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By Ommen A. Ninan
A reference in the SAT order points to this and the papers available with The Hindu reveal this aspect clearly. Bachubhai Munim & Co, advocates and solicitors on behalf of their client Sreenivasulu Reddy (owner of Balaji Industrial Corporation; the exclusive bottling plant lessees of the UB Group) and others wrote to the SEBI Chairman requesting him not to reach a final conclusion in the Herbertsons takeover matter until SEBI received a written opinion from "an eminent jurist'' that would be forwarded by the advocates to SEBI by January 31, 1998. Bachubhai Munim & Co also represent Vijay Mallya before SEBI as well as its Appellate Tribunal. In a letter dated February 10, 1998 to the SEBI Chairman, the advocates forwarded a copy of the written opinion of "the eminent jurist'' which was signed by none other than Justice Bhagwati. The tug of war between the Chhabrias and Vijay Mallya to take control of Herbertsons Ltd has is reached a crucial juncture. The Chhabrias had earlier announced an open offer to other shareholders of Herbertsons to acquire an additional 20 per cent stake at Rs. 90.50 per share plus 15 per cent interest as directed by SAT. When Mr. Mallya approached the SAT with a review petition against its order, the latter rejected it, stating that the applicant (UB Group) was not a party to the appeals filed by Kishore Chhabria and the order pronounced on August 1, 2003 was not against the UB Group. The UB Group challenged the order in the Supreme Court which on September 8 issued notice to SEBI. Meanwhile, Mr. Mallya made a counter offer to buy back 20 per cent of the company's shares at Rs. 200 per share from the open market as directed by SAT. The Chhabrias have now revised the terms of their open offer under which they will pay 15 per cent interest on the offer price of Rs. 90.50 per share for all shares accepted in the offer from February 25, 1995 until the date of actual payment irrespective of the period of holding by acquisition subsequent to January 25, 1995. The total payable including interest will be Rs. 210.74 per share. The offer is scheduled to open on October 3. On September 15, SEBI in an affidavit said its August 1 order asking Mr. Mallya and Mr. Chhabria to divest their stakes in excess of 21.38 per cent and 10 per cent respectively in Herbertsons should be upheld by the apex court. The Bench adjourned the matter for further hearing to October 17 and said competitive bidding for the company's shares would go on as planned but that the 19.1 per cent held by the Chhabrias (acquired in contravention of SEBI regulations according to the Bombay High Court) would be subject to its further orders. In this ongoing saga, SEBI has petitioned the Supreme Court to uphold its February 2002 order asking both the parties to divest specified shares in the target company. The SAT order had indicted SEBI on various counts, including its failure to explain the change in its stance by asking the Chhabrias to go for a divestment instead of a public offer decided upon earlier. "I find from the material on record that SEBI, based on the material available before it on January 20, 1998, had come to the conclusion that in the light of the facts and circumstances of the case the Appellants (Chhabrias) acquisition of shares was in violation of the governing requirements under regulations and warranted public offer to be made in terms of regulation 10(2). But then it suddenly took an about turn and after enquiries came to a different decision in its order dated February 19, 2002,'' stated C. Achuthan, Presiding Officer, SAT. Further Mr. Achuthan noted that he was clueless about the additional information on the basis of which SEBI decided to direct the Appellants (Chhabrias) to "divest'' their holdings in the target company (Herbertsons) instead of insisting on their making a "public offer'' as was decided earlier. "SEBI has not arrived at any additional violations or new violations by the Appellants with reference to the acquisition of the target company's shares during the relevant period so as to pass an entirely different order. In any case.......I am considering the legality of the order and for the purpose I do not consider it necessary to delve into matters which are extraneous,'' he said. An analysis of the SAT order reveals many aspects. One, SEBI changed its earlier order without giving any valid reasons. Two, it again started enquiries with a purpose of changing its earlier decision. Three, SEBI has not found any additional violations by the Chhabrias. Four, even though SAT does not want to delve into matters which influenced SEBI as the Tribunal was concerned only about whether SEBI's order "is to be sustained on fact of law,'' it noted there were some "extraneous'' factors which influenced SEBI to reverse its earlier decision. This is where the role of Justice Bhagwati gains significance. He is an advisor to Mr. Mallya and his group companies while he was also the author of SEBI's Takeover Code. In an opinion to Sreenivasulu Reddy of Balaji Group on February 10, 1998, he wrote, "The only fair and just order which SEBI should make in the circumstances is to direct K. R. Chhabria and/or M. D. Chhabria and/or their respective companies to disinvest (divest) the shares acquired by them in violation of provisions of SEBI Regulations of selling them under Regulation 39(C) of SEBI Regulation of 1994 and Regulation 44(C) of SEBI Regulations of 1997.'' There are some other interesting revelations. Mr. Reddy's Balaji Industrial Corporation is the exclusive bottling plant of Mallya's UB Group. Over and above this, Mr. Reddy was the plaintiff at the Mumbai High Court on behalf of Mr. Mallya in an earlier case. Moreover, V. R. Mehta, brother of the then SEBI Chairman, D. R. Mehta, was a board member of Balaji Industrial Corporation. On the last day of his office as SEBI Chairman on February 19, 2002, Mr. Mehta had passed an order on the same lines of Mr. Bhagwati's opinion to Mr. Reddy, asking the Chhabrias to "disinvest'' their shares. The most pertinent issue here is that never before nor after this instance has SEBI asked any person/company in violation of the Takeover Code to "disinvest'' their shares.
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