Supreme Court judgment on Takeover Regulations

JSA advised and successfully defended Pitti Electrical Equipment Private Limited and other promoters of Pitti Engineering Limited in an appeal filed by the Securities and Exchange Board of India before the Hon’ble Supreme Court.

The key legal issue in the appeal was whether an acquisition of shares / voting rights by one of the promoters triggered an obligation to make an open offer when the aggregate holding of the acquirer along with persons acting in concert was already above the triggering threshold. The acquisition in question was under the erstwhile 1997 Takeover Regulations and it resulted in the acquirer individually crossing the prescribed thresholds for an open offer. In technical terms, the issue involved was whether Regulation 3(3) of the current 2011 Takeover Regulations can be said to be only clarificatory in nature, and whether the requirements of the said Regulation can be read into Regulation 10 of the erstwhile 1997 Takeover Regulations.

The Supreme Court judgement: 

While the judgment emanates from the erstwhile 1997 Takeover Regulations, it clarifies the following key principles which are relevant for other matters pertaining to the Takeover Regulations going forward:

  • The 2011 Takeover Regulations are not retrospective in nature. The specific provision in Regulation 3(3) of the 2011 Takeover Regulations which requires an acquirer to make an open offer if its individual holding crosses certain thresholds (regardless of the shareholding of persons acting in concert) is not merely clarificatory in nature and therefore cannot be read into Regulation 10 of the erstwhile 1997 Takeover Regulations.
  • It is important for regulators to be consistent and predictable, which rule must be enforced by Courts as a principle of interpretation. Having interpreted the term “acquirer” to include “persons acting in concert”, the regulator ought not to have taken a view which was contrary to the view adopted in the past without good reason and ground.
  • The principle of doubtful penalization must not be limited to criminal statutes only but extended to any form of detriment i.e., Courts must avoid adopting a construction which penalizes a person where the legislative intention to do so is doubtful.
  • In the context of an observation letter issued in response to a draft letter of offer after more than one year, the Court reiterated that in the absence of any period of time or limitation, every authority must exercise its powers within a reasonable period.
  • While disclosures under the Takeover Regulations are made to the company and the stock exchanges, SEBI and other authorities cannot claim complete ignorance of the same and seek to initiate action for alleged violations in the distant past.
  • The Securities Appellate Tribunal, as an appellate forum, cannot suo motu initiate penalty proceedings or give directions under the SEBI Act, which powers must first be exercised by SEBI. While the Tribunal has the power to uphold or set aside directions passed by SEBI, the Tribunal does not have the power to substitute directions passed by SEBI under specific provisions of a SEBI regulation with a penalty under Section 15H of the SEBI Act, for which the parties had not been charged by SEBI in the first place.


JSA team comprised Lead Partner – Vikram Raghani, Partner – Divyam Agarwal, Principal Associate – Pulkit Sukhramani and Senior Associate – Vidhi Jhawar.

The matter was argued by Somasekhar Sundaresan, Advocate along with the JSA Team.

JSA also represented the promoters of Pitti in the open offer and the proceedings before the Securities Appellate Tribunal.

Covered in BW Legal.