The Hindu Business Line : `SAT verdict a warning to cos not to play with rules'

LEGAL experts say the pointers contained in yesterday's order of the Securities Appellate Tribunal upholding SEBI's stay on the Grasim open offer for L&T shares will have far-reaching consequences on the activities of corporates and merchant bankers and will persuade them to observe SEBI regulations more seriously.

The SAT order emphasises that SEBI has been constituted in the main for the protection of the investor. They said: "The message sent is particularly sharp since the company in question belongs to a large and established corporate group.''

There is no new law or regulation that emerges, but sends the message that corporates should now be more wary of twisting and turning regulations to their advantage, especially with respect to management-control related aspects, said a legal expert.

"This is the first time that a company has been asked to withhold an already announced open offer on account of pending investigations. This is without precedent and this has been upheld by SAT,'' said a SEBI official. "Earlier, open offers were stalled by SEBI only for reasons of inadequate disclosure in offer documents or for some irregularity with respect to the open offer itself.''

SEBI had directed Grasim to stay its open offer for L&T shares, pending investigations into possible irregularities with respect to its initial purchase of 10.05 per cent stake in L&T in November last year. Grasim had approached SAT for interim relief for open offer to be allowed.

One of the important pointers that emerges in the SAT order is that SEBI's right to stall an open offer cannot be questioned. In its appeal to SAT, Grasim had questioned SEBI's right to stall an open offer that has already been announced, suggesting that only a revised open offer could be mooted.

"For corporates, this confirms again that a regulatory body's decision cannot be challenged on the grounds that they the body has no right to do so,'' said another senior advocate. "If this were so, then no investigations would be possible in this country.''

For the merchant banker, it is evident that he cannot look at himself simply as an agent of the acquirer, said a senior executive of a merchant banking outfit: "He is now clearly a facilitator in favour of the investor; his duty is not just to see that filings of documents are done in accordance with the regulations. This stay reminds him that he must first make sure his client is eligible to make an open offer at all, and consider his previous record of compliance.'' According to him, the stay on a Birla open offer has instilled some kind of caution among corporates. "In the last two days itself, some of our clients have voluntary produced corporate details not asked for.''

The other important message in the SAT order is that it would discourage companies from relying on amnesty schemes or seeking escape through the penalty route, said legal experts. The SAT order said if SEBI feels the public issue is not in the interests of the shareholder and if the offer is then allowed "then there is no effective remedy to make good the adverse effects of the same.''

(Grasim had in its appeal said it could make a conditional open offer, so that those who tendered shares could be paid the difference in price if SEBI asks for the price to be revised later.)

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