Securities Appellate Tribunal
Nagarjuna Fertilizers & Chemicals Ltd. vs Sebi on 30 October, 2015
Author: J. P. Devadhar
Bench: J. P. Devadhar
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
DATE : 30.10.2015
Appeal No. 89 of 2013
Nagarjuna Fertilizers & Chemicals Ltd.
Nagarjuna Hills, Punjagutta,
Hyderabad - 500 082. ..... Appellant
Versus
1.Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051.
2. Bombay Stock Exchange Limited P. J. Tower, Dalal Street, Mumbai - 400 001.
3. National Stock Exchange of India Ltd.
Exchange Plaza, Bandra Kurla Complex, Mumbai - 400 051. ...... Respondents Mr. Shyam Mehta, Senior Advocate with Mr. Ankit Lohia, Advocate i/b Desai & Diwanji for the Appellant.
Mr. Prateek Seksaria, Advocate with Mr. Saurabh Bachhawat, Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent No. 1. Mr. Ajay Khaire, Advocate i/b The Law Point for the Respondent No. 2. None for the Respondent No. 3.
CORAM : Justice J. P. Devadhar, Presiding Officer Jog Singh, Member Per : Justice J. P. Devadhar (Oral)
1. Appellant claims to be aggrieved by the decision of the Securities and Exchange Board of India ("SEBI" for short) whereby, according to the appellant, SEBI has rejected the application of the appellant forwarded to SEBI through the Bombay Stock Exchange ("BSE" for short) and the National Stock Exchange ("NSE" for short) with their recommendations 2 dated December 13, 2011 and January 13, 2012 respectively for grant of relaxation / waiver of the conditions set out under Rule 19(2)(b) of the Securities Contract (Regulation) Rules, 1957 ("SCRR" for short) for the purposes of listing the shares of the appellant on the respective stock exchanges.
2. Regulation 19 of SCRR provides that a public company desirous of getting its securities listed on a recognized stock exchange shall apply for that purpose to the stock exchange and forward the application to SEBI alongwith the recommendation of the stock exchange, as also various documents and particulars set out under Regulation 19 of SCRR. Shares of a public company are listed on the stock exchanges only when SEBI approves such listing. Regulation 19(7) of SCRR provides that SEBI may at its own discretion or on the recommendations of a recognized stock exchange, waive or relax the strict enforcement of any or all of the requirements while seeking approval of SEBI for listing the shares of a company on the stock exchanges.
3. In the present case, on the basis of a composite scheme of Arrangement and Amalgamation ("Scheme" for short) between the appellant and various other entities, duly sanctioned by the Andhra Pradesh High Court as also by the Bombay High Court, the appellant, with a view to list its shares on the stock exchanges, submitted its application to the BSE and NSE seeking their "in principle approval" and their recommendation to SEBI for waving / relaxing the conditions set out in Rule 19(2)(b) of SCRR.
4. It is not in dispute that the BSE with its in-principle approval for listing forwarded the application of the appellant to SEBI on December 13, 3 2011 recommending waiver / relaxation of Rule 19(2)(b) of the SCRR for listing the shares of the appellant on the BSE. Similarly, NSE granted in- principle approval and recommended to SEBI that the conditions set out under Rule 19(2)(b) of SCRR be waived / relaxed for listing the shares of the appellant on NSE.
5. On perusal of the above application of the appellant as also the recommendations of BSE and NSE, SEBI was of the opinion that the appellant had got the scheme of Arrangement / Amalgamation sanctioned by deliberately and willfully suppressing vital and material facts and thereby practicing fraud on the Courts. It appears that the prima facie view of SEBI was based on the report of M/s. Bansi S. Mehta & Co., an independent valuer wherein it was reported that the valuation of the assets and liabilities / goodwill of the companies involved in the scheme of the appellant were not in accordance with law.
6. Based on the valuation report submitted by M/s. Bansi S. Mehta & Co., SEBI filed Company Applications before the Bombay High Court seeking review of its order sanctioning composite scheme of Arrangement and Amalgamation submitted by the appellant. During the pendency of the aforesaid Company Applications before the Bombay High Court, SEBI deemed it fit not to pass any order on the applications submitted by the appellant through the stock exchanges seeking waiver / relaxation from Rule 19(2)(b) of SCRR.
7. The appellant was of the opinion that SEBI has wrongfully rejected the application of the appellant and, accordingly, filed the present appeal before this Tribunal in March 2013 by claiming that SEBI was not justified 4 in rejecting the applications submitted to SEBI through the two stock exchanges seeking relaxation / waiver of Rule 19(2)(b) of SCRR.
8. In its affidavit in reply SEBI contended that in the present case, no order has been passed on the applications submitted by the appellant through the stock exchanges and since appeal under Section 15T of SEBI Act is maintainable only against an order passed by SEBI, the present appeal filed even before passing an order is not maintainable. In the ordinary course, this Tribunal would have rejected the above argument of SEBI and directed SEBI to pass appropriate orders on the applications submitted by the appellant forthwith. However, in view of the fact that SEBI was of the opinion that the appellant got the scheme of Arrangement / Amalgamation sanctioned by practicing fraud on the Court and the applications filed by SEBI seeking review of the order sanctioning the scheme was pending before the Bombay High Court, this Tribunal deemed it fit to keep the appeal pending till the disposal of the applications filed by SEBI before the Bombay High Court.
9. Admittedly, by a judgment and order dated September 10, 2015 the Bombay Stock Exchange has dismissed the company applications filed by SEBI, by holding that, firstly, SEBI does not have any locus to intervene in a petition filed under Sections 391 and 394 of the Companies Act, 1956 and secondly, even on merits, there is no merit in the contention of SEBI that the appellant had suppressed vital and material facts and got the scheme sanctioned by practicing fraud on the Courts.
10. Relying on the aforesaid decision of the Bombay High Court, counsel for appellant submitted that it is high time that SEBI be directed to pass 5 appropriate orders on the applications of the appellant which are pending before SEBI since December 2011.
11. Counsel for SEBI, on the other hand submitted that, firstly, the present appeal is not maintainable, because, appeal under Section 15T of SEBI Act is maintainable only when the appellant is aggrieved by an order passed by SEBI and in the present case, SEBI has not yet passed any order on the applications of the appellant and, therefore, appellant cannot be said to be aggrieved by any order of SEBI and consequently, the appeal filed by the appellant would not be maintainable under Section 15T of SEBI Act. In support of the above contention, counsel for SEBI relied on a decision of this Tribunal dated October 15, 2007 in Appeal No. 123 of 2007 (C. A. Arun Goenka vs. Siemens Diagnostics Holding II B. V. and Ors.) and a decision of Madras High Court in case of Pentamedia Graphics Ltd. vs. SEBI reported in 2007-1-L. W. 337. Secondly, it is submitted on behalf of SEBI that challenging the order passed by the learned Single Judge of the Bombay High Court, SEBI has filed appeal before the Division Bench of the Bombay High Court and till that appeal is disposed of SEBI cannot be compelled to pass any order on the applications of the appellant. Counsel for SEBI further submitted that even if the appeal is dismissed by the Division Bench of the Bombay High Court, SEBI has a right to file appeal before the Apex Court and, therefore, till the issue is finally decided by the Apex Court, SEBI cannot be compelled to pass any order on the application of the appellant.
12. We have carefully considered the rival submissions.
13. SEBI is established under the SEBI Act to protect the interests of investors in securities and to promote the development of and to regulate 6 the securities market. While protecting the interests of investors and promoting development and regulating the securities market SEBI is bound and liable to function within the parameters prescribed under the SEBI Act and the Rules and Regulations framed by the Central Government / SEBI. Under Rule 19(7) of SCRR framed by the Central Government, SEBI is conferred with the power to relax / waive certain conditions set out under SCRR which are required to be fulfilled while seeking approval from SEBI for listing the shares of a company on the stock exchange. Even if the stock exchanges recommend relaxation / waiver of certain conditions set out under SCRR, it is open to SEBI to decline waiver / relaxation for valid reasons.
14. In the present case, it is contended on behalf of SEBI that the applications of the appellant have not been disposed of because, according to SEBI, appellant has got the scheme of Arrangement / Amalgamation sanctioned by suppressing material facts and by practicing fraud on the Courts. As noted above, the Bombay High Court, has found no merit in the above contention of SEBI and in the judgment delivered on September 10, 2015 the learned Single Judge of the Bombay High Court has categorically recorded a finding that the appellant has not suppressed any facts or document and the appellant has not practiced fraud on the Court. Thus, the Court which sanctioned the scheme has found that SEBI is not justified in contending that the appellant got the scheme sanctioned by suppressing vital facts, documents and by practicing fraud on Courts. Once the Court which sanctioned the scheme has rejected the claim of SEBI that the scheme was got sanctioned by practicing fraud on Courts, then, SEBI cannot refuse to act on the basis that the scheme has been validly 7 sanctioned in accordance with law, especially when the order passed by the learned Single Judge has not been stayed by any higher authority.
15. Argument of SEBI that till the issue relating to the appellant getting the scheme sanctioned by practicing fraud on Court is decided by the Division Bench of the Bombay High Court and ultimately by the Apex Court, SEBI cannot be compelled to pass an order on the application of the appellant seeking waiver of Rule 19(7) of SCRR is without any merit. Whether relaxation / waiver should be granted or not is within domain of SEBI. The above discretionary power vested in SEBI is coupled with a duty to exercise its discretion one way or the other within a reasonable time. In the present case, the applications submitted by the appellant seeking waiver / relaxation of the conditions set out under Rule 19(7) of SCRR are pending before SEBI since December 2011. Prima facie view of SEBI that the appellant got the scheme sanctioned by fraudulent means, has been admittedly rejected by the learned Single Judge of the Bombay High Court. In such a case, inspite of the decision of the learned Single Judge, SEBI cannot refuse to pass an order on the application of the appellant, merely because SEBI has filed an appeal before the Division Bench against the decision of the learned Single Judge.
16. Argument of SEBI that since SEBI has not passed any order on the applications in question, no appeal could be filed under Section 15T of SEBI Act is also without any merit. Failure on part of SEBI to perform duties conferred on it under the securities laws if causes prejudice to any person in the securities market, then that person being an aggrieved person would be entitled to file an appeal under Section 15T of the SEBI Act. In the present case failure on part of SEBI to dispose of the application seeking waiver / relaxation of Rule 19(2)(b) of SCRR has caused serious 8 prejudice to the appellant because, in the absence of deciding the application, the appellant is unable to list its shares on the stock exchanges. Argument of SEBI that the appellant may get its shares listed without seeking waiver / relaxation of Rule 19(2)(b), is wholly unjustified, because, under SCRR appellant has a right to seek relaxation / waiver of Rule 19(2)(b) and SEBI has a right either grant or reject relaxation / waiver of Rule 19(2)(b). Merely because, SEBI considers that the appellant has got the scheme sanctioned by practicing fraud on the Court cannot be a ground for SEBI to exercise its discretionary power one way or the other. Appeal under Section 15T can be filed by any person connected with the securities market, if that person is aggrieved by any action or inaction on part of SEBI. If the argument of SEBI that only persons who are aggrieved by the action of SEBI in passing an order are entitled to prefer appeal under Section 15T of SEBI Act, is accepted, then, it would mean that persons who are aggrieved by inaction on part of SEBI in failing to discharge its obligation under the SEBI Act and Rules and Regulations framed thereunder have no remedy of filing an appeal under Section 15T of SEBI Act. Such a restricted meaning to Section 15T of SEBI Act is unwarranted. In our opinion, on a proper construction of Section 15T, it is apparent, that any person who is aggrieved by the action or inaction on part of SEBI would be entitled to file an appeal under Section 15T of SEBI Act. In the present case, since the appellant is aggrieved by the inaction on part of SEBI in disposing of the application of the appellant is justified in filing an appeal under Section 15T of SEBI Act. Moreover, Rule 21 of the Securities Appellate Tribunal (Procedure) Rules, 2000 empowers this Tribunal to pass such directions as is necessary to secure the ends of justice. Therefore, in the facts of present case, we deem it necessary to direct SEBI 9 to pass an order on the application of the appellant seeking waiver / relaxation of Rule 19(2)(b) of SCRR.
17. Reliance placed by counsel for SEBI on the decision of this Tribunal in case of C. A. Arun Goenka (supra) is misplaced, as the said decision is distinguishable on facts. In that case after receiving green signal from SEBI in respect of the draft of the offer documents, the acquirer proceeded with the public offer to make payment to the shareholders of the target company who had offered their shares to the acquirer. Since there was delay on part of the acquirer to make payments to the shareholders within the stipulated time, the acquirer therein in the absence of any order passed by SEBI voluntarily paid 10% interest on the amount paid belatedly. When the shareholder filed an appeal demanding higher rate of interest, in the absence of any order passed by SEBI directing the acquirer to pay interest on the delayed payments, it was held that the appeal is not maintainable under Section 15T of the SEBI Act, 1992. In that case, neither there was any application made before SEBI seeking interest nor there was any order passed by SEBI granting interest. In such a case, where the acquirer had paid interest voluntarily, there was no question of SEBI passing an order granting higher rate of interest. In that context, it was held by this Tribunal that the appeal is not maintainable. In the present case, Rule 19(7) of the SCRR permits a company to seek waiver / relaxation of certain conditions set out under SCRR for listing its shares on the stock exchanges and SEBI is obliged to pass an order on the said application. Therefore, the decision of this Tribunal in case of C. A. Arun Goenka (supra) is distinguishable on facts. Similarly, the decision of the Madras High Court in case of Pentamedia Graphics Ltd. (supra) is distinguishable on facts, because, as held in that case, even after the scheme is sanctioned, it is open to SEBI or 10 to the stock Exchange to insist on compliance of its Rule as a condition for listing and in the event of any violation thereof, reject the application. In the present case, the grievance of the appellant is that the SEBI has failed either to grant or reject the applications filed by the appellant. Thus, the decision of the Madras High Court in case of Pentamedia Graphics Ltd. (supra) is distinguishable on facts.
18. Fact that SEBI in its discretion may refuse relaxation / waiver, cannot be a ground for SEBI to refuse to exercise that discretion one way or the other. In view of the plea taken by SEBI that the appellant had got the scheme sanctioned by practicing fraud on the Bombay High Court, we waited all these years for the Bombay High Court to pass an order on the issue of fraud alleged by SEBI. Now that the learned Single Judge of the Bombay High Court has held that there is no fraud committed by the appellant, we see no reason as to why SEBI should not be directed to take a decision and pass an appropriate order on the application of the appellant.
19. In these circumstances, we hold that SEBI is not justified in withholding the application forwarded to it by the appellant through BSE / NSE seeking waiver / relaxation of Rule 19(2) of SCRR for listing the shares of the appellant on BSE / NSE, especially when the prima facie view of SEBI that the appellant has got the scheme sanctioned by practicing fraud on the Court has been rejected by the Court which Court had sanctioned the scheme and that decision has not been stayed by any higher Court.
20. For all the aforesaid reasons, we allow the appeal by directing SEBI to pass an order on the applications submitted by the appellant through the stock exchanges within a period of 12 weeks from today. 11
21. We make it clear that we have not expressed any opinion on merits of the applications in question.
22. Appeal is disposed of in the above terms with no order as to costs.
Sd/-
Justice J. P. Devadhar Presiding Officer Sd/-
Jog Singh Member 30.10.2015 Prepared & Compared by PTM