How can a minor person make an open offer to acquire shares in the open market? Market regulator SEBI believed it can happen. However, the Securities and Appellate Tribunal (SAT) recently quashed such a SEBI order which had imposed it upon a minor to make an open offer.
The SAT’s reasoning was that SEBI cannot impose its order just as a minor had become major, when SEBI issued a show cause notice. The judgement said that the “natural guardian is responsible for liability on behalf of minor, even after he attained majority”.
The tribunal rejected SEBI’s reliance on Section 8 of the Hindu Minor and Guardianship Act, 1956, to conclude that since the minor appellant had now turned major, the obligation of the natural guardian stood discharged, and that the appellant was obligated to make the open offer. It held that the provision to be not applicable, as the guardian was not a natural guardian (mother or father of minor), terming SEBI’s approach as “patently erroneous”.
The SAT quoted Section 11 of the Contract Act, and relied on Supreme Court’s ruling in case involving Ritesh Agarwal. The tribunal said, “The minors at the time of occurrence of the event cannot be subject to any penalty under the SEBI Act...the guardian’s action triggered the open offer obligation, and since the action wasn’t for the minor’s benefit, it was a personal covenant of the guardian.”
The SAT holds that the action of the guardian could not bind the minor, and ruled out the applicability of Section 8 of the Hindu Minor and Guardianship Act.
Advocates including Tomu Francis, Ramesh Mishra and Arka Shah had argued on behalf of the appellant. The respondent SEBI was was represented by senior advocate Kevic Setalvad, Ameya Kulkarni and Chirag Bhavsar.