Technip SA vs SMS Holding (Pvt.) Ltd. & Ors.

I. Introduction

The case revolves around the acquisition of control over South East Asia Marine Engineering and Construction Ltd. (SEAMEC), an Indian company, by Technip SA, a French company, through its acquisition of Coflexip, another French company. The key question is whether Technip acquired control over SEAMEC in April 2000 or July 2001, as the share price of SEAMEC differed significantly between these two dates. [Paragraph 1]

II. Parties Involved

1. Technip SA: A French company that acquired control over Coflexip.

2. Coflexip: A French company and a subsidiary of Technip SA, which held a majority stake in SEAMEC.

3. Institut Francais du Petrol (IFP): A French government body that promoted Technip and Coflexip through its subsidiary ISIS.

4. South East Asia Marine Engineering and Construction Ltd. (SEAMEC): An Indian company and a subsidiary of Coflexip.

5. Respondents: Shareholders of SEAMEC.

III. Key Issues

1. Applicable Law: Whether French law or Indian law should be applied to determine the date of acquisition of control over SEAMEC by Technip. [Paragraphs 2-4]

2. Public Policy Exception: Whether the French law should be disregarded as contrary to Indian public policy. [Paragraphs 5-6]

3. Date of Acquisition: Whether Technip acquired control over SEAMEC in April 2000 or July 2001. [Paragraphs 7-8]

4. Acting in Concert: Whether Technip and IFP (through ISIS) acted in concert to acquire control over Coflexip and, consequently, SEAMEC. [Paragraph 9]

IV. Court's Observations and Findings

A. Applicable Law

1. The Court held that the relationship between Technip and Coflexip, being French companies, should be determined by French law, as it relates to their status. However, their obligations under Indian law vis-à-vis SEAMEC would be governed by Indian law. [Paragraph 3]

"The relationship of Technip to Coflexip whether one of control or not is really a question of their status. The applicable law would therefore be the law of their domicile, namely, French law. Having determined their status according to French Law, the next question as to their obligation under the Indian Law vis-a-vis SEAMEC would have to be governed exclusively by Indian law." [Paragraph 3]

2. The Court rejected the respondents' argument that French law should be disregarded as contrary to Indian public policy, stating that domestic public policy must relate to basic principles of morality and justice, and the foreign law must amount to a flagrant or gross breach of such principles. [Paragraphs 5-6]

"Domestic public policy which can justify a disregard of the applicable foreign law must relate to basic principles of morality and justice and the foreign law amount to a flagrant or gross breach of such principles." [Paragraph 6]

B. Date of Acquisition

1. The Court examined the relevant provisions of the French law and the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (Regulations). [Paragraphs 7-8]

2. The Court found no evidence that Technip obtained de facto control over Coflexip in April 2000, and the evidence suggested it was merely a strategic alliance. [Paragraph 9]

"We are of the opinion that having regard to the balance of probabilities there was no evidence that Technip obtained de facto control of Coflexip in April 2000. The evidence would rather suggest that it was nothing more than a strategic alliance." [Paragraph 9]

3. The Court held that for triggering Regulations 10, 11, and 12, it must be established that Technip's purchase of shares in Coflexip was with the object of taking control over SEAMEC, the alleged target company. [Paragraph 10]

"In order to trigger Regulations 10 to 12, it would have to be established that the purchase of the 29.68% shares by Technip in Coflexip was with the object of taking control of SEAMEC." [Paragraph 10]

4. The Court found that SEAMEC did not constitute a substantial part of Coflexip's assets, nor was the main purpose of acquiring control over Coflexip to secure control over SEAMEC. [Paragraph 11]

"SEBI had noted that the takeover of SEAMEC was only an incidental fall out of the control of Coflexip and that SEAMEC formed a 'small and insignificant portion of the total business of Coflexip' contributing merely 2% of the total asset base of Coflexip as on December, 2000." [Paragraph 11]

C. Acting in Concert

1. The Court disapproved of the Securities Appellate Tribunal's (SAT) reasoning that Technip and IFP (through ISIS) acted in concert based on their common parenthood and family ties, stating that the statutory provisions exhaustively define what constitutes 'acting in concert'. [Paragraph 12]

"We need not go into the reasons separately although we must say that we disapprove of the introduction of the concept of a joint family into corporate law when the statutory provisions, particularly Regulation 2(e) exhaustively defines what would amount to 'acting in concert'." [Paragraph 12]

2. The Court found that SAT erred in not focusing on whether Technip and IFP acted in concert to obtain control over SEAMEC, the alleged target company. [Paragraph 13]

"Furthermore, it is abundantly clear that even the name of SEAMEC does not feature in any of the several reasons put forward by SAT whereas that, as we must emphasise, should have been the primary point of focus." [Paragraph 13]

V. Conclusion

The Court allowed the appeals of Technip and IFP, setting aside the order of SAT. The Court held that Technip acquired control over SEAMEC in July 2001, not in April 2000, and discharged the bank guarantees furnished by Technip. [Paragraph 14]

"We are thus of the opinion that SEBI's order must prevail and the order of SAT must be set aside." [Paragraph 11]

"The appeals are for these reasons allowed without costs." [Paragraph 14]