SC rejects petitions against Clariant International

Yagnesh Kansara - Mumbai

IN a development that will have an impact on all subsequent cases related to payment of penal interest to minority shareholders in takeovers, the Supreme Court (SC) has rejected all the review petitions filed before it in the case of Clariant International Ltd (CIL). The dismissal of the petitions means that Clariant, which had delayed making an open offer to Colour Chem shareholders, needs to pay penal interest only to those shareholders whose names figured on the company’s shareholder records on the date when the takeover code was triggered.

Those shareholders who had come at a later stage and tendered their shares in the open offer would not be eligible for penal interest. In the Clariant case, the takeover code was triggered when it effected a global takeover of Hoechst AG, the Indian arm of which is Colour Chem. There were more than three review petitions each, filed by the Securities and Exchange Board of India (Sebi), the Consumer Education & Research Centre (CERC) and the Specified Undertaking Unit Trust of India (SUUTI) and other minority shareholders. The ruling will also affect other cases where the issue of penal interest is being decided upon.

The three-member bench, comprising Justice Santosh Hegde, Justice SB Sinha and Justice AK Mathur, passed a brief order in the second week of March, which said, “We’ve gone through the review petitions and the connected papers. We find no merit therein. The review petitions are accordingly dismissed.”

Earlier, the SC had upheld the order of the Securities Appellate Tribunal (SAT) which accepted the contention of the petitioner (CIL) to pay the penal interest only to those shareholders in the open offer who have held on to their holdings from the reference date of 1998. Earlier, in August 2004, the SC had pronounced its judgement in the Colour Chem Ltd (CCL) case (Clariant vs Sebi).

The salient features of the judgement were as follows: Interest will be paid at 10 per cent per annum as against 15 per cent directed by Sebi and SAT, dividends since 1998 will be deducted from the amount of interest payable to shareholders and the interest will be paid only to those shareholders who have continuously held/owned the shares since March 22, 1998 till the date of tendering the shares in the open offer, ie. for more than six and a half years.

The minority shareholders had pleaded that the concept of transferability and fungibility applicable to equity shares should have been considered by the SC. According to them, all the rights, liabilities, past accrued incomes/losses are constantly and continuously transferred to the new owners whenever an equity share changes hands. Even if one buys shares on the record date/book closure date, one is entitled to full year dividend/right/bonus, even though he owns the shares just for one day before the said date, and effectively he gets the same benefit as a person holding the shares for one full year, they had argued.

Similarly, if a person buys the shares today and tomorrow, a ten-year old case is decided against the company, the shareholder cannot claim that he should not be made to suffer the losses of the past deeds of the company. The share price goes down and the new owner will necessarily have to suffer the loss and the old owner of the share has no liability at all, they had said.

— Financial Express