Supreme Court Rules French Law Governs Control Acquisition in Technip-SA vs SMS Holding Case, Sets July 2001 as Effective Date for Takeover of SEAMEC

Court rejects Securities Appellate Tribunal’s finding of April 2000 control acquisition, emphasizing the importance of foreign law in corporate status and clarifying takeover regulations under Indian law

In a landmark judgment dated May 11, 2005, the Supreme Court of India in the case of Technip SA v. SMS Holding (Pvt.) Ltd. clarified the legal principles governing cross-border acquisitions and the interplay between Indian and foreign laws in takeover transactions involving Indian companies and foreign parent entities. The case centered on whether Technip SA, a French company, acquired control of SEAMEC, an Indian subsidiary, through its acquisition of Coflexip (also a French company) in April 2000 or in July 2001.

SEAMEC, an Indian company engaged in marine engineering and construction, was controlled by Coflexip through a chain of subsidiaries. The question was significant because the date of control acquisition determined the price Technip was required to pay minority shareholders of SEAMEC in a mandatory public offer under the Securities and Exchange Board of India (SEBI) (Substantial Acquisition of Shares and Takeover) Regulations, 1997. The price per share was Rs. 238 in April 2000 compared to Rs. 43.12 in July 2001, with Technip having failed to make any public announcement as required by Indian law at either date.

The Securities and Exchange Board of India (SEBI), upon complaint from SEAMEC minority shareholders, held that Technip gained control of Coflexip and thus SEAMEC only in July 2001 and directed Technip to make the public offer accordingly, including payment of interest for delay. The minority shareholders appealed to the Securities Appellate Tribunal (SAT), which reversed SEBI’s finding by holding that Technip had acquired control in April 2000, acting in concert with ISIS (a subsidiary of IFP, a French government body) and ordered Technip to pay the higher April 2000 price difference plus interest.

Technip and IFP challenged the SAT’s decision before the Supreme Court. The Court analyzed in detail the principles of private international law (conflict of laws), emphasizing that the corporate status and control of foreign incorporated companies (Technip and Coflexip) must be governed by the law of their domicile-in this case, French law. The Court rejected SAT’s application of Indian law to determine the timing of control acquisition of Coflexip and held that French law must apply to determine when Technip acquired control of Coflexip.

The Court carefully examined the French Companies Act provisions relevant at the time, including Article 355-1 (1966 and 2001 amendments) and Article 356-1, relating to when a company is deemed to have control over another and the disclosure obligations on acquisition of significant shareholding thresholds. It found that mere acquisition of 29.68% shares by Technip in Coflexip in April 2000 did not confer de jure or de facto control under French law. The so-called “acting in concert” allegation, based on the relationship between Technip, ISIS, and IFP, was not substantiated by evidence sufficient to infer a common objective of acquiring control over SEAMEC through Coflexip.

Significantly, the Court underscored that for Indian takeover regulations to be triggered, the acquisition or control must concern the target company itself (SEAMEC), directly or indirectly. It must be shown that the acquisition of Coflexip was with the purpose of controlling SEAMEC or that SEAMEC constituted a substantial part of Coflexip’s assets. The Court found that SEAMEC was a small and insignificant portion of Coflexip’s total assets and that there was no evidence that Technip’s acquisition of Coflexip shares was motivated by control over SEAMEC.

Rejecting SAT’s “family group” theory and the notion of “acting in concert” without clear statutory basis, the Court held that the transaction was a strategic alliance and that Technip acquired control of Coflexip only in July 2001 after completing the acquisition of a majority stake.

The Court also emphasized the narrow and exceptional circumstances under which foreign law could be disregarded on grounds of Indian public policy, holding that French law was not contrary to Indian public policy in this case. The principles of fairness, transparency, and protection of minority shareholders embedded in both Indian and French laws were substantially aligned.

Consequently, the Supreme Court allowed the appeals of Technip and IFP, set aside the SAT’s order, confirmed SEBI’s direction that the effective date for control acquisition was July 2001, and discharged bank guarantees Technip had furnished under the SAT’s order. The Court declined to interfere with the interest rate and dividend adjustment issues as they arose only if SAT’s order prevailed.

This decision clarifies the application of foreign law in corporate control disputes involving Indian subsidiaries, reinforces the importance of the “target company” concept under Indian takeover regulations, and provides a detailed legal framework for “acting in concert” and indirect acquisitions.

Statutory provisions:-

• Companies Act, 1956 Sections 2(7), 3, 4, 10;
• Securities and Exchange Board of India Act, 1992 Sections 15I, 15U, 15Z;
• SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 Regulations 2(1)(b), (c), (e), (o), 3(1)(i)(o), 10, 11, 12;
• French Companies Act, 1966 Article 355-1, Article 356-1

This report encapsulates the Supreme Court’s nuanced and authoritative ruling on cross-border acquisition law, the interface between Indian and French law, and shareholder protection under Indian securities regulations.

Technip SA v. SMS Holding (Pvt.) Ltd., (SC) : Law Finder Doc Id # 82979