The Securities Appellate Tribunal, in a recent decision, considered whether certain acquirers who made a hostile takeover bid for a stake in Golden Tobacco Ltd. could withdraw their open offer. The withdrawal was sought on 2 grounds: (1) SEBI delayed the granting of approval for the open offer by 2 years; (2) the promoters of the company have encumbered the assets and siphoned funds of the target company, leaving only a shell company.

On the first ground, the Tribunal was critical of the time taken by SEBI in permitting the public offer. However, the Supreme Court has often taken the view that delay by SEBI, though undesirable, is not fatal. Despite SEBI’s delay the Tribunal struck down this ground by citing the Supreme Court.

On the second ground, the majority of the Tribunal took a narrow view and stated that the discretion of SEBI in allowing withdrawal is limited to those circumstances wherein it is impossible for the acquirer to go through with the public offer (e.g., when requisite statutory approvals are denied or when the sole acquirer expires). Therefore, the withdrawal sought in the present case was rejected.

This narrow view restricts SEBI’s ability to protect acquirers in circumstances where they are being taken for a ride by unruly promoters. The minority view rightly highlights this gap. The target company has been reduced to a sick company since the public announcement and this can be noted by observing the drops in profitability, book value and earnings per share. Further, an Adjudicating Officer of SEBI, in his decision from February, 2014, notes that the modus operandi of the promoters of the target company was to encumber the valuable assets without taking the risk of getting the statutorily mandated shareholder’s approval.

These actions were clearly unforeseeable despite the exercise of due skill and care by the acquirers. There is a clear need for reconsidering the interpretation of Regulation 27 of the takeover code which would allow SEBI to exercise its discretion and allow withdrawal in such circumstances.