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A.R. Dahiya v. Securities & Exchange Board of India & Ors.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 2727 of 2006)Decided 26 Nov 2015
Civil Appeal No. 2727 of 2006
Justice Vikramajit Sen · Justice Shiva Kirti Singh

Background

A hotel company, Polo Hotels Ltd., had a state industrial corporation as a shareholder that was owed a buy-back of its shares. The original promoter, Garg, defaulted, and in March-April 1999 A.R. Dahiya agreed to buy Garg's 28.09% stake and to take over the buy-back obligation, paying in post-dated cheques. Dahiya then made a public announcement to other shareholders without disclosing the buy-back arrangement, and the cheques were later dishonoured. SEBI penalised him, and the Securities Appellate Tribunal upheld the order.

Decision Breakdown

The Supreme Court dismissed the appeal and upheld SEBI's order of 1 August 2003. It held that the post-dated cheques were a promise to pay, and that the promise amounted to a sale of shares, so the buy-back was an acquisition under the Regulations. The Court read "acquisition" in light of the Regulations' purpose of protecting shareholders, and held that an acquisition occurs once an acquirer agrees to acquire shares, even if the transfer is completed later. The later dishonour of the cheques did not change this, and the Court noted that the 2011 Regulations later defined "acquisition" to remove any doubt.

Lesson Learnt

An agreement to buy shares counts as an acquisition from the moment it is agreed, not when the money finally clears. Paying with post-dated cheques does not avoid disclosure duties under takeover rules, and a bounced cheque does not undo the obligation.

Official source (sci.gov.in)View Judgment (PDF)

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