DATE: 11.05.2005
COURT: Supreme Court of India
BENCH: Justice Ruma Pal, Justice Arijit
Pasayat, and Justice C.K. Thakker
FACTS:
The matter arose from
the acquisition of Coflexip, a French company that controlled the majority
shareholding in South-East Asia Marine Engineering and Construction Ltd.
(SEAMEC), an Indian listed company. In April 2000, Technip S.A., a French
company, agreed to acquire 29.68% of Coflexip's shares from Stena, another
shareholder. Following the transaction, three nominees of Technip were
appointed to Coflexip's Board, while Technip and its associated entities
obtained significant representation on the Board. The transaction subsequently
resulted in Technip ultimately acquiring control of Coflexip in July 2001.
Since Coflexip controlled SEAMEC, the acquisition raised questions under the
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997,
particularly whether Technip's acquisition triggered an obligation to make a
public offer to SEAMEC's minority shareholders.
Certain minority
shareholders of SEAMEC complained to SEBI, alleging that Technip had acquired
control of SEAMEC as early as April 2000 without making the mandatory public
announcement. SEBI investigated the matter and concluded that Technip acquired
control only in July 2001, finding violations of the Takeover Regulations and
directing Technip to make a public offer to SEAMEC shareholders, taking 3 July
2001 as the relevant date. The minority shareholders challenged SEBI's
determination before the Securities Appellate Tribunal (SAT), contending that
the relevant date was April 2000. The SAT agreed with the shareholders and held
that Technip had obtained control in April 2000, applying Indian law to
determine the question of control. Aggrieved by the SAT's decision, Technip and
the concerned parties appealed to the Supreme Court under Section 15Z of the
SEBI Act, 1992, bringing the dispute concerning the applicable law and the date
on which control of SEAMEC was acquired before the Supreme Court.
ISSUES:
The principal issues before the Supreme
Court were whether French law or Indian law governed the determination of when
Technip acquired control over Coflexip and, consequently, SEAMEC, and whether
Technip had acquired such control in April 2000 or July 2001 so as to attract
the obligations under Regulations 10, 11 and 12 of the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997. The Court also
considered whether Technip and ISIS had acted in concert to acquire control and
thereby triggered the obligation to make a public offer to the minority
shareholders of SEAMEC.
JUDGEMENT WITH REASONING:
The Supreme Court allowed the appeals filed
by Technip and IFP and set aside the order of the Securities Appellate Tribunal
(SAT). It held that the question of when Technip acquired control of Coflexip
was governed by French law, as the companies were incorporated in France, and
that there was insufficient evidence to establish that Technip had acquired
control of Coflexip or SEAMEC in April 2000. The Court consequently upheld
SEBI's determination that control was acquired in July 2001, making 3 July 2001
the relevant date for the public offer under the Takeover Regulations.
The Court first
examined the choice of law governing the acquisition of control. It
distinguished between the corporate status and internal affairs of a foreign
company and the obligations imposed by Indian securities law. Since both
Technip and Coflexip were companies incorporated in France, the Court held that
questions concerning their internal corporate relationship and the point at
which control over Coflexip was acquired had to be determined according to
French law. However, once control over the Indian target company SEAMEC was
established, the obligations arising under the SEBI Takeover Regulations would
necessarily be governed by Indian law. The Court rejected the argument that
applying French law would offend Indian public policy merely because French law
prescribed different thresholds or tests for determining corporate control. The
difference between the two legal systems was not considered sufficiently fundamental
to invoke the public-policy exception. Accordingly, French law was the
appropriate law for determining whether Technip had acquired control of Coflexip
in April 2000.
The Court then
examined whether Technip had actually obtained de facto or de jure control over
Coflexip in April 2000 and, through Coflexip, over SEAMEC. It considered the
definitions of “acquirer,” “control,” “persons acting in concert” and “target
company” under the SEBI Regulations and assessed the relationship between
Technip, ISIS and IFP. The acquisition by Technip of 29.68% of Coflexip's
shares in April 2000, by itself, did not establish that Technip had obtained
control under French law. The Court also found insufficient evidence that
Technip and ISIS had acted in concert with the specific purpose of acquiring
control over SEAMEC at that stage. The subsequent events, including Technip's
acquisition of further shares and the establishment of control in July 2001,
provided the appropriate basis for determining the relevant date. Consequently,
the Court concluded that the SAT had incorrectly treated April 2000 as the date
of acquisition of control and that SEBI's finding of July 2001 was supported by
the applicable law and evidence.
ANALYSIS:
The decision in
Technip S.A. v. SMS Holding (Pvt.) Ltd. & Ors. is significant in the
context of corporate control, cross-border acquisitions and the SEBI Takeover
Regulations, 1997. The Supreme Court distinguished between determining the
point at which control over a foreign company is acquired and determining the
consequences of that acquisition under Indian securities law. Since Technip and
Coflexip were incorporated in France, the Court held that French law governed
the question of whether Technip had acquired control over Coflexip. However,
once the acquisition of control over the Indian company, SEAMEC, was
established, the obligations arising under the Indian takeover regulations
would be governed by Indian law. The Court therefore rejected the SAT's
approach of applying Indian law to determine the internal corporate
relationship between the French companies and held that Technip's acquisition
of a substantial shareholding and board representation in April 2000, by
itself, was insufficient to establish acquisition of control.
The judgment also
demonstrates the distinction between shareholding, board representation and
actual control for the purpose of triggering takeover obligations. The Supreme
Court found that there was insufficient evidence to establish that Technip had
acquired control of Coflexip, or indirectly of SEAMEC, in April 2000, or that
Technip and ISIS were acting in concert with the specific objective of
acquiring control at that stage. The Court consequently upheld 3 July 2001 as
the relevant date for the acquisition of control and the consequent obligations
under the Takeover Regulations. The decision is important because it adopts a
careful approach to determining when a takeover obligation is triggered,
requiring more than mere substantial shareholding or board representation where
the applicable foreign corporate law does not recognise such circumstances as
constituting control. It thereby balances the protection of minority
shareholders under Indian securities law with the principles governing the
internal affairs of foreign corporations.
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