12 operate in different fields which is manifested  from a plain reading of Regulations 14, 15 and 16.  We may, however,  hasten to add that there may be a situation where Regulations 11 and 12 may  overlap with each other, in which event, it would be open to the acquirer to  issue a combined notice fulfilling the requirement of both Regulations 11  and 12.     Indisputably, the purport and object of which a regulation is made  must be duly fulfilled.  Public announcement is at the base of Regulations  10, 11 and 12.  Except in a situation which would bring the case within one  or the other ’exception clause’, the requirement of complying with the

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mandatory requirements to make public announcement cannot be dispensed  with.   Admittedly in this case no public announcement has been made.   It may be true that the Board in its impugned order dated 4th June,  2002 proceeded on a wrong premise that having regard to the proviso  appended to Regulation 12, Regulation 12 would be attracted.  But the SAT,  in our opinion, rightly construed the provisions of Regulations 11 and 12 in   arriving at a finding that Regulation 11 would be attracted and Regulation 12  would not be.  The tribunal was entitled to take a different view of the matter  from that of the Board with a view to sustain the ultimate result in the appeal  in exercise of its appellate power.  Such a power in the appellate court/  tribunal is akin to or analogous to the principles contained in Order 41 Rule  33 of Code of Civil Procedure.   Even otherwise before us the judgment of  the Tribunal is in question, this Court is required to consider the correctness  or otherwise of the Tribunal. In any event, the reasonings of the tribunal  shall prevail over the Board.  (See S. Shanmugavel Nadar (supra), para 17)         Although we do not find any difficulty in construing the provisions of  Regulations 11 and 12 but assuming Regulations 11 and 12 are not clear, the  rule of purposive construction should be taken recourse to.         It is now trite that when an expression is capable of more than one  meaning, the Court would attempt to resolve that ambiguity in a manner  consistent with the purpose of the provisions and with regard to the  consequences of the alternative constructions. (See Clark & Tokeley Ltd.  (t/a Spellbrook) Vs. Oakes [1998 (4) All ER 353].

       In Anwar Hasan Khan Vs. Mohd. Shafi and Others [(2001) 8 SCC  540], this Court held:

"8\005It is a cardinal principle of construction of a  statute that effort should be made in construing its  provisions by avoiding a conflict and adopting a  harmonious construction.  The statute or rules  made thereunder should be read as a whole and  one provision should be construed with reference  to the other provision to make the provision  consistent with the object sought to be  achieved\005."

       In Inland Revenue Commissioners Vs. Trustees of Sir John Aird’s  Settlement [1984] Ch. 382, it is stated: "\005Two methods of statutory interpretation have at  times been adopted by the court.  One, sometimes  called literalist, is to make a meticulous  examination of the precise words used.  The other  sometimes called purposive, is to consider the  object of the relevant provision in the light of the  other provisions of the Act \026 the general  intendment of the provisions.  They are not  mutually exclusive and both have their part to play  even in the interpretation of a taxing statute."

       It was also observed: "Where there is an exemption provision in a fiscal  statute the onus is on a taxpayer to show that the  exemption applies: Barron v. Littman [1953] A.C.  96 and Imperial Chemical Industries Ltd. v. Caro  [1961] 1 W.L.R. 529."

       In Indian Handicrafts Emporium and Others Vs. Union of India and  Others [(2003) 7 SCC 589] this Court referred to various decisions including  Peerless General Finance (supra) whereupon the Appellate Tribunal as also  Mr. Raval placed strong reliance expounding the theories of purposive  construction.  (See also Ramesh Mehta Vs. Sanwal Chand Singhvi and Ors,  JT 2004 (Suppl.1) SC 274)         Regulations 10, 11 and 12 were amended in the year, 1997 having

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regard to the fact that the 1994 Regulations contained many loopholes, and,  thus, the mischief rule should be resorted to so as to suppress the mischief  which would have surfaced had the literal rule been allowed to cover the  field.  [See Reema Aggarwal Vs. Anupam and Others, (2004) 3 SCC 199]

IS STRICT CONSTRUCTION OF THE REGULATION CALLED FOR?

       A penal statute indisputably is required to be strictly construed.  But a  different situation may arise if the penalty is sought to be levied as a result of  failure on the part of the person statutorily obliged to comply with the  statutory provisions which are imperative in nature.   

       There may not be any doubt or dispute as regard the proposition that  when words employed in a penal statute employs are not clear, the principle  ’against doubtful penalisation’ would be applied.   

       In Francis Bennion’s Statutory Interpretation, Fourth Edition, at page  704, Section 271 it is stated that principle against penalization under a  doubtful statute is a legal policy which would apply in a given situation but  the learned Author himself states that different consequences of enactments  are possible depending upon the text and context of the statute.  In the same  treatise at page 367, it is stated:

"(2) A construction put forward may rely entirely  on the literal meaning, or may elaborate (but still  correspond to) the literal meaning, or may depart  from the literal meaning in favour of a strained  meaning.  The court, where it considers (or prefers  to say) that the literal meaning is unambiguous,  will tend to decide in favour of what it regards as  the unglossed literal meaning and reject other  versions."

       Referring to Trustees of Sir John Aird’s Settlement (supra), the  learned Author at pages 368 & 369 states: "Subsection (2) Where the enactment is  grammatically ambiguous, the opposing  constructions put forward are likely to be  alternative meanings each of which is  grammatically possible.  Where on the other hand  the enactment is grammatically capable of one  meaning only, the opposing constructions are  likely to contrast an emphasized version of the  literal meaning with a strained construction.  In the  latter case the court will tend to prefer the literal  meaning, wishing to reject the idea that there is  any doubt.

Example 149.2 In a tax avoidance case concerning  capital transfer tax, the Court of Appeal were  called on to construe the Finance Act 1975 Sch 5  para 6(7) as originally enacted.  Counsel for the  Inland Revenue put forward several alternative  arguments on construction, but the court preferred  the one based on the unglossed literal meaning.  It  may be conjectured however that the other  arguments helped to convince the court that the  Inland Revenue’s case was to be preferred."

       Failure to comply with a statute may attract penalty.  But only because  a statute attracts penalty for failure to comply with the statutory provisions,  the same in all situations would not call for a strict construction.  A statute  ordinarily must be literally construed.  Such a literal construction would not  be denied only because the consequence to comply the same may lead to a

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penalty.  This aspect of the matter has been considered by this Court in  Indian Handicrafts Emporium (supra).  Proceeding on the basis that there  existed a dichotomy, the Court ultimately held that the resolution will have  to be reached by reading the entire statute as a whole. [See also Reema  Aggarwal (supra)]   

       In Balram Kumawat Vs. Union of India and Others [(2003) 7 SCC  628] this Court held: "The Courts will therefore reject that construction  which will defeat the plain intention of the  Legislature even though there may be some  inexactitude in the language used. [See Salmon vs.  Duncombe [(1886) 11 AC 627 at 634].  Reducing  the legislation futility shall be avoided and in a  case where the intention of the Legislature cannot  be given effect to, the Courts would accept the  bolder construction for the purpose of bringing  about an effective result.  The Courts, when rule of  purposive construction is gaining momentum,  should be very reluctant to hold that the Parliament  has achieved nothing by the language it used when  it is tolerably plain what it seeks to achieve. (See  BBC Enterprises Vs. Hi-Tech Xtravision Ltd.,  (1990) 2 All ER 118 at 122-3)"

Referring to its earlier decisions, this Court :

"36. These decisions are authorities for the  proposition that the rule of strict construction of a  regulatory/penal statute may not be adhered to, if  thereby the plain intention of the Parliament to  combat crimes of special nature would be  defeated."   

Let us now consider the decisions relied upon by Mr. Nariman.

In Avais (supra), the House of Lords was concerned with the  construction of the meaning applied in Gaming machine.  In that case itself,  it was held:

"\005The task of the courts is to ascertain in any  particular case whether the conditions have been  (or, as in this case, would be) complied with or  not.  There is no evident reason for interpreting the  conditions otherwise than according to their  natural meaning.  Indeed, there is this point to be  borne in mind in favour of a literal construction.  If  the conditions are not complied with, the club  officials who allow the club premises to be used  for the gaming are guilty of criminal offences.  The  Act would be setting a trap for them, if by some  artificial construction of the provisions an  apparently innocent financial agreement (such as  accepting from the owner of the machines a  guarantee of the club’s takings) were held to  involve or lead to a breach of the conditions."

       The said decision, thus, runs counter to the submissions of Mr.  Nariman.  In this case also conditions are imposed in the matter of  acquisition of shares.  If the conditions have not been complied with, the Act  having set up a trap for them, the logical consequences would ensue.   

       In The Seksaria Cotton Mills Ltd. (supra), the Court was dealing with

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the activities of a welfare agent vis-‘-vis the meaning of ’possession’ in the  relevant Act.  The Court found:

"The facts are truly and accurately given according  to the popular and natural meaning of the words  used; nothing was hidden. The goods did reach the  quota-holder in the end, or rather his proper agent,  and we cannot see what anyone could stand to gain  in an unauthorised way over the very natural  mistake which occurred owing to what seems to  have been a time-lag in the consequences of a  change of agency. So, even if there was a technical  breach of the law, it was not one which called for  the severe strictures which are to be found in the  trial court’s judgment and certainly not for the  savage sentences which the learned Magistrate  imposed. In the High Court also we feel a nominal  fine would have met the ends of justice even on the  view the learned Judges took of the law."

       In the aforementioned backdrop only, it was held:

"In a penal statute of this kind it is our duty to  interpret words of ambiguous meaning in a broad  and liberal sense so that they will not become traps  for honest, unlearned (in the law) and unwary men.  If there is honest and substantial compliance with  an array of puzzling directions, that should be  enough even if on some hypercritical view of the  law other ingenious meanings can be devised."

       This is a case of non-compliance of mandatory statutory provisions  and not of substantial compliance.  It is also not a case involving unlearned  or unwary men.

       In Bhagirath Sharma (supra), the question which fell for consideration  was whether ’tube’ is included within the expression ’tyre’.  Keeping in  view the provisions of the Essential Commodities \026 Prices and Stocks  (Display and Control) Order, 1967, this Court applied the rule of strict  construction.    

       Regulations being regulatory in nature, the intent and object sought to  be achieved thereby must be firmly applied with.  In this view of the matter,  we are of the opinion that Regulations do not deserve strict constructions so  as to hold that even a public offer was not necessary.

ANOTHER FACET OF THE CASE:

Having held so, would it be proper for this Court to direct the Board  not to take any penal action against the Appellants?           The Board is an expert body.  As a legislature, it makes the  regulations, as an executive, it implements the legislation and in case of a  breach it takes upon a quasi-judicial function.  While functioning in its  judicial capacity, it has wide discretion.  It can initiate criminal proceedings  in terms of Section 24 of the Act, issue directions in terms of Section 11-B  and Regulation 44 as also take recourse to penal provisions as contained in  Section 24 and Chapter VI-A of the Act.  Its decision is final subject to the  decision of the Tribunal.  But the sequences of events, as noticed  hereinbefore, clearly go to show that even the Board was not sure of the  legal position.           It in no uncertain terms held: "As the said change from joint to sole control took  place in pursuance to a resolution passed by the  shareholders in general meeting, the same would  not trigger Regulation 12, same being covered

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under proviso to Regulation 12."

       The Board even did not think it fit to apply the Explanation appended  to Regulation 12 in its proper perspective.           It is only the Tribunal at a later stage came to a clear finding that  proviso appended to Regulation 12 will have no application and Explanation  would.           Before us also the Counsel read the regulations in question over and  over again.  Focus on certain words was placed differently at different times.   It is only after considering the matter from different angles, we have been  able to arrive at a definite conclusion.            In Trustees of Sir John Aird’s Settlement (supra) upon taking into  consideration several alternative arguments on construction of the Finance  Act 1975 Schedule 5 para 6(7) as originally enacted, the Court preferred the  one based on the unglossed literal meaning.         The adversarial system prevailing in India allows a counsel to put  forward construction of the enactment in question relying on several  alternative arguments and the Court may ultimately base its judgment on  unglossed literal meaning. (See Example 149.5 of Francis Bennion’s  Statutory Interpretation, Fourth Edition, page 371).         In the aforementioned backdrop, this Court thought it fit to consider as  to whether in exercise of its jurisdiction under Article 142 of the  Constitution of India a direction should be issued directing the Board to  forbear from proceeding under Section 15H of the Act against the Appellant.           It is accepted that once a public offer is made the investors would be  entitled to elect to transfer their shares at a higher price which may be  offered by the acquirer with a view to acquire control over the target  company.  The investors would also be entitled to interest at such rate as the  Board may determine.  The provisions of Section 15H of the Act mandates  that a penalty of rupees twenty-five crore may be imposed.  The Board does  not have any discretion in the matter and, thus, the adjudication proceeding  is a mere formality.  Imposition of penalty upon the Appellant would, thus,  be a forgone conclusion.  Only in the criminal proceedings initiated against  the Appellants, existence of mens rea  on the part of the Appellants will  come up for consideration.           We, therefore, are of the opinion that it is a fit case where this Court  should exercise its jurisdiction under Article 142 of the Constitution to direct  the Board to forbear from proceedings with the adjudication proceeding  against the Appellants.  This may not, however, be treated to be a precedent.         These appeals are allowed in part and to the extent mentioned  hereinbefore.  In the facts and circumstances of this case, there shall be no  order as to costs.