Delhi High Court - Orders
Ashok Kumar Saxena vs Security And Exchange Board Of India & ... on 29 October, 2021
Author: Prateek Jalan
Bench: Prateek Jalan
$~62 (2021 Cause List)
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 12429/2021
ASHOK KUMAR SAXENA ..... Petitioner
Through: Ms. Maninder Acharya, Sr. Adv.
with Mr. Barunesh Chandra and
Mr. Viplav Acharya, Advocates.
versus
SECURITY AND EXCHANGE
BOARD OF INDIA & ORS. ..... Respondents
Through: Mr. Ashish Aggrawal, Ms.
Gourisha Agarwal, Ms. Aastha
Kaushal and Ms. Vartika Gupta,
Advocates for R-1
CORAM:
HON'BLE MR. JUSTICE PRATEEK JALAN
ORDER
% 29.10.2021 The proceedings in the matter have been conducted through video conferencing.
CM APPL. 39084/2021 (exemption) Exemption allowed, subject to all just exceptions. The application stands disposed of.
W.P.(C) 12429/2021 & CM APPL. 39083/2021 (stay)
1. This writ petition has been listed today by way of a supplementary list issued during the course of the day.
2. Issue notice. Mr. Ashish Aggarwal, learned counsel, accepts notice Signature Not Verified Digitally Signed By:SHITU NAGPAL Signing Date:30.10.2021 10:21:18 W.P.(C) 12429/2021 Page 1 of 9 on behalf of the respondent No. 1-Securities and Exchange Board of India ["SEBI"]. The respondent Nos. 2 and 3 may be served by all permissible modes and through email, in addition.
3. The petitioner has approached this Court against an Initial Public Offering ["IPO"] of the respondent No. 3-One97 Communications Limited ["the Company"], which is scheduled to open on 08.11.2021.
4. The petitioner claims to be a co-founder and a director of the Company. He has lodged a criminal complaint against the Company and the respondent No. 2-Mr. Vijay Shekhar Sharma, who is the Chief Executive Officer of the Company. Orders have been reserved by the Trial Court on the petitioner's complaint under Section 156 of the Code of Criminal Procedure, 1973 ["the CrPC"] and the proceedings are next listed on 08.11.2021 for orders.
5. The petitioner contends that the Draft Red Herring Prospectus ["DRHP"] published by the Company does not contain adequate disclosure as to the pending criminal proceedings initiated by the petitioner. Ms. Maninder Acharya, learned Senior Counsel for the petitioner, draws my attention to the disclosure contained in the DRHP in this regard [at pages 317 and 669 of the writ petition]:
(a) Page 317 is part of Section II of the DRHP entitled "Risk Factors".
Various litigations against the Company are enumerated in Clause 35 of Section II. The relevant disclosures are as follows:
"35. There are pending litigations against our Company, Subsidiaries, and certain of our Directors. Any adverse decision in such proceedings may render us/them liable to liabilities/penalties and may adversely affect our business, cash flows and Signature Not Verified Digitally Signed By:SHITU NAGPAL Signing Date:30.10.2021 10:21:18 W.P.(C) 12429/2021 Page 2 of 9 reputation.
Certain legal proceedings involving our Company, subsidiaries of our Company, and certain of our Directors are pending at different levels of adjudication before various courts, tribunals and authorities. In the event of adverse rulings in these proceedings or consequent levy of penalties, we may need to make payments or make provisions for future payments and which may increase expenses and current or contingent liabilities.
A summary of outstanding litigation proceedings involving our Company, Subsidiaries and Directors, as disclosed in "Outstanding Litigation and Material Developments" on page 408, in terms of the SEBI ICDR Regulations as of the date of this Draft Red Herring Prospectus is provided below:
xxxx xxxx xxxx For further details see "Outstanding Litigation and Material Developments" beginning on page 408. We cannot assure you that any of the outstanding litigation matters will be settled in our favor, or that no (additional) liability will arise out of these proceedings. Our Company is in the process of litigating these matters, and based on the assessment in accordance with applicable accounting standard our Company has presently not made provision for any of the pending legal proceedings. For details of our contingent liabilities, see "Summary of the Offer Document - Summary of Contingent Liabilities of our Company" on page 31. In addition to the foregoing, we could also be adversely affected by complaints, claims or legal actions brought by persons, before various forums such as courts, tribunals, consumer forums or sector-specific or other regulatory authorities in the ordinary course or otherwise, in relation to our products and services, our technology and/or intellectual property, our Signature Not Verified Digitally Signed By:SHITU NAGPAL Signing Date:30.10.2021 10:21:18 W.P.(C) 12429/2021 Page 3 of 9 branding or marketing efforts or campaigns or our policies or any other acts/omissions. Further, we may be subject to legal action by our employees and/or ex- employees in relation to alleged grievances such as termination of their employment with the Company and vesting and exercise of ESOPs granted to them during their employment. There can be no assurance that such complaints or claims will not result in investigations, enquiries or legal actions by any courts, tribunals or regulatory authorities against us."
(Emphasis supplied.)
(b) The disclosure at page 669 of the writ petition is part of Section VI entitled "Legal and Other Information". The litigations filed against the Company are enumerated in Section I, including criminal proceedings. The following disclosure with regard to the proceedings instituted by the petitioner is included therein:-
"3. Our Company has been served with a notice under Section 91 of the Code of Criminal Procedure, 1973 in relation to certain allegations levied by Mr. Ashok Saxena ("Complainant") against our Director, Mr. Vijay Shekhar Sharma. The said allegations pertain to, among others, alleged inducement of the Complainant to advance a certain amount of money to our Company, existence of an alleged agreement for allotment of certain shares of our Company to the Complainant until the money advanced by the Complainant was repaid, and misappropriation of such amount, along with non-appointment of the third director nominated by the Complainant and removal of the Complainant from the Company. ("Allegations"). The Notice required our Company to furnish a response to the relevant authorities at Kalkaji Police Station, Delhi. Our Company has duly responded to the Notice through correspondence dated June 29, 2021 denying all these allegations and clarifying that there was no such definitive agreement and nor was there any misappropriation."Signature Not Verified Digitally Signed By:SHITU NAGPAL Signing Date:30.10.2021 10:21:18 W.P.(C) 12429/2021 Page 4 of 9
(Emphasis supplied.)
6. Ms. Acharya submits that after the DHRP was published on 16.07.2021, the petitioner made various representations to SEBI on 22.07.2021, 02.08.2021 and 26.10.2021. She states that despite the petitioner's representations, SEBI has approved the Red Herring Prospectus ["RHP"] and permitted the IPO to open on 08.11.2021 on the basis of such disclosure which, she submits, is inadequate.
7. In this connection, Ms. Acharya relies upon the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 ["the Regulations"], which deal inter alia with the contents of the offer document. In particular, she submits that Regulation 24 requires all material disclosures to be made which are adequate for a prospective investor to take an informed investment decision. It specifies that the disclosures mentioned in the Companies Act, 2013 and Part A of Schedule VI of the Regulations must be made. Ms. Acharya has drawn my attention to Clause 5 of Schedule VI, which enumerates the risk factors required to be disclosed. Clause 5(G)(24) of the Schedule VI provides as follows:
"(5) Risk factors:
xxxx xxxx xxxx
(G) Risk factors covering the following subjects, shall
necessarily be disclosed wherever applicable:
xxxx xxxx xxxx (24) Summary of all outstanding litigations and other matters disclosed in the section titled 'Outstanding Litigations and Material Developments' in a tabular format along with amount involved, where quantifiable. Issuer shall also separately highlight any criminal, regulatory or taxation matters which may have any Signature Not Verified Digitally Signed By:SHITU NAGPAL Signing Date:30.10.2021 10:21:18 W.P.(C) 12429/2021 Page 5 of 9 material adverse effect on the issuer."
8. Ms. Acharya also relies upon an order passed by the Whole Time Member of SEBI dated 28.12.2011 in Bharatiya Global Infomedia Ltd. 2011 SCC OnLine SEBI 155, wherein the requirement of adequate and timely disclosure in connection with a public offer has been emphasised.
9. Mr. Aggarwal, who appears on advance notice, states upon instructions that SEBI is not required to enter into any determination as to the merits of the controversy between the company and a third party. SEBI's interest as a regulator of the securities market is only to ensure that the disclosure of material risk factors is adequate so that potential investors are properly informed. He states that the complaints lodged by the petitioner were referred to the Lead Manager of the Company's public issue, and after discussion with the Lead Manager, the final RHP contains a further disclosure in the Section entitled "Risk Factors". The pending litigation is included in Clause 16. Reference to the proceedings initiated by the petitioner has been added to the said section in the following terms:
"...........In addition to the foregoing, we could also be adversely affected by complaints, claims or legal actions brought by persons, before various forums such as courts, tribunals, consumer forums or sector-specific or other regulatory authorities in the ordinary course or otherwise, in relation to our products and services, our technology and/or intellectual property, our branding or marketing efforts or campaigns or our policies or any other acts/omissions. Further, we may be subject to legal action by individuals including our employees and/or ex-employees in relation to alleged grievances such as termination of their employment with the Company and vesting and exercise of ESOPs granted to them during their employment or alleged claims Signature Not Verified Digitally Signed By:SHITU NAGPAL Signing Date:30.10.2021 10:21:18 W.P.(C) 12429/2021 Page 6 of 9 contending ownership and or participation rights in our Company. For instance, our Company has been served with a notice under Section 91 of the Code of Criminal Procedure, 1973 by Ashok Saxena ("Complaint") alleging, amongst others, that the complainant was induced to advance a certain amount of money to our company and that the Complainant entered into an agreement for allotment of certain shares of our Company until the money advanced by the Complainant was repaid. It is further alleged that the money advanced was misappropriated by our Company and the Complainant was removed from the board of our Company. For details on this matter and our response, see "Outstanding Litigations and Material Developments- Litigation involving our Company-Criminal Proceedings"
on page 447 of this Red Herring Prospectus. Further, we may be subject to claims including ownership or other claims in our Company and our Subsidiaries which may or may not lead to any outstanding legal action or notice but may receive media coverage which could adversely affect our reputation. There can be no assurance that such complaints or claims will not result in investigations, enquiries or legal actions by any courts, tribunals or regulatory authorities against us."
(Emphasis supplied.) Mr. Aggarwal submits that the aforesaid disclosures are, in SEBI's view, sufficient for the purposes of the Company's IPO.
10. Having heard learned counsel for the parties, I am of the view that the petitioner has not made out a case for grant of an ad interim order. Although Ms. Acharya has sought to argue that the petitioner's grievances would potentially lead to an alteration in the shareholding and management of the Company itself, the only proceedings instituted by the petitioner, in fact, is the complaint under Section 156 of the CrPC. No civil proceedings or proceedings for relief under the Companies Act, Signature Not Verified Digitally Signed By:SHITU NAGPAL Signing Date:30.10.2021 10:21:18 W.P.(C) 12429/2021 Page 7 of 9 2013 have yet been instituted, which might lead to a change in the management or control of the Company.
11. As far as the criminal proceedings are concerned, the Company has summarised the nature of the notice under Section 91 of the CrPC served upon it in the paragraphs of the DHRP and RHP referred to above. The RHP is required to contain only a summary of the allegations so as to enable a potential investor to be aware of the material risks which a company faces. Prima facie, I am of the view that the Regulation cited by Ms. Acharya does not require an exhaustive enumeration of the litigation, but a brief description, so that an investor is aware of the risks faced by the Company. Seen in this light, it is significant that the approved RHP, as placed by Mr. Aggarwal, refers specifically to the petitioner's contention, and its possible effect on "ownership and participation rights" in the Company.
12. Ms. Acharya submits that the RHP ought to have disclosed the existence of the proceedings before the Metropolitan Magistrate. The said proceedings are, admittedly, not even at a stage when an FIR has been registered.
13. SEBI, being the expert regulator, has also taken a view that the disclosure in these terms is adequate for the purpose of the IPO. I do not find a prima facie case to have been made out that the decision in this regard is so arbitrary or capricious as to invite the interference of this Court under Article 226 of the Constitution.
14. Ms. Acharya also impugns the conduct of SEBI in approving the RHP on 23.10.2021 but uploading the same only on 28.10.2021. She submits that the aforesaid conduct has rendered the petitioner remediless, Signature Not Verified Digitally Signed By:SHITU NAGPAL Signing Date:30.10.2021 10:21:18 W.P.(C) 12429/2021 Page 8 of 9 inasmuch as his complaints have not been disposed of by SEBI and the Securities Appellate Tribunal is, in any event, now closed for the next one week. This allegation need not detain us further at this stage, as this Court has also independently examined the grounds raised by the petitioner. Not having found a prima facie case to have been made out, I do not consider this allegation sufficient to grant a stay of the IPO by way of ad interim relief.
15. For the aforesaid reasons, ad interim relief is declined.
16. Counter affidavits be filed within four weeks. Rejoinders thereto, if any, may be filed with two weeks thereafter.
17. List on 13.01.2022.
PRATEEK JALAN, J OCTOBER 29, 2021 'hkaur' Signature Not Verified Digitally Signed By:SHITU NAGPAL Signing Date:30.10.2021 10:21:18 W.P.(C) 12429/2021 Page 9 of 9