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MUMBAI, Nov. 28

THE Securities Appellate Tribunal today confirmed the Securities and Exchange Board of India's order stopping Grasim Industries from going ahead with its open offer for 20 per cent stake in Larsen & Toubro.

The option for Grasim now is to approach the Supreme Court, said counsel for the company, Mr Goolam Vahanvati.

In SAT's view, granting an interim order as sought for by Grasim would tantamount to staying an investor protection measure put in operation by SEBI.

"I am not inclined to grant interim relief as prayed for by the applicants," said Mr C. Achuthan, Presiding Officer, SAT.

SAT said SEBI was competent to stall a public offer if it was of the opinion that the offer was not in the interest of investors. "In this context, it is to be noted that if such an offer is allowed to go, then there is no effective remedy to make good the adverse effects of the same," SAT noted in its order.

"If the offer documents are to be cleared without waiting for the verification of the allegation in the complaint or completion of the enquiry, the very purpose of conducting the enquiry or examining the complaint becomes redundant", noted SAT.

Grasim had appealed to SAT for interim relief seeking permission to proceed with its open offer scheduled to open on December 9, 2002.

SEBI had, earlier this month, asked Grasim to withhold its open offer, pending its investigations into possible violations with respect to its acquisition of 10.05 per cent equity stake in L&T in November last year.

Grasim in its appeal, citing SEBI regulations, had submitted that SEBI had no power to issue any stay order as had been done and that Grasim's rights to make a public issue could not be taken away. Grasim even offered to make a conditional open offer or consider such revisions to it as it may be directed.

SAT said it was difficult to accept the version that all that SEBI could do was to call for a revised letter of offer.

SAT noted that if a serious complaint was received against a public offer or an enquiry was on to unearth certain malpractices and SEBI had reasons to believe that the public offer was not in the interest of investors, it did not stand to reason to hold that SEBI had no powers.

Grasim had also argued that its initial acquisition of 10.05 per cent stake was in accordance with the regulation and that SEBI itself had, in December last year, held that this acquisition had not triggered the open offer requirement. Grasim said SEBI had no new material to order fresh investigations now.

SAT said SEBI's earlier decision that the acquisition did not require an open offer was based on the material then available before it. SAT also noted that the flow of complaints from investor associations never stopped.

The SAT decision makes clear that the regulator can examine the allegations afresh if any new material comes up before it or if it decides to do this in due discharge of its duty of protecting investor interests.

"It cannot be that the matter is closed forever," said SAT.

SAT also noted that the 10.05 per cent stake was bought from Reliance Industries on negotiated terms at a price much higher than the then prevailing rate; that Grasim had been progressively increasing its stake; and that subsequent to the announcement of the company's open offer for L&T shares, the company's holding in the target company reached 15.35 per cent.

The order also observed that Grasim had not stated any urgency as to why the public offer should go unrestrained.

"...It is difficult to take a view that unless the order is stayed now, the appellants would suffer irreparable injury," said SAT.

It said that Grasim would not be held responsible for not complying with time-bound action on its open offer, since it was doing so at the directive of the regulator.

The order allows Grasim to withdraw the Rs 117 crore that it had put into an escrow account for the purpose of the public offer.

`A victory for small investors'

The Investors' Grievances Forum has said that Securities Appellate Tribunal's decision to dismiss Grasim's appeal against the stay of L&T open offer is a victory for small investors.

Mr Kirit Somaiya, IGF president and Lok Sabha MP, said that the Securities and Exchange Board of India should complete all investigations related to Grasim's purchase of L&T stake within the next three months.

According to IGF, investors have "at last got justice" after trying to seek blocking of L&T open offer for the last 12 months.

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