Mumbai: Last year, the AV Birla group picked up Reliance Industries’ 10 per cent-plus stake in L&T at a price of Rs 306.50 per share on negotiated terms. The Reliance nominees on the L&T board, the Ambani brothers stepped down and Kumar Mangalam Birla and his mother Rajashree Birla took their place on the board. The group’s objective appeared to be to consolidate its cement business and gain synergies from L&T’s engineering skills and experience.

Subsequently, the group continued to purchase L&T shares in the open market and raised its holdings in L&T to about 15 per cent.

Last month, Grasim of the AV Birla group announced its decision to consolidate its shareholding in L&T through an open offer to mop up another 20 per cent of its shares. The offer was made at Rs 190 per share.

The price offered by Grasim satisfies Sebi's formula of 26-week high-low and the recently added criterion of the average of share prices for two weeks preceding the date of public announcement of the open offer.

The other shareholders of L&T are the financial institutions (FIs), which have over 30 per cent stake, and the small investors. No one expected that they would accept the open offer, when someone else had been paid much more than what they were being offered. The Investors’ Grievance Forum (IGF), headed by Kirit Somaiya, Lok Sabha MP, asked Sebi to stall the offer till Sebi’s ongoing probe of Grasim’s acquisition of L&T shares were complete.

Early this month, Sebi asked Grasim to withhold its open offer, pending its investigations into possible violations with respect to its acquisition of 10.05 per cent equity stake in L&T last year.

In response, Grasim appealed to the Securities Appellate Tribunal (SAT) for interim relief seeking permission to proceed with its open offer scheduled to open on December 9, 2002.

Grasim in its appeal, citing Sebi regulations, had submitted that Sebi had no power to issue any such stay order and that Grasim's rights to make a public issue could not be taken away. Grasim even offered to make a conditional open offer or revise it.

Last Thursday, SAT confirmed Sebi’s order stopping Grasim Industries from going ahead with its open offer for 20 per cent stake in Larsen & Toubro.

In SAT's view, granting the interim order sought by Grasim would amount to staying an investor protection measure put in operation by Sebi. "I am not inclined to grant interim relief as prayed for by the applicants," said C Achuthan, presiding officer, SAT.

SAT said Sebi was competent to stall a public offer if it was of the opinion that the offer was not in the interest of investors. "In this context, it is to be noted that if such an offer is allowed to go, then there is no effective remedy to make good the adverse effects of the same," SAT noted in its order.

"If the offer documents are to be cleared without waiting for the verification of the allegation in the complaint or completion of the enquiry, the very purpose of conducting the enquiry or examining the complaint becomes redundant", noted SAT.

SAT noted that if a serious complaint was received against a public offer or an enquiry was on to unearth certain malpractices, and Sebi had reason to believe that the public offer was not in the interest of investors, it did not stand to reason to hold that Sebi had no powers.

SAT also noted that the 10.05 per cent stake was bought from Reliance Industries on negotiated terms at a price much higher than the then prevailing rate.

The option for Grasim now is to approach the Supreme Court, said counsel for the company, Goolam Vahanvati.

In a statement, Grasim said that it is considering its future course after detailed consideration of the today's SAT order by its legal advisors. "The main appeal on merits is still to be heard by SAT," said Grasim.

"As per the legal advice received, Grasim is confident that the result of the investigation should be in favour of Grasim," said the statement.

Reacting to SAT's order, IGF said that its decision to dismiss Grasim's appeal against the stay of L&T open offer is a victory for small investors.

Kirit Somaiya said that Sebi should complete all investigations related to Grasim's purchase of L&T stake within the next three months. According to IGF, investors have "at last got justice".

Small investors can rejoice for now. But the story is far from over. The next round is likely to be played out in the Supreme Court.