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MNCs like Hitachi Rhodia and Luxottica can heave a sigh of relief from the recent SC ruling on payment of interest to investors in takeover code violation cases.

In a ruling on an appeal filed by Clariant International, the apex court upheld the Securities and Appellate Tribunal (SAT) order that only investors holding shares when the management of the target company changed, will be eligible for interest payment. The court reduced the rate of interest from 15% to 10% in such cases.

The ruling will have an impact on other cases where Sebi had directed foreign companies to pay interest to shareholders for the delay in making an open offer after taking control of domestic companies. The SC ruled that while calculating the interest to be paid to investors, the amount of dividend paid to shareholders should be excluded.

This ruling will benefit foreign owners of companies like Rayban, Albright & Wilson Chemicals India and Amtrex Hitachi Appliances, who were asked by Sebi to pay interest to all shareholders participating in the open offer. Sebi had ordered French company Rhodia to pay an 15% interest to all shareholders of Albright & Wilson Chemicals India from July 14, '00 till the actual payment of offer proceeds.

Hitachi was directed to pay interest to all investors at 10% per annum on the offer price, from May 1, '03. In the case of Rayban, a 15% interest was to be paid from August 27, 1999.

The appeals filed by these companies are pending in SAT or in the apex court.

In the case of Clariant International, Sebi had asked the foreign company to pay 15% interest to all investors of Colour Chem for the delay in making the open offer after acquiring 50.1% of the Indian company in November 1997.

However, the SC ruled that only those shareholders who participated in the open offer and who were holding shares of the company as on February 24, 1998 would be eligible for the interest payment.

The SC order said that "while compensating a person, the court should see that he is not unjustly enriched. Interest is directed to be paid on the default of the acquirer, occasioning loss suffered by an investor of his money.

The question of paying interest by way of compensation to persons who had not suffered any loss, thus, would not arise. Interest was, therefore, payable only to such persons who were shareholders of the target company as on the triggering date."

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