Securities Appellate Tribunal
Mr. Victor Fernandes & Anr. vs Sebi on 28 September, 2021
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Hearing : 12.08.2021
Date of Decision : 28.09.2021
Appeal No. 618 of 2019
1. Mr. Victor Fernandes
2. Ms. Sangeeta Fernandes
B-604, Gill Haze Apts.,
Laurdes Colony, Orlem,
Malad (West), Mumbai - 400 064. .... Appellants
Versus
1. Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051.
2. National Stock Exchange of India Ltd.
Exchange Plaza, Block G, C 1,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051.
3. Reliance Industries Ltd.
Through its Chairman and Managing Director,
Mr. Mukesh D. Ambani,
3rd Floor, Maker Chambers IV,
222, Nariman Point, Mumbai - 400 021. ... Respondents
Mr. Victor Fernandes and Mrs. Sangeeta Fernandes, Appellants in
Person.
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Mr. Fredun DeVitre, Senior Advocate with Mr. Mihir Mody,
Mr. Arnav Misra, Mr. Mayur Jaisingh, Advocates i/b K. Ashar & Co.
for Respondent No. 1.
None for the Respondent Nos. 2.
Mr. Janak Dwarkadas, Senior Advocate with Mr. Rohan
Rajadhyaksha, Ms. Sonali Mathur, Mr. Vivek Shetty, Ms. Cheryl
Fernandes, Mr. Harshit Jaiswal, Mr. Amey Nabar, Advocates i/b
AZB & Partners for the Respondent Nos. 3.
CORAM : Justice Tarun Agarwala, Presiding Officer
Justice M. T. Joshi, Judicial Member
Per : Justice M. T. Joshi, Judicial Member
1. Aggrieved by the decision of the respondent Nos. 1 Securities
and Exchange Board of India (hereinafter referred to as 'SEBI')
dated November 15, 2019, the present appeal is preferred by the
original complainants. Respondent Nos. 2 National Stock Exchange
of India Ltd. (hereinafter referred to as 'NSE') appears to have been
made party as originally the complaint was made to it and respondent
Nos. 3 Reliance Industries Ltd. (hereinafter referred to as 'RIL')
being the party against whom the relief was sought is added as a
party.
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2. The proceedings have a chequered history as can be seen by
the order of this Tribunal in appeal No. 42 of 2017 dated June 22,
2018 directing respondent Nos. 1 SEBI to pass a reasoned and
detailed order in the complaint of the appellants.
3. It is necessary to note the facts on record to appreciate the
dispute between the parties.
On November 22, 2011, a Deed of Trust was executed for the
sole beneficiary respondent Nos. 3 RIL,under which Indian Media
Trust (hereinafter referred to as 'IMT') was floated.One Nirlab
Consultancy Pvt. Ltd. (hereinafter referred to as 'Nirlab
Consultancy') was appointed as a trustee. Nirlab Consultancy was
controlled by Mr. Raghav Bahl. This Mr. Raghav Bahl appears to
have worn many hats in various transactions concerning the trust
and the IMT with his spouse or independently as can be seen herein
below.
4. On November 23, 2011, he entered into Single Unit
Agreement (hereinafter referred to as 'SUA') on behalf of IMT as
well as six entities (hereinafter referred to as 'holding companies')
controlled by him and TV18, NW18. Mr. Raghav Bahl also
represented TV18, NW18 . As per the said SUA, the parties thereto
were to act as largest Indian shareholders of NW18. Thereafter,
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again on February 27, 2012, the disputed Investment Agreement i.e.
Zero Coupon, Optionally & Fully Convertible Debentures
Agreement ((hereinafter referred to as 'ZOCD Agreement') was
entered into between these holding companies which were owned
and controlled by Mr. Raghav Bahl and IMT as well as the wife of
Mr. Raghav Bahl in their individual capacity. Under this ZOCD
Agreement, IMT agreed to invest that subscribing to Zero Coupon,
Optionally & Fully Convertible Debentures (hereinafter referred to as
'ZOCDs') of the holding companies. These companies were
required to utilize the funds to subscribe to the right issues of NW18
and TV18. The holding companies were declared as promoters of
these two entities. The issue went to the Competition Commission of
India (hereinafter referred to as 'CCI'). On May 28, 2012, CCI
observed that the said ZOCD Agreement is in the nature of indirectly
acquiring control by IMT of NW18 and TV18. The CCI, however,
ultimately held that this indirect control in not violation of provision
contained in Competition Act, 2002.
5. In such situation, the appellants filed the complaint before
respondent Nos. 2 NSE on March 24, 2014. They complained that
respondent Nos. 3 RIL, the ultimate beneficiary of IMT failed to
disclose that it had acquired indirect control as detailed (supra) and,
thus, violated Clause 36 of the Listing Agreement. While the said
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complaint remained pending with respondent Nos. 2 NSE, on May
29, 2014 the Share Purchase Agreement (hereinafter referred to as
'SPA') was entered into between these parties i.e. IMT, holding
companies, etc. Under the said agreement, IMT agreed to acquired
100% shares of the holding companies and another private
companies controlled by Mr. Raghav Bahl and his wife. This
transaction triggered the open offer obligation under Securities and
Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 (hereinafter referred to as 'SAST
Regulations'). Accordingly, by making a public announcement, a
draft letter of offer was submitted to SEBI for seeking the approval.
The price of the shares of NW18 was quantified at Rs. 41.04 as an
offer price from the shareholders of NW18. The appellants again
complained to SEBI on June 25, 2014. It was complained that
respondent Nos. 3 RIL should revise the open offer price from
Rs. 41.04 per share to Rs. 5,68,430.32 per share. By the said
complaint, it was also reiterated that respondent Nos. 3 RIL failed to
disclose that it had acquired indirect control over NW18 earlier
through IMT and had violated Clause 36 of the Listing Agreement.
This complaint remains pending before the respondent Nos. 1 SEBI.
Vide on November 17, 2014, respondent Nos. 1 SEBI approved that
acquisition of shares by respondent Nos. 3 RIL at the price offered
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by it. Aggrieved by the said decision, the present appellants filed
appeal No. 55 of 2015 challenging the said open offer price. During
the pendency of the appeal, respondent Nos. 1 SEBI rejected the
complaint of the appellants vide communication dated February 9,
2015. The appellants tried to agitate before this Tribunal in the said
appeal the issue of rejection of their complaint. The Tribunal
declined to consider the issues of rejection of the complaint and
dismissed the appeal as regard the open offer price.
However, while considering the facts, this Tribunal found that
the open offer price was based on some clauses of ZOCD
Agreement. Therefore, the said agreement was perused by the
Tribunal. The, prima-facie, conclusion was drawn that vide the said
ZOCD Agreement control over NW18 was indirectly divested in
favor of IMT. The Tribunal also observed that the communication
issued by the respondent Nos. 1 SEBI rejecting the complaint had not
considered the clauses contained in the ZOCD Agreement.
Therefore, though the Tribunal refused to record any final order as
regards the said complaint and its dismissal, deemed it fit in public
interest, to direct SEBI to reinvestigate the issue relating to the said
indirect acquisition. In deference to the said order dated April 13,
2016, respondent Nos. 1 SEBI submitted a report in the form of an
affidavit and declared that the control over NW18 was not divested
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from execution of the ZOCD Agreement dated February 27, 2012.
While the appeal was pending, the appellants forwarded the copy of
their complaint dated March 24, 2014 originally filed before
respondent Nos. 2 NSE to respondent Nos. 1 SEBI alleging that
respondent Nos. 2 NSE had failed to take any decision on the same.
By communication dated January 9, 2017, respondent Nos. 1 SEBI
rejected this complaint also by recording that IMT was not a
subsidiary of RIL and, therefore, no disclosure was required to be
made. This communication was impugned by the appellants in
appeal No. 42 of 2017.
6. This Tribunal on June 22, 2018 passed the final order in the
appeal. Thereunder, detailed directions were given to the respondent
Nos. 1 SEBI to pass a reasoned order afresh. While remanding the
matter to respondent Nos. 1 SEBI, this Tribunal made certain
observations that, prima-facie, the ZOCD Agreement was in the
nature of acquiring indirect control over NW18 by respondent Nos. 3
RIL through IMT. Vide paragraph No. 17(d) of the order this
Tribunal, however, clarified that the said, prima-facie view will not
be binding on respondent Nos. 1 SEBI and if SEBI would not be
agreeable to the said view or the view taken by the CCI on May 28,
2012, it shall record its reasons for taking the contrary view.
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7. Upon remand, the learned Whole Time Member (hereinafter
referred to as 'WTM') of respondent Nos. 1 SEBI conducted the
proceedings, heard the parties, took into consideration the, prima-
facie view expressed by this Tribunal, the observation of the CCI,
and concluded that the said ZOCD Agreement read independently or
combined with the SUA did not triggered any open offer nor any
disclosure under Clause 36 of the Listing Agreement was required.
Thus, the complaint was dismissed. Hence the present appeal.
8. We have heard Mr. Victor Fernandes, appellant in person for
both the appellants and Mr. Fredun DeVitre, the learned senior
counsel with Mr. Mihir Mody, Mr. Arnav Misra, Mr. Mayur
Jaisingh, the learned counsel for the respondent Nos. 1 SEBI and
Mr. Janak Dwarkadas, the learned senior counsel with Mr. Rohan
Rajadhyaksha, Ms. Sonali Mathur, Mr. Vivek Shetty, Ms. Cheryl
Fernandes, Mr. Harshit Jaiswal, Mr. Amey Nabar, the learned
counsel for the respondent Nos. 3 RIL through video conference.
9. Mr. Victor Fernandes, the appellant no.1, arguing for both the
appellants, minutely took us through the terms of IMT Trust Deed,
SUA and ZOCD Agreement. He submitted that these terms of SUA
and ZOCD Agreement would clearly show that total control of
TV18, etc. was divested to IMT of which the sole beneficiary is
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respondent Nos. 3 RIL. He further submitted that the CCI has also
closely scrutinized all the transactions and had observed that indirect
control vested with respondent Nos. 3 RIL through IMT. In the
circumstances, he submitted that the appeal be allowed.
10. On the other hand, the learned counsel for the respondents
submitted that the appellants are indulging into speculative litigation.
It was submitted that the present appeal is the 5th round of litigation
In the first round of litigation the issue of open offer, was taken by
the appellants to the Hon'ble Supreme Court of India. The appeal
was dismissed by the Hon'ble Supreme Court of India and even
issued a warning to the appellants.
Mr. Dwarkadas, the learned senior counsel for the respondent
Nos. 3 submitted that the appellants are indulging in speculative
litigation only with a view of seeking inflated price of the shares
purchased by them. They submitted that the reading of ZOCD
Agreement would show that it was merely an investment made by
IMT in the concerned entities. The control of the affairs of these
entities, TV18, etc. remain with the holding companies held by Mr.
Raghav Bahl, etc. They submitted that in terms of ZOCD Agreement
ultimately respondent Nos. 3 RIL took a decision to acquire 100%
shares of the NV18 etc. and, therefore, in regular manner the public
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announcement and open offer was made, which was confirmed by
this Tribunal and the Supreme Court of India. It was therefore,
submitted that the appeal be dismissed with the costs.
11. Upon hearing both the sides, in our view, the appeal lacks
merit and the same is, therefore, dismissed without any order as to
costs for the following reasons.
12. The impugned order of the learned WTM would show that
the learned WTM has gone through the terms and conditions of the
ZOCD Agreement. The learned WTM has considered the plea of the
respondent as to why ZOCD Agreement and SUA were required to
be executed in view of the up linking guidelines of Ministry of
Information and Broadcasting. The said guidelines required that at
least 51% of the total equity share capital of such a media company
was required to be held by largest Indian shareholders. All those
terms are put in the order. Further, the learned WTM had considered
the report in form of an affidavit which was filed before this Tribunal
in the earlier proceedings as well as the observation made by the
CCI. Upon going through the terms and conditions of ZOCD
Agreement, the learned WTM found that Mr. Raghav Bahl continued
to be in control of TV 18, NW18 etc. on behalf of the holding
companies. IMT and RIL did not had any say in the management
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affairs of TV 18, NW18 under the said ZOCD Agreement. The
underlying existing shareholding continued to be in the hands of Mr.
Raghav Bahl and the holding entities. It was found that ZOCD
Agreement did not carry any voting rights. The voting rights of Mr.
Raghav Bahl entities were not stifled by the said agreement. Thus,
there was not any effective change in control of NW18 as a result of
the execution of the ZOCD Agreement.
13. CCI had observed that in view of the conversion option
contained in ZOCD Agreement to receive equity shares of the target
company, the said amounted to the indirect acquisition of shares of
the target company. The learned WTM considered the same. He
observed that the ZOCDs were in the nature of convertible into
equity shares at any time, and only upon conversion of the same IMT
would have been able to hold more than 99.99% shares of the diluted
equity of the promoter company of NW18 etc. This option however
was not exercised at any time before making the public
announcement as detailed (supra) and, thus, the ZOCD Agreement
itself did not entail into any indirect control of IMT or RIL in NW18
and, therefore, no disclosure was required to be made.
14. In our view, the reasoning of the learned WTM cannot be
faulted with. The ZOCD Agreement was in the nature of investment
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by IMT in the holding companies ofTV18, NW18. Said ZOCD
Agreement had given right to IMT, the subscriber of the ZOCDs to
convert ZOCDs into equity in a given period. The control of TV18
and NW18, continued with Mr. Raghav Bahl and his entities. IT had
no say in the voting rights etc. and, therefore, the conclusion of the
learned WTM cannot be faulted with.
15. While claiming cost from the appellants, the respondents
blamed the appellants for indulging into speculative litigation. As
detailed earlier, Mr. Dwarkadas even pointed out the observations of
the Hon'ble Supreme Court of India in the earlier round of litigation
made against the present appellants. We however find that in so far
as the present round is concerned the appellants' case was
strengthened by the observation of the CCI as well as the, prima-
facie, observation made by this Tribunal earlier. In the
circumstances, we do not find that the present litigation is also a
speculative litigation. In the circumstances, the following order :-
ORDER
16. The appeal is hereby dismissed without any order as to costs. 13
17. The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor a certified copy of this order could be issued by the Registry. In these circumstances, this order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally signed copy sent by fax and/or email.
Justice Tarun Agarwala Presiding Officer Justice M. T. Joshi Judicial Member Digitally signed 28.09.2021 RAJALA byRAJALAKSHMI KSHMI HDate:
NAIR PTM H NAIR 2021.09.30 12:26:07 +05'30'