SC admits Sebi appeal in Burren Energy case

NEW DELHI: The Supreme Court on Friday admitted Sebi���s appeal challenging the Securities Appellate Tribunal (SAT) order that had quashed the market regulator���s order imposing a penalty of Rs 25 lakh each on Burren Energy (with its registered office in London) and Unocal Bharat (incorporated in California) in connection with the Hindustan Oil Exploration (HOCL) acquisition case.

A Bench comprising Justice AK Mathur and Justice PK Balasubramanyan admitted the appeal moved by the market regulator.Solicitor General GE Vahanvati, appearing for Sebi, said if the SAT order is not set aside it would nullify the objective of the regulation enacted to protect the interest of shareholders of the target company from the malafide interest of the acquirers.

Sebi in its appeal has said as per the amended regulation, the appointment of directors on the board of the target company is prohibited from the date of ���preliminary understanding��� and not from the stage of ���final determination���.Burren Energy India on February 14, 2005 entered into an agreement with Unocal International Corporation to acquire the entire equity share of Unocal Bharat which holds 26.1% of the share capital of target company, Hindustan Oil Exploration. In September 1996, UIC had acquired the entire share capital of UBL which was incorporated in Mauritius in July 1996.

On February 14, 2005, Burren appointed two of its directors on board of UBL and on the same day UBL, in concert with the acquirer, had also appointed the same persons as directors of the target company.

On February 15, 2005, Burren made a public announcement in accordance with the takeover regulations.

Sebi has said the share purchase agreement (SPA) was executed between Burren and UIC on February 14, 2005 and on the same date two directors were inducted on the board of the target company which was in violation of Regulation 22(7). It imposed a penalty of Rs 25 lakh each on the two companies, which they challenged before SAT.

The market regulator in its appeal has argued that the ���offer period��� should begin from the date the share purchase agreement was signed after which the directors were appointed on the HOCL board.

The tribunal had said where no memorandum of understanding (MoU) is arrived at and the parties straightaway enter into an agreement for the purchase of shares, then the offer period shall commence from the date on which the acquirer makes a public announcement.

���The intent and coming together of minds on terms and conditions of takeover in the form of SPA is nothing but the MoU as per the common parlance and commercial usage,��� said the Sebi appeal.

In commercial law, an MoU is a document for recording a transaction. Any document recording a transaction between the acquirer versus the acquired, seller versus purchaser, transferor versus transferee, which records the terms and conditions is an MoU. Such document could be named SPA, said the appeal.