Securities Appellate Tribunal
Zenith Infotech Ltd. & Ors. vs Sebi on 9 December, 2014
Author: J. P. Devadhar
Bench: J. P. Devadhar
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Hearing: 19.11.2014
Date of Decision: 09.12.2014
Misc. Application No. 88 of 2014
And
Misc. Application No. 130 of 2014
And
Misc. Application No. 49 of 2014
In
Appeal No. 72 of 2014
1.Zenith Infotech Ltd.
B-52, Electronic Sadan 1, MIDC, TTC Area, Mahape, Navi Mumbai - 400 710.
2. Rajkumar Saraf 5th Floor, Saraf House, SVP Road, Chowpatty, Mumbai - 400 007.
3. Akash Rajkumar Saraf 5th Floor, Saraf House, SVP Road, Chowpatty, Mumbai - 400 007.
4. Devita Rajkumar Saraf 5th Floor, Saraf House, SVP Road, Chowpatty, Mumbai - 400 007.
5. Vijayrani Rajkumar Saraf 5th Floor, Saraf House, SVP Road, Chowpatty, Mumbai - 400 007.
6. Zenith Technologies Pvt. Ltd.
3rd Floor, A-Z Industrial Estate, Ganpatrao Kadam Marg, Lower Parel, Mumbai - 400 013.
7. VU Technologies Pvt. Ltd.
30, MIDC Central Road, Andheri (East), Mumbai - 400 093.
8. Vipin Shah C/o. DSK Legal, C-16, Dhanraj Mahal, Chatrapati Shivaji Marg, Appollo Bunder, Mumbai - 400 001.
9. Vijay Ramchandra Mukhi C/o. DSK Legal, C-16, Dhanraj Mahal, 2 Chatrapati Shivaji Marg, Appollo ...... Applicants Bunder, Mumbai - 400 001. (Org. Appellants) Versus Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), ...... Respondent Mumbai - 400 051. (Org. Respondent) Mr. Ravi Kadam, Senior Advocate with Mr. Zal Andhyarujina, Mr. Nirav Shah, Mr. Rishikesh Soni, Advocates i/b DSK Legal for the Applicants. Mr. Shyam Mehta, Senior Advocate with Mr. Mihir Mody, Mr. Rushin Kapadia, Advocates i/b K. Ashar & Co. for the Respondent. Mr. Janak Dwarkadas, Senior Advocate with Mr. Ranjit Shetty, Mr. Deepak Deshmukh, Advocates for Interveners in Misc. Application No. 88 of 2014.
Mr. Navroz Seervai, Senior Advocate with Mr. Ranjit Shetty, Mr. Deepak Deshmukh, Advocates for Interveners in Misc. Application No. 130 of 2014.
CORAM : Justice J. P. Devadhar, Presiding Officer Jog Singh, Member A. S. Lamba, Member Per : Jog Singh
1. Miscellaneous Application no. 88 of 2014 has been preferred by two entities, namely, QVT Fund LP and Quintessense Fund L. P. for intervention in the Appeal no. 72 of 2014 which has been filed by Zenith Infotech Ltd. and others before this Tribunal for quashing the impugned order dated April 11, 2014 passed by SEBI. Both these entities have been incorporated in the Cayman Islands as a limited partnership and have their registered office at c/o Intertrust Corporate Services (Cayman) Limited, 190 Elgin Avenue, George Town, Grand Cayman, KY1-9005, Cayman Islands. Both the entities are praying for impleadment in the appeal by claiming to 3 be the Bondholders who are stated to have invested in the Foreign Currency Convertible Bonds, hereinafter referred to as "FCCBs", floated by the appellant company, hereinafter referred to as "Zenith" in the years 2011- 2012.
2. Similarly, the shareholders, namely, QVT Mauritius West Fund and Quintessence Mauritius West Fund have also filed Miscellaneous Application no. 130 of 2014 for intervention almost on the same ground.
3. "Zenith" issued US$ 33 million FCCBs in the first instance and US$ 50 million FCCBs in the second instance which were due for payment in August-September 2011 and August-September 2012 respectively. Zenith is stated to have defaulted in making repayment of the same on due dates. Consequently, the Bank of New York Mellon, London Branch, which happens to be the Trustee, initiated proceedings against Zenith before the Hon'ble High Court of Bombay. Similarly, proceedings have been initiated against Zenith before the learned City Civil Court, Dindoshi by some of the parties in these miscellaneous applications. It appears that all the applicants in these miscellaneous applications are parties in those proceedings before the Hon'ble High Court of Bombay and the learned City Civil Court, Dindoshi. Various orders have been passed by the Hon'ble High Court of Bombay in the said proceedings.
4. In the meanwhile, SEBI also passed an ex-parte ad interim order dated March 25, 2013 calling upon the appellants to deposit US$ 33.93 million within one month under the provisions of SEBI Act, 1992 read with relevant provisions of SCRA, 1956 even when the Hon'ble High Court and the learned City Civil Court were / are seized of the matter. The said order was challenged before this Tribunal by the appellants by way of Appeal no. 4 59 of 2013. After hearing the respondents and even QVT Fund LP and Quintessense Fund L. P. (Interveners) at that stage, this Tribunal quashed the said interim order with the following directions by order dated July 23, 2013 :-
"29. In the circumstances, we have no hesitation in setting aside the impugned order and remanding the matter to Respondent No. 1 for fresh consideration in accordance with law by supplying a copy of the complaint to the Appellants in advance and also by deciding the jurisdictional issues raised by the Appellants in the present Appeal before hand. Ordered accordingly.
30. The matter is, thus, remanded to Respondent No. 1 for fresh consideration expeditiously and preferably within a period of six weeks, from receiving a copy of this order. We hope that the Appellants as well as other affected parties whom the Respondent No. 1 may feel appropriate to summon, shall cooperate with Respondent No. 1 in expediting the matter. All other contentions raised by the parties are kept open. Misc. Application No. 30 of 2013 also stands disposed of. No costs."
5. Abovesaid order was challenged by SEBI before the Hon'ble Supreme Court and sought a stay in their favour. Said Civil Appeal No. 7134 of 2013 was finally disposed of as infructuous by the Hon'ble Supreme Court by its order dated August 19, 2014 which reads as under
July 23, 2013 :-
"Heard the learned counsel for the parties. It is not in dispute that the order dated 25th March, 2013 passed by the Securities and Exchange Board of India ("SEBI", for short) was challenged before the Appellate Tribunal, Mumbai ("SAT", for short) and the order dated 23rd July, 2013, passed by the SAT in the said appeal had been challenged before this Court. By virtue of the said order, the case was remanded to the SEBI for fresh consideration.
During the pendency of this appeal, the SEBI decided the case on 11th April, 2014.
The order dated 11th April, 2014 passed by the SEBI has been challenged before the SAT and the SAT is to hear the appeal on 20th August, 2014.5
In the aforesaid circumstances, we are of the view that this appeal has become infructuous. The appeal is disposed of as having become infructuous.
It is clarified that it would also be open to the SAT to pass an appropriate interim order in accordance with law so as to protect the interest of the concerned investors."
6. As SEBI has passed the present impugned order on April 11, 2014, again calling upon the appellants to furnish bank guarantee of an amount of US$ 33.93 million in Indian Rupees equivalent, the same has been challenged by the appellants in the present appeal before this Tribunal.
7. We have heard all the learned counsel for the parties including learned senior counsel for the proposed interveners and we are of the view that the two miscellaneous applications in question for intervention are misconceived and are liable to be dismissed.
8. The interveners in these two miscellaneous applications submit that the Bondholders, namely, QVT Fund LP and Quintessense Fund L. P. invested in 2011 FCCBs and 2012 FCCBs which were floated by the appellants during the relevant period. The two Bondholders also submit that they are the holders of approximately 75.6% of 2011 FCCBs and approximately 57% of the 2012 FCCBs.
9. The other two interveners, namely, QVT Mauritius West Fund and Quintessence Mauritius West Fund i.e. the shareholders submit that they are the shareholders and are affiliates of Bondholders. They collectively held an aggregate 0.2438% of the total issued equity share capital of Zenith, issued abroad in the form of Foreign Currency Convertible Bonds. They claim to be holding the shares in Zenith since August 2012. These two entities, namely, QVT Mauritius West Fund and Quintessence Mauritius 6 West Fund submit that they were interveners in the earlier round of litigation in Appeal No. 59 of 2013 which was disposed of by the Tribunal by its order dated July 23, 2013. It is, thus, contended that since they were heard in the earlier round of litigation they have right to be impleaded parties in the present appeal also.
10. Other two interveners, who claim to be Bondholders, namely, QVT Fund LP and Quintessense Fund L. P., in Miscellaneous Application no. 130 of 2014 for intervention simply submit in para 4 of the miscellaneous application that ".... The interveners crave leave to refer to and rely upon the Intervention Application being IA No. 88 of 2014 ("IA") filed by the Bondholders in the above Appeal and the compilation of documents filed alongwith the IA as if the same have been filed by the Interveners." The contentions raised and submissions made therein be treated as part and parcel of the present application.
11. In the premises of four applicants in these two intervention applications claim to be affected by SEBI's order in as much as they have suffered considerable losses as a result of sharp price fall in the scrip of the company. They also submit that "... in the year 2011, the present Interveners have also filed a suit, being suit no. 2034 of 2011 against the Company, inter alia, for an injunction against the Company, its promoters, Managing Director, directors, officers, agents, employees and servants from in any way acting, pursuing, or taking any further steps contrary to the Explanatory Statement dated 27th December 2010 and the resolution passed pursuant to such Explanatory Statement at the Extraordinary General Meeting on 29th January 2011. The suit is pending hearing and 7 final disposal. The interveners crave leave to refer to and rely upon the said suit proceedings when produced."
12. Per contra, the appellants have vehemently opposed said two intervention applications on the ground that the proposed interveners have no locus-standi to intervene in the appeal. The appellants contend that the interveners have made furious and ludicrous attempt to be impleaded as a party in the appeal just to assist SEBI on the ostensible ground that the appellants might mislead the respondent or this Tribunal in the whole matter. This reflects that the proposed interveners have a doubt about the respondent's ability to defend its case in an appeal before this Tribunal.
13. It is also specifically submitted by the appellants that FCCBs are foreign securities and are issued, listed and traded outside India. Therefore, as per Indian Laws, the expression 'investors in securities market in India' would not include holders of foreign securities like FCCBs in the instant case.
14. It is not disputed that the FCCBs are a foreign security, issued and traded outside India. In the case in hand, it is an admitted position that the Bank of New York Mellon (BNYM), who is the Trustee of said FCCBs, has already approached the Hon'ble Bombay High Court against the appellants. In addition to High Court proceedings, the Interveners have also approached learned City Civil Court at Dindoshi by S. C. Suit No. 2034 of 2011. Further, Hon'ble Bombay High Court has also passed order in respect of appellant company on December 13, 2013 against which an appeal was preferred before Division Bench which was dismissed on April 23, 2014. Appellants also seem to have preferred special leave petition before the Hon'ble Supreme Court of India which is still pending. 8
15. In the face of the above pendency of matter before the Hon'ble Supreme Court as well as learned City Civil Court at Dindoshi, this Tribunal in the present appeal, is mainly concerned with the impugned order dated April 23, 2014 passed against the appellants. The issue regarding redemption of FCCBs is not directly before this Tribunal. The Tribunal is, therefore, of the considered opinion that SEBI itself is competent enough to defend its order before this Tribunal and interveners do not have a locus-standi to intervene in the facts and circumstances of the present case. Moreover, permitting intervention by shareholders or Bondholders in any appeal filed by a company against the order passed by SEBI / Stock Exchanges would mean opening a flood-gate and in such a case it would be impossible to dispose of the appeals filed before this Tribunal. It is true that in a given case, the Tribunal may be inclined to allow an application for intervention on behalf of an affected party but it cannot be generalized.
16. As far as the submissions of the Bondholders, namely, QVT Fund LP and Quintessense Fund L. P. regarding their intervention application having been allowed in the earlier round of litigation in Appeal no. 59 of 2013 is concerned, it is pertinent to note that firstly, there was no opposition from the appellants at that stage; and secondly, the same cannot be treated as a precedent for all times to come. Summing up the position, thus, we reiterate the settled legal position that a wrong, having come to our notice, cannot be allowed to be perpetuated. The shareholders / bondholders, who were never heard or impleaded as a necessary or even as a proper party in proceedings before the SEBI at the first instance, cannot be allowed to be implanted as interveners by this Appellate Tribunal in the ordinary course. Therefore, these two 9 miscellaneous applications are hereby dismissed. No costs. Registry is directed to list the main appeal for admission / final hearing on January, 29 2015. It is made clear that no observation is made on the merit of the respective contentions of the parties.
Sd/-
Justice J. P. Devadhar Presiding Officer Sd/-
Jog Singh Member Sd/-
A. S. Lamba Member 09.12.2014 Prepared & Compared by PTM