Top sources, however, pointed out that the current open offer by Raju may be allowed to go through as it may not be legally tenable to debar an entity from making an open offer which by itself appears legally correct.

Moreover, barring Raju from making the current offer without proving the allegations against him for an earlier transfer of 39.5 per cent stake of Raasi Cements in Shree Vishnu Cements to nine investment companies allegedly controlled by Raju, may not be legally tenable, feel sources.

Sebi officials, however, declined to comment on the stand that the regulator would take. Interestingly, the nine investment companies failed to turn up at Tuesday's hearing. N Srinivasan of India Cements, who now controls Raasi Cements, was represented by his lawyers.

Another criticalissue before the Sebi chairman is whether the investigations into the alleged 39.5 per cent share transfer is adjudicated by the civil court before which the matter is currently pending or by the securities watchdog.

There are two issues before the Sebi chairman. One is to link the earlier share transfer with the current open offer, as contended by the complainant ie, Raasi Cements and an individual shareholder. If this is done then it would first need to be ascertained whether the share transfer was illegal or not. In the meantime, the open offer would need to be stalled. Later if it was found to be illegal, then the entire transaction would be revoked.

The other issue, as presented by Raju, is to segregate the two events. In this case the offer could go through and Raju could pick up the 20 per cent stake. In the event of the earlier transaction being held invalid, Raju would end up having paid Rs 100 per share for this 20 per cent but would at the same time end up losing his earlier 39.5 per centstake. This, according to sources, is a good enough monetary penalty in itself on the acquirer if he is found guilty as this in effect would mean that he pays Rs 100 per share and still ends up having no controlling stake in the company. The company's shares were quoted at Rs 20 before the announcement for the open offer was made.

The issue of shareholders of Shree Vishnu Cements suffering if the offer is called off considering that the share price of the company has zoomed after the announcement of the open offer, is also something that will weigh on the mind of the Sebi chairman when he issues the order.

If the regulator is to view the two issues separately then the open offer would go through and investigations could be launched to determine whether or not the earlier transaction was illegal.

If it is found to be illegal then there are several remedies in the takeover code which include a monetary penalty and even prosecution.

The other reason why Sebi may not want to look into the open offer isbecause the complainant has only talked about violations in the earlier share transfer.

This case is also before a city civil court where Raasi Cements has alleged that the entire transaction was in violation of the Companies Act, 1956, the Sick Industrial Companies Act (SICA) and the takeover code.

The issue before Sebi now is whether to jump into the fray and look at this case as a violation of the takeover code or to leave the entire case to the court. It could, in any case, launch investigations on its own into the alleged illegal share transfer.

Faced with a takeover threat from India Cements, BV Raju had transferred the company's stake in Sri Vishnu Cements to nine investment companies. As a result, when India Cements took over Raasi, it did not get a controlling stake in Sri Vishnu.

Recently, Raju made an open offer for acquiring another 20 per cent in Sri Vishnu Cements. The current management of Raasi Cements and an individual investor have however contested the entire move saying that as thenine investment companies were persons acting in concert an open offer should have been made at that point itself. And as the earlier share transfer was in itself in violation of the laws the current open offer should also not be allowed to go through.

Interestingly, at the hearing on Tuesday, Raasi Cements said that it had not complained to Sebi but had merely informed it about the alleged violations.