SICOM, a public financial institution, during the course of its regular business provided financial assistance to Raj Oil Mills whose promoters pledged their shares in the company as collateral. When Raj Oil Mills failed to repay, SICOM invoked the pledge and became the beneficial owner of the shares. The acquisition of shares through invocation of pledge triggered disclosure requirements under Regulations 29(1) and 29(2) of the Takeover Regulations, 2011 and Regulations 13(1) and 13(3) read with 13(5) of the SEBI (PIT) Regulations, 1992. However, SICOM did not make the disclosures. In its response to SEBI’s show cause notice, SICOM submitted that Regulation 29(4) exempted a PFI holding shares under pledge in its ordinary course of business from making disclosures under Regulation 29(1) and 29(2). The issue pertained to the scope of the exemption under Regulation 29(4) of the Takeover Regulations: whether PFIs are exempted from making disclosures, in case of acquisition pursuant to invocation of pledge, i.e., actual acquisition of shares, or whether the exemption is limited to cases of creation and release of pledge, i.e., deemed acquisition of shares.

SAT by its order dated 28 October, 2014 observed that Regulation 29(4) creates a deeming fiction, wherein the acquisition of shares by way of encumbrance is treated as deemed acquisition and the giving back of shares upon release of encumbrance is deemed disposal. Therefore, the exemption provided to PFIs from making disclosures is only limited to cases of deemed acquisition of shares by way of creation, or deemed disposal through release of shares, in course of their business, for securing indebtedness. SAT held that the ambit of exemption under Regulation 29(4) only covers deemed acquisitions and cannot be extended to the actual acquisition of shares. SAT concluded that, since, SICOM actually acquired the shares by way of invocation of pledge, it had to make disclosures under Regulations 29(1) and 29(2) of the Takeover Regulations and the said provisions of the PIT Regulations.