MANU/AP/0930/2001

Equivalent Citation: [2001]45C LA48(AP), [2002]112C ompC as211(AP), (2001)5C ompLJ45(AP)

IN THE HIGH COURT OF ANDHRA PRADESH

Writ Petition No. 11153 of 2001
Decided On: 06.07.2001
Appellants: M.V. Subramanyam and Ors.
Vs.
Respondent: Union of India (UOI) and Ors.
Hon'ble Judges/Coram:
A. Gopal Reddy, J.
Counsels:
For Appellant/Petitioner/Plaintiff: Ravi S., Adv.
For Respondents/Defendant: L. Narasimha Reddy, Adv. respondent No. 1, P.V.S.S.S.
Rama Rao, Adv. for respondent No. 2, B. Adinarayana Rao, Adv. for respondent No.
3, R. Raghunandan, Adv. for respondent No. 4, V. Padmanubham, Adv. for
respondent No. 5, C. Kodandaram, Adv. for respondent No. 6 and M. Dhananjaya
Reddy, Adv. for respondent No. 7
Case Note:
Company - forum hunting - Regulations 16, 18 (1), 22, 22 (2), 22 (4), 25
(7) and 28 (2) of Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997, Securities and
Exchange Board of India Act, 1992 and Article 226 of Constitution of India -
writ seeking mandamus directing respondent to investigate alleged
violation of provisions of SEBI Act, 1992 - petitioner is share holder of
respondent No. 5 Company - petitioner alleges that public issue of share in
pursuant of letter of offer will cause unforeseen consequences which will
jeopardize the interest of shareholder - petitioner did not plead any facts
other than mentioned in letter of offer nor challenged entitlement of
respondent No. 3 and 4 Companies to acquire share of respondent No. 3
Company as per law - held, unless element of public interest and violation
of statutory obligation is demonstrated writ of mandamus cannot be
directed.

JUDGMENT
A. Gopal Reddy, J.
1. This writ petition is filed seeking a writ of mandamus directing respondents Nos. 1
and 2 to act in accordance with law, conduct necessary investigation into the
violation of the provisions of the Securities and Exchange Board of India Act, 1992
("the SEBI Act"), and the Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 ("the Takeover
Regulations"), and for a consequential direction not to permit respondents Nos. 3 and

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 4 to proceed with the public offer pursuant to the letters of offer dated April 23,
2001, and May 11, 2001, respectively.
2. The petitioners claim to be the shareholders of the fifth respondent-company, i.e.,
VST Industries Ltd. (the 'VST') which is engaged in the business of manufacturing
and marketing of cigarettes and of exporting tobacco. According to the petitioner, the
VST is in healthy financial condition and has been making good profits and also owns
several properties in Hyderabad and other places in India. Its shares are listed on the
National Stock Exchange as well as on the stock exchanges of various States in India.
While so, the third respondent made a public announcement on February 15, 2001,
informing the shareholders of VST that it had already acquired 14.97 per cent of the
paid-up equity share capital of VST and for acquisition of further 20 per cent of
equity share capital of VST at a price of Rs. 112 per share. Subsequently, respondent
No. 4 also made a public announcement on March 6, 2001, in respect of a counter
offer for acquisition of 20 per cent of the share capital of VST at a price of Rs. 115
per share. Subsequent to the said announcement, respondents Nos. 3 and 4 issued
letters of offer to all the shareholders of VST on May 11, 2001, and April 23, 2001. It
is further stated by the petitioners that both the letters of offer are misleading and
have been issued in violation of the provisions of the SEBI Act and Takeover
Regulations. The said announcement and proposed acquisition of shares by
respondents Nos. 3 and 4 are illegal and detrimental to the interests of VST and
investors in securities and shares of VST. Respondents Nos. 1 and 2, particularly the
second respondent failed in its duties and obligations under the SEBI Act and
Takeover Regulations to protect the interest of the investors and shareholders and
also to regulate the securities market. Though respondents Nos. 3 and 4 submitted
draft letters of offer to the second respondent in terms of the Takeover Regulations,
the second respondent had permitted and allowed the offers of third and fourth
respondents to be proceeded with in spite of various infractions as they failed to
protect the interests of the shareholders of VST. Respondents Nos. 3 and 4 are under
an obligation to make proper and adequate disclosure to the shareholders of VST in
terms of the Takeover Regulations. Respondent No. 1 and respondent No. 2 are under
an obligation to see that acquisition of shares of a company by public announcement
is done in accordance with the Takeover Regulations. According to the petitioners,
the third respondent is controlled by Shri Radhakishan S. Damani and Shri
Gopikishan S. Damani and is part of a group of companies controlled by the said
Damanis. The said Damanis who are acting in concert with respondent No. 3 are
being investigated as part of investigations launched by the SEBI recently against
various stock market operators for alleged manipulations of the stock market. A
search under Section 132 of the Income Tax Act, 1961, has also been undertaken by
the Income Tax Department against the said Damanis and their associate entities. The
trading rights of Shri G. Damini himself and as a member of the Stock Exchange,
Mumbai, have been suspended for a period of three months from April 22, 1994, to
July 21, 1994, by an order passed by the SEBI under sub-regulation (3) of regulation
29 of the Takeover Regulations. In view of the same, he is not a fit person to acquire
shareholding in VST or take management control thereof.
3 . The third respondent has not clearly stated or duly disclosed in the public
announcement and letters of offer about the change in control and management of
VST consequent on the acquisition of substantial shares of VST except stating that it
has presently no plans to increase its holding in VST. The Damanis business interests
lie in real estate and it is obvious that respondent No. 3 and the Damanis will resort
to sale of VST assets including land and once it manages to get control over VST it
will destroy the corporate structure of VST to the detriment of the shareholders like

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 the petitioners. The Damanis after acquisition will resort to asset stripping of VST.
Such intention of respondent No. 3 and the Damanis have not been disclosed in the
public announcement or letter of offer. In view of the same, the proposed acquisition
of respondent No. 3 is not in the interest of the shareholders of VST. The SEBI
though under an obligation to investigate and check such acquisition by respondent
No. 3. The Damanis have failed to perform their statutory duties and obligations.
Similarly, the purported counter offer of respondent No. 4 also does not duly disclose
the identity of the acquirers and/or promoters of the acquirers in terms of Regulation
16(v) of the Takeover Regulations. Companies belonging to the British American
Tobacco, PLC UK (BAT) group of companies hold approximately 32.16 per cent shares
of VST. BAT had applied to the Government of India for permission to further
increase its stake in VST and the same was refused by the Government of India. The
said BAT group of companies also hold substantial shares in ITC Ltd., the holding
company of respondent No. 4. The same is, however, not disclosed in the letter of
offer of respondent No. 4 though such information is otherwise available with the
SEBI pursuant to Regulations 6 and 8 of the Takeover Regulations. The effect of
combined shareholding of BAT and ITC in VST is also not disclosed in the letter of
offer. BAT is indirectly seeking to increase its stake in VST through ITC and
respondent No. 4 even though it has not been given permission to do so directly. It is
stated that ITC is the largest tobacco company in India having a market share of
more than 50 per cent and acquisition of 20 per cent shareholding in VST through
respondent No. 4 would result in greater monopoly in the tobacco industry and such
information has been withheld in the letter of offer of respondent No. 4. In view of
the same, the petitioners invoke the jurisdiction of this court under Article 226 of the
Constitution of India seeking the above reliefs.
4. The second respondent filed a counter denying the allegation about the inaction on
its part. It is stated in the counter-affidavit of respondent No. 2 that the petitioners
never approached the second respondent by filing a complaint either against
respondent No. 3 or against respondent No. 4 before invoking the jurisdiction of this
court under Article 226 of the Constitution. The SEBI has ensured adequate
disclosures in the public announcement and in the letters of offer. The letters of offer
were submitted to the SEBI for the limited purpose of ensuring whether the
disclosures are generally adequate and in conformity with the regulations so as to
help the shareholders of VST to take an informed decision. It is further stated that the
initial schedule announced in the public announcement dated February 15, 2001, was
in consonance with the Regulations 22(3) and 22(4). However, due to the
correspondence exchanged between the management to the offer and the SEBI as
regards the suitable disclosure in the letter of offer, the final comments by the SEBI
could only be given by letter dated May 8, 2001. The third respondent had included
the same comments in its letter of offer issued to the shareholders and the letters of
offer are reported to have been despatched to the shareholders of VST by May 11,
2001. The offer opened on May 15, 2001, and closed on June 13, 2001. The
disclosures as mentioned in paras. 3,2.8, 3.2.9 and 3.2.10 about the investigations
made by the SEBI, searches made by the Income Tax authorities and suspension of
trading rights of G. S. Damani for a period of three months in 1994 were made. As
desired by the SEBI, the said disclosures also appeared in the public announcement
made by respondent No. 3 on May 21, 2001. It is further stated that ongoing
investigations by the SEBI are against the two associates of the acquirer and persons
acting in concert with the acquirer and not against the acquirer itself, respondent No.
3 who had already acquired 14.97 per cent of shares/voting rights of VST as on the
date of public announcement made on February 15, 2001. The public announcement
and letter of offer clearly state that the object of the offer is to increase the

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 shareholding of respondent No. 3 in shares/voting rights in VST. The letter of offer
dated May 11, 2001, states that it has no plans beyond the purpose of increasing its
holding. In the absence of any information to the contrary, it would not be
appropriate to presume that the said acquisition is for acquiring control over VST or
substantial powers of management in VST. There are disclosures in the letter of offer
to enable the investors/shareholders of VST to take an informed decision which are in
conformity with Regulation 16(ix) of the Takeover Regulations. The Regulations allow
the acquirer to revise upwards the price and number of shares irrespective of his
objective of the offer and the same cannot be deemed to be in violation of the
regulations. In terms of Regulation 28 the acquirer shall by way of security for
performance of its obligation under the regulations deposit in an escrow account 25
per cent of the consideration payable under the public offer. Such escrow can be
provided in the form of acceptable securities with appropriate margin with the
merchant bankers. The value of the escrow account of respondent No. 3 with its
merchant banker was enough to cover the entire consideration payable under the
offer and not just 25 per cent as required under the Regulations. The said fact has
also been confirmed in the public announcement made by respondent No. 3 on June
12, 2001. The managers of the offer have also undertaken as disclosed in the letter of
offer, to make good the deficit, if any, on realisation in the value of securities kept in
the escrow account. It is denied that the shareholders of VST are being left in lurch in
the event Damanis and respondent No. 3 are unable to implement the offer. It is also
denied in the counter-affidavit that the disclosures about the identity of the acquirer
and that the acquirer is a wholly owned subsidiary of ITC Ltd. were made in the letter
of offer dated April 23, 2001, and public announcement dated April 24, 2001, by
respondent No. 4. With regard to the non-disclosure in the letter of offer of
respondent No. 4 on the shareholding of BAT in ITC Ltd. is concerned, it is stated
that ITC Ltd. is also disclosed to be a widely held professionally managed company,
thereby implying no identifiable person in control/promoters/ group. In the letter of
offer, respondent No. 4 specifically stated that ITC Ltd. is not concerned or connected
otherwise with the offer and the disclosure regarding ITC Ltd. is given in the letter of
offer. Being the holding company of respondent No. 4, ITC Limited is deemed to be
acting in concert with the acquirer in terms of the Takeover Regulations. In terms of
the Regulations, BAT cannot be deemed to be acting in concert with ITC Ltd. by virtue
of its major shareholding in ITC Ltd. It is further stated in the counter that a similar
W. P. No. 7496 (W) of 2001 was filed before the Calcutta High Court with similar
allegations. The Calcutta High Court refused to stay the letter of offer, Similar to the
writ petition filed in Calcutta High Court, another writ petition was filed in the Delhi
High Court in W. P. No. 3471 of 2001 and interim orders obtained on May 28, 2001.
On filing LPA No. 298 of 2001, the interim order granted by the learned single judge
on May 28, 2001, was vacated on June 1, 2001, by the Division Bench of the Delhi
High Court observing inter alia that the course of action adopted by the writ
petitioner amounts to forum hunting. Even though the offer made by respondent No.
3 opened on May 5, 2001, and respondent No. 4 on April 30, 2001, the petitioners
have filed the present writ petition on June 8, 2001, which is just five days before
closure of the offer and which will jeopardise the interest of the shareholders who
have responded to the letter of offer.
5. The third respondent filed a counter along with the vacate stay petition, inter alia,
stating that the merchant banker of the third respondent made a public
announcement in four newspapers on February 15, 2001, about their intention to
acquire 20 per cent equity shares in VST Industries Ltd. as required under regulations
15 and 16 of the Takeover Regulations. On March, 6, 2001, the merchant banker of
the fourth respondent also made a public announcement regarding the fourth

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 respondent's intention to acquire 20 per cent equity shares in VST as required under
the Takeover Regulations. On April 30, 2001, and May 15, 2001, the offers of the
fourth respondent and third respondent opened and copies of the letters of offer have
been sent to all the shareholders including the petitioners as required by the
Takeover Regulations. After knowing the respective bids of the third and fourth
respondents were closing on June 13, 2001, the petitioners ventured to file the
present writ petition itself shows that the petitioners waited till the last moment and
filed the writ petition only with a view to stall the entire process of acquisition. The
petitioners are guilty of laches and they are not entitled to any discretionary relief.
Apart from the same, the writ petition is not maintainable. Though they are aware of
the attempts made by respondents Nos. 3 and 4 for substantial acquisition of shares,
they never chose to make any complaint to the SEBI pointing out the illegalities if
any and never requested for investigation in terms of regulation 38 of the Takeover
Regulations. When the statutory regulations envisaged conduct of investigation by the
SEBI, a specialised body constituted to safeguard the interest of investors, etc., the
petitioners without availing of the said remedy available cannot complain that SEBI
failed to discharge its statutory obligations and seek a mandamus to command the
performance of the statutory duty. It is also denied that respondent No. 3 could not
deposit 25 per cent of the total consideration of the offer in escrow account in terms
of Regulation 28(2)(a) of the Takeover Regulations. The petitioners have deliberately
failed to mention that in paragraph 6.2(4) of the letter of offer issued by the third
respondent, in which it has been specifically stated that the value of the escrow
account has been subsequently increased to cover the entire consideration payable
under the present offer. It is further stated that the offer was increased from 20 per
cent to 30 per cent of the equity shares of VST and after the offer price was increased
from Rs. 118 to Rs. 151 as final price, the third respondent made further deposits
with its merchant banker to cover 100 per cent consideration of approximately Rs. 70
crores. A copy of the letter dated June 12, 2001, addressed by the merchant banker
of the third respondent confirming the deposit is enclosed along with the counter-
affidavit. As against the holding of the third respondent as on the date of letter of
offer, the petitioners collectively holding not more than 1,000 equity shares of VST
having the aggregate value of Rs. 1,51,000, which will clearly demonstrate that the
third respondent never do any act, deed, matter or thing whereby the value of the
shares of VST held by the third respondent would deflate. Any such act on the part of
the third respondent would jeopardize the substantial interest of the third respondent.
The entire grounds on which writ petition has been based/founded have been duly
and adequately disclosed by the third respondent in its letter of offer addressed to all
the shareholders of VST. If the shareholders desirous of tendering their shares as
also those who are not desirous of tendering their shares in response to the public
offer made by the third respondent, have received complete information regarding the
terms of the offer and background of the third respondent and the basis on which
such public offer has been made. The writ petition is filed with mala fide intention to
obstruct the third respondent in acquiring the shares of the minority shareholders at a
fair value. However, after the public offer, the shares of VST have touched Rs. 150
per share thereby making the value of the shares almost double in about four
months. It also reiterated that the third respondent and the persons acting in concert
with the third respondent have no intention to take over the management of VST
and/or to destabilise the existing management and/or to strip VST of its valuable
assets as has been alleged in the writ petition. It also denied that the letter of offer
and public announcement issued by it are misleading and/or are in violation of the
SEBI Act and/or the Takeover Regulations. The investigation launched by the SEBI
against the third respondent has been referred to in the letter of offer. In fact the

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 SEBI has suspended the broking activities of all other stockbrokers who are under
investigation but so far no steps have been taken by the SEBI against Damani Shares
and Stock Brokers and Maheswari Equity Brokers or Avenue Stock Brokers. It also
denied any wrongdoing, market manipulation/price rigging, short sale on its part and
so far as the third respondent is concerned it is not under any investigation by the
SEBI and all other allegations in para. 6(a) of the affidavit. A prohibitory order issued
by the Income Tax Department under Section 132 of the Income Tax Act has been
vacated, which has no bearing on the acquisition of shares and suspension of trading
rights of G. S. Damani have been disclosed in the letter of offer including the
investigations that are being carried out by the SEBI, BSE and NSE against the group
companies of the third respondent have been duly disclosed by it to the shareholders.
Thereafter, as required under Regulation 18(1) the merchant banker of the third
respondent submitted draft letter of offer to the SEBI for its approval, but the SEBI
returned the approved draft of the letter of offer on May 8, 2001. Only after approval
of the offer of the merchant banker of respondent No. 3, respondent No. 3 opened its
offer on May 15, 2001, and letters of offer were duly printed by the merchant banker
and sent out to all the shareholders of VST on May 11, 2001. It is further stated that
they never violated the Takeover Regulations while issuing public offer. In view of
the stay granted by this court on June 8, 2001, who may want to tender their shares
may not have done so. Therefore, it is prayed the court to extend the date of closing
of offer suitably.
6 . The fourth respondent in its counter stated that the petitioners without
complaining of any violations to the second respondent, cannot complain that the
second respondent failed to act in accordance with the Takeover Regulations
promptly. With regard to the various allegations levelled in para. 6 of the affidavit of
the petitioners, it is stated that the fourth respondent is only the acquirer in so far as
its public offer is concerned. ITC Ltd., the holding company of the fourth respondent
is not acquiring any share of the VST. The offer of the fourth respondent has nothing
to do with the BAT group of companies. Common shareholding of any BAT group
company in ITC Ltd. is immaterial, inter alia, as ITC Ltd. is a widely held
professionally managed company in which there are about 1.75 lakh shareholders.
ITC Ltd. is by no means a BAT group company as insinuated nor is BAT a promoter of
ITC Ltd. Public financial institutions are the largest shareholders in ITC Ltd. holding
approximately 35 per cent of its share capital while subsidiaries of BAT hold about 32
per cent and the balance is widely held. It is also stated that proper disclosures have
been made in the letter of offer of the fourth respondent. It is denied the allegation
that BAT is seeking to increase its stake in VST through ITC Ltd. or the fourth
respondent which will result in greater monopoly in the tobacco industry. No material
information has been withheld in the letter of offer of the fourth respondent and all
the disclosures required to be made under the Takeover Regulations have been made
by the fourth respondent in its letter of offer. The entire allegations levelled in the
writ petition are vague or tricky and misleading as to the object of purpose of
acquisition of shares by the fourth respondent. The fourth respondent has not
violated any of the provisions of the Takeover Regulations or the SEBI Act.
7 . The writ petitioners filed rejoinders to both the counters filed by the third and
fourth respondents pointing out various irregularities in making the publication in
spite of the interim order granted by this court by the third respondent and denied
that the petitioners are guilty of laches in approaching the court. The third
respondent is trying to acquire substantial shares of respondent No. 5 which is not in
conformity with the accepted principles which will affect the interest of the investors
adversely. The letters of offer of the third and fourth respondents are distorted and

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 contained misleading information.
8 . In support of the writ petition, one person by name Aravind claiming to be a
shareholder of VST filed W. P. M. P. No. 14398 of 2001 and in opposition to the writ
petition, W. P. M. P. No. 14245 of 2001 is filed by another shareholder.
9 . Learned counsel for the petitioners argued that there is any amount of infraction
and violation of the Takeover Regulations committed by the third and fourth
respondents. The SEBI which is under an obligation to safeguard the interests of the
shareholders failed to discharge its statutory obligations in spite of serious doubt
about the process of takeover. In view of the same, this court under an obligation to
see that the interests of the shareholders are not jeopardised and appropriate
direction may be given in this regard to the second respondent. It was argued that
the third respondent made a public announcement of its intention to acquire shares of
VST, a target company on February 15, 2001, at the rate of Rs. 113.50 per share.
Similarly, respondent No. 4 made public announcement on March 6, 2001, to acquire
the shares at the rate of Rs. 115 per share. The letters of offer dated April 23, 2001,
and May 11, 2001, issued by respondents Nos. 4 and 3 respectively, which are
annexed to the material papers, will substantially establish about the violation of the
provisions of the Takeover Regulations. The SEBI is under an obligation to prevent
manipulations under Section 11B of the SEBI Act. The dates mentioned in the letter
of offer, namely, posting of letter of offer to the shareholders, date of opening of the
offer and date of closure are in violation of Regulations 22(3) and 22(4) of the
Takeover Regulations which mandates that the letter of offer should reach within 45
days from the date of public announcement and the date of opening of offer shall be
not later than the sixtieth day from the date of public announcement. Regulation 16
specifies the contents of public announcement of offer. Regulation 16(ii)(v)(ix) gives
a protection to the shareholders and also obligation on the part of the acquirer to
spell out what is the purpose of acquisition. It is also contended that Mr. Radha
Kishan S. Damani and Gopi Kishan S. Damani are the persons acting in concert with
Bright Star who are being investigated by the SEBI with regard to the alleged market
manipulations. Apart from the same, the Income Tax authorities made a search
against Damani Estates (P.) Ltd. In view of the same, there is any amount of
suppression about the intention of respondent No. 3 in issuing the letter of offer
though it is stated that the reasons for offer are only to increase the shareholding of
respondent No. 3. In spite of serious irregularities pointed out as mentioned in the
letter of offer, the SEBI which is under an obligation to make an enquiry into the
same, failed to perform its duties. Learned counsel for the petitioners contended that
the stand taken by the SEBI that investigations are going on against the two
associates of acquirer and persons acting in concert with the acquirer and not against
the acquirer itself is a peculiar stand giving a clean chit that there is no violation of
regulation and no investigation was initiated by the SEBI with regard to the open
offer. The stand taken by the SEBI that the petitioners have not approached the SEBI
by filing a complaint against respondent No. 3 before approaching this court cannot
be said as the SEBI is under conscious of its duties. Under Regulation 38, it is the
duty of the SEBI to investigate in the interest of securities market and investors.
Moreover, the target company's hands are tied up in view of Regulation 23. In view
of the same, this court shall issue a direction to the SEBI to act in accordance with
regulations and investigate into the affairs of acquirer and the persons who are acting
in concert with the acquirer. He also contended that the intention of the acquirer is
only to take control of the target company, i.e., VST as it possesses considerable
immovable properties in various States and the real estates value has gone up
enormously. Learned counsel for the petitioner further contended that the preliminary

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 report made by the SEBI, which was filed by the impleadment party petitioner, which
is not denied by respondent No. 3, shows that a detailed investigation is required to
be necessary to come to a definite conclusion with regard to Damani Estates and
Finance (P.) Limited, Bright Star Investments Ltd., Krishna Securities Ltd. and Avenue
Stock Brokers India (P.) Ltd. It also reveals that they are indulging in manipulative
transactions which appear to have been designed to impact the fall in prices of
certain key stocks. In view of the same, the information given to the shareholders is
inadequate as per para 3.2.8. When a Joint Parliamentary Committee investigation is
still in progress, the SEBI is under an obligation to prevent manipulations and prayed
for allowing of the writ petition.
1 0 . Shri B. Adinarayana Rao, learned counsel appearing for the third respondent
while refuting the contentions advanced by learned counsel for the petitioners
contended that apart from the facts disclosed in the letter of offer, no other facts or
irregularities are pointed out by the writ petitioners to substantiate their allegations.
Respondent No. 3-company has not suppressed any facts which entails the petitioners
to invoke the extraordinary jurisdiction of this court under Article 226 of the
Constitution. All the disclosures were made as per the directions issued by the SEBI
in its letter dated May 8, 2001, wherein the SEBI directed to incorporate about the
investigations being carried out by the SEBI against Damani Shares and Stock
Brokers Private Limited, Maheswari Equity Brokers (P.) Ltd., R. S. Damani and G. S.
Damani in regard to the alleged market manipulations. In obedience to the SEBI's
letter dated May 8, 2001, all the necessary particulars were disclosed to the
shareholders who want to sell their shares in favour of respondent No. 3. There is no
obligation cast on the shareholders to sell, compulsorily their shares to respondent
No, 3-company and it is their duty to judge the genuineness and bona fides of the
offer. The merchant banker of respondent No. 3 made a public announcement about
respondent No. 3's intention to acquire 20 per cent equity shares of VST as per
Regulation 15(1) read with Regulation 16. On May 15, 2001, copies of letter of offer
of respondent No. 3 have been sent to all the shareholders including the petitioners
by incorporating the necessary information as directed by the SEBI. The petitioners
who are aware of the respective bids of offer made by the third respondent as well as
the fourth respondent were closing on June 13, 2001, and the offer of respondent No.
3 was revised on June 3, 2001, to Rs. 151 per share, which is permitted under the
Regulations, and respondent No. 4 did not revise the offer. Similar writ petitions were
filed in the Calcutta and Delhi High Courts but could not get orders, so they moved
this court on June 8, 2001, which itself speaks volumes about the bona fides of the
petitioners in invoking the extraordinary jurisdiction of this court. Peculiarly, the
petitioners have not disclosed the shares held by them nor the impleadment party
petitioner in W. P. M. P. No. 14398 of 2001. The third respondent is already holding
14.95 per cent of stake in the target company. The petitioners never made any
complaint to the SEBI about the irregularities nor any new facts were brought to the
notice of the SEBI. Learned counsel further contended that the time-frame as stated
in the Regulations need not be strictly complied with which are only directory in
nature and they are not mandatory and in support of the said contention, he placed
reliance on the following judgments :
1. Shri Baru Ram v. Smt. Prasanni MANU/SC/0100/1958 : [1959]1SCR1403 ;
2. State of U. P. v. Babu Ram Upadhya MANU/SC/0312/1960 : 1961CriL J773
; 3. Banwarilal Agarwalla v. State of Bihar MANU/SC/0383/1961 :
(1961)IILLJ140SC ;

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 4. Dalchand v. Municipal Corporation MANU/SC/0061/1982 : 1983CriLJ448 ;
5 . Administrator, Municipal Committee Charkhi Dadri v. Ramji Lal Bagla
MANU/SC/0463/1995 : AIR1995SC2329 ;
6 . Banarsi Das v. Cane Commissioner MANU/SC/0050/1962 :
AIR1963SC1417 . Apart from the same, the third respondent sufficiently
deposited the amount as per Regulation 28 in escrow account, which is liable
for forfeiture under Regulation 45(2) if it is found at any time respondent No.
3 contravened any of the provisions of the SEBI Act or Takeover Regulations.
Merely because the letter of offer is issued, it will not foreclose the enquiry
by the SEBI and same can even be agitated after closure of the offer under
Regulation 45. Regulation 38(b)(c), on which learned counsel for the
petitioner relied, is only with regard to breach of regulations but not
otherwise. Regulations 44 and 45 sufficiently safeguard the interests of the
shareholders who want to sell their shares. Unless a specific case is made
out, it is not desirable for this court to have a judicial review at this stage
and to substantiate the said allegation, he placed reliance on the following
judgments :
7. R.K. Garg v. Union of India MANU/SC/0074/1981 : [1982]133ITR239(SC)
;
8. Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India
MANU/SC/0685/1992 : 1991CriLJ1391 ;
9. Attorney-General for India v. Amratlal Prajivandas MANU/SC/0774/1994 :
1995CriLJ426 .
Lastly, he contended that unless the petitioners are able to establish the
prejudice caused to the shareholders where their rights are violated and the
SEBI failed to perform its statutory obligations, a mandamus cannot be
issued by placing reliance on the following judgment :
1 0 . Saraswati Industrial Syndicate Ltd. v. Union of India,
MANU/SC/0075/1974 : [1975]1SCR956 .
11. State of Haryana v. Chanan Mal MANU/SC/0073/1976 : [1976]3SCR688 .
11. He also pleads that in view of the stay granted by this court on June 8, 2001, the
third respondent cannot proceed with the letter of offer, hence time may be extended
suitably in the event of dismissal of writ petition.
12. Shri P. V. S. S. S. Rama Rao, learned standing counsel appearing for the second
respondent contended that when a draft letter of offer was submitted to the SEBI by
respondent No. 3 on February 27, 2001, the SEBI through its letter dated May 8,
2001, directed respondent No. 3 to incorporate about the investigations against
Damani Shares and Stock Brokers (P.) Ltd., Maheswari Equity Brokers (P.) Ltd., R. S.
Damani and G. S. Damani in regard to the alleged market manipulations and the
same were accordingly incorporated. He further contended that under Regulation 23
non following the time schedule cannot be treated as violated which is only a
directory in nature. Under Regulation 38(b) it is only the investigation by the Board
suo motu upon its own knowledge or unless it is brought to the notice of the SEBI
any information, in the interest of securities market or investors interests, for any

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 breach of the regulations, it is not necessary to investigate into the matter. The
petitioners never approached the Board with necessary particulars obligating the SEBI
to enquire into the misdeeds if any committed by third respondent. Except making
vague averments in para. 19, no particulars are given either to the SEBI or the court.
He also contended that the third respondent is to accept the offer till June 12, 2001.
In view of the same, no extension of time need be given to the third respondent as
prayed by it. He further contended that similar writ petition, i.e., W. P. No. 7496(W)
of 2001 with similar facts was filed before the Calcutta High Court and no stay orders
were granted, and another writ petition with similar facts was filed before the Delhi
High Court in W. P. No. 3471 of 2001. The learned single judge granted stay. On
appeal in LPA No. 298 of 2001, the Division Bench of the Delhi High Court by its
order dated June 1, 2001, vacated the stay observing that the course of action
adopted by the writ petitioner amounts to forum hunting.
13. Learned counsel for respondent No. 4 adopts the arguments advanced by learned
counsel for respondent No. 3. He further contended that the third respondent made
an offer on February 15, 2001, at Rs. 112 per share and fourth respondent made an
offer on March 6, 2001, at Rs. 115. Respondent No. 3 revised its offer to Rs. 118 on
May 11, 2001 and respondent No. 4 revised its offer on May 22, 2001, at Rs. 120. At
that time, PIL writ petition was filed before the Calcutta High Court in W. P. No. 7496
of 2001 against respondent No. 4 herein without impleading respondent No. 3 and
the petitioners therein could not secure any stay from the Calcutta High Court.
Thereafter, another Writ Petition No. 3471 of 2001 was filed before the Delhi High
Court on May 28, 2001, and obtained stay. On appeal, by the fourth respondent, a
Division Bench of the Delhi High Court in LPA No. 298 of 2001 vacated the stay
granted by the learned single judge on June 1, 2001. Respondent No. 4 revised its
offer to Rs. 125 on May 31, 2001, whereas respondent No. 3 revised its offer to Rs.
151 on June 3, 2001. Filing of the writ petition is nothing but a forum hunting as
rightly held by the Delhi High Court. He further contended that the fourth respondent
is the only acquirer in respect of its public offer and ITC Ltd., the holding company of
the fourth respondent is not acquiring any shares in the fifth respondent and the offer
of the fourth respondent is nothing to do with the BAT group of companies. The
petitioners have not disclosed any material particulars how BAT is interested in
acquiring shares through the fourth respondent. It is only a vague allegation which
cannot be countenanced by this court in the absence of any material particulars. He
further contended that respondent No. 4 did not require any extension of time as
pleaded by counsel for respondent No. 3. Even, if respondent No. 3 is not entitled for
extension of time beyond June 13, 2001, no prejudice would be caused to the
petitioners as stay granted by this court is only for acquisition of shares.
14. In order to appreciate the rival contentions of the parties, it is necessary to take
notice of some of the provisions of the SEBI Act and Takeover Regulations which
govern the controversy.
15. The object of the SEBI Act, as stated, is for 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. Under Section 3, the Central Government may by notification appoint a Board
by the name of the Securities and Exchange Board of India. The powers and functions
of the Board are enumerated in Chapter IV, under which it is the duty of the Board to
protect the interest of investors in securities and to promote the development of, and
to regulate securities market by such measures as it thinks fit. Under section ll(h) of
the SEBI, the Board will regulate substantial acquisition of shares and takeover of

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 companies. Section 11B authorises the Board to issue directions after making or
causing to be made an enquiry if it is satisfied, in the interest of investors or orderly
development of the securities market, etc. Chapter VI-A deals with penalties and
adjudication. In exercise of the powers conferred under Section 30 of the SEBI Act,
the Board made the Takeover Regulations, 1997. Regulation 2(b) defines the
"acquirer". It means any person who agrees to acquire, directly or indirectly, shares
or voting rights in the target company. Regulation 2(e) defines "person acting in
concert". Chapter III deals with substantial acquisition of shares or voting rights in
and acquisition of control over a listed company more than 15 per cent of shares.
Regulation 10 mandates before acquisition of shares more than 15 per cent, such
acquirer shall make a public announcement to acquire shares of such company in
accordance with the Takeover Regulations. Regulation 13 mandates the acquirer to
appoint a merchant banker in Category-I holding a certificate of registration granted
by the Board who is not an associate of or group of the acquirer or the target
company before making any public announcement of offer referred to in Regulations
10, 11 and 12. Regulation 14 specifies the timing of the public announcement of
offer. Regulation 15 deals with public announcement of offer. Regulation 16(ii)(v)
deals with information which should be published in the public announcement of
offer, namely, the total number and percentage of shares proposed to be acquired
from the public, identity of the acquirer and in case the acquirer is a company or
companies, the identity of the promoters and the persons having control over such
company. Regulation 16(ix) mandates the acquirer to specify its object and purpose
of the acquisition of shares and future plans, if any, of the acquirer for the target
company including the disclosures whether the acquirer proposes to dispose of or
otherwise encumber any assets of the target company in the succeeding two years
except in the ordinary course of business of the target company. Regulation 18
mandates the acquirer to submit draft letter of offer to the Board within 14 days from
the date of public announcement. Regulation 19 deals with specified date, for the
purpose of determining the names of the shareholders to whom the letter of offer
should be sent. Regulation 20 deals with minimum offer price. Regulation 21 deals
with minimum number of shares to be acquired. Regulation 22 specifies the general
obligations of the acquirer. Regulation 22(2) specifies the acquirer to send a copy of
the draft letter of offer to the target company at its registered office for being placed
before the board of directors and to all the stock exchanges where the shares of the
company are listed within 14 days of the public announcement of the offer.
Regulation 25(7) contemplates where there is a competitive bid, the date of closure
of the original bid as also the date of closure of all the subsequent competitive bids
shall be the date of closure of public offer under the last subsisting competitive bid
and the public offers under all the subsisting bids shall close on the same date.
Regulation 27 prohibits withdrawal of offer once made except under the
circumstances mentioned under the said regulation. Regulation 38 authorises the
Board to investigate into the complaints received from investors or suo motu upon its
own knowledge or information whether the provisions of the Act and the Takeover
Regulations are complied with by acquirer company or not. If any such investigation
is undertaken by the Board, Regulation 40 contemplates the acquirer, the seller, the
target company, the merchant banker to produce necessary books, securities,
accounts, records to the investigating officer. Regulation 44 authorises the Board to
issue necessary directions prohibiting the person from disposing of any securities
acquired in violation if it is found that the acquirer violated the provisions of the
Takeover Regulations. Regulation 45 provides penalties for non-compliance with the
regulations which includes criminal prosecution and monetary penalties.
16. It is not in dispute that the merchant bankers of the third and fourth respondents

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 have made their public announcement specifying the intention of third and fourth
respondents to acquire 20 per cent of fully paid-up equity shares in the target
company, i.e., VST. After making public announcement, draft letters of offer were
submitted to the Board and on the directions given by the Board necessary
information, as desired by the second respondent, was incorporated in the letters of
offer sent to the shareholders. Except the information furnished in the letters of offer
by the third and fourth respondents, the petitioners have not furnished any
information with regard to the bona fides of the third and fourth respondents. It is
curious to note that no other specific allegation was made against third and fourth
respondent which disentitles them from acquiring shares of the target company, i.e.,
VST. Except making a vague allegation that the acquirers have not spelt out their
intention to acquire shares of the VST and the second respondent is under an
obligation to, investigate into the affairs of the third and fourth respondents, the
petitioners have not placed any substantial evidence to support their contention. The
main complaint of the petitioners appears to be that if the third and fourth
respondents are permitted to acquire the shares of VST, they will have the majority
shareholding in the VST. It is also stated that the third respondent could not deposit
the required 25 per cent of the total consideration amount for the public offer in the
escrow account in cash in terms of Regulation 28(2)(a) of the Takeover Regulations
relying upon the Critical News Analysis appearing Under the caption "Capturing VST's
charms : the final battle for control ?" wherein it is stated that the Damanis are
unable to meet their financial commitments and they defaulted in making their
financial contribution towards 26 per cent of the equity share capital of ING Vysya
Life Insurance Co. (P.) Ltd. Learned counsel for the petitioners contended that
Radhakishan S. Damani and Gopikishan S. Damani, who are the persons acting in
concert with respondent No. 3, are being investigated by the SEBI with regard to the
alleged market manipulations. The said fact was incorporated in the letter of offer of
respondent No. 3 at the directions of the SEBI in their letter dated May 8, 2001,
copies of which were sent to the all shareholders of the VST including the petitioners.
In fact in letter of offer itself at para. 6.2.4 issued by the third respondent, it is
specifically stated by it that the value of the escrow account has been subsequently
increased to cover the entire consideration payable in their present offer. Even after
increase of offer, the third respondent made further deposit with its merchant banker
to cover 100 per cent consideration of approximately Rs. 70 crores as evidenced by
the letter of the merchant banker of the third respondent dated June 12, 2001. In
view of the same, it cannot be said that the third respondent has suppressed the said
fact and second respondent has not taken note of the same. Similarly, with regard to
respondent No. 4, learned counsel for the petitioners stated that the identity of the
acquirers and or promoters to the acquirers are not duly disclosed by respondent No.
4 in its counter offer. He further contended that BAT group of companies who hold
32.16 per cent shares of VST applied for the Government of India for permission to
further increase its stake in VST, but the same was rejected by the Central
Government. The BAT group of companies also hold substantial shares in ITC Ltd.,
the holding company of respondent No. 4. The said information is not disclosed in
the letter of offer of respondent No. 4. The fourth respondent specifically denied the
said allegations by stating that the fourth respondent is only acquirer but ITC Ltd.,
the holding company of the fourth respondent is not acquiring any shares in the
target company, i.e., VST and the offer of fourth respondent is nothing to do with the
BAT group of companies. No substantial evidence has been produced by the
petitioners to come to a definite conclusion that it is the BAT group of companies
promoted the fourth respondent to acquire the shares in the fifth respondent. In the
absence of the same, it cannot be said that the letter of offer issued by the fourth

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 respondent is in contravention of the Takeover Regulations.
17. The apex court in the case of R. K. Garg v. Union of India MANU/SC/0074/1981 :
[1982]133ITR239(SC) held that laws relating to economic activities should be viewed
with greater latitude than laws touching civil rights such as freedom of speech,
religion, etc. There may be crudities and inequities in complicated experimental
economic legislation but on that account alone it cannot be struck down as invalid.
18. The apex court in the case of Peerless General Finance and Investment Co. Ltd.'s
case MANU/SC/0685/1992 : 1991CriLJ1391 held as follows (page 96):
"The function of the court is to see that lawful authority is not abused but not
to appropriate itself the task entrusted to that authority. It is well settled that
a public body invested with statutory powers must take care not to exceed or
abuse its power. It must keep within the limits of the authority committed to
it. It must act in good faith and it must act reasonably. Courts are not to
interfere with economic policy which is the function of experts. It is not the
function of the courts to sit in judgment over matters of economic policy and
it must necessarily be left to the expert bodies. In such matters even experts
can seriously and doubtlessly differ. Courts cannot be expected to decide
them without even the aid of experts."
19. The Constitutional Bench of the Supreme Court in the case of Attorney-General
for India v. Amratlal Prajivandas MANU/SC/0774/1994 : 1995CriL J426 while
considering the vires of the COFEPOSA Act by pointing out the view taken by it in its
earlier case Banarsi Das v. Cane Commissioner MANU/SC/0050/1962 :
AIR1963SC1417 held that in judging the validity and relevant in the matter of the
interpreting the provisions of such economic measures the Legislature must be
permitted a greater play in the joints.
20. It is clear from the above cases that the settled principles have to be kept in
mind while judging the validity of laws and in the manner of interpreting provisions
of such laws which were enacted for such economic measures, etc. Though the above
cited cases are not relevant to the facts of the present case, the principles enunciated
therein have to be kept in mind while deciding the dispute, about the Takeover
Regulations which are enacted to safeguard the interests of investors and to see the
healthy growth of the companies by permitting the SEBI some play in the joints in
discharge of its obligations.
21. Admittedly, when the draft letter of offer was submitted by the third respondent
to the second respondent-SEBI for its approval, the second respondent by its letter
dated May 8, 2001, directed the third respondent to incorporate about the
investigations made against Damani Shares and Stock Brokers (P.) Ltd., Maheswari
Equity Brokers (P.) Ltd. and R. S. Damani and G. S. Damani in regard to the alleged
market manipulations. In obedience to the directions issued by the SEBI, the third
respondent in its letter of offer incorporated all necessary particulars at paras. 3.2.8,
3.2.9 and 3.2.10 as desired by the second respondent-SEBI. In view of the same,
unless specific complaints are made against the third respondent and necessary
material is brought to the notice that disentitles the third respondent from acquiring
shares in the VST, it cannot be said that the second respondent-SEBI failed to
discharge its obligations.
22. The next contention of learned counsel for the petitioners is that the Takeover
Regulations are mandatory in nature and not strictly adhering to the time schedule

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 specified therein will invalidate the letters of offer issued by the respondents Nos. 3
and 4. In opposition of the same, learned counsel for third respondent contended that
the said regulations are directory in nature and they cannot be termed as mandatory
and any departure from the time schedule will not invalidate the letter of offer.
2 3 . The apex court in the case of Babu Ram Upadhya MANU/SC/0312/1960 :
1961CriLJ773 held as follows (page 765) :
"The relevant rules of interpretation may be briefly stated thus : When a
statute uses the word 'shall', prima facie, it is mandatory, but the court may
ascertain the real intention of the Legislature by carefully attending to the
whole scope of the statute. For ascertaining the real intention of the
Legislature the court may consider, inter alia, the nature and the design of
the statute, and the consequences which would follow from construing it the
one way or the other, the impact of other provisions whereby the necessity of
complying with the provisions in question is avoided, the circumstance,
namely, that the statute provides for a contingency of the non-compliance
with the provisions, the fact that the non-compliance with the provisions is
or is not visited by some penalty, the serious or trivial consequences that
flow therefrom, and, above all, whether the object of the legislation will be
defeated or furthered."
24. The apex court in the case of Banwarilal Agarwalla's case MANU/SC/0383/1961 :
(1961)IILLJ140SC held as follows (page 851) :
"As has been recognised again and again by the courts, no general rule can
be laid down for deciding whether any particular provision in a statute is
mandatory, meaning thereby that non-observance thereof involves the
consequence of invalidity or only directory, i.e., a direction the non-
observance of which does not entail the consequence of invalidity, whatever
other consequences may occur. But in each case the court has to decide the
legislative intent. . . ."
2 5 . The apex court in the case of Dalchand's case MANU/SC/0061/1982 :
1983CriL J448 while considering the period stipulated under rule 9(j) of the
Prevention of Food Adulteration Rules, 1955, for supply of report of the public analyst
held that the period prescribed was with a view to expedition and with the object of
giving sufficient time to the person from whom the sample was taken to make such
arrangement as he might like to challenge the report of the public analyst by making
a request to the Magistrate to send sample to the Director of the Central Food
Laboratory and non-compliance with the rule was directory in nature but not
mandatory.
2 6 . Similarly, the apex court in Ramji Lal Bagla's case MANU/SC/0463/1995 :
AIR1995SC2329 while interpreting Section 44A of the Punjab Town Improvement Act,
1922 which provides execution of the scheme within a period of five years from the
date of such notification held that the same is not mandatory as non-compliance with
it results in divesting of title of the trust nor is there any obligation to restore the
unutilised portion of land to its erstwhile owners or persons interested. In view of the
same, the expression "shall" does not provide the consequence of non-compliance
with its requirement. Unless consequences flowing from non-compliance with the
requirement are prescribed, it is only directory.
27. It is clear from the above cited cases, the principle laid down therein is that

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 whenever a statute or regulations require a particular act to be done in a particular
manner and also lays down that failure to comply with the said requirement leads to
a specific consequence, the same is mandatory in nature and if it does not specify the
consequences it will only be directory in nature.
2 8 . Learned counsel for the petitioners buttressed the said argument stating that
Regulation 22(4) is mandatory in nature which mandates the offer shall be not later
than the sixtieth day from the day of the public announcement, i.e., February 15,
2001. As the offer of the third respondent opened on May 15, 2001, it is a clear
violation of the Takeover Regulations. Further Regulation 22(3) mandates the
acquirer to send the letter of offer to all the shareholders so as to reach them within
45 days from the date of public announcement, which is not adhered to. Hence, the
third respondent cannot proceed with the letter of offer.
2 9 . In fact in the present case, public announcement was made on February 15,
2001, and the draft letter of offer was forwarded to the second respondent-SEBI by
the merchant banker of the third respondent on February 27, 2001. But the second
respondent through their letter dated March 21, 2001, advised the merchant banker
of the third respondent to await their comments. Ultimately, on May 8, 2001, the
second respondent-SEBI directed the third respondent to incorporate about the
investigations carried out against Damani Shares and Stock Brokers (P.) Ltd.,
Maheswari Equity Brokers (P.) Ltd., R. S. Damani and G. S. Damani in regard to
market manipulations. Thereafter the letter of offer was despatched on May 11, 2001.
Regulation 25(7) postulates when there is a competitive bid, the date of closure of
the original bid as also the date of closure of all the subsequent competitive bids
shall be the date of closure of public offer under the last subsisting competitive bid
and the public offer under all the subsisting bids shall close on the same date. In
view of the same, even if the offer announced by the acquirer closed on an earlier
date, the offer of the competitive bid of the acquirer closes on a later date, the same
is extended to later date.
30. Apart from the same, Regulation 22 does not specify the consequences that flow
if the acquirer fails to follow the time schedule, namely, opening of the public offer
within 60 days from the date of public announcement and letter of offer shall be sent
to all the shareholders of the target company so as to reach them within 45 days will
become non est and the acquirer has to proceed afresh further. In the absence of
such consequences specified, it cannot be said that the regulations are mandatory in
nature ; but they are directory in nature to see that the shareholders receive the offer
within the time stipulated keeping in view the market fluctuations in the share market
so that they are not put to any loss. In view of the same, I am of the view that
Regulation 22(3)/(4) is only directory in nature and not adhering to the time
schedule stipulated will not invalidate the letter of offer.
31. The petitioners who are invoking the jurisdiction of this court under Article 226
of the Constitution of India for a mandamus have to establish the prejudice caused to
the shareholders in extending the letter of offer or permitted the acquirers by the
SEBI to acquire shares will result in unforeseen consequences which will jeopardise
the industrial growth or interest of the shareholders. Without establishing the same,
the petitioners are not entitled to seek a mandamus from this court. Moreover, the
petitioners have neither pleaded any new fact other than the facts which are
mentioned in the letter of offer nor pleaded that respondent No. 3 and respondent
No. 4 are not entitled to acquire the shares in the target company. In spite of
statutory prohibition prohibiting them to do so, the SEBI failed to discharge its

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 statutory obligations and permitted respondent No. 3 and respondent No. 4 to acquire
shares of the target company, i.e., VST. Unless the element of public interest and
violation of statutory regulations are demonstrated mandamus cannot be issued
against the SEBI to act immediately as a matter of course. The petitioners without
demonstrating such requirement invoked the jurisdiction of this court by filing the
present writ petition is nothing but a forum hunting.
32. For the aforementioned discussion, I do not find any merit in the contentions
advanced by learned counsel for the petitioners. Therefore, the writ petition is liable
to be dismissed.
33. Then remains the sole question whether the time schedule as fixed in the letter
of offer deserves to be extended or not. This court by order dated June 8, 2001, only
granted stay of acquisition of shares by the respondents. It means,
acceptance/rejection of offer alone is stayed but not neither opening of the offer nor
closure of the offer. It is also brought to the notice of the court that even after
granting interim stay, the third respondent made a public announcement on June 11,
2001 to the shareholders of VST Industries Ltd. to complete the application form
included in the letter of offer sent to shareholders and advising them to arrange for
delivery of completed forms and related documents to reach the collection centres on
or before June 13, 2001. In view of the same, it is not necessary to extend the time
as the third respondent received the application forms from the shareholders of VST
at their respective collection centres before the closing date, i.e., June 13, 2001.
34. The writ petition is accordingly dismissed. No costs.

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