Kerala High Court
The Honourable Mr.Justice C.K.Abdul ... vs Appellant(S)/ on 22 June, 2017
Bench: C.K.Abdul Rehim, V Shircy
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM
&
THE HONOURABLE MRS. JUSTICE SHIRCY V.
MONDAY, THE 11TH DAY OF DECEMBER 2017 / 20TH AGRAHAYANA, 1939
WA.No. 2196 of 2017 IN WPC. 6106/2015
AGAINST THE ORDER/JUDGMENT IN WP(C) 6106/2015 of HIGH COURT OF KERALA DATED
22-06-2017
APPELLANT(S)/RESPONDENTS 1 TO 3 IN THE WRIT PETITION.
1 THE DIVISIONAL HEAD, SECURITIES AND EXCHANGE BOARD OF INDIA
SECURITIES AND EXCHANGE BOARD OF INDIA, PLOT NO.C-4A,
BANDRA-KURLA COMPLEX, BANDRA EAST, MUMBAI.400051.
2 THE REGIONAL MANAGER
SECURITIES AND EXCHANGE BOARD OF INDIA,
SOUTHERN REGIONAL OFFICE, 7TH FLOOR,
OVERSEAS TOWERS, 756L, ANNASALAI, CHENNAI.60002.
3 THE MANAGER,
SECURITIES AND EXCHANGE BOARD OF INDIA,
KOCHI LOCAL OFFICE, 6TH FLOOR, FINANCE TOWER,
KALOOR, ERNAKULAM -682017.
BY ADV.SRI.K.M.JAMALUDHEEN
RESPONDENT(S)/PETITIONERS 1 TO 4 AND RESPONDENTS 4 TO 6 IN THE WRIT PETITION,.:
1. KOSHY GEORGE
S/O GEORGE (LATE), MUTHIRAMALA, KARUKACHAL POST,
KOTTAYAM.686540, KERALA STATE.
2. ANNIE KOSHY,
W/O KOSHY GEORGE, MUTHIRAMALA, KARUKACHAL POST,
KOTTAYAM. 686540, KERALA STATE.
WA.No. 2196 of 2017 IN WPC. 6106/2015
-2-
3. NILESH K GEORGE,
S/O KOSHY GEORGE, MUTHIRAMALA, KARUKACHAL POST,
KOTTAYAM. 686540, KERALA STATE.
4. NILEENA ACHY KOSHY,
D/O KOSHY GEORGE, MUTHIRAMALA, KARUKACHAL POST,
KOTTAYAM.686540, KERALA STATE.
5. CANFIN HOMES LIMITED,
NO.29/1, 1ST FLOOR, SRI.M.N KRISHNA RAO ROAD,
LALBAGH WEST GATE, BASAVANAGUDI, BANGALORE-560004,
REPRESENTED BY ITS COMPLIANCE OFFICER AND COMPANY
SECRETARY.
6. KARVY COMPUTER SHARE PRIVATE LIMITED,
PLOT NO.17 TO 24, VITTAL ROAD NAGAR, MADHAPUR,
HYDERABAD-500081, REPRESENTED BY ITS MANAGING DIRECTOR.
7. DHANALAXMY BANM LIMITED,
KALOOR BRANCH, ERNAKULAM DISTRICT. 682017,
REPRESENTED BY ITS MANAGER.
R5 BY ADV. SRI.M.GOPIKRISHNAN NAMBIAR
R5 BY ADV. SRI.P.GOPINATH
R5 BY ADV. SRI.K.JOHN MATHAI
R5 BY ADV. SRI.JOSON MANAVALAN
R5 BY ADV. SRI.KURYAN THOMAS
R BY SRI.P.C.HARIDAS
R BY SRI.VIVEK VARGHESE P.J.
THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 11-12-2017,THE COURT ON THE SAME
DAY DELIVERED THE FOLLOWING:
APPENDIX
PETITIONERS EXHIBITS
EXT.P1 COPY OF THE APPLICATION FORM ALONG WITH DEMAND DRAFT OF THE 1ST
PETITIONER.
EXT.P2 COPY OF THE APPLICATION FORM ALONG WITH DEMAND DRAFT OF THE 1ST
PETITIONER.
EXT.P3 COPY OF THE APPLICATION FORM ALONG WITH DEMAND DRAFT OF THE 3RD
PETITIONER.
EXT.P4 COPY OF THE APPLICATION FORM ALONG WITH DEMAND DRAFT OF THE 4TH
PETITIONER.
EXT.P5 COPY OF THE RELEVANT PAGES OF ABRIDGED LETTER OF OFFER ISSUED BY THE
4TH RESPONDENT.
EXT.P6 COPY OF THE RELEVANT PAGES OF THE REGULATIONS ISSUED BY THE 1ST
RESPONDENT.
RESPONDENTS EXHIBITS NIL
TRUE COPY
P.A TO JUDGE
SMM
C.K.ABDUL REHIM & SHIRCY V.,JJ.
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Writ Appeal No.2196 of 2017
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Dated this the 11th day of December, 2017
JUDGMENT
C.K.Abdul Rehim,J.
The Divisional Head, Regional Manager, and Manager of the "Securities and Exchange Board of India (SEBI)", who were respondents 1 to 3 in W.P.(C) No.6106/2015, are the appellants herein, challenging the judgment of the single Judge, dated 22.6.2017.
2. The petitioners in the Writ Petition (respondents 1 to 4 herein) have approached this court questioning the rejection of their request by the 5th respondent company, for 'rights issue' of the shares of the said company to the existing shareholders, at the ratio of 3:10. The application for 'rights issue' was rejected on assigning the reason that the writ petitioners have failed to comply with the procedure stipulated for payment of money, known as "Application Supported by Blocked Amount (ASBA)". Instead, they have paid the amount only by way of Demand Writ Appeal No.2196 of 2017 2 Draft. The Writ Petitioners contended that, as per Ext.P6 Regulations issued by the SEBI, only non-retailer investors, i.e. qualified institutional buyers and non-institutional investors, alone need to go through the procedure of ASBA. It was contended in the writ petition that, the conditions incorporated in Ext.P5 issued by the 5th respondent to the effect that the qualified institutional buyers and other applicants, whose application amount exceeds Rs.2 lakhs, will have to comply ASBA process, is arbitrarily and is against the Regulations formulated by SEBI and hence it goes against the interest of the investors. Hence, the writ petitioners sought for quashing Ext.P5 'letter of offer' issued by the company in question.
3. The appellants herein filed a counter affidavit in the Writ Petition inter alia contending that, Regulations 2(1)(ze) & (zf) of SEBIICDR Regulations insists that, retail investors are those who, including individuals, subscribed for shares of a value of less than Rs.2 lakhs. Therefore it is contended that, it is incorrect to say that the writ petitioners became retail investors only by being individuals. Since the writ petitioners had applied Writ Appeal No.2196 of 2017 3 for shares of value of more than Rs.2 lakhs, by virtue of the above said Regulations, they cannot be treated as retail investors as claimed by them. As such, as per Ext.P6 Circular, it is mandatory for the petitioners to necessarily apply through the process of ASBA. Hence it was contended that, the instructions incorporated in the 'letter of offer' (Ext.P5) is in the same line as that of SEBIICDR Regulations and is in perfect tune with the circular issued by SEBI. Hence it was contended that, the writ petitioners, whose investment exceed Rs.2 lakhs, can participate in the issue only through ASBA process and the insistence for such process stipulated in Ext.P5 'offer letter' is not in violation or contrary to the Regulations of the SEBI.
4. On the facts of the case, the writ petitioners submitted that, when their applications along with the demand drafts for payment of the share amounts were not accepted and when the applications were rejected, they have approached this Court. This Court while admitting the writ petition had passed an interim order on 24.2.2015 clarifying that, "acceptance or non acceptance of the applications preferred by the petitioners as per Writ Appeal No.2196 of 2017 4 Ext.P1 to P4, shall be subject to the result of the writ petition." Pursuant to the interim order, the respondents 5 and 6 herein had encashed the demand drafts. But they have not issued the shares to the writ petitioners, presumably because of pendency of the writ petition.
5. The writ petition was now considered and disposed of by the learned Judge. On consideration of the factual aspects as mentioned above, it was observed that, since the writ petitioners have supported their applications through valid demand drafts, honestly and bonafide, it would be unfair and unjust to subject them to a detriment merely because they have not applied under the ASBA process. It was further found that, ASBA process is intended only to the benefit of the petitioners and merely because they have not made payments under the said process, it would be a paradox that they are refused allotment of shares. The learned Judge observed that, the petitioners' action in this regard would not and has not in any manner prejudiced any of the respondents, including respondents 4 and 5 therein. Based on the observations as mentioned above, it was found that the writ Writ Appeal No.2196 of 2017 5 petitioners are entitled to be allotted with shares applied for by them. Therefore, a direction was issued to respondents 5 and 6 herein to allot shares to the writ petitioners under the 'rights issue' by accepting the amount provided by them through the demand drafts.
6. The appellants herein is challenging the judgment on the ground that the above said directions will ultimately result in permitting an illegal activity which is violative of the SEBIICDR Regulations. It is pointed out by learned counsel appearing for the appellants that, the learned single Judge had never found that the writ petitioners are retail investors who are entitled to byepass ASBA process in the matter of applying for the shares. It is further pointed out that, the learned single Judge had never found that the insistence to undergo ASBA process contained in Ext.P5 offer letter is in any manner violative of the SEBI Regulations and Ext.P6 Circular issued by SEBI. That being the position, the finding rendered by the learned Judge that the action of the petitioners in not applying through ASBA would not and has not in any manner prejudiced any of the respondents, is Writ Appeal No.2196 of 2017 6 absolutely incorrect and unsustainable is the contention. It is pointed out that, the Regulations of SEBIICDR are having statutory force and are intended to protect the interest of the investors and the court should not have allowed the parties to violate it simply for the reason that it will not cause prejudice to anybody.
7. While considering the contentions of the appellants, we take note of the fact that the learned Judge had omitted to take note of the contentions raised by the appellants through counter affidavit filed in the writ petition. The learned Judge had also omitted to take note of the fact as to whether the directions contained in the impugned judgment would result in violation of the SEBIICDR Regulations or the circulars issued by SEBI on the subject matter. On the above said basis, we were of the prima facie opinion that the impugned judgment is liable to be set aside and the matter need to be remitted for fresh disposal taking into consideration of the contentions of the appellants. But, learned counsel appearing for the writ petitioners as well as the learned counsel appearing for the 5th respondent had pointed out that, Writ Appeal No.2196 of 2017 7 there is no dispute with respect to eligibility of the writ petitioners for the 'rights issue' and that the 5th respondent company had accepted the demand drafts and encashed the same, which were submitted along with the applications. It is further pointed out that, based on the directions issued in the impugned judgment, the issue of shares is under process. It is pointed out that the Regulations in question are intended only to protect the interest of the investors. In the case at hand, by accepting the demand drafts, no prejudice has been caused to the writ petitioners or to the 5th respondent company. Therefore it is pleaded that, considering the larger interest involved the judgment impugned may not be set aside and it may be treated as a solitary instance which will not be permitted to be considered as precedent in any other case. On the factual matrix of the case, we are inclined to accept the above plea and to consider the matter on an equitable basis. We are of the opinion that the impugned judgment can be upheld on the fact situation, on clarifying that it cannot be treated as a precedent in any other case.
Writ Appeal No.2196 of 2017 8
Under the above mentioned circumstances, the above writ appeal is hereby disposed of by making it clear that, the directions contained in the impugned judgment of the learned Judge will apply only on the facts of the case at hand and it will not be treated as a precedent in any other case in future.
If the respondents 5 and 6 have not yet issued the shares based on the directions contained in the judgment impugned herein, the same shall be issued within a period of one month from the date of receipt of a copy of this judgment.
C.K.ABDUL REHIM JUDGE SHIRCY.V JUDGE smm