SAT order in the matter of Luxottica Group SpA

the Appellant No.1. The Appellant No.3 is also a corporate entity incorporated under the laws of USA. It is a wholly owned subsidiary of the Appellant No.2 and an indirect subsidiary of the Appellant No.1. Certain other entities, namely Bausch & Lomb Inc. Ray Ban Sun Optics India Ltd.(formerly known as Bausch & Lomb India Ltd.), Bausch & Lomb South Asia Inc, Bausch & Lomb South Asia Holdings Inc., are also involved in the matter. Bausch & Lomb Inc., a corporate entity incorporated in New York, belongs to the Bausch & Lomb Group of USA. Bausch & Lomb Group is engaged in the production, marketing and distribution of sunglasses and spectacle frames and certain related accessories (Eyewear and Eyecare business) in various localities around the world. Ray Ban Sun Optics India Ltd., (the Target Company) is a public limited company incorporated in India. Its shares are listed on the stock exchanges at Jaipur, Mumbai, Delhi, Calcutta and Ahmedabad. 44.152% of its share capital is held by Appellant No.3. It is engaged in the business of manufacturing and dealing in all kinds of opthalmicotic and pharmaceutical devices and opthalmic care products including contact lenses, sunglasses, spectacles, frames, solutions, cleaners and accessories for the same. Its product range is broadly divided into two categories namely the 'Eyewear products' which consisted of sunglasses and prescription frames and the "Eyecare/Visioncare products" which consisted of contact lenses, cleaning solutions and distribution of surgical products. The said categorization of business has a bearing in the matter under consideration.

Bausch & Lomb South Asia Inc.,a New York Company, is a 100% subsidiary of Bausch & Lomb Inc. Initially it was holding 44.152% share capital of the Target company. The said shareholding was subsequently transferred to Appellant No.3.

Bausch & Lomb South Asia Holdings `Inc., also a corporate entity incorporated in USA was a wholly owned subsidiary of Bausch & Lomb Inc. This company merged with the Appellant No.2 some time in October 2000. The following chart provided by the Appellants indicates the position of each of the above referred to entities involved in the acquisition under consideration in the present appeal:

On 28.4.1999 On 24.3.2000 On 27.10.2000

Bausch & Lomb Inc. Bausch & Lomb Inc. Luxottica Group SpA

¯ ¯ ¯

| | |

| | |

| | |

|

¯

¯

| Bausch & Lomb^®Merged into^®Ray Ban Holdings Inc.

| South Asia on 27.10.2000^¯

| Holding Inc. |

|^¯|

| | |

| | |

| | |

| | |

¯

¯

¯

Bausch & Lomb^®Inter-se transfer of^®Bausch & Lomb Indian Bausch & Lomb Indian

South Asia Inc. 44.152% in Target Holdings Inc. Holdings Inc.

Company on^¯¯

¯ 24.3.2000 | |

| | |

| | | |44.152% |44.152% |44.152%

2

| | | | | | | | | | | | ¯ ¯ ¯ Ray Ban Sun Optics India Ltd. Ray Ban Sun Optics India Ltd. Ray Ban Sun Optics India Ltd. (Target Company) (Target Company) (Target Company)

On 28.4.1999, the Appellant No.1 entered into a Purchase Agreement with Bausch & Lomb Inc.,for the purchase by the Appellant group(Luxottica Group) from Bausch & Lomb group the business of production marketing distribution and sale of the Bausch & Lomb Group's "Eyewear business" globally located. The Purchase Agreement is governed by the laws of New York, USA. The Purchase Agreement was entered into pursuant to an open auction conducted by Bausch & Lomb Inc. for the sale of its Global Eyewear business. The Purchase Agreement provided certain conditions to be fulfilled by the parties. The Agreement inter alia provided for acquisition of 44.152% shares of the Target Company held by Bausch & Lomb Group, subject to fulfilling certain conditions by Bausch & Lomb Group. The Agreement was subsequently amended thrice i.e. on 25.6.1999, 14.1.2000 and 3.2.2000. The amendment made on 3.2.2000 (the Third Amendment) provided for merger of Bausch & Lomb South Asia Holding Inc. with the Appellant No.2 The merger was effected on 27.10.2000. According to the Respondent on executing the Purchase Agreement on 28.4.1999, the Appellant Acquirer agreed to acquire 44.152% shares of the Target Company and consequently the control over the Target company also, and in that context a public announcement to acquire a minimum of 20% shares of the Target Company from the public shareholders in terms of regulation 14(1) read with regulation 14(3) of the Securities and Exchange Board of India (Substantial Acquisition of shares & Takeovers) Regulations, 1997 (the 1997 Regulations) was required to be made. The Respondent issued show cause notice to the Appellant Acquirer in the matter. The Appellant responded to the notice by filing its reply and also availed of the opportunity of being heard provided to it. Thereafter the Respondent vide its order dated 5.8.2002 directed the Acquirer to make public announcement as required under Chapter III of the 1997 Regulations in terms of regulation 10 and 12 taking 28.4.1999 as the reference date for calculation of offer price. The public offer was directed to be made within 45 days of the said order. By the said order the Acquirer was also directed to pay interest to the shareholders @ 15% per annum on the offer price to the Target Company's shareholders from 27.8.1999 till the date of actual date of payment of consideration for the shares to be tendered in the offer directed to be made. The Appellants claiming to be aggrieved by the Respondent's order filed the present appeal seeking to set aside the order. They had also prayed for interim order staying the operation of the impugned order pending final decision on the appeal. On the Appellants' prayer for interim order, the parties were heard and an order was passed on 16.9.2002 granting stay of operation of the impugned order till the disposal of the appeal.

Shri Aspi Chinoy, learned Senior Counsel appearing for the Appellants referred to the factual position relating to the case. He referred to the recitals in the Purchase Agreement dated 28.4.1999 that Bausch & Lomb Inc. was desirous of selling to Luxottica Group SpA certain assets owned by it and its subsidiaries used exclusively in connection with Sunglass/Eyewear business, the capital stock of certain subsidiaries engaged exclusively in the said business, and the capital stock of the Target Company.

He referred to the meaning of certain expressions such as "Purchased Shares" "Seller entities". "Seller subsidiaries" etc. as given in the Purchase Agreement, that 'Purchased shares' means all of the issued and outstanding shares of the capital stock of the Transferred subsidiaries held by the Seller Entities, 'Seller Entities' means Seller subsidiaries. 'Seller' means Bausch & Lomb Inc. He also referred to the names of the "Seller Subsidiaries" and 'Transferred subsidiaries' given in schedule 1.1(a) and 1.1(b) to the Agreement. As per the Purchase Agreement the shares of eight subsidiaries of Bausch & Lomb Inc described as Transferred subsidiaries in the Agreement (including the Target Company) were to be acquired, that 34 companies described as Seller subsidiaries were not to be transferred to the Appellants and they were to continue as subsidiaries of Bausch & Lomb Inc. These 34 Seller subsidiaries, some of them holding shares in the Transferred subsidiaries, were only to sell to the Appellants the assets held by them relating to the Eyewear business and the shares of the eight Transferred subsidiaries held by them. Shri Chinoy submitted that reference to "stock" shown against 4 seller subsidiaries in the schedule 1.1(a), which include Bausch & Lomb South Asia Inc., is not the stock of the 4 Seller subsidiaries listed, but is a reference to the stock of the 8 'Transferred Subsidiaries' which was held by these Seller subsidiaries and was required to be sold by them to the Appellants. Learned Senior Counsel submitted that in terms of clause 2.1 of the Purchase Agreement, on the Closing date, Bausch & Lomb Inc. was to cause the Seller subsidiaries to sell and transfer the Purchased shares and the other Purchased assets. He submitted that the expressions "Closing" and the "Closing Date" have been defined in article 3.1, that the Closing Date stated therein is 25.6.1999. In respect of transfer of the foreign assets/shares which required foreign approval (i.e. Deferred Shares or Deferred Assets), the Closing was to be deferred till the receipt of such foreign approval, that between the Closing Date and the Deferred Closing Date, the Deferred Assets and such of the 8 Transferred subsidiaries as were represented by any Deferred Shares, were to be administered as stipulated by Schedule 3.3.(c) that (i)the Seller subsidiaries were to continue to hold the Deferred Assets and the Deferred Shares till the Deferred Closing,(ii) the portion of the Purchase price relating to the Deferred Shares and Assets was to be held by the Seller in Escrow till the Deferred Closing occurred.(iii) pending the Deferred Closing, the applicable Seller Entities and the Deferred Subsidiaries were to operate the business for the account of the Buyer. Accordingly in the case of a Deferred Country having Deferred Shares, the Seller entity owning the Deferred Shares was to pay to the Buyer any net after tax distribution (dividend) received from the Deferred Subsidiary during the Deferral Period, (iv) pending the Deferred Closing the Buyer subsidiaries were to grant the Deferred Subsidiary a royalty free license to use the Intellectual Property and the non complete clause was not to apply to the continuance of business by such Deferred Subsidiaries.

In the event a Deferred Closing had not occurred within 18 months the Deferred Net Assets and Deferred Shares and the allocable portion of the purchase price were to be administered as per Schedule 3.3.(d) that (i) the proposed purchase (of such Deferred Assets or Deferred Shares) was to be abandoned and the Seller Entity was to refund to the Buyer, the

3

portion of the purchase price allocated to such Deferred Assets and Shares, without interest. (ii) the Buyer was to enter into an agreement with such Seller Entity / Deferred Subsidiary, to provide sunglasses and sunglass products, to enable such Seller subsidiary to continue its existing business, (iii)the Buyer was also entitled at its discretion to elect to discontinue such business and require the Seller to liquidate the Deferred net Assets and the Shares of such Deferred Subsidiaries and to pay the net proceeds of such liquidation to the Buyer.

Out of the 8 subsidiaries to be transferred, the Target Company was the only subsidiary which was not exclusively engaged in the sunglass / Eyewear business. It was also carrying on the Eyecare / contact lens business. More over the applicable Seller Entity (Bausch & Lomb South Asia Inc) did not hold 100% shares of the Target Company. It held only 44% of the total shares of Target Company Accordingly the Target Company was required to be and was separately referred to / dealt with. Clause 6.4 of the Purchase Agreement specifically provides for the treatment of the Target Company. The said Clause 6.4(a) stipulated that the seller would use commercially reasonable efforts to purchase from the Target Company, all assets which did not relate to the sunglasses / eyewear business. (ii) the Target Company was to remain as a Deferred Subsidiary until such transactions / divestment of the non sunglass/Eyewear business had occurred, and (iii)if such transaction (i.e. divestment / sale of the non Eyewear business) had not occurred within 24 months, the proposed transfer of the Target Company.'s shares was to be abandoned.

It has been provided in Clause 6.4(d) that Clause 6.4 was to prevail over any other Clause/Section of the Agreement. It was submitted that the Agreement/intent to acquire the 44% shares of the Target Company from Bausch & Lomb South Asia Inc, was accordingly conditional/contingent upon the divestment / sale of the non Eyewear business (i.e. sale of the Eyecare / contact lens business) by the Target Company, that such conditional / contingent agreement could not be enforced, performed, or implemented till the condition / contingency had occurred - i.e. till the non Eyewear business had been divested by the Target Company. At the time of execution of the Agreement on 28.4.1999 therefore, what "Product"

the Appellant wanted to purchase in India, did not actually exist, and its price was indeterminate. Further under section 293 (1)(a) of the Companies Act, 1956 such divestment required the approval of the shareholders of the Target Company in General Meeting and as 56% of the total shares of the Target Company were held by third parties / the public passage of the resolution required their support that Bausch & Lomb South Asia Inc which held only 44% of the share capital of the Target Company could not guarantee/ensure the passage of the Resolution. If the required divestment did not take place within 24 months, the proposed purchase / transfer was to be abandoned.

Learned Senior Counsel submitted that on receipt of Regulatory approval, Closing vis a vis the USA transaction occurred in June 1999, that on 3^rdFebruary 2000, i.e. before the divestment of the non Eyewear business had taken place & whilst the contingent agreement regarding the acquisition of the 44% shares of the Target Company had not become enforceable, the parties amended the Agreement of 28^thApril 1999 by deleting & substituting Clause 6.4, that the substituted clause 6.4 provided that the 44% shares of the Target Company then held by Bausch & Lomb South Asia Inc. would be transferred to the newly created Seller Subsidiary which would then be merged with a newly created Buyer Subsidiary, under the laws of the State of Delaware USA. On 3^rdFeb 2000 the Appellant No.1 entered into a Technical Assistance Agreement with the Target Company to provide Technical Assistance till the merger / Closing date, that this was necessary as under the U.S. Closing which had already occurred in June 1999, the Intellectual Property / Technological know-how had already been acquired by & transferred to the Buyer/ Luxottica. However, clause 16.2 of the Technical Assistance Agreement specifically recorded that neither Luxottica nor any of its subsidiaries/affiliates "shall have or has ever had, any role in either the day to day or the long term management of B & L India" On 21^stJuly 2000 the shareholders of the Target Company . passed the requisite Resolution under section 293(1) (a) of the Companies Act for the divestment / sale of the Company's non Eyewear business - i.e. the Eyecare business / assets. Pursuant thereto the sale of the Eyecare business / assets to a subsidiary of Bausch & Lomb Inc for Rs.258 million was effected on 23^rdOctober, 2000. Bausch & Lomb South Asia Inc. had on 24.3.2000 transferred the 44% shares of the Target Company to another specially created Seller subsidiary in Delaware viz. Bausch & Lomb Indian Holdings Inc.(i.e. Appellant No.3). Pursuant to the divestment and satisfaction of the condition and pursuant to a merger Agreement dated 27^thOctober 2000, Bausch & Lomb South Asia Holdings Inc merged with Ray Ban Holding Inc (Appellant No.2) a specially created Buyer subsidiary in the State of Delaware USA and the said merger has been duly recognised and certified to by the Secretary of State, Delaware USA. On 29^th/30^thOctober 2000 the Board of Directors of the Target Company was reconstituted & nominees of Luxottica Group were appointed as its directors.

It was stated that the Respondent SEBI issued a show cause notice dated 19^thFebruary 20002 to the Appellants alleging that :

" the Appellants were "acquirers" under regulation 2(1)(b) as by the Agreement dated 28^thApril 1999, they had agreed to acquire 44% of the shares & control of the Target Company., that the acquisition was not eligible for exemption under Regulation 3 (1)(j)(ii), by virtue of Regulation 3 (1)(k) which stipulated that exemption thereunder would not be applicable if by virtue of acquisition or change in control of any unlisted company whether in India or abroad, the acquirer acquires shares, or voting rights, or control of a listed company, and the Appellants were required to make a public announcement within 4 working days from 28^th April 1999."

Appellants' reply to the show cause notice vide letter dated 5.3.2002 was referred to by the learned Senior Counsel. The reply inter alia pointed out that (i) the agreement to purchase the 44% shares of the Target Company was ultimately conditional / contingent upon the sale / divestment of the non eyewear business / assets of the Target Company. (ii) the obligation to purchase the said 44% shares would arise only if and when all the Eyewear assets had been purchased by Bausch & Lomb Inc and the price consideration was to be determined "solely on the basis of the assets, liabilities and operations of B & L India Ltd., which are primarily related to the Eyewear business, adjusted to take into account the applicable partial ownership," that (iii) it was not within the power of the Seller (B & L South Asia Inc) to dispose off the non Eyewear business/assets of the Target Company as under section 293(1)(a) of the Companies Act such transfer / disposal required a Resolution of the shareholders in general meeting and B & L Inc had only 44% of the shares and could not have got such resolution passed without the concurrence / support of the other 56% shareholders, that that under New York Law & under section 31 & 32 of the Indian Contract Act, a conditional / contingent agreement could not be enforced or performed unless the condition had been fulfilled / the contingency had occurred. The Contingent Agreement to acquire the 44% shares of the Target Company would mature into a legally enforceable contractual obligation only if and when, the requisite resolution under section 293(1)(a) of the Companies Act was passed in General Meeting and the non Eyewear business of the Target Company, were purchased by B & L Inc and the sale proceeds used to discharge the liabilities of the non Eyewear Business, that if this had not happened within 24 months the transaction would have been abandoned. The shareholders passed the requisite resolution under section 293(1)(a) on 21^stJuly, 2000 and the transfer/divestment was

4

effected on 23^rdOctober 2000. Before such contingency had occurred, the parties had on 3^rdFebruary 2000 substituted clause 6.4 and had decided to pursue a merger of the shareholding companies. The merger which took place on 27^th October 2000 under the laws of Delaware USA was exempted under Regulation 3 (1)(j)(ii), that this exemption was not affected by the explanation to Regulation 3 (1)(k).

Learned Senior Counsel submitted that the Respondent brushed aside the submissions and passed the impugned order dated 5^thAugust 2002 directing the Appellants to make a Public Offer taking 28^thApril 1999 as the reference date for fixing the price and to pay interest at 15% per annum from 27^thAugust 1999 by which date the offer process should have been completed. He submitted that according to the Respondent (i) the Appellants' contention that it was not an acquirer in terms of Regulation 2 (1)(b) as the Agreement dated 28^thApril 1999 relating to the Target Company was conditional/contingent on the occurrence of events which were uncertain both factually and legally, was untenable. SEBI has merely held that to fall within the definition of an acquirer in Regulation 2 (1)(b) it was not necessary that one should actually acquire shares; that it was sufficient if a person agreed to acquire shares. SEBI has not dealt with the issue of whether a person whose agreement to acquire shares was contingent/conditional could be held to be an acquirer under Regulation 2 (1)(b). (ii) making a Public Announcement/Offer was a pre acquisition requirement and that the acquirers could have made a conditional public announcement stating the conditions subject to which the acquisition was to be carried out. SEBI has noted that under the Regulations public announcement could be made subject to the receipt of statutory approvals or receipt of minimum level of acceptance from the shareholders and has held therefrom that all conditional announcements/offers could be made. SEBI has held that "Thus when the acquirer, in the instant case announced his intention to acquire the 44.152% capital of the Target Company by way of entering into purchase Agreement with the Seller on 28^thApril 99, it constituted an intention to acquire indirectly, the control over the target company and the obligation to make public announcement arose on that day, which was to be made within 4 working days of 28.4.99 i.e. the date of entering into the said agreement", (iii) the exemption under Regulation 3 (1)(j)(ii) was not available as the Regulations had already been triggered on 28^thApril 99 "any actions subsequent to the triggering of the said Regulations will not have bearing on the making of an open offer by the acquirer as the said regulations have already been triggered." That the merger route had been devised by the acquirer as a device / artifice subsequently with the intention of circumventing the Regulations and avoiding making a public offer & was contrary to the spirit and policy of the Regulations.

It was submitted by the learned Senior Counsel that the Appellants had not agreed to acquire or pay for the shares of the Target Company with its non Eyewear business, that they had only agreed to acquire & pay for the shares of the Target Company, subject to / conditional upon the Target Company divesting itself of its non Eyewear business. According to the Appellants the Agreement dated 28^thApril 1999 in so far as it pertains to the 44% shares of the Target Company was contingent/conditional on Bausch & Lomb Inc arranging to buy the business & assets of the Target Company which did not relate to the Eyewear / sunglasses Business and the Target Company utilizing the sale proceeds to discharge the liabilities relating to the Eyecare business, that even the consideration payable was to be fixed post divestment only with reference to the assets relating to the Eyewear Business, adapted to the Bausch & Lomb Inc.'s limited / 44% interest therein. The divestment of the non Eyewear Business of the Target Company was effected only on 23^rdOctober 2000 - when the non Eyewear Assets were sold. Accordingly requiring the Appellants to make a public offer in April 1999, and at the price prevalent in April 99, would amount to compelling the Appellants to (a) acquire the shares of a Company whose business and assets (Eyewear Business and Eyecare / Contact lens Business), were totally different from the business and assets of the Company which the Appellants had agreed to acquire under the contingent agreement dated 28^thApril 1999

(b) acquire and pay for the business and assets of the Eyecare Business, which the parties had expressly agreed would be excluded / disposed off prior to the acquisition. (c) pay to the shareholders of the Target Company a price for their shares which included the value of the Eyecare Business, that in April 1999 the share price ranged from Rs 100/- - 139/- , that however, at the time of divestment in October 2000 the share price ranged from Rs.30 to 39 /share. It was submitted the agreement dated 28^thApril 1999 did not make the Appellants "acquirers" or trigger the public announcement/public offer requirements of the regulations. The contingent/conditional agreement / decision to acquire the 44% shares if and when the Target Company divested its non Eyewear business did not make the Appellant an "acquirer"

in terms of Regulation 2 (1)(b) and did not trigger the Regulations/Public Offer requirements, unless and until the contingency had occurred / the condition had been fulfilled. The Regulations do not envisage or permit such a conditional announcement / offer being made. The only conditional offers permitted under the Regulations, are an offer being made conditional to the receipt of the statutory approvals, or an offer being made conditional to the receipt of a minimum level of acceptances by the shareholders. The Scheme & provisions of the Regulations preclude any other conditional offer being made. Accordingly the Appellant could not be required to make an offer conditional on the divestment of the non Eyewear business by the Target Company. Although the public announcement / offer is a pre acquisition requirement, it is only triggered when there is an unconditional / final decision, or agreement to acquire shares on the part of the acquirer. A conditional decision, or a contingent agreement to acquire shares, is not covered by regulation 2 (1)(b) read with regulation

14. The triggering requirements of regulation 2 (1)(b) read with regulation 14 are "entering into an agreement for acquisition of shares" or "deciding to acquire shares". These words necessarily connote a final decision / binding agreement on the part of the acquirer. Regulations 2 (1)(b) & 14 do not refer to "entering to a contingent agreement for acquisition of shares" or "conditionally deciding to acquire shares" Under both New York Law & the Indian Contract Act, such a contingent agreement or a conditional decision cannot be enforced, and creates no obligations until and unless the contingency occurs or the condition has been fulfilled. Moreover Regulation 22 (1) expressly stipulates that a public announcement of offer to acquire shares of a target company shall be made only when the acquirer is able to implement the offer. A contingent agreement/ conditional decision can be implemented only if and when the contingency occurs / the condition is satisfied. Accordingly by the express terms of Regulation 22 a contingent Agreement cannnot trigger the regulations until and unless the contingency has occurred and the agreement has become enforceable / capable of implementation, that SEBI has totally failed to consider this aspect whilst deciding that regulation 2 (1)(b) was attracted. The Regulations did not envisage or permit a Public announcement / Public offer being made to the shareholders of the Target Company, contingent or conditional on the divestment of the non Eyewear business by the Target Company the only conditional offers envisaged / permitted under the Regulations, are an offer being made conditional to the receipt of statutory approvals, or an offer being made conditional to the receipt of a minimum level of acceptances by the shareholders. The Scheme & provision of the Regulations precludes any other Conditional Offer being made. Regulation 16(xvi) read with the proviso to regulation 22 (12) & Regulation 27(1)(b) which envisage and permit an offer being made conditional on receipt of statutory approvals for acquiring the shares, posit that an offer conditional/contingent on any other event/circumstance is neither envisaged nor permitted that (i)under Regulation 16(xvi) an offer can be made subject to receipt of statutory approvals if any required to be obtained for the purpose of acquiring the shares. (ii) the Proviso to Regulation 22(12) accordingly stipulates that time for completion of the public offer/payment can be extended by SEBI

5

"due to non receipt of statutory approvals" (iii) regulation 27(1) stipulates that an offer once made shall not be withdrawn except where the statutory approvals required have been refused; or the sole acquirer has died. Accordingly if an offer is required to be made conditional to any other circumstance/event (for example the divestment of the Target Company's Eyecare division) - under Regulation 27 it can not be withdrawn even if such contingent event does not occur, or if the condition is not satisfied. This would lead to the absurd situation that the acquirer would have to buy and retain the shares received through the public offer - even though the contingent triggering acquisition fails / does not go through. 27(1) (d) does stipulate that SEBI can permit withdrawal if "such circumstances as in the opinion of the Board merits withdrawal"; - that it is only an enabling discretionary power conferred on SEBI and confers no right on the person making the offer. The rigid time frame stipulated under Regulation 22 for the completion of the offer and payment to the shareholders, necessarily excludes conditional or contingent offers being made - except for offers conditional on receipt of the requisite statutory approvals. Regulation 22 mandatorily requires a Public offer to be completed and payment to be made within 120 days of the public announcement (i.e. 60 days + 30 days + 30 days under Regulations 22(5), 22(6) & 22 (12). ) The Proviso to Regulation 22 (12) enables/empowers SEBI to grant extension of time only on the ground of "non receipt of requisite statutory approvals" Under the Regulations SEBI has no power to extend time, till occurrence of the contingent event or satisfaction of the precondition. This clearly rules out a public offer being made contingent/conditional on any event other than receipt of statutory approvals. Otherwise under Regulation 22(12) the acquirer would be required to complete the Public Offer & make payment to the shareholders, even if the contingency has not occurred, or the condition has not been satisfied. For example in the present case the contingency (divestment of the non Eyewear Business) had not occurred till Oct 2000 - yet if a contingent offer was mandated / envisaged under the Regulations, the Appellants would have been required to pay for and acquire the public shares within 120 days of April 1999 i.e. by August 1999 - even when they had no obligation to acquire the 44% shares of the Target Company from Bausch & Lomb Inc & its subsidiaries. Following observation from the Bhagwati Committee Report 2002 was referred to:

"The Committee was informed that currently the Regulations provide for making an offer conditional upon level of acceptance only .. .. .. The Committee felt that pursuant to an acquisition under a MOU, the acquirer is required to make an offer to the public and hence such a public offer can not be conditional, unless of course the MOU itself is rescinded and not acted upon if the public offer does not elicit the requires acceptances"

Moreover requiring an offer to be made conditional upon the occurrence of an uncertain event even assuming whilst denying that such contingent offers are permitted by the Regulations, would result in considerable prejudice to the shareholders and practical difficulties. On the offer being made, shareholders desirous of accepting the offer would have to deposit their shares. However such shares would then remain blocked for an indeterminate period: i.e. till the uncertain contingent event occurred, or till its occurrence became impossible. In the meanwhile the shareholders would be deprived of their right to deal with/ sell their shares in the market. If the contingency event did not occur within the stipulated period (24 months in the present case) or became impossible of performance, the shareholders would then be required to take back their shares. As stated above such situation is not contemplated by the Regulations.

SEBI has not considered any of these aspects and has merely relied on the judgements of the Tribunal & the Hon'ble Bombay High Court in the case of BP Plc V SEBI (2001) 31 SCL 203 (SAT); (2001) 34 SCL (BOM)), to hold that all conditional offers are envisaged and permissible. The judgement of the Tribunal & the Hon'ble Bombay High Court in the case of BP Plc were restricted to a public offer being made conditionally on the receipt of statutory permissions and minimum acceptances from the shareholders. No other conditions were considered or dealt with in the BP Plc case. This is apparent from para 25 read with para 13 of the High Court judgement. Neither of these judgements deal with or support the proposition that an offer can be made contingent or conditionally on any other event (such as divestment of the non eyewear business in the present case.). Accordingly SEBI's order that a public announcement / offer could have been made contingent/ conditional upon the divestment of the non eyewear business, receives no support from the decision of the Tribunal or the High Court.

It was submitted referring to the arguments in Reply, SEBI had orally sought to support the order on three grounds which are not to be found in the order: (i)that the Agreement dated 28^thApril 1999 provided for unconditional /immediate acquisition of the stock of B & L South Asia Inc which held the 44% shares of the Target Company and accordingly triggered the Regulations (ii) the Agreement was not really conditional as the occurrence of the conditions even was within the control of the parties who were also entitled to waive performance thereof, and (iii) that having regard to Schedules 3.3

(c) & 3.3(d) the Agreement dated 28^thApril 1999 in effect provided for an immediate acquisition with a provision of defeasance if the condition was not fulfilled. It is well settled that a quasi judicial order made by SEBI can only be sustained with reference to the reasons mentioned therein. Such a statutory order cannot be supplemented or sustained by reasons mentioned in the course of arguments. Moreover if an order of SEBI could be sustained on grounds not mentioned in the order it would render the Appellate Provisions negatory - as an appeal would necessarily be directed against the reasons stated in the order. Hon'ble Supreme Court's decision in Mohinder Singh Gill V Chief Election Commissioner (AIR 1978 SC 851) was cited in support.

It was further submitted that even otherwise it is factually incorrect to allege that the Agreement dated 28^thApril 1999 provided for unconditional/immediate acquisition of the stock of Bausch & Lomb South Asia Inc which held the 44% shares of the Target Company. The Agreement provided for acquisition of only the 8 Transferred subsidiaries listed in Schedule 1.1.(b). The Agreement did not provide for the acquisition of the 34 Seller subsidiaries listed in Schedule 1.1.(a) and their stock. These 34 companies were to remain subsidiaries of Bausch & Lomb Inc and they/their shares were not to be transferred to the Appellants. Bausch & Lomb South Asia Inc which held the 44% shares of the Target Company is listed at SR No 4 of Schedule 1.1.(a). and was not agreed to be transferred to the Appellants. The reference to stock against Bausch & Lomb South Asia Inc is to be 44% shares/stock of the Target Company which was held by Bausch & Lomb South Asia Inc & which was to be transferred to the Appellants on the divestment of the Eyecare Business. The submission that the Agreement was not really contingent or conditional (as the conditions could be waived by the Appellants) is contrary to the SEBI order, which in fact proceeds on the basis that the Appellants could have made a conditional offer. The pre-condition of divestment of the Eyecare / Contact lens business was imposed, as the Appellants had not agreed to acquire or pay for the Eyecare / contact lens business & assets and had agreed to acquire and pay only for the Eyewear / sunglasses business & assets. Accordingly there was no question of the Appellants being able to waive the pre-condition. The fact that Cause 6.4 of the Agreement provided that the seller could choose to waive the pre condition, is of no relevance in deciding the rights / obligations of the Buyer/Appellants. Moreover at no time did the seller grant such waiver - which would have resulted in the seller transferring the non Eyewear business & assets (i.e. the Eyecare business & assets) without having received any consideration for the same from the buyer / Appellants. The performance of the pre-condition was not within the control of Bausch & Lomb Inc even though its nominees controlled the Board of the Target Company. Disposal of the business of Eyecare required a resolution of the shareholders of the

6

Target Company in general meeting and could not be done by a Board Resolution. Moreover B & L Inc through its subsidiaries, held only 44% of the shares of the Target Company and accordingly required the concurrence of the remaining 56% shareholders. Reference to Clause (g) of Schedule 3.3.(d) does not alter this position. Clause (g) of Schedule 3.3(d) only provides that if the Appellant decides to discontinue business in the deferred country, it can direct the Seller/Seller subsidiary concerned to dispose off the deferred shares and pay to it the net sale proceeds. However, in such a circumstance the Buyer/Appellant would not be acquiring the Deferred Shares i.e. the shares of the Target Company as they would be sold / disposed of to third parties by the Seller subsidiary & the Buyer / Appellants would only receive from the Seller subsidiaries, the net sale proceeds.

The Agreement dated 28^thApril 1999 read with Schedules 3.3 ( c) & 3.3.(d) thereto does not support the allegation that there was an immediate sale / transfer of the shares/ assets with a right of defeasance if the conditions were not fulfilled. The Agreement and in particular clause 6.4 provided that the transaction for acquisition of the shares of the Target Company, would be closed only if and when the Target Company had divested its Eyecare business and further that if this divestment / closing did not occur within 24 months, the proposed transaction would be abandoned. In such event the Seller would have remained the owner of the said 44% shares of the Target Company. Clause 6.4 did make Schedules 3.3( c ) &

(d) applicable to India. However, Schedule 3.3( c ) in fact expressly stipulated that during the deferral period the Seller would continue to hold the deferred shares and that the deposited price would be held in escrow until a closing occurred. Schedule 3.3(d) further provided that if the divestment / deferred closing did not take place within 18 months (modified to 24 months for India) the price which had been held in escrow would be refunded to the Buyer / Appellants albeit without interest. The fact that Clause (e) read with clause (e) (viii) of Schedule 3.3( c )did provide that during the deferral period the applicable Seller entity and the Deferred subsidiary would operate the business for the account of the Buyer - i.e. that the Seller entity owning the Deferred Shares would pay to the Buyer the net after tax distribution (dividend) received from the Deferred Subsidiary during the deferral period; - can not lead to the inference that there was an immediate transfer / sale with a right of defeasance. In fact such clauses are clearly inconsistent with an immediate transfer / sale. If there was in fact an immediate transfer / sale, the shares/ Deferred Subsidiary would have belonged to the Buyer who would ipso facto have been entitled to the business / profits/dividends. Clauses (e) (ii) and (e) (iv) of Schedule 3.3( c )which required the Buyer to enter into an agreement with the deferred subsidiary to continue to make available Intellectual Property and sunglasses / sunglass products available to the deferred subsidiary, during the deferral period / pending closing, also establish that there was no immediate sale/transfer. In fact the Technical Assistance Agreement dated 3^rdFebruary 2000 entered into between the Buyer/Luxottica SpA and the Target Company expressly provides that during the deferred period neither the Buyer/Luxottica SpA nor its subsidiaries "shall have or ever has had. any role in either the day to day or the long term management of B & L India".

It was submitted that the acquisition of the said 44% shares of the Target Company on 27^thOctober 2000 was pursuant to a scheme of merger of the two subsidiaries in Delaware USA, under the laws of Delaware USA and is accordingly exempted from regulations 10, 11 and 12 by virtue of the statutory exemption granted by regulation 3(1)(j)(ii): The Contingent Agreement dated 28^thApril 1999 created no enforceable / binding obligation to acquire the said 44% shares of the Target Company until and unless the contingent event (i.e. the divestment of the non Eyewear Business and utilization of the sale proceeds to discharge the liabilities of the said non Eyewear Business) had occurred. Prior to the contingent event / pre-condition having occurred, the Parties by the Third amendment dated 3^rdFebruary 2000 deleted and substituted Clause 6.4 of the Agreement and provided that the said 44% shares of the Target Company which were held by Bausch & Lomb South Asia Inc would be transferred to a subsidiary which would be merged with a Buyer subsidiary in Delaware and under the laws of Delaware USA. The divestment of the non Eyewear Business was affected on 23^rdOctober 2000 and pursuant to Merger Agreement dated 27^thOctober 2000, the said seller subsidiary holding the said 44% shares of the Target Company merged with the said buyer subsidiary in Delaware on 27^thOctober 2000 under the applicable laws of Delaware. In the show cause notice, SEBI had only contended that the acquisition was not eligible for exemption under Regulation 3(1)(j)(ii), by virtue of Regulation 3 (1)(k) which stipulated that exemption thereunder would not be applicable if by virtue of a acquisition or change in control of any unlisted company whether in India or abroad, the acquirer acquires shares, or voting rights, or control of a listed company. In the order SEBI has neither referred to nor held the Appellant Buyer on this ground. The order however proceeds on the totally different ground and of which no notice or opportunity to show cause had been given; that exemption under Regulation 3 (1)(j)(ii) was not available as the Regulations had already been triggered on 28^thApril 1999 and "any actions subsequent to the triggering of the said Regulations will not have bearing on the making of an open offer by the acquirer as the said regulations have already been triggered" that the merger route had been devised by the acquirer as a device/artifice subsequently with the intention of circumventing the Regulations and avoiding making a public offer and was contrary to the spirit and policy of the Regulations. It was submitted that it was not open to SEBI to hold against the Appellants on a ground of which no reference was made/ notice was given in the show cause notice and in respect of which the Appellants had no opportunity of explaining, rebutting or showing case against. The order is accordingly vitiated by a failure to follow the fundamental principles of natural justice & fairplay.

It was further submitted that SEBI is not correct/ in holding that exemption under Regulation 3 (1)(j)(ii) was not available to the merger acquisition on 27^thOctober 2000 as the Regulations had already been triggered on 28^thApril 1999, as the Regulations were not triggered by the Contingent/Conditional Agreement dated 28^thApril 1999 as a contingent agreement creates no enforceable obligation and is not capable of implementation until and unless the contingent event had occurred / the pre-condition had been satisfied. Moreover on 3^rdFebruary 2000 (i.e. when the contingent event had not occurred and no obligation had attached) the parties had deleted / substituted clause 6.4 and provided for a merger of the Seller Subsidiary which held the 44% shares of the Target Company with the Buyer subsidiary. Pursuant thereto the merger took place on 27^thOctober 2000. With reference to SEBI's "denying" the exemption of 3(1)(j)(ii) on the ground that the merger route had been devised by the acquirer as a device / artifice subsequently with the intention of circumventing the Regulations and avoiding making a Public Offer and such a merger was contrary to the spirit and policy of the Regulations and placing reliance in this regard in the course of arguments on the judgement of the Hon'ble Supreme Court of India in the case of Mc Dowell Vs Sales Tax Officer (AIR 1986 SC 649). it was submitted that it is not open for SEBI to seek to deny a statutory exemption by referring to spirit and policy of the regulations. The plain language of Regulation 3 (1)(j)(ii) exempts from the operation of regulations 10,11, and 12 to acquisitions "pursuant to a scheme of .. .. merger .. .. under any law or regulation, Indian or foreign". Regulation 3 (1)(j)(ii) is a statutory exemption and if the express terms of the Regulation are satisfied SEBI can not seek to deny such statutory exemption by an administrative order. In this context this Tribunal's decision in the case of Eaton Corporation Vs. SEBI (2001)33 SCL 326 (SAT) was referred to. In the present case the certificates issued by officials of the State of Delaware USA establish that the merger has taken place under the laws of Delaware USA. Accordingly SEBI cannot seek to deny exemption or contend that Regulations 10 & 12 are applicable. The plain language of Regulation 3(1)(j)(ii) confers the exemption if the condition stipulated therein is satisfied. The Regulation confers a statutory exemption and gives no jurisdiction / discretion on SEBI to refuse the exemption.

7

Accordingly SEBI can not purport to deny the exemption once the conditions thereof are satisfied by reference to the alleged spirit or policy of the Regulations. The reference to the judgement in the case of Mc Dowell (supra) is misplaced. The judgement dealt with and is restricted to schemes for tax evasion. Moreover in that case the Tax Officer had jurisdiction to consider the question inasmuch as he was considering in assessment proceedings whether excise duty which was paid by the buyer under an arrangement with the seller could be included within the definition of turnover of the seller. In the present case there is no question of SEBI having jurisdiction to consider whether a merger duly carried out under the laws of Delaware USA was entitled to the exemption of 3(1)(j)(ii)or not. There is also no scope of restricting/limiting the scope of Regulation 3(1)(j)(ii) by a process of interpretation/ construction, inasmuch as the language of Regulation 3(1)(j)

(ii) is plain and clear. Even if exemption of Regulation 3(1)(j)(ii) is denied, a public announcement and offer could only be directed to be made with reference to 23^rdOctober 2000 for the purpose of price and interest from 23^rdJanuary 2001. With reference to the direction to pay interest @ 15% per annum by way of compensation to the shareholders with effect from 27.8.1999 which, according to SEBI, is the alleged date on which the "offer process" would have been complete, it was submitted that assuming though without admitting, the worst position that the Appellant's appeal is disallowed and the Appellant held to have been under obligation to have made a public announcement on 28.4.1999, the levy of interest @ 15% is without any basis for the reasons: that (i) the rate of 15% per annum is excessive, that the Hon'ble Supreme Court has held in Smt. Kushnuma Begum Vs. New India Insurance Co. Ltd., ((2001) 2 SCC 9) that where no rate of interest is specified, 9% per annum (which at that time was linked to the nationalised bank rate of interest for fixed deposit for one year) was considered reasonable compensation, that SEBI has itself on different occasions, where rate of interest is not specified by a particular Regulation, levied interest at different rates of 10%, 12% etc., that the rate of interest differs from time to time and currently it ranges from 5% to 7% on bank deposits for one year, which should have been the norm in this case also. Apart from the question of rate, interest should have been applied only in case of those shareholders who were shareholders on 28^thApril 1999 (the date on which according to SEBI, the public announcement should have been made) and continue to remain shareholders in an uninterrupted manner till today, and not to all shareholders who were shareholders at the time of the impugned order. This principle has now been settled by the Tribunal in Clariant International Ltd., V SEBI (2003)42 SCL 834 (SAT) Further, SEBI has also ignored the fact that even if an offer was to have been made by the Appellant pursuant to a public announcement in April, 1999, it would have had to be a conditional offer maturing with the sale of the Eyecare assets by the Target Company which ultimately took place on 23.10.2000 and therefore the shareholders could not have expected any money for their shares till that date and, as such the period from which interest could have been levied under such circumstances would only be effective from 23^rdOctober, 2000 and not earlier, that in the context the Counsel for SEBI had left the question of the rate, the extent and the period of applicability of interest to the Tribunal, that it was submitted that the Tribunal may not direct to pay interest in the facts and circumstances, as the question of levy of interest does not arise as the Appellant had no obligation to make a Public Announcement under the Regulations.

Shri Rafique Dada, learned Senior Counsel appearing for the Respondent SEBI submitted that the main question for consideration in the present appeal is as to whether upon entering into the Purchase Agreement on 24^thApril, 1999, the Acquirer (Luxotticca Group) had decided to acquire 44.152% of the shares of the Target Company. If the answer to the question is in the affirmative, then the 1997 Regulations are triggered and the subsequent merger of the entities on 27.10.2000 would not entitle the Acquirer to the automatic exemption under Regulation 3(1)(j)(ii). He submitted that in order to arrive at a conclusion as to whether Luxottica Group had decided to acquire the said 44.152% shares of the Target company, several factors need to be taken into consideration. Learned Senior Counsel submitted that the Purchase Agreement was entered into pursuant to the Luxottica Group being declared as the successful bidder at the auction held to sell the world wide Eyewear business of Bausch & Lomb Group. According to him the purchase Agreement merely provided the methodology by which what was purchased by the Luxottica Group at the said auction were to be transferred to it.

Luxottica Group had bid for and had purchased the worldwide Eyewear business of Bausch & Lomb Group. Bausch & Lomb Group could have taken only assets/liabilities relating to the Eyecare business carried on by the Target Company just as Luxottica group had agreed and had taken over assets and liabilities relating to Eyewear business of Bausch & Lomb in other countries. i.e. to say Eyewear business could have been spun off from other businesses carried on by the Target Company. Luxottica Group however agreed to take over 44.152% shares of the Target Company held by Bausch & Lomb South Asia Inc, a 100% subsidiary of Bausch & Lomb Inc.

It is not disputed that Bausch & Lomb Inc through its 100% subsidiary Bausch & Lomb South Asia Inc by reason of holding the said 44.152% shares of the Target Company had appointed all the six directors on the Board of the Target Company and was in control of the said company. Therefore Luxottica Group upon agreeing to acquire 44.152% shares would be entitled to exercise the same control over the Target Company. It was submitted that Luxottica Group by agreeing to acquire 44.152% of. the Target Company had triggered the Regulations. With reference to the Appellants' claim that since purchase of the 44.152% shares in the Target Company by Luxottica Group was conditional upon the business as other than Eyewear business conducted by the Target Company being hive off/spun off and therefore by merely entering into the said agreement by itself would not trigger the said 1997 Regulations. Learned Senior Counsel submitted that the so called condition precedent was not an impediment to Closure as both the parties to the Purchase Agreement were in a position to ensure that the said condition precedent was duly fulfilled as can be seen from the fact that the Target Company was a subsidiary of Bausch & Lomb South Asia Inc and it has been described as such in the Purchase Agreement, that all the six directors on the Board of the Target Company prior to and on the date of the said Purchase Agreement i.e. on 28-4-1999 were nominees of Bausch & Lomb Group, that Bausch & Lomb South Asia Inc by virtue of holding 44.152% of the capital stake of the Target Company exercises actual control of the Target Company. Since Bausch & Lomb South Asia Inc a 100% subsidiary of Bausch & Lomb Inc held 44.152% of the shares of the Target Company, Bausch & Lomb Group could get and in fact got the necessary Resolution passed for spinning off non Eyewear business of the Target Company. He submitted that the ground realities have to be taken into account.

Learned Senior Counsel referred to the recitals in the Purchase Agreement and submitted that from the recitals and the scheme of the Purchase Agreement it is clear that the Appellants had agreed to acquire the shares/control of the Target Company. He referred to the definition of the following expressions viz. Agreement, Baseline Date, Baseline Net Operating Assets, Business Assets, Closing Net Operating Assets, Purchase Price, Purchased Shares, Seller Entities and Transferred Subsidiaries, in the purchase Agreement.

Shri Rafique Dada, learned Senior Counsel, referred to the chronology of events and submitted that prior to 28.4.1999, i.e. the date on which the Purchase Agreement was executed between the Parties, Bausch & Lomb Group held 44.152% shares in the paid up capital of the Target Company. An open auction was conducted by Bausch & Lomb Inc. for sale of

8

business of production, marketing and distribution of sunglasses and spectacle frames and certain related accessories and the price was fixed with reference to the said business prior to entering into the Purchase Agreement. He submitted that U.S. Regulatory approval was obtained and "Killer Loop Transaction" referred to in Article 3.2(b) of the Agreement has been completed. According to the said Article the Appellant was required to purchase the Purchased Shares constituting all of the issued and outstanding shares (the Killer Loop Shares) of capital stock of Killer Loop SpA, an Italian corporation, also described as one of the Transferred subsidiaries, from Bausch & Lomb Group in consideration for the part payment of the purchase price and immediately thereafter the Killer Loop which by then would have become a subsidiary of the Appellant to purchase all the Purchased Assets and all of the remaining Purchased Shares etc. by paying the balance Purchase Price due. The Killer Loop transaction was completed on 6.6.1999. Therefore 6.6.1999 is the first Closing date. He submitted that the Purchase Agreement was subsequently amended thrice i.e. on 25.6.1999, 14.1.2000 and 3.2.2000. On 3.2.2000 a Technical Assistance Agreement between the Appellant No.1 and the Target Company was executed. On 5.6.2000 the Target company issued Notice of the general meeting to its shareholders for considering and approving the resolution for selling and transferring its Eyecare business to Bausch & Lomb Eyecare (India) P Ltd., a proposed Indian subsidiary of Bausch & Lomb South Asia Inc, in its general meeting on 21.7.2000 pursuant to section 293(1) of the Companies Act, 1956. On 21.7.2000 shareholders of the Target Company passed the resolution approving sale of the Eyecare business, that on 9.8.2000 the Target Company entered into an Agreement for the said sale with the said subsidiary of Bausch & Lomb Group, that on 23.10.2000 actual transfer of business of the Target Company other than that of the Eyewear took place. Thereafter on 27.10.2000, Merger Agreement between Bausch & Lomb Inc, Bausch & Lomb South Asia Holding Inc. and Luxottica Group SpA and Ray Ban Holdings Inc. was executed. On 30.10.2000, Board of Directors of the Target Company was reconstituted by appointing six directors of Luxottica Group on the Target Company's Board. Learned Senior Counsel submitted that if there was no merger on 27.10.2000, the closing date would be 23.10.2000. According to Shri Dada on the executing of the Purchase Agreement dated 28.4.1999, the 1997 Regulations triggered and the Third amendment and the merger was only a device. In this context he pointed out that pursuant to the agreement reached at, 44.152% shares in the Target Company held by Bausch & Lomb South Asia Inc. was transferred to Bausch & Lomb Indian Holdings Inc which was subsidiary of Bausch & Lomb South Asia Holdings Inc. It was all part of the scheme emerging from the Purchase Agreement and the said Bausch & Lomb South Asia Holdings Inc merged with Ray Ban Holdings Inc. (Appellant No.2) and consequently Bausch & Lomb Indian Holdings Inc. became the subsidiary of the Appellant No.1 as well, and as a result 44.152% of the Target Company's shares also got transferred to the Appellants group.

Learned Senior Counsel referred to the following material clauses in the Purchase Agreement and also the amendments thereto and submitted that Bausch & Lomb Inc, New York agreed to sell and the Luxottica Group agreed to buy for a total consideration of US$640,000,000- all world wide assets owned by Bausch & Lomb Inc. New York and its subsidiaries which are used exclusively in connection with the Eyewear business described in the Purchase Agreement, capital stock of certain subsidiaries of Bausch & Lomb Inc. based in different countries and engaged exclusively in the Eyewear business described in the Purchase Agreement and 44% capital stock owned by B&L South Asia Inc. a wholly owned subsidiary of Bausch & Lomb Inc. New York, in the Target Company. Total eight subsidiaries of Bausch & Lomb described as Transferred subsidiaries were identified for the purpose of transferring them to the Appellant No.1 that the Target Company was one of those eight Transferred subsidiaries shown in Schedule 1.1(b) of the Purchase Agreement. As per the Purchase Agreement, the entire exercise of transferring the identified subsidiaries was to be carried out in two stages i.e. in the first stage Killer Loop SpA, a subsidiary of Bausch & Lomb Group was to be transferred to Luxottica Group subject to fulfillment of certain conditions viz. Regulatory approvals etc. and in the second stage, which was to happen only if first stage was complete, Killer Loop, which after becoming Luxottica Group's subsidiary was to acquire other Transferred subsidiaries including 44% shares held by Bausch & Lomb South Asia Inc. in the Target Company. He submitted that the conditions governing the Target Company were stipulated more specifically in Section 6.4 (Treatment of Bausch & Lomb India) stating that:

"(a) "Seller shall use commercially reasonable efforts to purchase from B & L India as soon as practicable all assets of B & L India which do not relate primarily to the Business (i.e. Eyewear business)and to cause B & L India to use the proceeds of such sale to satisfy any liabilities; which do not relate primarily to the Business. If such transactions have not been consummated prior to the Closing date, B & L India shall be treated as a deferred subsidiary pursuant to section 3.3. until such transactions have occurred and until there are no other circumstances that would cause B & L India to remain a deferred subsidiary; provided that (a) Seller may waive the condition that the sale transaction be consummated prior to a Deferred Closing (b) the period after which a transfer of the Purchased Shares of B & L India will be abandoned as contemplated by Schedule 3.3 (d) shall be twenty four (24) months and (c) any payments pursuant to schedules 3.3(c) and 3.3(d) shall be computed solely on the basis of the assets, liabilities and operations of B & L India which are primarily related to the Business, adjusted to take into account the applicable Sellers Entity's partial ownership interest in Bausch & Lomb India."

He referred to clause (e)(vii) of Schedule 3.3( c ) on Treatment of Deferred Net Assets and Deferred subsidiaries during Deferred period. The clause is "in the case of Deferred Countries having Deferred Net Assets, as soon as practicable following the applicable Deferred Closing, each applicable Seller Entity shall pay to each applicable Buyer Entity, or each applicable Buyer Entity shall pay to each applicable Seller Entity, as the case may be, and shall deliver appropriate documentation with respect to, any after-tax income received from or after-tax losses incurred by the applicable Seller Entity with respect to the Business as operated in the Deferred Country so that, as between the Seller Entities and the Buyer Entities, the operations in the Deferred Country during the Deferred Period shall have been for the account of the applicable Buyer Entity on or after-tax basis."

He submitted that in terms of clause (g), the discretion is given to the Appellant buyer to elect to discontinue the Business in one or more of the Deferred Counties.

Learned Senior Counsel submitted that it is clear that it was decided that the Appellants would buy the Eye Wear business of the Target Company, that the conditions stipulated in the Agreement establishes this fact, that Bausch & Lomb was to run the business during the interim period, that it shows that the Appellants had acquired control. The agreement was to acquire shares and control, that the factum of control is clear from the clauses of the Agreement. Learned Senior counsel submitted that Section 6.4 of the Agreement was amended as per Section 2.1 of the Third Amendment to the Purchase Agreement dated 3.2.2000 which read as follows:

"2.1 Sub section 6.4 (a) is hereby amended by deleting it in its entirely and inserting in lieu thereof the

9

following:

(a)(i) Seller shall use commercially reasonable efforts to purchase as soon as reasonably practicable from B & L India all assets of B&L India which do not relate primarily to the Business and to cause B&L India to use the proceeds of such sale to satisfy any liabilities which do not relate primarily to the Business (such transactions are hereinafter referred to, collectively as the "Spin off transactions"). By virtue of the fact that the Spin off transactions were not consummated prior to the Closing date, B&L India has been and shall be treated as a Deferred Subsidiary pursuant to Section 3.3 until the Spin off Transactions shall have occurred and until there are no other circumstances that would otherwise cause B&L India to remain a Deferred Subsidiary; provided that (a) the period after which a transfer of the Purchased Shares of B&L India will be abandoned as contemplated by Schedule 3.3 (d) shall be twenty four (24) months and (b) any payments pursuant to schedule 3.3 (c) and 3.3.(d) shall be computed solely on the basis of the assets, liabilities and operations of B&L India which are primarily related to Business, adjusted to take into account the Applicable Sellers entity's partial ownership interests in B&L India. The Deferred Closing for B&L India shall be effectuated though a merger of certain subsidiaries of Buyer and Seller, as is set forth with greater particularity in Section 6.4(a) (ii) below.

(a)(ii) On or before March 1, 2000 or as soon as reasonably practicable thereafter, each of Seller and Buyer shall form a direct or indirect wholly owned subsidiary, each of which shall be organized under the laws of Delaware, USA. The subsidiary to be formed by Buyer is referred to herein as "Buyer Sub" and the subsidiary to be formed by Seller is referred to herein as

"Seller Sub". On or before March 1, 2000, or as soon as reasonably practicable thereafter, Seller sub shall form a direct or indirect wholly owned subsidiary which shall be organized under the laws of Delaware, USA and is referred to herein as "Seller Sub 2". As soon as thereafter as practicable, Seller shall cause B&L South Asia, Inc. to transfer the Purchased Shares of Bausch & Lomb India to Seller Sub 2. Subject to section 6.4 (a) (iii) below, as promptly as practicable following the consummation of the Spin Off transactions, Seller and Buyer shall cause Seller Sub to be merged with and into Buyer Sub, which shall be the surviving corporation (the Indian Merger" and the date on which the Indian Merger is completed shall be the "Indian Closing Date"), pursuant to and in accordance with the scheme of merger under the applicable laws of the jurisdiction of incorporation of Buyer Sub and Seller Sub and the consummation of the Indian Merger shall constitute the Deferred Closing for Bausch & Lomb India for all purposes of this Agreement. As soon as reasonably practicable following the Indian Closing Date, Buyer shall use commercially reasonable efforts to cause the entity name of B&L India, Ltd to be changed so that the entity name does not retain or include any reference to Bausch & Lomb or any other trade name or trademark of Seller not transferred pursuant to the Agreement."

Learned Senior Counsel stated that it could be noticed that the manner of Closing of the Target Company by way of merger was first time stipulated as per the third amendment executed on 3^rdFebruary 2000. The third amendment was admittedly made only pursuant to a legal opinion obtained on 28.1.2000.By the said amendment, the said alleged condition precedent i.e. spinning off non Eyewear business remained as a condition precedent and only the mode by which transfer of ownership of the said 44.152% shares of the Target Company held by Bausch & Lomb South Asia Inc were to be transferred to Luxottica Group was changed from normal ordinary transfer of shares from Bausch & Lomb South Asia Inc to a Luxottica Group Company to the merger route. The said merger was to be effected by Bausch & Lomb Group first by setting up two subsidiaries and Bausch & Lomb South Asia Inc transferring the said 44.152% shares to the 2nd of the new subsidiaries and by merger of the first of the 2 subsidiary with a subsidiary to be set up by Luxottica Group. This convoluted methodology for effecting simple transfer of shares from Bausch & Lomb Group to Luxottica Group was adopted only for the purpose of evading the compliance of 1997 Regulations and to make it difficult for SEBI to unravel and find out the breach of the said 1997 Regulations. He submitted that upon a plain reading of the relevant clauses of the Purchase Agreement as unamended by the 3^rdamendment, it is clear that upon entering into the said Agreement, Luxottica group had acquired control of the Target Company and during the interregnum period, i.e. the period between the date of the agreement i.e. 24^thApril 1999 and 22^ndOctober 2000 i.e. the date on which condition precedent was fulfilled i.e. hiving off the non Eyewear business by the Target Company the business of the Target Company was to be carried on for and on behalf of Luxottica Group. Upon execution of the said Agreement control of the Target Company having passed from Bausch & Lomb Group to the Luxottica Group, there was change in control within the meaning of regulation 12 of 1997 Regulations.

He submitted that Hon'ble Supreme Court in Mc Dowell & Co. Ltd. v. Commercial Tax Officer AIR 1986 SC 649 had made it clear that use of sophisticated legal devices to avoid compliance of the legal requirement is not acceptable. He referred to the following observation:

"In our view the proper way to construe a statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it. A hint of this approach is to be founded in the judgement of Desai, J.. in Wood Polymer Ltd. and Bengal Hotels Limited, (1977) 47 Com Cas 597 (Guj) where the learned Judge refused to accord sanction to the amalgamation of companies as it would lead to avoidance of tax. It is neither fair not desirable to expect the legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the Court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of 'emerging' techniques of interpretation was done in Ramsay (1982) AC 300) Burma Oil (1982 STC 30) and Dawson 1984-1 All ER 530), to expose the devices for what they really are and to refuse to give judicial benediction"

Shri Dada submitted that even though the said observation was made in the context of avoidance of tax, the principle laid down therein is in equal force applicable to the Appellants' case also as it had a device brought in to avoid compliance of the provisions of the Takeover Regulations.

Learned Senior Counsel submitted that a Technical Assistance Agreement was also entered into on 3^rdFebruary 2000.

10

Section 16 of the said Technical Assistance Agreement provided that: "16.1This Agreement provides a framework whereby Bausch & Lomb India may request such Technical Assistance and provide such Business Information as Bausch & Lomb India regards, in its sole and absolute discretion, to best enhance its corporate objectives. Bausch & Lomb India shall have no obligation, whether as a consequence of this Agreement or otherwise, to request or to follow or utilize any Technical Assistance that Luxottica may provide. 16.2. The parties acknowledge and agree that whether as a consequence of this Agreement or otherwise, neither Luxottica nor any of its subsidiaries or affiliates, including, without limitation, any individual who may provide Technical Assistance hereunder, shall have, or even has had, any role in either the day to day or the long term management of Bausch & Lomb India."

Learned Senior Counsel submitted that from the said clauses it is clear that under the Purchase Agreement the Appellants had decided to acquire 44.152% shares of the Target Company and thereafter a scheme was devised with a view to keep the acquisition out of the purview of the Regulations. With this objective amendments were made to the Purchase Agreement, that the first amendment was made on 25^thJune 1999, the second one on 14^thJanuary 2000 and the third one on 3^rdFebruary 2000. He submitted that as per the Appellants' version the third amendment was made pursuant to an opinion received on 28^thJanuary 2000 by them from their Counsel advising to enter into an arrangement of merger so as to avoid the risk of making a public offer before acquiring 44.152% shares of the said Target Company. Pursuant to such legal advice a strategy was planned by the Parties to the Agreement. The first step towards such strategy was the incorporation of a company known as Ray Ban Sun Optics Inc. USA, by the Appellants. This was followed by the hiving off all the business of the Target Company except the Eyewear business on 23^rdOctober 2000. Four days later, that is on 27^thOctober 2000, a merger agreement was entered into between the Bausch & Lomb South Asia Holdings Inc and Ray Ban Sun Optics Inc USA pursuant to which these two entities merged and in this way the 44.152% shares of the Target Company were acquired by the Appellants. In para 5.2 of the said Merger Agreement it has been provided that:

"Section 5.2 Substitution of Bausch & Lomb India Directors. The parties hereto confirm to each other that they will use their respective best efforts to cooperate with respect to a meeting of the Board of Directors of B&L India currently intended to be held on October 30, 2000, or as soon thereafter as is possible, at which the current directors of B&L India shall resign and shall be replaced by directors designated by Buyer, with such resignations and appointments to occur in a manner and pursuant to such resignations and other documents as shall be agreed upon by the parties respective Indian Counsel."

Learned Senior Counsel pointed out that on the Board of the Target Company prior to the merger (before 29^thOctober 2000) there were 6 Directors of Bausch & Lomb Group, that after the merger (after 30^thOctober 2000) 6 Directors of the Luxottica Group replaced them.

He submitted that it is clear from the Purchase Agreement that the Appellant No 1 had decided to acquire 44.152% shares of the Target Company. Immediately upon such merger getting fructified there was, as aforesaid, a change in the management of the Target Company by including six Directors of the Appellant on the Board of the Target Company. From the actions on the part of the Appellants commencing from 28^thApril 1999 it is clear that a decision was arrived at to acquire the 44.152% shares of the Target company, that the modus operandi was changed from purchase to merger only with a view to circumvent the Regulations as per the subsequent legal advice received by them. Learned Senior Counsel also cited Article 7 which stipulates the 'Condition precedent ' and Article 9 which is on

"Termination of the Agreement".

It was submitted that the first amendment is relevant as the same was effected after the first Closing Date and after receipt of U.S. Regulatory Approvals which were obtained on 6.6.1999 whereby what was agreed between the Parties to happen upon the US Regulatory Approvals being obtained were incorporated.

It was submitted that upon reading of Regulation 2(1)(b) i.e. definition of "acquirer" Regulation 2(1) (c) i.e. definition of

"control" and Regulation 10 relating to acquisition of 15% or more shares or voting rights, together with explanation of Regulation 11 and Regulation 12 relating to acquisition of control and the provisions of Regulation 14(1) and 14(3) relating to public announcement, it is clear that 1997 Regulation can be triggered even by person (i) agreeing to purchase shares of the Target Company above the limits prescribed and/or (ii) agreeing to acquire control of a target company (iii) and/or agreeing to acquire a holding company or companies which are listed or unlisted in India or abroad. He cited the Tribunal's decision in B.P.Amoco V SEBI (2001) 31 SCL 203 and also the Hon'ble Bombay High Court's decision in the appeal against the said order (2001) 34 SCL 469, that the Hon'ble High Court upholding the Tribunal's order in the matter had stated that:

"it is very clear that even someone who "agrees to acquire shares or voting rights" or agrees to acquire control over the target company" would come within the definition of 'acquirer'. Therefore it is explicitly apparent and clear that the word 'acquirer' would not only means that those who have already acquired shares and also those 'who agree to acquire shares' or agree to acquire control over the target company'."

Learned Senior Counsel also cited the following portion from the Tribunal's order in B.P. Amoco V SEBI (2001) 31 SCL

203.

"On a perusal of regulation 14 it is clear that a public announcement is required to be made not later than four working days after any change or changes decided to be made, as would result in any acquisition of control over the target company. On a plain reading of regulation 14 (3) it is difficult to agree with the view that the term 'change or changes decided to be made' must be read in the light of regulation 12 and be construed so as to mean decision taken for such changes, as would result in the acquisition of control of the target company. The word 'would' used in regulation 14 (3) conveys that what the said regulation is concerned with is the likely acquisition of control and not the actually effected acquisition of control. The word 'would' in the context need be understood in its literary sense as 'expressing probability'. Thus when appellant No.1 announced its intention to acquire the shares of Burma Castrol on 14-3-2000, the announcement constituted an intention to acquire, albeit, indirectly the control over all its subsidiary companies including the Indian subsidiary viz. Castrol (India) Ltd. on the same day itself i.e. 14-3-2000."

This view was confirmed by the Hon'ble Bombay High court in appeal filed by B. P. Amoco (2001) 34 SCL 46.

11

Once the 1997 Regulations are triggered the acquirer has to make a public announcement as per regulation 14, that making of public announcement is a requirement that has to be fulfilled before taking over control/acquisition of shares or voting rights beyond the prescribed limit. The purpose of making a public announcement is to make public and the share holders of the Target company aware of the substantial acquisition of shares or impending change in the management or control on take over of the target company or acquisition of shares above the prescribed limit. Once the 1997 Regulations are triggered the acquirer has to make public announcement as per the regulations within 4 days and is thereafter required to follow that provisions of the Regulations and failure to do so would be visited with penal action under regulation 45 and section 15(H) of SEBI Act. In the facts of the present case, 1997 Regulations were triggered upon execution of the Purchase Agreement on 28^thApril 1999 and as such Luxottica Group was required to make public announcement within 4 days to purchase 20% of the shares of the Target company at a price to be determined in accordance with the provisions of the Regulations. It was open for the Bausch & Lomb Group to set in motion the formalities for getting the Target Company to pass the necessary resolution for hiving off the non Eyewear business. No reason has even been suggested as to why this was not done immediately after 28^thApril 1999 or after 6^thJune 1999. A public announcement if made as required by the 1997 Regulations would make a transparent disclosure in respect of the need to hive off the non eyewear business and would have enabled the shareholders of the Target Company to make an informed choice and get the necessary resolution passed. The delay in getting the resolution passed is obviously a subterfuge to avoid the provisions of 1997 Regulations. It was submitted that public announcement can be made subject to fulfillment of conditions including obtaining of statutory approvals since it is not possible to envisage and provide in the Regulations for all facts and circumstances and conditional offers that may be made. Regulations provide only few specific incidents of conditional offers. If conditions subject to which open offer is to be made are such that upon non-fulfillment of the said condition the acquirer who had agreed to acquire shares or voting rights or control of a target company, would not acquire such shares or voting rights or control of a target company is entitled to apply under the provisions of regulation 27(1)(d) for withdrawal of the said open offer. The merger route for transfer of 44.152% of the Target Company was only a device adopted knowing fully well that 1997 Regulations had been triggered upon execution of the Purchase Agreement itself and to avoid the rigors of the Regulations and obligations to make public announcement followed by open offer. It was submitted that the devices/artifices adopted for the purpose of evading compliance of the said 1997 Regulations after they have been independently triggered cannot be contenanced and the acquirer must be directed to comply with the provisions of the 1997 Regulations. However in the facts of the instant case, upon execution of the Purchase Agreement, the Luxottica Group having agreed to acquire 44.152% of the shares of the Target company from Bausch & Lomb South Asia Inc the 1997 Regulations was triggered and obligation of the Luxottica group to make public announcement and open offer to purchase 20% of the shares of the Target Company could not be avoided by subsequently agreeing to transfer the said share holding by means of a merger, as merger route has been adopted only with a view to avoid compliance of the rigours of the 1997 Regulations. SEBI is therefore entitled to and has sufficient powers to ensure that such artificial device and or artifices are not adopted to defeat the purpose of the Regulations. SEBI in the interest of the shareholders is entitled once the Regulation gets triggered to prevent the Appellants from adopting a methodology which seek to deprive the share holders from availing the exit option.

It was submitted that though the provisions of Regulations 22(12) provide that the payment must be made to the share holders within the time prescribed herein, in cases wherein open offer is made subject to conditions including obtaining of statutory approvals, payment to the share holders who have tendered shares in the open offer for acceptance under the open offer is deferred till condition is complied with and the statutory approval is obtained. Examples of cases where public announcement/offer letters stating that the acquisition is subject to fulfillment of conditions is not uncommon as has been recognized by the Tribunal in B.P. Amoco Plc V/s SEBI (2001 31 SCL 203) . .

Shri Dada submitted that the position as on 28..4.1999 is the true position and thereafter the Appellants designed and structured the transactions so as to defeat the provisions of the SEBI Regulations on Takeovers. In this context he referred to the following averments made by the Appellants in the Memorandum of appeal that

"after entering into the said Global Agreement, and in terms thereof, with specific reference to the said Third Amendment dated 3.2.2000, before any definite and unconditional obligation arose in the Appellant No.1 to purchase the said 44.152% equity holding of the Bausch & Lomb Group in the Target Company, the Appellant No.1 and Bausch & Lomb Group restructured their intermediate shareholdings by providing for a merger between the two companies incorporated in the State of Delaware, USA, respectively, one indirectly wholly owned subsidiary of the Appellant No.1 and one of the Bausch & Lomb Inc. (the company through which Bausch & Lomb Group indirectly held the said shareholding in the Target Company). Such restructuring impacted on the future possible acquisition of the said 44.152% shares of the Target Company which would not be acquired any longer but rather would pass under the control of the Luxottica Group as a consequence of the perfection of the above restructuring by way of a merger contemplated under the said Third Amendment dated 3.2.2000. The said Third Amendment also reiterated that the merger would be contingent upon spin off in India by the Target Company of all businesses other than the said Business and if the same was not achieved within 24 months, the contemplated merger would be abandoned. Consequently as part of the aforesaid obligations including obligation of restructuring:

a. the Bausch & Lomb Group caused the Target Company to spin-off its Indian business other than Eye Wear business which was sanction and approved by the shareholders of the Target Company in the Annual General Meeting held on 21.7.2000.

i. The said 44.152% shares in the Target Company hitherto held by Bausch & Lomb Group through its subsidiary Bausch & Lomb South Asia Inc. were first transferred by Bausch & Lomb South Asia Inc. to another indirect subsidiary of the Bausch & Lomb Group i.e. Bausch & Lomb Indian Holdings Inc. on or about 24.3.2000, which was in turn held by another USA Company of Bausch & Lomb Group known as Bausch & Lomb South Asia Holdings.

ii. On part of the Luxottica Group, the Appellant No.1 floated a USA subsidiary known as Ray Ban Holdings Inc. (Appellant No.2)

iii. On 27.10.2000, the said Bausch & Lomb South Asia Holdings Inc., which controlled the said 44.152% shares in the Target Company through its subsidiary Bausch & Lomb Indian Holdings Inc., merged with Appellant No.1's subsidiary, Ray Ban Holdings Inc. by a merger under the laws of Delaware, USA and by virtue thereof the Appellant No.1 acquired indirect control over 44.152% shares in the Target Company through its subsidiary Ray Ban Holdings Inc., which in turn by the said overseas merger came to be the owner of all the shares of Bausch & Lomb Indian Holdings Inc. (Appellant No.3) which held the said shares in the Target

12

Company."

Learned Senior Counsel submitted that the Appellants created artifices for the purpose of acquisition with a view to be out of the ambit of the Takeover Regulations. In this context he pointed out that Bausch & Lomb India Holding Inc. was newly incorporated and the 44.152% shares of the Target Company held by Bausch & Lomb South Asia Inc. was transferred to the said new company, that it was not the said company which merged with the Appellant group companies, that it was Bausch & Lomb South Asia Holdings Inc., the said new company's holding company merged with Appellant No.2, that these are all measures meant only to avoid compliance of the Regulations.

Shri Dada submitted that what is required to be seen for the purpose of compliance of regulation 10/12 is that whether the Appellants had agreed to acquire shares vide the Purchase Agreement. He referred to Schedule I of the said Agreement and submitted that the said Schedule details the business purchased that in Schedule 1.1(a) and 1.1(b) the details thereof have been stated, that in certain cases "assets" were purchased and in certain cases "shares" were purchased. In this context he pointed out that as per schedule 1.1(a) "stocks" of Bausch & Lomb South Asia Inc. was to be purchased. As per schedule 1.1(b) Target Company has been shown as "Transferred subsidiary", the shares of 44% of which is also shown as being held by Bausch & Lomb South Asia Inc., that stock referred to in schedule 1.1(a) against the said company is the stock of the said company, that it was thus decided to take over the said company and thereby acquire the shares held in the Target company.

Shri Dada referred to article 2.1 of the Agreement on "Purchased assets" that there was an obligation on Bausch & Lomb Inc. to cause its subsidiaries to sell convey, transfer and assign to the Appellant entities the purchased assets and the assets other than the Excluded Assets. He also referred to the description of Excluded Assets as provided in Schedule 2.3

(a) of the Purchase Agreement and submitted that the shares of the Target Company is not an Excluded Asset in terms of the said Schedule. He also referred to the obligation of the Appellants on the purchase price provided in Article 2.4 that

"subject only 3.2(b), upon the terms and subject to the conditions of this Agreement and in consideration of the Purchased Assets and the Purchased Shares to the Buyer Entities by the Seller Entities, Buyer shall, or shall cause the Buyer subsidiaries to, pay the Purchase Price to Seller Entitles by wire transfer of immediately available funds in accordance with written instructions given by Seller to Buyer which shall be given on or prior to the Closing Date." Learned Senior Counsel submitted that the Agreement itself had decided the Closing date in Article 3 that "unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Article 9 hereof the closing with respect to transactions provided for in this Agreement (Closing) shall take place …on June 25, 1999(or as soon as practicable thereafter) as all of the conditions to the closing set forth in Article 7 hereof are satisfied or waived, or at such other time, date and place as shall be agreed upon by Seller and Buyer". He also referred to "first step" and "second step"

referred to in Article 3.2 (b)(i)& (ii) and submitted that the first step is the actual consummation. Learned Counsel also referred to Article 3.3 on "staged transfers' and referred in particular to condition that "Between the Closing Date and any applicable Deferred Closing Date ("a Deferred Period") the Deferred Net Assets, the Transferred Subsidiaries represented by a Deferred Shares (the Deferred Subsidiaries)" the allocable portion of the Purchase Price relating to the Deferred Net Assets and Deferred Shares and certain other matters shall be administered as described in Schedule 3.3 (c)". In the said schedule at clause (e) it has been provided that "Pending the Deferred closing with respect to any Deferred Country, the applicable Seller Entities and any Deferred Subsidiaries shall operate the Business in the Deferred Country for the account of the Buyer in the ordinary course under the Transition Services Agreement."

Learned Senior Counsel submitted that the clear intention of the Agreement is thus manifest. He also referred to the details in Schedule 3.3(d) on the "Treatment of Deferred Net Assets and Deferred Subsidiaries if a deferred closing does not occur within eight months following the closing date." He referred to clause (g) therein that "Notwithstanding anything to the contrary in this Schedule 3.3(d) Buyer may, in its sole discretion, elect to discontinue the Business in one or more of the Deferred Countries. In such event, paragraphs (b), (c) (d) and (e) of this Schedule 3.3d shall not apply. Instead, the Seller Entities shall liquidate the Deferred Net Assets (satisfying any Assumed Liabilities included in such Deferred Net Assets) and Deferred Subsidiaries relating to such Deferred Country or countries. The Seller Entities shall pay the net proceeds of such liquidation, if any, to the applicable Buyer Entities, and, if there are not sufficient proceeds to satisfy any Assumed Liabilities and liabilities of any Deferred Subsidiary relating to such Deferred Country, then the applicable Buyer Entities shall pay an amount equal to such deficiency to the applicable Seller Entities. In addition, the applicable Seller Entities shall be entitled to treat as delivered the allocable portion of the Purchase Price relating to the Deferred Net Assets and Deferred Shares relating to such Deferred Country, together with any interest or other earnings thereon."

He submitted that the Agreement has come into force is evident from the said conditions. The 18 months period referred in the Article ended on 6.12.2000.

Shri Dada submitted that it is clear from the Agreement that the Appellant had decided to acquire the shares of the Target Company, that the Agreement ostensibly had conditions, that most of these conditions were related to the parties to the agreement which they could vary, modify or waive according to the mutual decision by them. He referred to the description "stock" shown against Bausch & Lomb South Asia Inc., one of the Seller subsidiaries and also to the target company shown as transferred subsidiaries. The fact that only 44% holding by its holding company was shown, does not in any way establish that it was not a subsidiary of Bausch & Lomb Inc., as shareholding alone is not the sole factor which decides the holding subsidiary relationship. He referred to section 4 of the Companies Act, 1956 which identifies subsidiaries. In this context he referred to the constitution of the Board of Directors of the Target Company before 29.10.2000 and after 30.10.2000 and submitted that from 30.10.2000 all the six nominees of Bausch & Lomb were substituted by 6 nominees of the Appellants. This itself shows that the Target company was subsidiary of Bausch & Lomb, at the relevant time even though the shareholding by it in the Target Company was only 44.152%. He further submitted that in the schedule 1.1(b) the Target Company has been shown as one of the Transferred subsidiaries. Thus it is clear that the Target Company was a subsidiary of the Bausch & Lomb when the Purchase Agreement was executed on 28.4.1999. He submitted that the dominant role of the Appellants in the activities of the Transferred subsidiaries is evidenced from the provisions of Article 6.2. By way of illustration he referred to the following clauses (a) to (d):

"(a) Seller will, and will cause the Seller Subsidiaries and Transferred Subsidiaries to, operate the Business only in the usual, regular and ordinary manner, on a basis consistent with past practice; provided, that any Seller Entity or Transferred Subsidiary shall have the option to take actions which are consistent with its existing business plans;

(b) Seller will not, and will cause the Seller Subsidiaries and Transferred Subsidiaries not to, amend or modify in any material respect any Contract pertaining to the Business;

i. Seller will not permit any Transferred Subsidiary to amend its charter or bylaws (or analogous organizational documents), except as may be required in connection with the consummation of the Transactions;

13

i. Seller will not permit any Transferred Subsidiary to issue or agree to issue any additional shares of capital stock of any class or series, or any securities convertible into or exchangeable for shares of capital stock, or issue any options, warrants or other rights to acquire any shares of capital stock other than to a Seller Entity or other Transferred Subsidiary, as applicable, and except for directors' qualifying shares; It has also been stated in the said article that "Notwithstanding the foregoing any actions taken by B & L India which are prohibited by this section 6.2 or any actions required to be taken by this section 6.2 which are not taken by B & L India, shall not constitute, a breach of this section 6.2 unless a Seller Entity is reasonably able to compel B & L India not to take such prohibited action or to take such required action."

Learned Senior Counsel stated that on the question as to whether the acquisition of 44.152% shares/voting rights or control of the Target Company, by the Acquirer is exempt under regulation 3(1)(j)(ii), the position has been clearly explained in the impugned order that::

"As per the regulation 3(1)(j)(ii), exemption from the provisions of regulation 10, 11 and 12 is available only if the acquisition of shares is pursuant to the scheme of merger and not the other way round as has been done in the instant case by the Acquirer by entering into a merger agreement much later than entering into of the purchase agreement by the Acquirer.

From the facts of the case it is seen that the Acquirer decided to acquire the abovesaid shares of the Target company and entered into the purchase agreement with the seller on 28.4.99. However, thereafter, as per the opinion of their counsel dated 28.01.2000, the Acquirer carried out the third amendment dated 03.02.2000 to the aforesaid purchase agreement dated 28.04.99 providing for the merger. It was also submitted by the Acquirer that their counsel advised them that the arrangement of merger will not expose the Acquirer to any risk if the Acquire does not make a public offer before acquiring 44.152% shares of the Target company. Subsequently, Ray Ban Sun Optics Inc USA was floated by the Acquirer for the purposes of acquiring 44.152% shares by way of merger of Ray Ban Sun Optics Inc USA with Bausch & Lomb South Asia Holdings Limited Inc. The same was followed by hiving off of the business other then Eyewear business of the Target company on 23.10.2000 and entering into merger agreement on 27.10.2000 and reconstitution of Board of Directors of Target company on 30.10.2000. From the aforesaid it is clear that the merger was pursuant to the proposed acquisition of 44.152% shares/ control over the Target company by way of purchase agreement and hence the subsequent merger agreement dated 27/10/2000 was only a mode adopted to transfer the shares of the Target company to the Acquirer.

Any actions subsequent to the triggering of the said Regulations will not have bearing on the making of the open offer by Acquirer as the said Regulations have already been triggered. In the instant case after having agreed to acquire 44.152% shares of the Target company vide purchase agreement dated 28/4/99, the Acquirer vide the third amendment dated 3/2/2000 to the purchase agreement provided for the inclusion of merger clause to carry out the acquisition of the Target company. Such a clause providing for merger was introduced as a device/artifice which was created/adopted by the Acquirer subsequent to the actual triggering of the said Regulations on 28/4/99 and hence the Acquirer cannot claim exemption on the ground that the control of the Target company changed as a result of merger which is specifically exempt under regulation 3(1)(j)(ii) from making public announcement as required under the provisions of regulations 10 and

12.

It is also observed from the facts of the case and the chain of events, that all the series of actions of the acquirer are directed towards one end i.e. of acquiring the shares/control of the Target company. The aforesaid intention is running through the chain of events right from the date of the purchase agreement for acquisition of 44.152% shares/control over the Target company towards which various intermediate steps were being taken and which has finally culminated into actual acquisition of 44.152% shares/voting rights of target company and acquisition of control by way of appointment of all the six directors on the Board of the Target company on 30/10/2000 i.e two days after the date of merger agreement. It is not as if things were uncertain and were not capable of being carried out as stated by the Acquirer. It is also very pertinent to mention here that the Acquirer during the personal hearing on 30/5/02 admitted that the merger route was adopted later on as advised by the counsel and accordingly third amendment dated 3/2/2000 was carried out to the purchase agreement dated 28/4/99. Further, the aforesaid fact is also reinforced by the following statement, made by Mr. Shailendra Tandon on August 5, 1999 in the Business Standard, the then Executive Director of the Target company.

"Luxottica will have to come out with an open offer to buy atleast 20% stake from the public since Securities and Exchange Board of India Takeover Code will get triggered once the deal is finalized in India."

This statement reflects the perception of the management of the Target company and cannot be ignored. In this regard, the acquirer has stated that "….. they have no record of any such views having been expressed by Mr. Shailendra Tandon and if expressed represented his personal views and not the views of the Acquirer. Even such personal views make it clear that no deal for the acquisition of shares of the Target company had been finalized upto August 05, 1999 ……" As contended by the Acquirer this statement may not be attributable to the Acquirer but it clear indicates as to how the nature of transaction and applicability of the said Regulations was understood even by theTarget company. It is also observed that in the Annual Report of the Target company for the year 1998, it was stated inter alia, that "in terms of the agreement between the Seller and Acquirer, Acquirer will consider purchasing Seller's current shareholding in your company, provided requisite Governmental regulatory approvals in the U.S. and India are satisfactorily obtained and the Vision Care Business of our company is divested".

It is observed that the transferee company under the Merger Agreement dated 27/10/2000 is Ray ban Holdings Inc. U.S.A. which was formed much after the execution of the Purchase Agreement on April 28, 1999 with the sole and exclusive objective of merging Bausch and Lomb South Asia Holdings Inc. and Ray ban Holdings Inc. U.S.A.

In view of the same and the observations made in the preceding paras I find that the merger route has been devised by the Acquirer as a device/artifice subsequently with the intention of circumventing the said Regulations and to avoid making of public offer to the shareholders of the Target company. As already

14

mentioned in preceding paras, the aforesaid fact has also been acknowledged by the Acquirer during the hearing before the chairman on 30/5/02. In this regard it is stated that the Acquirer cannot, after an obligation under the said Regulations has arisen, devise arrangement/agreements of a nature, which are entered into for the specific purpose of circumventing the Regulations and which the turn adversely affect the interest of the shareholders of the Target company. The object of the said Regulations is not to be defeated by any ingenious devices, arrangements or agreements devised by an Acquirer so as to deprive the shareholders of the exit opportunity available to them under the Regulations, as a result of substantial acquisition of shares/voting rights or change in control. In the instant case the ingenious device of merger devised by the Acquirer and the Seller is contrary to the policy/objective of the said Regulations and is contrary to the spirit of the Regulations. From the chronology of events as stated hereinbefore it is implicit that the third amendment to the purchase agreement was admittedly carried out pursuant to the agreement dated 28.04.99. Therefore, it is clear that the said amendment to the purchase agreement was an afterthought and its purpose was to defeat the provisions of the said Regulations and to evade the obligation of making of open offer to the shareholders of the Target company which had arisen as a result of triggering of the Regulations on 28/4/99 i.e. the date of purchase agreement."

Learned Senior Counsel submitted that the Respondent has rightly stated the factual position in the show cause notice issued to the Appellants inter alia alleging that pursuant to the Agreement dated 28.4.1999 the Acquirer agreed to acquire 44.152% shares of the Target Company and consequently the control over the target company. He read out the text of the order and submitted that the order is a well reasoned order which clearly explains the legal and factual positions. He submitted that the Respondent has considered all aspects while passing the order.

He submitted that the Takeover Regulations is a beneficial piece of social legislation and while interpreting the provisions of the said Regulations due regard has to be paid to the objective behind the enactment of Regulations apart from the interest of the shareholders in terms of providing an adequate exit opportunity to the shareholders in the event of change in control or substantial acquisition of shares/ voting rights by an Acquirer. In this regard he referred to the judgement of Hon'ble Supreme Court in Reserve Bank of India vs. Peerless General Finance and Investment Co. (1987) 1 SCC 424 wherein it has, interalia, been observed that "Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted."

In this context he also cited Hon'ble Bombay High Court (DB) in Shirish Finance & Investments P. Ltd. V. M. Sreenivasulu Reddy (2002)35 SCL 27) that "the statute must be construed according to the intent of its framers and it is the duty of the Court to act upon the true intent of the legislature." He submitted that any interpretation of the regulation that would defeat the objective of the regulations, should be avoided.

Referring to Eaton Corporation case cited by the Appellant, the Learned Senior Counsel submitted that the facts of the said case and the facts of the present case are not comparable, that in the present case, the merger was only a device to defeat the law.

Countering the Appellants' version relating to conditional offers based on the Bhagwati Committee report, learned Senior Counsel referred to the following portion (paras 10 and 21) in the Bhagwati Committee report Part II.

"10. Conditional offers

The Committee was informed that currently the Regulations providing for making an offer conditional upon level of acceptance only. Queries are being received regarding conditional offers under other circumstances also e.g.. success of restructuring by the parent company certain other aspects of conditional offers such as implementation/rescission of MOU in case the desired response is not received, whether conditional offer can be for less than 20% etc. also required consideration.

The Committee considered the various issues. The Committee felt that pursuant to an acquisition under a MOU, the acquirer is required to make an offer to the public and hence a public offer cannot be conditional unless of course the MOU itself is rescinded and not acted upon if the public offer does not elicit the required acceptances.

As regards requiring a domestic offer resulting from change in control/restructuring abroad, the Committee was of the opinion that it is not logical to impose open offer requirements if the overseas offer / restructuring (which might result in indirect change in control in Indiana target company) fails. Regarding conditional offer for less than20%, the Committee felt that as a general principle, an offer should always be for minimum 20% and therefore there is no need for allowing a conditional offer for less than 20%, though the acceptance level may be less than 20%.

About the need to differentiate between obligated and non obligated offers, the Committee remarked that owing to practical difficulties that may arise in distinguishing between an obligated and non obligated offer it would be advisable not to take any distinction between the two types of offers. Further, non obligated offers of small size could be used for price manipulation by unscrupulous elements."

"21. Indirect acquisition of a company through chain principle

The Committee was of the opinion that the public offer for the company which gets acquired as a consequence of the takeover of the target company is triggered only upon the successful completion of the acquisition of the target. At the time of making the offer for the target company, such a takeover or rather its success is contingent and prospective and in the event of its failure, the consequent offer does not arise. Though the public announcement for the consequent offer could be made simultaneously, it would be conditional upon the successful completion of the first offer. Such conditional offer has its own impact on the market and is not without practical and procedural difficulties. Hence the public announcement for the consequent offer can be allowed to be made within a pre-specified time period of say 3 months from the date of closure of the first offer.

However, the investors of the 2^ndcompany should get benefit of the best price available and for the purpose

15

the reference dates of the public announcement for the first as well as the second offer may be taken for determining the offer price."

(emphasis supplied)

Shri Dada submitted that it is thus clear that conditional offers are not prohibited by the Regulations and the conditions are not confined to statutory approvals.

Countering Shri Chinoy's submission that in terms of regulation 22(1) the public announcement of offer to acquire the shares of the target company shall be made only when the acquirer is able to implement the offer, Shri Dada submitted that the Regulations provide for conditional offers and withdrawal of the offer in certain circumstances. He referred to regulation 27(1) and submitted that the conditions are not linked only to statutory approvals, as clause (d) enables the acquirer to withdraw the offer in such circumstances as in the opinion of the Board merits withdrawal. With reference to the Appellants' contention on the direction to pay interest the learned Counsel submitted that in para 6 of the order the Respondent has explained the position that in terms of sub regulation (12) of regulation 22, the payment of consideration to the shareholders of the Target Company has to be paid within 30 days of the closure of the offer. The maximum time period provided in the said Regulations for completing the offer formalities in respect of an open offer, is 120 days from the date of public announcement. The public announcement in the instant case ought to have been made taking 28/4/99 as a reference date and thus the entire offer process would have been completed latest by 27/8/99. Since no public announcement for acquisition of shares of the Target Company has been made, which has adversely affected interest of shareholders of Target Company, it would be just and equitable to direct the Acquirer to pay interest @ 15% per annum on the offer price. The Acquirer was accordingly directed to pay interest @ 15% per annum to the shareholders for the loss of interest caused to the shareholders from 27/8/99 till the date of actual payment of consideration for the shares to be tendered in the offer directed to be made by the Acquirer.

In this context learned Senior Counsel cited this Tribunals' observation in this regard in Clariant International Ltd. V. SEBI (supra) that:

"Even on applying the said test, it does not appear to me that the 15% interest directed to be paid to the shareholders as compensation for the delay involved in making the payment in the Appellants' case is unjust. In this context it is to be noted that the payment was to be made, in case the offer had been made according to the provisions of the Takeover Regulations, by 22.3.1998 and the amount to be so paid remains unpaid till date. Therefore, in my view the interest rate applicable should be that rate which was prevailing on 22.3.1998 and not the one prevailing on the date of the impugned order. According to the information furnished by the Appellants the rate of interest payable on deposits for a period of 3 years and above by nationalised banks was around 12% at that point of time. In this context one should not fail to note that the interest is directed to be paid to the shareholders to compensate the loss. Had the shareholder received the money on due date, in the normal course what return he would have received by effectively investing that money has to be taken into consideration. The amount was due on 22.3.1998. The then existing rate of 12%, if calculated on quarterly rest basis, at the end of 2002 works out to more than 15% and therefore, even if the interest is worked out in relation to the rate of interest payable on deposits by nationalised banks, the rate of interest payable by the Appellants fixed at 15% p.a. by the Respondent in the instant case cannot be considered unjust, and the same is also not contrary to the view held by the Hon'ble Supreme Court in Kaushnuma Begum's case or against the provisions of regulation 44 (i). Therefore, taking into consideration the facts and circumstances of the case, I am not inclined to agree with the Appellants' submission that the direction to pay interest at the rate of 15% is unjust and need be modified. The direction to pay interest at the rate of 15% in the facts and circumstances of the case is to be sustained."

Learned Senior Counsel submitted that the Respondent has fixed 15% interest considering the same as reasonable and if for any reason the Tribunal is not agreeable to the rate of interest and the period for the interest to be paid as directed by the Respondent, appropriate rate and period taking into consideration the legitimate interest of the shareholders may be decided by the Tribunal. He submitted that the Respondent's order is sustainable on fact and on law. I have carefully considered the arguments advanced by the Counsel for the parties and the material available on record. The main question for consideration in the present appeal is as to whether the provisions of regulations 10 and 12 of the 1997 Regulations are attracted to the acquisition of shares and control of the Target Company by Luxottica Group SpA. Luxottica Group SpA, is a company incorporated under the laws of Italy. It is engaged, inter alia, in the design, manufacture and marketing of prescription/spectacle frames and sunglasses. It has operations in several countries directly or through its subsidiaries. Bausch and Lomb Inc., a corporation incorporated in New York, USA, is a company belonging to Bausch and Lomb Group of USA. It is governed by the laws of New York. Bausch and Lomb Group is engaged in the production, marketing and distribution of sunglasses and spectacle frames, including the Rayban brand, and certain related accessories. This group also has worldwide operations spread over in more than 30 countries. Bausch & Lomb India Ltd., i.e. the Target Company, was one of the companies in the said Bausch and Lomb Group. One of the Bausch and LombGroup companies viz. Bausch & Lomb South Asia Inc., till its holding transferred to another company in the same Group viz. Bausch & Lomb Indian Holdings Inc., was holding 44.152% of the voting share capital of the Target Company. The Target Company was engaged in 'Eyewear business' and 'Eyecare business'. 'Eyewear business' consisted of sunglasses and prescription frames. 'Eyecare business' consisted of contact lenses, cleaning solutions and distribution of surgical products. Bausch and Lomb Group decided to sell certain assets which are used exclusively in connection with the Eyewear business and capital stock of certain subsidiaries engaged exclusively in the Eyewear business and also its shareholding in the Target Company. The said group conducted an open auction for the purpose. Luxottica Group SpA participated in the auction. Having successfully bid in the auction, Luxottica Group entered into a Purchase Agreement with Bausch and Lomb Group to buy the assets owned by Bausch and Lomb Group companies used exclusively in connection with Eyewear business, the capital stock of certain subsidiaries engaged in the said business and the capital stock held by Bausch and Lomb in the Target Company. The purchase was subject to fulfilment of certain conditions stipulated in the Agreement. As far as the Target Company was concerned, the precondition was that the Bausch and Lomb Group will purchase the Eyecare business of the Target Company, leaving only the Eyewear business with the Target Company. The Agreement was executed on 28.4.1999. The Agreement was subsequently amended thrice. The third amendment made on 3.2.2000 provided for the merger of the Target Company's immediate holding company's holding company with one of the Luxottica Group subsidiaries. The merger was effected on 27.10.2000 on fulfilling the precondition of hiving off its Eyecare business. The dispute about the applicability of regulations 10 and 12 of the 1997 Regulations has arisen with reference to the acquisition of the shares of the Target Company. According to the Respondent, since the Appellant had decided to acquire the shares of the Target Company and consequently its control,

16

regulation 10 and 12 triggered on 28.4.1999 warranting the Luxottica Group to make a public announcement to acquire not less than 20% of the shares of the Target Company in accordance with the Regulations. The merger effected on 27.10.2000, according to the Respondent, was of no relevance from the point of view of compliance of regulations 10 and 12 as it was only a mode adopted to effect the acquisition of shares already agreed to be acquired by the Appellant. But the Appellant's stand is that the Purchase Agreement by itself was not final and the acquisition was dependant on the fulfilment of several conditions, and a conditional agreement does not trigger regulation 10 and 12. According to the Appellant the acquisition took place only on the merger of Bausch & Lomb South Asia Holding Inc. with Ray Ban Holdings Inc. on 27.10.2000, and the acquisition was exempted from the scope of regulation 10 and 12 as an acquisition pursuant to a scheme of arrangement or reconstruction including amalgamation or merger or demerger under any law or regulation, Indian or foreign, is exempted in terms of regulation 3(1)(j)(ii) from the purview of regulation 10 and 12 and that since the acquisition being an exempted one there was no obligation on the Appellant to make any public announcement offering to purchase shares from other share holders, as provided in those regulations.

Before proceeding further in the matter, it is felt necessary to have a look at the governing regulatory provisions applicable to substantial acquisition of shares and takeovers having a bearing on the issues involved in the present appeal. In terms of section 11(1)(h) of the Securities and Exchange Board of India Act, 1992 (the SEBI Act) one of the functions of the Respondent is regulating substantial acquisition of shares and takeover of companies. For the purpose the Respondent has notified the 1997 Regulations. These Regulations provide certain ground rules to be followed by the concerned parties in the matters relating to substantial acquisition of shares and takeovers. The objective of the regulation is to provide an orderly framework within which the process of substantial acquisition of shares/control could be conducted. In the Justice Bhagwati Committee Report, based on which the Regulations have been drafted, it has been observed that the Regulations for substantial acquisition and takeovers should operate principally to ensure fair and equal treatment of all shareholders in relation to substantial acquisition of shares and takeovers; the Regulations should ensure that such process do not take place in a clandestine manner without protecting the interest of the shareholders.

Regulations 10, 11 and 12 are core regulations. Regulations 10 and 11 require the acquirer acquiring the shares beyond the prescribed limit to make a public announcement to acquire shares of the Target company from the shareholders in accordance with the Regulations. While regulation 10 and 11 deal with substantial acquisition of shares, regulation 12 is on the acquisition of control over the Target Company.

According to regulation 10:

"no acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him) entitle such acquirer to exercise fifteen percent or more of the voting rights I n a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the Regulations"

Regulation 11 is on creeping acquisition. It is not relevant to the instant case. According to regulation 12:

" Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company unless such person makes a public announcement to acquire shares and acquires such shares in accordance with the regulations."

Provided that nothing contained herein shall apply to any change in control which takes place in pursuance of a resolution passed by the shareholders in a general meeting.

Explanation: (i) For the purpose of this regulation, where there are two or more persons in control over the target company, the cessor of any one such person from such control shall not be deemed to be a change in control of management nor shall any change in the nature and quantum of control amongst them constitute change in control of management:

Provided however, that if the transfer of joint control to sole control is through sale at less than the market value of the shares, a shareholder meeting shall be convened to determine the mode of disposal of the shares of the outgoing share holder, by a letter of offer or by block transfer to the existing share holders in control in accordance with the decision passed by a special resolution. Market value in such cases shall be determined in accordance with regulation 20.

(ii) where any person or persons are given joint control such control shall not be deemed to be a change in control so long as the control given is equal to or less than the control exercised by person(s) presently having control over the property."

The expression acquirer referred to in regulations 10 and 12 has been defined in regulation 2(1)(b) as follows:

"Acquirer" means any person who directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer."

The expression 'control' has been defined in regulation 2(1) ( c) as foll ows:

" Control shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable, by a person or persons acting individually or in concert, directly or indirectly including by virtue of their share holding or management rights or share holders agreements or voting agreements or in any other manner"

According to regulation 14(1):

"The public announcement referred to in regulation 10 or regulation 11 shall

17

be made by the merchant banker not later than four working days of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights exceeding the respective percentage specified therein"

According to regulation 14(3):

"The public announcement referred to in regulation 12 shall be made by the merchant banker not later than four working days after any such change or changes are decided to be made as would result in the acquisition of control over the target company by the acquirer."

Regulation 16 provides for contents of the public announcement of offer clauses (xvi),

(xvii) and (xix) are relevant in the present case read as follows:

Regulation 16:

"The public announcement referred to in regulations 10 or 11 or 12 shall contain the following particulars:

(xvi) statutory approvals, if any, required to be obtained for the purpose of acquiring the shares under The Companies Act, 1956 (I of 1956) , The Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969),The Foreign Exchange Regulation Act, 1973 (46 of 1973) and/or any other applicable laws;

(xvii) approvals of banks or financial institutions required, if any

(xviii) whether the offer is subject to a minimum level of acceptance from the shareholders

(xix) such other information as is essential for the shareholders to make an informed decision in regard to the offer.

Regulation 20 deals with minimum offer price. Regulation 20(2) reads as under:

"(2) For the purposes of sub regulation (1), the minimum offer price shall be the highest of - a. the negotiated price under the agreement referred to in sub regulation (1) of regulation 14, b. highest price paid by the acquirer or persons acting in concert with him for any acquisitions, including by way of allotment in a public or right issue, if any, during the 26 week period prior to the date of public announcement

c. the price paid by the acquirer under a preferential allotment made to him or to persons acting in concert with him, at any time during the twelve month period upto the date of closure of the offer; d. the average of the weekly high and low of the closing prices of the shares of the target company as quoted on the stock exchange where the shares of the company are most frequently traded during the 26 weeks preceding the date of public announcement"

Regulation 22:

1. The public announcement of offer to acquire the shares of the Target Company shall be made only when the acquirer is able to implement the offer.

(8) Where an offer is made conditional upon minimum level of acceptance, the acquirer or any person acting in concert with him—

(i) shall irrespective of whether or not the offer received in response to the minimum level of acceptances, acquire shares from the public to the extent of the minimum percentage specified in sub regulation (1) of regulation 21. According to regulation 27:-

1. No public offer, once made, shall be withdrawn except under the following circumstances:

a. the withdrawal is consequent upon any competitive bid;

b. the statutory approval(s) required have been refused

c. the sole acquirer, being a natural person, has died;

d. such circumstances as in the opinion of the Board merits withdrawal. Shri Aspi Chinoy referring to several Articles in the Purchase Agreement had submitted that the Purchase Agreement executed between the Bausch & Lomb Group and the Luxottica Group on 28.4.1999 inter alia included provision for the acquisition of 44.152% shares of the Target Company held by the Bausch & Lomb Group, that the agreement to acquire the said shares was conditional and/contingent upon the divestment of the non Eyewear business of the Target Company within the stipulated time and since divestment of non Eyewear business was effected only on 27.10.2000 it can not be

18

viewed that the Appellants had agreed to acquire or pay for the shares of the Target Company on 28.4.1999. He had submitted that the Appellants had only agreed to acquire and pay for the shares of the Target Company subject to/conditional upon the Target Company divesting itself of its non Eyewear business. He had submitted that under New York Law and under section 31 and 32 of the Indian Contract Act, a contingent/conditional agreement could not be enforced or performed unless the condition had been fulfilled and the contingency had occurred. In support of the contention that the shares of the Target Company were to be acquired on the fulfillment of certain conditions/occurring of certain contingencies, he had cited several Articles from the Purchase Agreement. According to him the Purchase Agreement executed on 28.4.1999 was a contingent agreement incapable of enforcement. His contentions in this regard have been recorded in the earlier part of this order. According to him the Appellant was to acquire and pay for a "product"

which did not exist on 28.4.1999 and the price of the said product was undeterminable as at that point of time the Target Company was doing both Eyecare business and Eyewear business. Shri Rafique Dada citing several Articles from the Purchase Agreement had contested the said version. His argument on this point has also been recorded in the earlier part of the order.

In this context it is to be noted that the Appellant has admitted that the Target Company is its subsidiary. It has shown the Target Company as one of its subsidiaries in Schedule 1.1(b) to the Purchase Agreement. The 1997 Regulations does not define the expression subsidiary company. So the definition provided in the Companies Act is the one to be followed. Section 4 of the Companies Act, 1956 explains the meaning of "holding company" and "subsidiary" as follows:

4.(1) For the purposes of this Act, a company shall, subject to the provisions of sub-section (3), be deemed to be a subsidiary of another, if but only if,-

(a) that other controls the composition of its Board of directors; or

(b) that other -

(i) where the first-mentioned company is an existing company in respect of which the holders of preference shares issued before the commencement of this Act have the same voting rights in all respects as the holders of equity shares, exercise or controls more than half of the total voting power of such company;

(ii) where the first-mentioned company in any other company, holds more than half in nominal value of its equity share capital; or

a. the first-mentioned company is a subsidiary of any company which is that other's subsidiary. Illustration

Company B is a subsidiary of Company A, and Company C is a subsidiary of Company B. Company C is a subsidiary of Company A, by virtue of clause (c) above. If Company D is a subsidiary of Company C, Company D will be a subsidiary of Company B and consequently also of Company A, by virtue of clause (c) above, and so on.

(2) For the purposes of sub-section (1), the composition of a company's Board of directors shall be deemed to be controlled by another company if, but only if, that other company by the exercise of some power exercisable by it at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of all or a majority of the directorships; but for the purposes of this provisions that other company shall be deemed to have power to appoint to a directorship with respect to which any of the following conditions is satisfied, that is to say -

(a) that a person cannot be appointed thereto without the exercise in his favour by that other company of such a power as aforesaid;

(b) that a person's appointment thereto follows necessarily from his appointment as director or manager of, or to any other office or employment in, that other company; or

(c) that the directorship is held by an individual nominated by that other company or a subsidiary thereof.

(3) In determining whether one company is a subsidiary of another-

(a) any shares held or power exercisable by that other company in a fiduciary capacity shall be treated as not held or exercisable by it;

(b) subject to the provisions of clauses (c) and (d), any shares held or power exercisable -

(i) by any person as a nominee for that other company (except where that other is concerned only in a fiduciary capacity); or (ii) by, or by a nominee for, a subsidiary of that other company, not being a subsidiary which is concerned only in a fiduciary capacity;

shall be treated as held or exercisable by that other company;

a. any shares held or power exercisable by any person by virtue of the provisions of any debentures of the first- mentioned company or of a trust deed for securing any issue if such debentures shall be disregarded; b. any shares held or power exercisable by, or by a nominee for that other or its subsidiary not being held or exercisable as mentioned in clause (c) shall be treated as not held or exercisable by that other, if the ordinary business of that other or its subsidiary, as the case may be, includes the lending of money and the shares are held or the power is exercisable as aforesaid by way of security only for the purposes of a transaction entered into in the ordinary course of that business.

(4) For the purposes of this Act, a company shall be deemed to be the holding company of another if, but only if, that other is its subsidiary.

(5) xxxxxxxxxxxxxxxx

19

(6) xxxxxxxxxxxxxxxx

7. xxxxxxxxxxxxxxxx"

The section identifies three situations in which a company could be a subsidiary as stated in clauses (a) (b) (c) to sub section (1). It is true that in the instant case quantum wise holding of equity shares by Bausch & Lomb Group Company was only 44.152% which is less than half of the total voting shares of the Target Company. But it is seen from the material on record that the Target Company had a Board of Directors consisting of 6 directors. All these Directors were nominated by Bausch & Lomb Group. All these six Directors were replaced by another set of 6 Directors nominated by Luxottica Group on 30.10.2000 i.e. after effecting the merger of Bausch & Lomb South Asia Holding Inc., the holding company of Bausch & Lomb Indian Holding Inc. in whose name 44.152% shares of the Target Company were held, with Ray Ban Holdings Inc., a subsidiary of the Luxottica Group. The composition of the Target Company's Board referred to above is born out of the information furnished by Luxottica Group to the Respondent SEBI vide its letter dated 11.10.2001. Thus it is clear that though Bausch & Lomb was holding less than 50% of the equity capital of Target Company it was in a position to get its nominees appointed on the Board of the Target Company. The regular appointment of the Board of Directors are made by the shareholders of the company in the general meeting by approving the requisite resolution. The fact that Bausch & Lomb could get all its nominees appointed by the general body indicates that the Bausch & Lomb Group was in a position to get its resolutions passed in a general meeting. It is to be noted that in reality, in the normal course, all the share holders do not attend the meetings, and as a result bulky block share holders - like the Bausch & Lomb in this case - easily get the resolutions passed by exercising their bulk voting rights. In this context it is also to be noted that in terms of Article 127 of the Articles of Association of the Target Company "Unless otherwise determined by a Special Resolution of the Company in General Meeting, the company shall not have less than six and not more than twelve directors". It is to be noted that at the relevant time the company had only 6 directors. It is also to be noted that it was not possible to vary the minimum or maximum number without passing a Special Resolution, and that Special Resolution with 44.152% shares with the Bausch & Lomb Group was not possible to be passed without Bausch & Lomb's co-operation. It is also to be noted that as per Article 128, so long as Bausch & Lomb owned at least 26% of the total paid up capital of the company, it had a right to appoint one director and when holding exceeded 50% one more director could be appointed. It is in this background one has to see that the Bausch & Lomb had packed the entire Board of Directors with its six nominees. Thus it is clear that the Target Company was under the control of the Bausch & Lomb Group and that control was acquired by the Appellants on acquiring 44.152% shares from the Bausch & Lomb Group. The reconstitution of the Board of the Target Company supports this factual position. Therefore, it is abundantly clear that the Target Company was a subsidiary of Bausch & Lomb and the management of the Target Company was with Bausch & Lomb and certainly in that context the control of the company was also with Bausch & Lomb Group. In this context the definition of the expression 'control' provided in regulation 2(1)(c) need also be referred to. The said definition is an inclusive definition, the text of which has been already provided in the earlier part of this order. According to the said definition control, includes the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or voting agreements or in any other manner. The factual position that the management of the Target Company was with the Bausch & Lomb is demonstrated from the composition of the Board of the Target Company. Therefore, it is clear that in terms of regulation 2(1)(c) Bausch & Lomb were in control of the Target Company when the Purchase Agreement executed on 28.4.1999. Accordingly in the normal course the person acquiring the said 44.152% shares also acquires the control of the Target Company.

According to regulation 10 no acquirer shall acquire shares or voting rights which entitle such acquirer to exercise fifteen percent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the Regulations. According to Regulation 12 no acquirer shall acquire control over the target company unless such person makes a public announcement to acquire shares and acquires such shares in accordance with the regulations. It is to be noted that in the case of acquisition of shares or control, the obligation to make the public announcement is fastened on the acquirer. In this context the regulation 14(1) and 14(3) dealing with the timing of the public announcement/offer need be looked into. Regulation 14(1) is with reference to acquisition of shares and regulation 14(3) is with reference to acquisition of control. As per regulation 14 (1) the public announcement referred to in regulation 10 is required to be made by the merchant banker "not later than four working days of entering into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights" exceeding the percentage specified. From the regulation it is clear that the referral date for working out the four working days for the purpose is either the date of entering into an agreement for acquisition of shares or voting rights or the date on which decision was taken to acquire the shares or voting rights.

As per regulation 14 (3) the public announcement referred to in Regulation 12 is required to be made "not later than four working days after any such change or changes are decided to be made as would result in the acquisition of control over the target company" by the acquirer. In this regulation the referral date for working out four days is again the date on which the decision to acquire the control of the target company was made. On a plain reading of regulation 14(3) it is difficult to agree with the view that the regulation applies only when a change or changes in the Board of Directors or control is actually taken place. I fully agree with the Respondent's view that the term " change or changes decided to be made" must be read in the light of regulation 12 and be construed so as to mean decision taken for such changes, as would result in the acquisition of control of the target company. The word " would" used in regulation 14(3) conveys that what the said regulation is concerned with is the likely acquisition of control and not the actually effected acquisition of control. The word 'would' in the context need be understood in its literary sense as "expressing probability". Thus when Appellant No.1 agreed to acquire the shares of the Target company on 28.4.1999 the requirement of public offer under regulation triggered. In terms of regulations 10 and 12 acquirer can acquire shares/control over the Target company only after making a public announcement that he is going to acquire shares in accordance with the Regulations. Obviously which means that the public announcement will have to be made prior to the acquisition and not after the acquisition. As could be seen from the facts of the case the acquisition of control over the Target company by the Appellants was consequential to the acquisition of 44.152% shares held by the Bausch & Lomb Group. The question therefore to be first considered is as to when the Appellants agreed or decided to acquire the shares of the Target Company. It is noted that the Bausch & Lomb Group was engaged in both Eyewear product and Eyecare product business. For some reason Bausch & Lomb Group decided to sell its Eyewear business. For the purpose an open auction was conducted. Luxottica Group which is also engaged in the business of Eyewear products participated in the said open auction and succeeded in the bidding. The Purchase Agreement, even according to the Appellants' own version "was entered into pursuant to an open auction conducted" by it for the sale of its products. If the Appellants had not "decided" to acquire the Eyewear business from Bausch & Lomb Group they would not have participated in the open auction and purchased the said business. However, more specifically, the Purchase Agreement pursuant to the auction was executed on 28.4.1999. The Agreement also establishes the fact that the Appellant had decided/agreed to acquire the Eyewear business and the

20

44.152% share of the Target Company and thereby the Target Company's Eyewear business. The recital to the Purchase Agreement clearly indicates this fact. Relevant portion from the Purchase Agreement is extracted below:

"This PURCHASE AGREEMENT is entered into this 28^thday of April 1999, by and between Bausch & Lomb Incorporated, a New York Corporation (Seller) and Luxottica Group SpA, an Italian Corporation (Buyer)

WITNESSETH:

WHEREAS, Seller and its Subsidiaries are engaged, in part, in the business of producing, marketing, distributing and selling sunglasses and certain related accessories in various locations throughout the world, all as further described in Schedule 1 attached hereto (the "Business); and

WHEREAS, Seller desires to sell to Buyer and/or its affiliates, or cause its subsidiaries to sell to Buyer and/or its affiliates, certain assets owned by Seller and its subsidiaries which are used exclusively in connection with the Business, the capital stock of certain subsidiaries engaged exclusively in the Business and the capital stock of Sellers subsidiary in B & L India Ltd., (B & L India); and WHEREAS, in connection with such sale Seller desires to assign and transfer to Buyer and or its affiliates certain liabilities associated with the Business; and

WHEREAS, buyer desires to buy or cause its affiliates to buy, such assets and capital stock, or cause its affiliates to assume, such liabilities;

NOW, THEREFORE, in consideration of the premises and of the mutual covenants of the parties hereto, the parties hereto, hereby agree as follows………"

In the light of the above, it is crystal clear that the Appellants had agreed/decided to acquire the Eyewear business including the shares of the Target Company held by Bausch & Lomb Group. It is true that the acquisition was subject to fulfillment of certain conditions. The Appellants' version that since agreement to acquire the Eyewear business/shares was subject to fulfillment of certain conditions/ occurrence of certain contingencies and as such in the event of failure to satisfy those conditions the acquisition would not have materialised and consequently the Agreement would have lapsed and in completed acquisition only announcement was required to be made, according to me, does not weigh much in support of the Appellant's cause. It is quite clear from regulations 10,12 and 14 that the triggering point is not a completed transaction or a concluded contract. The triggering is on taking decision to acquire shares/control. In any case, as rightly submitted by the Respondent, it was open for Appellant to make an offer to acquire the shares of the Target Company in terms of the Regulations subject to the conditions stipulated in the Agreement. In case later on the preconditions of acquisition were not fulfilled then the Appellant need not have proceeded with the offer process. Regulation 27 takes care of such an eventuality. Further, it is also seen that issuing public announcements/offer letters stating that the acquisition is subject to fulfillment of conditions is not uncommon and the Regulations also provide for the same. Regulation 16 states the matters to be disclosed in the public announcement of offer. It specifically provides for the disclosure of certain conditions, like obtaining statutory approvals, approvals of banks or financial institutions and minimum level of acceptance from the shareholders. This is not exhaustive. That is why under clause (xix) of the regulation a provision has been made to disclose 'such other information as is essential for the shareholders to make an informed decision in regard to the offer'. Therefore, if an acquirer wanted to disclose the other conditions/contingencies the same could be disclosed in terms of the said clause (xix). The argument that the offer document recognises only the conditions specifically specified and none else, in my view, is not correct. The argument that there is no provision for disclosure of any other conditions in the offer document and, therefore, offer with any other conditions, is not allowed by the Regulations, in my view, is unfounded. The fact is that the Appellant had agreed to acquire the Eyewear business/shares of the Target Company for a consideration stipulated in the Agreement. This consideration obviously could be for what the Appellants had agreed to acquire and certainly not for the non Eyewear business of Bausch & Lomb Group. In Article 7.5 of the Agreement, it has been stated "In connection with the negotiation and execution of the Agreement, Buyer has performed a comprehensive due diligence investigation of the Business, and with its advisors, has made its own analysis and evaluation of the Business, the Purchased Assets Assumed liabilities and Transferred Subsidiaries." This is a clear indication that the Appellant had decided to make the acquisitions. The Appellants' contention that they had not agreed while executing the Purchase Agreement to acquire the Eyewear business/capital stock of the Target Company is untenable. Since the Appellant had agreed to acquire shares/control the obligation to make public announcement offering to acquire shares from the other shareholders of the Target Company also arose. The Agreement was drafted after mutual agreement in respect of the Transactions involved etc. is evident from the following categorical statement in Article 1.3(b) that "This Agreement is the joint drafting product of Seller and Buyer and each provision hereof has been subject to negotiation and agreement and shall not be construed for or against either party as drafter thereof." It is also noted that the Appellant had fixed the consideration for the product it was considering to buy. The Appellant has stated that it was not a firm price but an advance. Even the payment of advance indicates the Appellant's decision to acquire the Eyewear business/shares from the Bausch & Lomb Group. As stated earlier the obligation to make the public announcement/public offer in the context of acquisition of shares/control over the company as per regulation 10/12 is on the acquirer when he agrees or decides to acquire. According to the Appellants the Agreement dated 28.4.1999 did not make them the "Acquirers" or trigger the public announcement/public offer requirements of the regulations till such time the Target Company divested its non Eyewear business. According to the Appellants the Regulations do not envisage or permit such a conditional announcement/offer being made that the only conditional offers permitted/an offer is with reference to the availability of statutory approvals and receipt of a minimum level of acceptance by the shareholders, and therefore no public announcement with attached conditions is permissible and in that context the Appellants are not under obligation to make an offer to purchase the shares from the shareholders of the Target Company, stating that the offer is conditional on the divestment of the non Eyewear business by the Target Company. The Appellants had contended that although the public announcement/offer is a pre acquisition requirement it is only triggered when there is an unconditional/final decision or agreement to acquire shares on the part of the acquirer, that the triggering requirement of regulation 2 (1)(b) read with regulation 14 is "entering into an agreement for acquisition of shares" or "deciding to acquire shares" that these words necessarily connote a final decision/binding agreement. In support, Shri Chinoy had also referred to regulation 22(1) which stipulates that a public announcement of offer to acquire shares of a target company shall be made only when the acquirer is able to complete the offer, and therefore, a contingent Agreement can not trigger the regulations until the same has become enforceable. According to the Appellants under regulation 27(1) an offer once made shall not be withdrawn except where the statutory approvals required have been refused or the sole acquirer has died, that there is no provision to withdraw an offer in the event of failure to fulfil any other conditions, that even under regulation 27(1)(d) SEBI has no power to grant withdrawal. Learned Senior Counsel had

21

also referred to the rigid time frame in which the offer process is to be completed. Shri Chinoy had referred to the observations of the Bhagwati Committee in support of his submission regarding non acceptability of conditional offers. The portion from the Bhagwati Committee Report, when read with the report as a whole does not support his version. On the contrary it goes against. He had refuted the Respondent's contention that in B P Amoco the Hon'ble Bombay High Court had held that conditional offers are permissible and explained the facts of the said case to distinguish the present case and the non applicability of the ratio of the said case to the present one.

For an answer to the question as to whether the Appellant is an acquirer or not one has not to go far off. The expression 'acquirer' has been defined in regulation 2(1)(b) as any person who directly or indirectly acquires or agrees to acquire shares or voting rights in the target company or acquires or agrees to acquire control over the target company either by himself or with any person acting in concert with him. Therefore, the acquirer is a person who (i)acquires shares/voting rights/control by himself (ii) agrees to acquire shares/voting rights/control by himself (iii) acquires shares with any person acting in concert with the acquirer (iv) agrees to acquire shares/voting rights/control with any person acting in concert with him. Therefore it is to be noted that the test is not the actual acquisition alone. If a person agrees to acquire shares/voting rights/control by himself or with persons acting in concert with him that would bring him within the ambit of the definition

"acquirer". Precisely therefore, the Appellant having agreed to acquire the shares of the Target Company, is an acquirer in terms of regulation 2(1)(b).

In this context I would like to add that the Hon'ble Bombay High Court had considered the scope of the expressions 'acquirer', 'agrees to acquire' etc. while deciding the appeal filed by B. P. Amoco against this Tribunal's order (2001)34 SCL 469). The Hon'ble Court had held as under:

"After giving a deep consideration to the above submissions of both the counsel and in the light of the provisions of the SEBI Regulations, we find that the word 'acquirer' could not be interpreted to mean only a person who has already acquired shares. On the contrary the definition of 'acquirer' in regulation 2(b), clearly mentions "acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company". From the above it is very clear that even someone who

"agrees to acquire shares or voting rights" or agrees to acquire control over the target company" would come within the definition of 'acquirer'. Therefore it is explicitly apparent and clear that the word 'acquirer' would not only means that those who have already acquired shares and also those 'who agree to acquire shares' or 'agree to acquire control' over the target company.

Similarly if the word 'acquirer were to mean only those who have already acquired shares, then the provisions regarding 'public announcement' in the SEBI Regulations would be rendered nugatory. The statutory protections contemplated through public announcement would be lost.

Even regulation 12, mentions in categorical terms as "no acquirer shall acquire control over the target company, unless such a person makes a public announcement to acquire shares and acquire such shares." Therefore what is contemplated is that a public announcement must precede any acquisition of shares and then only a person can acquire shares. Any other interpretation would render 'public announcement' superfluous and the objectives sought to be achieved would be lost.

This is all the more abundantly clear from regulation 14 (3) mentions about the necessity of public announcement when "any such change or changes are decided to be made as would result in the acquisition of control over the target company by the acquirer". That is to say, when any such change is decided to be made, the same would result in acquisition or control, then public announcement will have to be made. Therefore, once a decision is taken, which would result in acquisition or control, then public announcement must precede such acquisition or control. That is the decision to later on result in acquisition or taking control.

In light of the above, we do not agree with the submission of Mr. Setalvad that 'agrees to acquire" would mean that there must be an agreement between the acquirer and the shareholders. If the above interpretation is accepted, the salutary checks contemplated by the SEBI Regulations and the necessity of public announcement would be rendered useless. Similarly the contention that regulatory approvals have to be obtained even prior to 'agreeing to acquire' cannot be sustained. In fact in the public announcement it is always mentioned that offer is subject to such regulatory approval. That is why in regulation 22, it is mentioned that a public offer can be withdrawn if a required statutory approval is refused. Therefore, is clear that a public offer can be made by a public announcement even before obtaining the required regulatory approval.

The decision to acquire control over the target company is very apparent and clear from the public announcement made on 14.3.2000 and not on 7-7-2000 as contended by Mr. Setalvad."

As regulation 14(1) and 14(3) takes the date of taking decision to acquire shares/control as the referral point for deciding the four days, the observation made by the Hon'ble High Court in respect of sub regulation (3) of regulation 14 is in equal force is applicable to sub regulation (1) also.

Shri Chinoy is correct in his submission that acquisition of 44.152% shares of the Target Company was linked to the fulfillment of certain conditionalities specifically provided in the Agreement with reference to the Target Company. In fact the main thrust of his argument was that the Agreement was a conditional one and till such time those conditions are fulfilled the acquisition can not be effected and therefore compliance of regulations 10/12 did not arise on 28.4.1999. To support that he had cited several Articles from the Agreement. I have perused the Articles referred to by him in this regard including article 6.4. Countering Shri Dada's contention that fulfillment of the conditions other than the statutory approval stipulated in the Agreement were within the powers of the Appellants, Shri Chinoy had submitted that hiving off of the non Eyecare business of the Target Company was not possible without the approval of the shareholders' resolution and there was no certainty that the resolution would be passed as the Appellant was holding only 44.152% voting power. In this connection I would like to refer to my observation regarding the position of the Appellant vis-à-vis control over the company and the fact of appointing 6 nominees as directors with the approval of the general body showing that with 44% voting block available with it, it was not at all impossible for it to translate its wishes to a reality, especially in view of the widely dispersed ownership of 56% voting right of the Target Company. It is also to be noted that under section 293(1)(a) of the Companies Act only an ordinary resolution is required. In terms of section 189 ordinary resolution requires only a simple majority i.e. votes cast in favour to exceed the votes cast against the resolution. Therefore, with 44.152% voting right in the Target Company available with the Appellants, it was, in reality a foregone conclusion that the ordinary resolution under section 293(1)(a) could be passed at their will. In this connection it has to be noted that Article 6.4 on which the Appellants had placed heavy reliance is a part of the Purchase Agreement. This Article was amended paving way for merger only on 3.2.2000. As I stated earlier, from the background of the Purchase Agreement and from the

22

recitals cited earlier, and from the intent of certain Articles it is clear that the Appellant had decided/agreed to acquire the shares of the Target Company held by Bausch & Lomb Group. The requirement of divestment of non Eyewear business flow from the Appellants' agreement to acquire those shares. In fact the Appellant has also accepted the fact that it had agreed to acquire the shares of the Target company vide the Agreement. But the contention is that such an agreement being contingent upon certain further action by the Seller, the execution of the Agreement can not be considered as the Triggering factor of regulations 10 and 12.

The Appellants' contention that regulation 10/12 triggers only when a final decision/binding the agreement comes into being is untenable in the light of the clear provisions of the said regulation read with regulation 14 as discussed earlier. New York Law and the provisions of sections 31 and 32 of the Indian Contract Act cited by the Appellant is of little help to the Appellants in this case. Regulation 10/12 is not talking about concluded contract is evident from the text of those regulations extracted in the order. Every agreement need not necessarily be a contract in that sense. If the Appellants' contention in this regard is accepted even the public announcement subject to obtaining statutory approval/prescribed level of minimum acceptance, which according to the Appellant is permissible, can not be made because the 1997 Regulations does not have over riding effect on the provisions of the Indian Contract Act. As Bhagwati Committee observed in its report (I report) that "The committee also recognised that the process of takeovers is complex and is inter related to the dynamics of the market place. It would therefore be impracticable to devise regulations in such details as to cover the entire range of situations which could arise in the process of substantial acquisition of shares and takeovers. Instead there should be a set of General principles which should guide the interpretation and operation of the Regulations, especially in the circumstances which are not explicitly covered by the Regulations." One of such General Principles is "protection of interests of shareholders". It is in the said background one has to consider the Regulations. It is true that the Regulations recognize conditional offers subject to the approval of requisite statutory approvals and receipt of minimum level of acceptance. But that does not mean that there could be no other preconditions. As the Bhagwati Committee pointed out it was not possible to enumerate an exhaustive list of conditions in the Regulations, as the conditions could vary from case to case. But it is clear from the scheme of the Regulations that there is no prohibition on the acquirer making public offers with conditions other than those specified in the Regulations. It is noted that in terms of clause (xix) of regulation 16, the acquirer is free to state in the offer document "such information as is essential for the shareholders to make an informed decision in regard to the offer". The word condition is a word of wide import. If a condition which could influence a shareholder in making an informed decision vis-a-vis his investment in the shares could be stated in the offer document in terms of clause (xix) of regulation 16. The Appellants' contention that there is no provision in the Regulations to withdraw an offer once made except on the limited grounds specified in regulation 27(1) and that the regulation does not provide for withdrawal of the offer on the ground that the 'condition precedent' was not fulfilled, that the only exception is a situation where statutory approval was refused, in my view, is not correct. Regulation 27 has given wide discretion to SEBI to allow offerors to withdraw their offer if circumstances merit such withdrawal. Reasonable conditions put in the offer document and the difficulty in fulfilling those conditions for no fault of the offeror could be one of those circumstances for granting withdrawal. It is not an automatic withdrawal. The offeror has to convince SEBI the genuine difficulty in fulfilling the condition. Unchecked automatic withdrawal of offer being capable of misuse, the authorities deliberately put the checks and control through the requirement of obtaining SEBI approval. It is to meet the genuine situations, the Regulation has enabled SEBI vide regulation 27(1)(d) to allow withdrawal of offers "in such circumstances as in the opinion of the Board merits withdrawal." It is to be noted that SEBI is mandated to protect the interests of investors and the securities market and as such it is expected to exercise the said power in genuine circumstances.

I have noted Shri Chinoy's contention that in terms of regulation 22(1) the public announcement of offer to acquire the shares can be made only when the acquirer is able to implement the offer and therefore a conditional offer being one which can not be implemented by him till the conditions are fulfilled can not be made by him is of no force. If the acquirer is in a position to fulfil the condition stipulated by him, his unwillingness to do so, is not covered by regulation 22(1). In the light of the facts of the instant case it was a foregone conclusion that the precondition of hiving off of the non Eyewear business of the Target Company to acquire the shares of the Target Company was a condition which the Bausch & Lomb was in a position to fulfil. The obligation of divesting the non Eyewear business for effecting the acquisition was squarely on Bausch & Lomb, the party to the Agreement and that Bausch & Lomb was keen to dispose of its Eyewear business. Having agreed to accept the consideration for sale of the shares it held in the Target Company (in fact it had accepted advance)and that it was no longer interested in the Eyewear business, there was no reason to believe that the transaction would not come through and the offer can not be implemented. The only precondition to acquire the shares of the Target Company was hiving off of the non Eyewear business of the Target Company which as I stated earlier was within the powers of Bausch & Lomb Group. If for any unexpected reason it was found later that the offer can not be implemented the Appellant could have approached SEBI seeking permission to withdraw the offer under regulation 27(1)(d). I agree with Shri Chinoy on his submission that the automatic exemption available in terms of regulation 3(1)(j)(ii) is independent of the exemption under regulation3(1)(k). Exemption under regulation 3(1) (j) (ii) is not dependent on regulation 3(1)(k). According to regulation 3(1)(j)(ii), the provisions of regulation 10, 11 and 12 are not attracted to acquisition pursuant to scheme of arrangement or reconstruction including amalgamation or merger or demerger under any law or regulation, Indian or foreign. Exemption provided under regulation 3(1)(k) is for acquisition of shares in companies whose shares are not listed on any stock exchange. This exemption is not available to the situations stated in the explanation to the sub regulation. There is nothing even to suggest that the scope of regulation 3(1)(j)(ii) is restricted by regulation 3(1)(k). In the instant case it is evident from the material on record that Bausch & Lomb South Asia Holdings Inc. an intermediary holding company in the line of ownership of the Target Company merged with Ray Ban Holdings Inc. a subsidiary of Luxottica Group on 27.10.2000.and the said merger changed the ownership of the Target Company's holding from Bausch & Lomb Group to Luxottica Group. But this merger was made in terms of the amendment to the Article 6.4 effected on 3.2.2000. This merger is also covered by the Purchase Agreement by which the Appellant had decided to acquire the Target Company's shares. The merger was a follow up action translating the decision to acquire the Target Company.

It is noted that on 28.4.1999 i.e. the date on which the Purchase Agreement was executed between the parties, one of the subsidiaries of Bausch & Lomb Inc. namely Bausch & Lomb South Asia Inc. was holding 44.152% shares of the Target Company. On 24.3.2000 the said company transferred the said shareholding to Bausch & Lomb Indian Holdings, a direct subsidiary of Bausch & Lomb South Asia Holding Inc. another subsidiary of Bausch & Lomb Inc. On 27.10.2000 the said Bausch & Lomb Asia Inc. merged with Ray Ban Holdings Inc. Ray Ban Holdings Inc. is a subsidiary of Luxottica Group SpA. As a result of the said merger Bausch & Lomb Indian Holdings Inc., the immediate holding company of the Target Company, became a subsidiary of Ray Ban Holdings Inc. and resultantly the Target Company became an indirect subsidiary of Luxottica Group SpA. This merger was effected only on 27.10.2000. The fact of the said merger is not in dispute. But the Appellants contention that the conditionality relating to the hiving off of the non Eyewear business was fulfilled on 21.7.2000 and thereafter in terms of the amended Article 6.4, the merger was effected and since the acquisition pursuant to merger is exempted in terms of regulation 3 (1) j (ii) the Appellant is not required to make any public offer is unacceptable. As I stated earlier, the requirement of public announcement/public offer had already triggered on 28.4.1999

23

on the execution of the Purchase Agreement. Merger is subsequent to the said triggering. Therefore the Appellant is not absolved of the obligation arising out of the triggering of the regulation on 28.4.1999. Resorting to the merger route subsequently by the Appellant, was only an attempt to avoid the requirements of making public offer. In the light of the facts and circumstances of the case and the provisions of the regulations I am of the view that on executing the Purchase Agreement on 28.4.1999 the provisions of the regulation requiring public announcement to make an offer to acquire not less than 20% of the shares from the other shareholders of the Target company triggered on 28.4.1999 itself. The Appellants had failed to make the public offer as required by regulation 10. Since it is conclusively established that regulation 10 triggered on 28.4.1999 it is of no relevance as to whether the merger effected on 27.10.2000 was covered under regulation 3(1)(j) (ii) and the show cause notice issued on this charge was adequate or not and whether there was any failure to follow the principles of natural justice in this regard as alleged. Having come to the conclusion that the Appellants are required to make public offer in the light of the facts discussed above, the next connected question to be considered is the direction to pay interest.

I have considered the submissions made by Shri Chinoy regarding the direction to the Appellants to pay interest @ 15% per annum to the shareholders of the Target Company from 27.8.1999 till the date of actual payment of consideration for the shares to be tendered in the offer directed to be made. The Respondent has decided 27.8.1999 as the date for the purpose by taking into consideration the 120 days time limit provided in the Regulations to complete the offer process commencing from the date of the public announcement. It is true that, had the Appellants made the public offer as per the Regulations taking 28.4.1999 as the reference date in the normal course, the offer process would have been completed latest by 27.8.1999 and the shareholders would have got the price for the shares tendered by them in response to such public offer by the said date. The payment is due to the shareholders only on completion of the offer. It is seen that in this case the offer could not be completed before the precondition of divesting the non Eyewear business was completed. A formal resolution as required under section 293(1) of the Companies Act, 1956 for the purpose was required to hive off the non Eyewear business of the Target Company to complete the acquisition. This resolution was passed only on 21.7.2000. It is seen that the requisite regulatory approval was obtained on 6.6.1999. As stated earlier the only main condition for the takeover of the shares of the Target Company, as per Article 6.4 of the Agreement as it stood prior to its amendment on 3.2.2000 was hiving off of the non Eyewear business of the Target Company. This hiving off was well within the powers of Bausch & Lomb Group as it was in a position to get the resolution passed by virtue of its holding of 44.152% of the voting capital of the Target Company and that the resolution required for the purpose was only an ordinary resolution requiring simple majority. Still, for some unexplained reasons, it did not take place till 21.7.2000. In the absence of any convincing reason for such long delay for hiving off of the non Eyewear business, the only inference could be that they were delaying the 'D' day intentionally to their benefit. In my view, since fulfilment of the condition was delayed without any justifiable reasons, the AGM date on which the resolution to hive off the non Eyewear business can not be considered as the date on which the offer became unconditional. The condition was attached by the parties to the Agreement. It was in their reach to detach those conditions. But they preferred to keep those conditions attached till the merger proposal was to be effected and that merger according to them provided exemption from making the public offer. Public offer would have required the Appellants to spend considerable amount, which they obviously wanted to avoid. So till the merger process was to close, they did not want the condition to be fulfilled. It is to be noted that on 21.7.2000 the resolution for the purpose was passed and on 27.10.2000 the merger was effected. The motive for the delayed divestment of non Eyewear business of the Target Company is clear. Therefore, in my view the date from which the shareholders are entitled to receive the interest should be 27.8.1999 as rightly decided by the Respondent.

Having failed to make the payment to the shareholders by the said date the Appellants are liable to pay interest on the open offer price for the period from 27.8.1999 till the actual date of payment of consideration to the shareholders who are entitled for the same.

This Tribunal in the BP PLC V SEBI ((2001)45 CLA 136) had considered the sustainability of interest levied at the rate of 15% on the delayed payments. The Tribunal had held that:

"Shri Setalvad's submission that the interest rates in UK are in the region of 5-6 per cent and that even in India the interest rates over a one year range being between 9-10 percent, direction to pay @ 15% is unjustified, is also of no force. The rate of 15% is not arrived at by the Respondent in an arbitrary manner. It has some basis. In this context it is to be noted that section 73 of the Companies Act also deals with a situation where the application money received in response to a public offer is required to be refunded. The said section requires the issuer company to pay interest to the subscribers on the subscription money refunded if delayed with interest at such rate, not less than four percent and not more than fifteen percent as may be prescribed by the Government. The rate has been prescribed by the Government, obviously taking into consideration all the relevant aspects, as fifteen per cent per annum vide rule 4D of the Companies (Central Governments) General Rules and Forms, 1956 notified under the Companies Act. This rule is still in force. I do not find any reason as to why a Person to whom the money is due from the acquirer as consideration for the acquisition of his shares should be treated differently from a person to whom money is due by way of refund in a public issue from an issuer company. In my view 15 per cent interest payable under section 73(2A) of the Companies Act should be in equal force applicable to the instant case. Therefore, direction to pay interest at 15 per cent in the instant case can not be considered as unjustified."

Shri Chinoy had cited the decision of the Hon'ble Supreme Court in Kaushnuma Begum V New India Assurance (2001)2 SCC 9) that where no rate of interest is specified 9% per annum was considered reasonable compensation. The Hon'ble Supreme Court's decision in Kaushnuma Begum, is in the context of any specified rate not fixed by the statute. In my view, 9% rate is not applicable to the instant case in the light of the interest rate fixed by the Government in comparative circumstances discussed above.

Shri Chinoy had cited this Tribunal's decision in Rhodia SA V SEBI (2001) 34 SCL 597) on the eligibility of the shareholders to receive the interest.

In Rhodia this Tribunal had held that interest is the return or compensation for the use or retention by one person of money belonging to another and in this view of the matter the requirement of payment of interest should be only to those persons who were holding shares on the record date and in a position to tender the same when the Appellants make a public offer as directed by SEBI. Those who purchased shares after the due date for closure of the offers as specified by SEBI can not be said to have suffered any loss and any direction to pay interest to those shareholders also on those shares purchased after the closure date and tendered in an offer as required to be made by the impugned order would amount to unjust enrichment of those shareholders. In the absence of any convincing reasons from the Respondent's side to take a different view on this issue, the principle followed in Rhodia case should in equal force be applicable to the present case. In fact this

24

Tribunal in its decision in identical cases, which came up for consideration after the pronouncement of the order in Rhodia, has been following the principle laid down in Rhodia. In my view a person who was not holding shares and as a result was not in a position to tender shares in a public offer which was required to be made in response to the public announcement required to be made with reference to the triggering of regulation 12/10 on 28.4.1999 should not be entitled for any compensation for the delay involved in making the public offer and the consequential delay in the payment of the purchase consideration. He was not in a position to tender shares in response to the public offer had the Appellant made a public offer at that point of time. Only those persons who were holding shares of the Target Company eligible to participate in the public offer required to be made taking 28.4.1999 as the referral date for the purpose of making public announcement and continue to be shareholders of the Target Company on the closure day of the public offer made in terms of the directions given by SEBI vide the impugned order above should be eligible to receive interest, in case those shares are tendered in response to the public offer to be made in terms of the impugned order.

The order therefore, in this regard need be modified as follows:

The interest at the rate of 15% per annum shall be payable from 27.8.1999 to those persons who were holding shares of the Target Company eligible to participate in the public offer required to be made taking 28.4.1999 as the referral date for making public announcement and continue to be share holders of the Target Company on the closure day of the public offer made in terms of the impugned directions in case those shares are tendered in response to the public offer to be made in compliance of the impugned order. The Appellants are directed to make the public announcement taking 28.4.1999 as the referral date, within 45 days from the date of this order. The impugned order to the extent stated above is modified. For the reasons stated above the impugned order as modified survives.

The appeal is disposed of in the above lines.

Sd/-

(C. ACHUTHAN)

PRESIDING OFFICER.

MUMBAI

August 29, 2003.

25