SC prevents Sebi from penalising Swedish Match

But says public announcement of Wimco buy was necessary

The Supreme Court on Thursday declared that Swedish Match AB should have made public announcement of its acquisition of Wimco Ltd of the Jatia group according to the Securities & Exchange Board of India (Sebi) regulations. But the court prevented Sebi from taking penal action against the Swedish group in this case.

The Sebi had issued a show cause notice to the Swedish Match group of companies for violating Regulation 11 (1) and threatening to impose Rs 25 crore as penalty under Section 15H of the SEBI Act.

The Securities Appellate Tribunal (SAT) also stated that the foreign company had violated the Regulation 11. According to this regulation, if additional shares are acquired entitling an acquirer to exercise more than 5 per cent of the voting rights, the acquirer must make a public announcement to acquire shares.

A three-judge bench, headed by Justice Santosh Hegde, stated that the regulation was intended to control "creeping acquisition which may lead to substantial acquisition and ultimately total control of the company."

A general meeting of the shareholders of the target company had taken place but it did not subserve the requirements of the law. When the transfer of control over the target company takes place by reason of acquisition of shares at a price higher than the market price, the acquirer has a statutory obligation to make the public announcement.

"Having regard to the fact that the price offered to the Jatia group was higher than the market price, a public announcement was imperative so as to enable the shareholders to elect as to whether to sell their share held by them or not," the judgement said.

The judgement pointed out that public announcement of acquisition of shares was one of the modes of protecting the interests of the shareholders.

The Swedish group acquired the Indian company through an intricate process between 1997 and 2000. Initially both groups were in joint control but later the Jatia group decided to withdraw. Though the market value of Wimco share was only Rs 9.55, the Swedish group paid Rs 35 to them.

The general meeting of the shareholders had allegedly approved of the cessation of the joint control. But SC insisted that a public announcement was imperative under the circumstances.

However, as a special case, the Supreme Court directed the Sebi not to take penal action against the Swedish company. It clarified that this case should not be taken as a precedent in future cases.