Ejusdem Generis in SEBI Act

Ejusdem Generis, which is sometimes called Lord Tenterden's rule, is thus stated where
a statute, or other document enumerates several classes of persons or things, and
immediately following and classed with such enumeration the clause embraces 'other'
persons or things the word 'other' will generally be read as 'other such like,' so that the
persons or things therein comprised may be read as ejusdem generis with, and not of a
quality superior to, or different from, those specifically enumerated. In Nirma Industries
Ltd and Ors V Securities and Exchange Board of India The Supreme Court holds
that withdrawal of an open offer under the Takeover Regulations would be on limited
grounds of impossibility, such as statutory impossibility. Economic hardship is not
sufficient ground for withdrawal of an open offer. The discretionary powers of SEBI are
limited while considering an application for withdrawal of an open offer. It is pertinent to
note that though the court's interpretation was of Regulation 27 (d) under the Takeover
Regulations of 1997, the same provision is also in the Takeover Regulations of 2011
and therefore, the expression "such circumstances as in the opinion of the Board merit
withdrawal.", should be given the same interpretation.
In their appeal before the Supreme Court, Nirma Industries raised the following grounds
that SEBI did not grant an opportunity of being heard while deciding the Withdrawal
Application and the Rejection Letter was issued in violation of the principles of natural
justice. Therefore, the Rejection Letter was therefore liable to be set aside. The
Promoters of SRMTL had committed a fraud on Nirma Industries and as such this act of
fraud had vitiated the transaction. Consequently, Nirma Industries ought not to be
mandated to complete the transaction. SEBI should be given wide powers on
Regulation 27 (d); SEBI ought to have followed a purposive interpretation of Regulation
27 (d) in view of the object for which withdrawal of an offer is sought; Principles of
ejusdem generis would not apply in interpreting Regulation 27 (d), since SAT had
relied on ejusdem generis taking into account conditions in Clauses (b) and (c) of
Regulation 27.
On the interpretation of Regulation 27 (d), the Supreme Court held that, in view of the
object of the Takeover Regulations10, the power to withdraw an offer must be
interpreted in the limited context of the provisions of Clauses (b) and (c) and hence, the
principle of ejusdem generis must be applied. The Supreme Court also rejected the
contention of economic prejudice or economic impossibility or that it was just
uneconomical. Therefore, while the Takeover Regulations does confer certain
discretionary powers on SEBI, it would be in respect of impossible situations which are
similar to situations in Clause (b) (statutory impossibility) and Clause (c) (death) of
Regulation 27. Consequently, this would place a very limited scope of application for
withdrawal of an open offer.
By limiting the scope of applicability of Clause (d) of Regulation 27 and the discretion
available with SEBI while considering an application for withdrawal, investors would
have very limited ground for withdrawing an open offer. Although commercial hardship
is not a ground for exemption from performance, prior to this judgment SEBI could have
considered grounds on the basis of the power conferred on it under Regulation 27 (d).
The Supreme Court has recognized the principle that powers conferred on an authority
must be exercised in furtherance of the objectives for which the power has been
conferred. In the context of Takeover Regulations, since the power is to ensure
transparency and prevent abuse of the market, SEBI could have exercised such
discretionary power consistent with the objects of the Takeover Regulations. Thus, in
appropriate cases, economic hardship could have been allowed.
In Securities and Exchange Board of India vs. Akshya Infrastructure Pvt. Ltd. the
question came to light whether the principles of ejusdem generis was applicable for the
interpretation of Regulation 27(1)(b)(c) and (d) and the court ruled in the affirmative as
taking into consideration the case previously mentioned as there is a common genus of
impossibility. This impossibility envisioned under the aforesaid regulation would not
include a contingency where voluntary open offer once made can be permitted to be
withdrawn on the ground that it has now become economically unviable. Accepting such
a submission, would give a field day to unscrupulous elements in the securities market
to make Public Announcement for acquiring shares in the Target Company, knowing
perfectly well that they can pull out when the prices of the shares have been inflated,
due to the public offer. Such speculative practices are sought to be prevented by
Regulation 27(1)(b)(c) and (d), that is precisely the reason why Regulation 27(1)(a) was
deleted. Merely because there has not been any substantial change in the price of
shares in this particular case, would not, in any manner, invalidate the conclusion
reached in Nirma Industries (supra).
The same scenerio was met in Pramod Jain and Ors vs. Securities and Exchange
Board of India where Regulation 27 was brought to light where it mentioned that even
if clause (d) of regulation 27 is read ejusdem generis so as to apply only in situations
where it is impossible for the acquirer to perform the public offer, it cannot exclude
situations where SEBI itself is satisfied that serious prejudice was caused to the
acquirer by intervening actions of the promoters in alienating or encumbering the assets
of the company, rendering it inequitable to require the acquirer to be bound by its offer.
Thus, the obligation of the acquirer cannot be divorced from the conduct of the
promoters in the intervening period. Apart from distinguishing the judgment in Nirma
Industries Limited (supra) which has been followed in the impugned order, the judgment
in M/s. Akshya Infrastructure Pvt. Ltd (supra) was also sought to be distinguished as
being limited to cases where delay by SEBI does not cause any serious prejudice to the
acquirer.
Ejusdem Generis in IBC Act
In the case of Schweitzer Systemtek India Pvt. Ltd. Vs. Phoenix ARC Pvt. Ltd. &
Ors the appellant filed an application under Sec 10 of the Insolvency and Bankruptcy

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code which was admitted, authority appointed resolution professional and declared
moratorium period. The appellant objected attachment of the property of guarantor
under resolution process. The tribunal carefully examined Sec 14 of the Code which
prohibits any action to recover or enforce any security interest created by the Corporate
Debtor in respect of “its” property during moratorium period. While interpreting the
section tribunal applied doctrine of Noscitur a Sociis according to which associated
words take meaning from one another and these words are supposed to be read
together in cognate sense. Under Section 10 of the Code corporate debtor need to
furnish his books of accounts so the meaning of the property is confined to the property
stated in the books of accounts of corporate debtor. Hence “its” denotes property of
corporate debtor. Doctrine of Ejusdem Generis says that while interpreting a general
term court can assume the other things of same nature or kind, means while interpreting
the statute court applies the general statements to all things of same kind. But court has
no authority to expand or delete the word written by the legislature while enacting the
law. So “its” cannot be expanded to that extend of including the property of guarantor.
In the case of Tayal Cotton Pvt. Ltd. Vs. The State of Maharashtra & Othrs, it
mentions that as is the principle of interpretation of Statutes, the words would take
colour from words preceding thereto. These words will have to be interpreted ejusdem
generis with the words ‘suits’ used earlier thereto. So interpreted, the word
‘proceedings’ used therein and even the words ‘order’ and ‘in Court of law’ will have to
be interpreted as a proceeding arising in the nature of a suit and orders passed in such
proceedings and suits. Apart from the fact that the Legislature has not conspicuously
used the words ‘criminal’ as an adjective to the word ‘proceedings’ and as an adjective
to the noun ‘Court of law’, it must be assumed that the Legislature in its wisdom has
consciously omitted to use such adjectives since it must have intended to prohibit only
the suits and execution of the judgments and decrees or a proceeding of the like nature.
Therefore, applying this principle of interpretation, one cannot put any other
interpretation on this provision contained in Section 14 of the Code except that it only
prohibits a suit or a proceeding of a like nature and does not include any criminal
proceeding.
Further in the case of Alpha & Omega Diagnostics (India) Ltd. v. Asset
Reconstruction Company of India Ltd. there are recognized canons of interpretation.
Language of the Statute should be read as it existed. This is a trite law that no word can
be added or substituted or deleted from the enacted Code duly legislated. Every word is
to be read and interpreted as it exists in the statute with the natural meaning attached to
the word. Rather in this Section the language is so simple that there is no scope even to
supply ‘casus omissus’. I hasten to add that the doctrine of ‘Noscitur a Sociis’ is
somewhat applicable that the associated words take their meaning from one another so
that common sense meaning coupled together in their cognate sense be interpreted. As
a result, “its” denotes the property owned by the Corporate Debtor. The property not
owned by the Corporate Debtor do not fall within the ambits of the Moratorium. Even

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Section 10 is confined to the Book of the Accounts of the Corporate Debtor, due to the
reason that Section 10(3) has specified that the Corporate Applicant shall furnish “its”
Books of Accounts. This Bench has no legislative authority to expand the meaning of
the term, “its” even under the umbrella of ‘Ejusdem generis’.
In Philips India Limited Vs Goodwill Hospital & Research Centre Ltd a bare perusal
of the above provision of the ‘IBC’ shows that a dispute could be proved by showing that
a suit has been filed or Arbitration proceedings are pending. It further elaborates that
the suit or arbitration should be in respect of the existence of the amount of debt, quality
of goods or services, or for a breach of a representation or a warranty. It was further
contended that general word ‘dispute’ has to be restricted to a proceedings by applying
the principles of Noscuntur a Sociis and Ejusdem generis. When a general word is
qualified by specific words of narrower construction, the legislative intent is clear that
the general word should be read and limited to characteristics of the specific words.
Therefore, according to learned counsel for the appellant the specific words ‘suit or
arbitration’ is ordinarily understood and covered by the general word ‘dispute’.