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HC reserves orders in VST open offer case

Syed Amin Jafri in Hyderabad

The Andhra Pradesh high court on Friday reserved its orders in the batch of writ petitions relating to open offers for acquisition of shares in the Hyderabad-based VST Industries Limited by Bright Star Investments and Russell Credit.

Justice A Gopala Reddy reserved the judgement on Friday afternoon after hearing the counsels for petitioners and respondents for three consecutive days.

The main petition was filed by two shareholders of VST Industries: M V Subramanyam and Anita Paul. Two other shareholders, P Balaji Varma and Dhananjay Reddy, also filed implead petitions.

Bright Star Investments and Russell Credit, too, filed 'vacate' petitions for vacation of stay granted by the court earlier on June 8 restraining them from proceeding further in the matter of acquisition of shares.

The hearings concluded on Friday after submissions by the counsels for Russell Credit and the main petitioners.

Arguing the case on behalf of Russell Credit, its counsel E Manohar contended that there was no need for issue of writ of mandamus directing the Sebi to conduct an investigation into the allegations made by the petitioners.

He also contended that there was no need to extend the period for the acceptance of offers as sought by Bright Star Investments.

"They (the petitioners) give a picture that BAT (British American Tobacco) has sponsored this (the offer by Russell Credit). It is an incorrect and baseless allegation. Russell Credit is a subsidiary of ITC. The ITC is a widely held company and it is not concerned nor connected otherwise with the offer by the fourth respondent (Russell Credit). Thus, BAT (which has 32 percent holding in ITC) cannot be deemed to be actively concerned with ITC," the counsel pointed out.

He said that "the fourth respondent (Russell Credit) is only the acquirer and the holding company (ITC) has nothing to do with it. The fourth respondent has nothing to do with BAT group of companies nor is BAT the promoter of the ITC. Hence, the allegations are misleading and are denied."

The counsel said that petitioners wanted an investigation by Sebi but their contention that they complained to Sebi was false since they never made the complaints to Sebi.

He pointed out that on May 23, a public interest litigation was filed by a chartered accountant in the Calcutta high court but it did not grant stay. Only Russell Credit was impleaded in this petition. A distributor also filed a writ petition in the Delhi high court on May 28 with identical allegations and only Russell Credit was impleaded.

The single judge issued interim orders but on June 1, a division bench vacated the interim orders on a writ appeal.

He said that the writ petition was filed in the AP high court on June 8. The allegations were identical to the ones in the petitions filed before Calcutta and Delhi high courts with the difference that both Russell Credit and Bright Star Investments were made respondents here.

On this petition, the court granted interim stay asking the parties (Bright Star and Russell Credit) not to proceed further in the matter of acquisition of shares of the VST Industries.

The open offers closed on June 13, the counsel said and pointed out that the high court did not prevent anyone from selling the shares in response to the open offers but only restrained the acquirers from accepting the shares.

No shareholder was prevented or prejudiced in this sense.

Stating that Russell Credit was not for extension of the offer period beyond June 13, as sought for by Bright Star, the counsel said that Russell Credit was ready to complete the statutory obligation within 30 days from the closure of offer period.

He also contended that there was no ground for issue of writ of mandamus to the Sebi for causing a suo motu investigation into the allegations made by the petitioners since "Sebi has said that that it has already investigated the matter and ruled out any violations."

In his reply, S Ravi, counsel for the petitioners, pleaded for issue of writ of mandamus to Sebi to make investigations into the allegations.

He said that Sebi had failed to discharge its duties properly in the instant case since only an 'inadequate disclosure' was made by Bright Star Investments about the Sebi's investigations into the alleged market manipulations by the Damanis.

He said that the Sebi had undertaken a probe with regard to Damanis and this probe was part of a larger probe by joint parliamentary committee.

Sebi had submitted its interim report to JPC wherein it had stated that prima facie the Damanis were involved in certain manipulative practices. But this fact was not disclosed in the Bright Star's letter of offer which merely stated that an investigation was being conducted about the Damanis.

He contended that there was improper vetting of the letter of offer of Bright Star by Sebi and this compounded by the fact that Sebi allowed them to proceed with the offer.

He also argued against extension of period of offer on the ground that the time-frame provided under Sebi regulations was mandatory and any deviation from this would have deleterious effect on the target company (VST) and the shareholders.

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