Securities Appellate Tribunal
The Andhra Sugars Ltd. vs Sebi on 19 October, 2022
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Decision : 19.10.2022
Misc. Application No. 950 of 2022
And
Misc. Application No. 1165 of 2022
And
Appeal No. 659 of 2022
The Andhra Sugars Ltd.
Venkatarayapuram : Tanuku - 534
215, West Godavari District,
Andhra Pradesh, India. ......Appellant
Versus
National Stock Exchange of India Ltd.
Exchange Plaza, Block G, C 1,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ...... Respondent
Mr. Pesi Modi, Senior Advocate with Ms. Kalpana Desai, Advocate
i/b Ms. Saachi Purohit, Advocate for the Appellant.
Mr. Pradeep Sancheti, Senior Advocate with Mr. Rashid Boatwalla,
Mr. Juan D'Souza, Advocates i/b MKA & Co. for the Respondent.
CORAM : Justice Tarun Agarwala, Presiding Officer
Ms. Meera Swarup, Technical Member
Per : Justice Tarun Agarwala, Presiding Officer (Oral)
2
1.The present appeal has been filed challenging the order dated March 29, 2022 passed by the National Stock Exchange Committee whereby the application for waiver of the penalty of Rs. 4,88,520/- was rejected. The appellant has also questioned the veracity of the order dated August 20, 2021 whereby a penalty was imposed for violation of Regulation 6 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as 'LODR Regulations') and 17(1A) of the LODR Regulations.
2. The facts leading to the filing of the present appeal is, that Sri. M. Palachandra company secretary who was also the compliance officer died due to Covid-19 on September 7, 2020, as a result of which a vacancy arose on the post of company secretary. It transpires that the respondent granted six months' time to the Company to fill the post as per Regulation 6 of the LODR Regulations. The company with great difficulty appointed a compliance officer on June 30, 2021 by promoting an additional secretary who had been looking after all the compliance work pursuant to the death of the company secretary. The committee of the NSE held that the company did not appoint the company secretary within the stipulated period of six months as directed under 3 LODR Regulations and the reasons given by the appellant does not amount to valid reasons for condoning the delay and, consequently, rejected the request for waiver of the fine.
3. In this regards, Regulation 6 of the LODR Regulations provides as under :-
"6(1). A listed entity shall appoint a qualified company secretary as the compliance officer."
4. The appellant contended that their company secretary and compliance officer died due to Covid on September 7, 2020 when the Corona virus pandemic was at its peak. The company's registered office was located at Venkatarayapuram, Tanuku, West Godavari District, a remote place in the state of Andhra Pradesh and, therefore, potential candidates were not willing to join as company secretary in this remote area for various reasons and one of them being that qualified and experienced candidate preferred bigger cities due to availability of better opportunities there. As such, it became difficult for the company to appoint a company secretary and the post could not be filled up within the stipulated period. The company eventually promoted one of its employees to the post. 4
5. Having heard the learned counsel for the parties, we find that sufficient and valid cogent reasons were provided by the company for not appointing the company secretary within the stipulated period. The finding of the review committee that no valid reason for delay has been provided is patently erroneous.
6. The second charge relates to violation of Regulation 17(1A) of the LODR Regulations which is extracted hereunder :-
"17(1A). No listed entity shall appoint a person or continue the directorship of any person as a non- executive director who has attained the age of seventy five years unless a special resolution is passed to that effect, in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such a person."
7. A perusal of the aforesaid provision indicates that no listed company will appoint a non-executive director who has attained the age of 75 years unless a special resolution is passed to that effect. In the instant case, Mr. Rama Rao was an independent director and resigned on January 27, 2021 due to health issues. On account of Covid and ensuing Corona virus pandemic, the appellant found it difficult to find a replacement and appoint an independent director because of the pandemic. It was not possible to hold an Extra Ordinary General Meeting of the shareholders for the purpose of 5 seeking prior approval of an appointment of an independent director. Eventually, the appellant did appoint Mr. P. Venkateswara Rao in April 2021. Since no Annual General Meeting (hereinafter referred to as 'AGM') could be held due to Covid restrictions, the appointment was made subject to the approval of the shareholders to be passed by way of a special resolution at the AGM to be held on September 23, 2021. A special resolution was passed on September 23, 2021 wherein the shareholders ratified the appointment.
8. The respondent did not consider the ratification and the resolution passed by the shareholders in the AGM held on September 23, 2021 and contended that considering the language of Regulation 17(1A) of the LODR Regulations non-executive director who has attained the age of 75 years could not be appointed unless a special resolution was passed by the shareholders in the AGM.
9. Having heard the learned counsel for the parties, we find that sufficient and valid reasons were given for not holding the AGM and, consequently, for not getting the special resolution passed by the shareholders since there was Covid restriction and the Corona virus pandemic was in full force, the shareholders meeting could not be held. At the same time, the appellant was required to appoint a non- executive director in order to achieve the minimum quorum that was 6 provided under Regulation 17(1A) of the LODR Regulations. Accordingly, in order to achieve the quorum, the appellant did appoint a non-executive director in April 2021 which was subject to approval of the shareholders. The appointment was approved by a special resolution by ratifying the appointment. In our opinion, such ratification made by the shareholders through a special resolution complies with Regulation 17(1A) of the LODR Regulations in the peculiar facts and circumstances of the present case, and consequently, we are of the opinion that there is no violation.
10. In Terrascope Ventures Ltd. vs. SEBI in Appeal No. 116 of 2021 decided on June 2, 2022, the AO found that Clause 43 of the Listing Agreement which required the company to furnish on a quarterly basis a statement to the stock exchange indicating the variations between the projected utilization of funds and the actual utilization of funds was not complied and that the company had not furnished the statement to the stock exchange with regard to the variation in the utilization of the funds and, accordingly, a penalty was imposed. This Tribunal found that a special resolution of the company dated October 1, 2012 was passed wherein the proceed to be utilized for other purpose was ratified by the shareholders by a special resolution and the shareholders ratified and approved all acts 7 and deeds done by the company and giving the effect to the utilization of the proceeds. This Tribunal held that since the utilization of the proceeds had been ratified, there is no variance in the utilization of the proceeds and, consequently, there was no violation of the Clause 43 of the Listing Agreement.
11. In National Institute of Technology and Anr. vs. Pannalal Choudhury and Another [(2015) 11 SCC 669], the Hon'ble Supreme Court has explained the expression "ratification" as under :-
"29. The expression "ratification" means "the making valid of an act already done". This principle is derived from the Latin maxim "ratihabitio mandato aequiparatur" meaning thereby "a subsequent ratification of an act is equivalent to a prior authority to perform such act". It is for this reason, the ratification assumes an invalid act which is retrospectively validated."
"30. The expression "ratification" was succinctly defined by the English Court in one old case, Hartman v. Hornsby as under :
"'Ratification' is the approval by act, word, or conduct, of that which was attempted (of accomplishment), but which was improperly or unauthorisedly performed in the first instance."
12. We cannot lose sight of the fact that in view of COVID-19 Pandemic, the Government of India declared a lockdown in March 2020 and for a few months there was complete closure of all 8 companies and industries. Work from home was in its infancy stage. There was lack of any industrial or commercial activity. The COVID-19 Pandemic was at its peak in India between May and October 2020. Life had come to a standstill during these months. Even thereafter, there was no normalization in the work culture as the Government had placed various restrictions. In January 2021, the another wave of Corona virus came into existence which continued till April 2021. In spite of the difficulties faced by the companies, we find that the appellant did appoint the compliance officer and an independent director.
13. Considering the aforesaid, we are of the opinion that the appellants have given sufficient explanation and justification for waiver of the fine for non-compliance of Regulation 17(1A) and Regulation 6 of the LODR Regulations, 2015 within the prescribed period. No consideration whatsoever has been taken by the Committee of NSE with regard to the ensuing COVID-19 Pandemic and the lockdown declared from March 2020 onwards. This fact cannot be ignored and this Tribunal takes judicial notice of the lockdown and the COVID-19 Pandemic which impacted the working and existence of many Companies including the appellants. 9
14. Thus, for the reasons stated aforesaid, we are satisfied that the case has been made out by the appellant for waiver of the fine imposed by the respondent. We consequently quash the orders dated March 29, 2022 and August 20, 2021 passed by the respondent imposing the fine. The appeal is allowed. Any amount deposited by the appellant pursuant to the impugned orders shall be refunded by the respondent forthwith.
15. 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. Certified copy of this order is also available from the Registry on payment of usual charges.
Justice Tarun Agarwala Presiding Officer Ms. Meera Swarup RAJALAKS Digitally signed HMI by Technical Member RAJALAKSHMI 19.10.2022 HARISH HARISH NAIR Date: 2022.10.28 NAIR 14:02:53 +05'30' PTM