BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Order Reserved on:15.4.2019 Date of Decision: 16.5.2019 Appeal No.108 of 2019 Tenneco Inc. 500 North Field Drive, Lake Forest, Illinois 60045, United States of America. ….. Appellant Versus Securities & Exchange Board of India SEBI Bhavan, C-4A, Bandra Kurla Complex, Bandra (E), Mumbai 400051. …… Respondent Mr. Janak Dwarkadas, Senior Advocate with Mr. Somasekhar Sundaresan, Ms. Struti Rajan, Mr. Ruetveij Pandya, Ms. Jeeta Nayak and Mr. Rushin Kapadia, Advocates i/b. Cyril Amarchand Mangaldas, Advocate for the Appellants. Mr. Pradeep Sancheti, Senior Advocate with Mr. Nishant Updhyay, Advocate i/b. Desai and Diwnaji for the Respondent. Mr. Mohan Krishnaswamy for the Intervener. Order Reserved on:2.5.2019 With Appeal No.182 of 2019 Chandra Prakash Tripathi Plot No.25, Nisargamita Co-op Housing Society, Golvaid Gut No.45, CIDCO Mahanagar IV near Sai Shrusti Park, Off Paithan Road, Aurngabad – 431002. ….. Appellant Versus Securities & Exchange Board of India SEBI Bhavan, C-4A, Bandra Kurla Complex, Bandra (E), Mumbai 400051. …… Respondent Mr. Chandra Prakash Tripathi, Appellant-in-person with Mr. Farooqui Mohammad Khalid, Advocate for the Appellant. Mr. Akshay Patil, Advocate with Mr. Nishant Updhyay, Advocate i/b. Desai and Diwnaji for the Respondent. CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member Per : Justice M.T. Joshi

1. By the present appeal No.108 of 2019, the appellant is

challenging the direction by the Assistant Manager of Securities and Exchange Board of India (referred to hereinafter as ‘SEBI’) dated 20th March, 2019 wherein interalia the appellant was directed to revise the offer price for acquiring 26 percent of the shares of the target Company to Rs.608.46 from the proposed offer of the appellant of Rs.400 per share. Appeal bearing no.182 of 2019 filed by Mr. Chandra Prakash Tripathi is filed to challenge the very same order however, on different grounds. He claims that he is an investor in the target company. According to him the target company has exclusive patented technology solutions to meet the emission norms and improve fuel efficiency. Taking into consideration the price the appellant Tenneco Inc has paid for acquisition of the holding company of the present target company in US, the offer price ought to have been Rs.6,318 per share for the reasons given in the present appeal. Appellant in Appeal No.108 of 2019 is a public limited corporation based in USA. In view of the agreement with Icahn Enterprises L.P. and other public limited corporations in the USA it had become the holding Company of Federal Mogul LLC. Following completion of the primary transfer on 1st October, 2018, Federal Mogul merged into the appellant. The appellant have therefore become 100 percent owner of chain of subsidiaries of erstwhile Federal Mogul Holding Ltd (referred to hereinafter as ‘FMHL’) and Federal Mogul Vermogensverwaltungs GMBH (referred to hereinafter as ‘FMVG’) involving multiple jurisdictions including the United Kingdom, India etc. These FMHL and FMVG were the promoters of the present target company in India i.e. Federal Mogul Goetze (India) Ltd. (referred to hereinafter as ‘FMGL’). Their holdings in FMGL were 60.05 percent and 14.93 percent respectively. It has thus triggered the requirement for making an open offer for remaining 26 percent of the shares from various shareholders.

2. It is an admitted fact that the shares of FMGL are not

frequently traded. Therefore, in terms of Regulation 8(a) to (e) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as ‘SAST Regulations’) the appellant’s manager appointed two valuers for valuing the shares of this company. These valuers were MSKA and Associates (MSKA) and J.D. Jhaveri (JDAA). These valuers determined the per share fair value at Rs.372.10/- and Rs.397.66/- respectively. The appellant therefore rounded up the value to Rs.400 per share as a fair price and public announcement was made. As per the SAST Regulations, the appellant filed a draft letter of offer with the respondent SEBI on 16th October, 2018. On receipt of this draft letter of offer it was scrutinized by the respondent SEBI. According to the respondent, some complaints from various shareholders were also received by it. The respondent SEBI therefore resorted to the provisions of Regulation 8(16) of the SAST Regulations and appointed M/s. Haribhakti and Company LLP (referred to hereinafter as ‘Haribhakti’) as Chartered Accountant for computation of fair price of the target company. Haribhakti submitted its valuation report to the respondent assessing the price at Rs.600/- per share. Ultimately, vide the impugned letter/observation the appellant interalia was directed by respondent SEBI to revise the offer price to Rs.608.46/-. Aggrieved by the said letter/observation the present appeal has been filed.

3. The submission in the appeal memo as well as oral and

written submissions on behalf of the appellant are as under: That without giving any opportunity to the appellant, Haribhakti was appointed by respondent SEBI despite the fact that two independent expert’s valuation reports were on record. Further, no opportunity was given to the appellant before accepting the valuation report of Haribhakti. The respondent did not even have in its possession, the workings that formed the basis of the Haribhatki Valuation report. It was submitted that the appellant was required to be heard by the respondent before making the observations or issuing directions which entailed into civil consequences of raising the aggregate offer price by more than Rs.300 crores. In the circumstances, the appellant wanted that the impugned letter/observation of the respondent be set aside and instead the offer price of Rs.400/- be upheld.

4. Respondent SEBI opposed the submissions. It

contended that as a regulator the respondent’s role is to protect the interest of the investors. The valuation reports submitted by the appellants would show that the very valuers followed different methods of valuation and, therefore, there is a huge variance. By book value method, the price is arrived at Rs.110.1/- while by market value method the price is arrived at Rs.534.2/-. The subsequent exercise undertaken by these valuers also suffers from the same vice. Therefore, in terms of Regulation 8(16) of the SAST Regulations, the respondent has rightly appointed Haribhakti as an independent Chartered Accountant for computation of fair price of shares of the target Company in terms of the parameters specified under Regulation 8(4) of the SAST Regulations. On the basis of Haribhakti’s report the appellant was directed to revise the offer price from Rs.400/- to Rs.608.46/- per share together with enhancement at the rate of 10 percent in terms of Regulation 8(12) of the SAST Regulations. Thereafter, the appellant sought copies of the working/computation based on which Haribhakti had arrived at the valuation report. The same was provided to the appellant on 5th April, 2019. Haribhakti has set out different methods of valuation. The reason for adopting a particular method of valuation is also set out. The valuation determined by Haribhakti is the proper offer price of the company. On the request of the appellant, calculations made by Haribhakti were also furnished to the appellant. The correctness of the same is not questioned by the appellant in the memo of appeal. The said valuation report of Haribhakti proceeds on the basis of the share prices etc. of the comparable companies while the valuation report submitted by the appellants shows that two of the comparable companies are not compared namely Bosch Limited and WABCO India Limited. Regulation 8(16) of SAST Regulations would show that passing a reasoned order is not mandated while directing appointment of an independent Chartered Accountant by the respondent SEBI. Therefore, there was no question of violation of principles of any natural justice while appointing Haribhakti.

5. During the course of hearing one Mr. Mohan

Krishnaswami claiming to be minority shareholder of the company orally sought to address certain issues with regard to the determination of fair value. He was allowed to make oral submissions. He submitted that fifty acre land owned by the target Company at Bengaluru is going to be monetized as pollution control board is increasingly issuing orders for relocation of the factories from the area. He submitted that the market value of the said land have now reached an astronomical level which factor is not taken into consideration even by Haribhakti.

6. Mr. Chandra Prakash Tripathi, the appellant in Appeal

no.182 of 2019 submitted that the offer price directed by the respondent SEBI is too low. According to him the proper peer group is not taken into consideration by respondent SEBI. Considering the exclusive patented technology solutions with the target company the value of the target company can be compared with WABCO India Ltd. which is recently acquired by ZF Friedrichshafen AG at Rs.6318 per equity share. The learned counsel for the appellant challenged the version of the appellant in Appeal no.182 of 2019 and intervener on legal as well as factual aspect. The appellant as well as the respondent relied on various authorities right from G.L. Sutlania and Another vs. SEBI (2007) 5 SCC 133 and Cadbury India Ltd (2015) 125 CLA 77 High Court of Bombay. The learned counsel for the respondent also relied on the observations of Sultania to show that reasoned order from the Regulator like SEBI is not required in such matters.

7. Upon hearing all the parties, we deem it appropriate to

remit the matter back to the respondent SEBI for the following reasons:-

REASONS

1. Regulation 8 of the SAST Regulations provide the

methodology for fixing the offer price in the circumstances as has arisen in the present appeal.

2. Sub-regulation 8(2)(e) provides as under:-

(e) where the shares are not frequently traded, the price determined by the acquirer and the manager to the open offer taking into account valuation parameters including, book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such companies; and” This takes us to Sub-Regulation (16) of this Regulation 8 which runs as under. “(16) For purposes of clause (e) of sub-regulation (2) and sub-regulation (4), the Board may, at the expense of the acquirer, require valuation of the shares by an independent merchant banker other than the manager to the open offer or an independent chartered accountant in practice having a minimum experience of ten years.”

8. Considering the report of the two valuers submitted by

the appellant Tenneco Inc. alongwith the draft letter, respondent SEBI took the course of appointing an independent Chartered Accountant Haribhakti. On the basis of this third valuation report in its direction/observation has revised the offer price to Rs.608.46/-.

9. The record of SEBI as produced before us would show

that after communicating these observations the appellant sought the material from respondent SEBI on the basis of which Haribhakti had arrived at the said conclusion.

10. In our view, though elaborate procedure of hearing the

acquirer before appointing independent Chartered Accountant by respondent SEBI is not required, the respondent SEBI ought to have given an opportunity to the appellant before revising the offer price by providing material on the basis of which Haribhakti had arrived at different valuation. Then respondent SEBI should have taken decision by recording brief reasons upon consideration of the objections, if any, received from the appellant to the valuation arrived at by Haribhakti.

11. In the circumstance, in view of the above fact there is

no need to consider the plea of Mr. Mohan Krishnaswamy, the appellant in Appeal No.182 of 2019 and counter submissions of the appellant. In the circumstances, we pass the following order.

1. The appeal no.108 of 2019 is hereby allowed with

no order as to costs.

2. The impugned observation/direction is hereby set

aside.

3. The case is remitted back to the respondent SEBI.

Since the appellant has now received the valuation report of Haribhakti and other documents during the pendency of the appeal it would be at liberty to raise objections to the report before the respondent SEBI, within a period of three weeks from the date of this order.

4. The appellant Mr. Chandrakant Tripathi and the

intervener Mr. Mohan Krishnaswamy would be at liberty to make written representation to the respondent SEBI within the same period.

5. The respondent SEBI thereafter shall take an

appropriate decision after considering the objections, if any, of the appellants or intervener within a period of four weeks.

12. Appeal no.182 of 2019 stand disposed of. Original

record is returned. Sd/- Justice Tarun Agarwala Presiding Officer Sd/- Dr. C. K. G. Nair Member Sd/- Justice M.T. Joshi Judicial Member 16.5.2019 Prepared and compared by RHN