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Supreme Court bars Withdrawal of Voluntary Open Offer

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The Supreme Court in the matter of SEBI v. M/s. Akshya Infrastructure Private Limited has considered the question of whether an open offer for purchase of shares of the target company, voluntarily made through a public announcement, can be permitted to be withdrawn if such an open offer has become uneconomical.

The acquirer, M/s Akshya Infrastructure Private Limited, is a part of the promoter group of the target company, MARG Limited. It had made several acquisitions, between 2006-2010, in excess of the 5% creeping acquisition limit under the SEBI (SAST) Regulations, 1997. Though in breach, the acquirer made a voluntary open offer in October, 2011, scheduling the tendering period to commence from December, 2011. Due to certain reasons, the acquirer expressed its desire on 29 March, 2012 to withdraw the open offer. SEBI's comments on the draft letter of offer were received by the acquirer on 30 November, 2012, after a delay of 13 months from filing, without any reference to the acquirer's request to withdraw the open offer. SEBI's comments, in effect, mandated that the open offer fructify after incorporating its suggestions on the same. Appealing against SEBI's directions, primarily on the ground that the delay rendered the open offer unviable and academic, the acquirer obtained a favourable ruling from SAT on the issue. In appeal from SAT's decision, SEBI placed before the Supreme Court various arguments hinging on various provisions of the SEBI (SAST) Regulations, 1997 and an earlier Supreme Court decision in Nirma Industries & Anr. v. SEBI to state that no special dispensation was accorded to voluntary open offers, under the law, in respect to their withdrawal.

Taking cognisance of various arguments, some interpretative, the Supreme Court rapped SEBI on the knuckles for its delay of 13 months in giving its comments on the draft letter of offer, but declined to make the delay, or economic unviability of the open offer, a valid ground for relief to the acquirer. In the absence of such a ground in the exempting provision of the SEBI (SAST) Regulations, 1997, the Supreme Court ordered the setting aside of SAT's decision and the implementation of SEBI's directions to make the offer.

While the Supreme Court and SEBI played by the book in this case, regulatory propriety dictates that SEBI not consider this ruling as permissive, in relation to its responsibilities to market participants. As a regulator, SEBI owes a significant duty of care to foster a compliant, yet conducive business environment.