Securities Appellate Tribunal
Victor Fernandes And Anr. vs Sebi on 22 June, 2018
Author: J.P. Devadhar
Bench: J.P. Devadhar
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of order reserved: 18/04/2018
Date of Decision: 22/06/2018
Appeal No.42 of 2017
1.Victor Fernandes B-604, Gill-Haze Apartments, Lourdes Colony, Orlem, Malad (West), Mumbai - 400 064.
2. Sangeeta Fernandes B-604, Gill-Haze Apartments, Lourdes Colony, Orlem, Malad (West), Mumbai - 400 064. ... Appellants Versus
1. Securities and Exchange Board of India SEBI Bhavan, C-4A, G-Block, Bandra Kurla Complex, Bandra (E), Mumbai - 400 051.
2. National Stock Exchange of India Limited Exchange Plaza, C-1, G-Block, Bandra Kurla Complex, Bandra (E), Mumbai - 400 051.
3. Reliance Industries Limited 3rd Floor, Maker Chamber IV, 222, Nariman Point, Mumbai - 400 021. ...Respondents 2 Mr. Victor Fernandes and Mrs. Sangeeta Fernandes, Appellants in person.
Mr. Fredun DeVitre, Senior Advocate a/w Mr. Mihir Mody and Mr. Nishant Upadhyay, Advocates i/b K. Ashar & Co for Respondent No.1. Mr. Rashid Boatwalla a/w Ms. Rashi Agarwal, Advocates i/b MKA & Co. for Respondent No.2.
Mr. Janak Dwarkadas, Senior Advocate a/w Mr. Rohan Rajadhyaksha, Mr. Vivek Shetty and Ms. Tanvi Dattani, Advocates i/b AZB & Partners for Respondent No.3.
CORAM : Justice J.P. Devadhar, Presiding Officer Dr. C.K.G. Nair, Member Per : Justice J.P. Devadhar
1. Where a complaint filed before the Securities and Exchange Board of India ("SEBI", for short) alleges that a listed company has violated Clause 36 of the Listing Agreement by failing to disclose that it has acquired indirect control over another listed company through a Trust established exclusively for its benefit, then, whether SEBI is justified in disposing of that complaint by merely recording that the Trust is not a subsidiary of the listed company and hence no disclosures were required to be made under Clause 36 of the Listing Agreement, is the basic question raised in this appeal.
2. Specific case of the appellants in the complaint filed before SEBI was that Reliance Industries Ltd. (RIL) a listed company had failed to disclose that it had acquired indirect control over Network 18 Media & Investments Ltd. (NW18) and TV 18 Broadcast Ltd. (TV18) through Independent Media Trust (IMT), a Trust established on 22/11/2011 for 3 the exclusive benefit of RIL. The complaint was based on the agreements entered into by IMT with other entities, namely, Single Unit Agreement (SUA) dated 23/11/2011 and the Investment Agreement dated 27/2/2012 ('ZOCD Agreement' for convenience). Apart from the above, reliance was also placed on the decision of the Competition Commission of India dated 28/5/2012 wherein it was specifically held that subscribing to the Zero Coupon, Optionally & Fully Convertible Debentures (ZOCDs) by IMT under the ZOCD Agreement dated 27/2/2012 amounts to acquiring indirect control over NW18 & TV18.
3. However, without considering merits of the complaint which alleged serious violation of securities laws, SEBI has issued the impugned communication dated 9/1/2017 whereby the complaint has been disposed of on the basis of a wholly unsustainable ground that IMT was not a subsidiary of RIL and therefore RIL was not required to make disclosures under Clause 36 of the Listing Agreement. In our opinion, Clause 36 of the Listing Agreement mandates that when a listed company acquires indirect control over another listed company either through a Trust or through any other entity, then, such acquisition has to be disclosed to the stock exchanges. In the ordinary course, we would have set aside the impugned decision which is not only erroneous and detrimental to the interests of investors in the securities market but also in effect defeats the object with which the disclosure obligations were mandated under Clause 36 of the Listing 4 Agreement and restore the issue for fresh decision on merits and in accordance with law.
4. However, respondents have raised a preliminary issue regarding the maintainability of the appeal and further submitted that similar complaint filed by the appellants alleging that RIL had acquired indirect control over NW18 & TV18 through IMT under the SUA dated 23/11/2011 and ZOCD Agreement dated 27/2/2012 has already been rejected in the past and therefore, in view of the principles of res judicata, it is not open to the appellants to re-agitate that issue once again.
Preliminary issue:
5. By way of a preliminary objection, Counsel for respondents submit that any decision/order passed by SEBI on the SCORES platform is an administrative decision/order under section 11(1) of SEBI Act and hence appeal against such administrative decision is beyond the appellate jurisdiction of this Tribunal. In support of the above contention, reliance is placed on the Apex Court decision in case of NSDL vs. SEBI reported in (2017) 5 SCC 517.
6. We see no merit in the above contention, because, in the present case, nature of the complaint filed by the appellants required SEBI to consider the scope and ambit of Clause 36 of the Listing Agreement judicially and determine the extent to which the rights of the appellants 5 as shareholders of NW18 were prejudicially affected by the impugned violations. In fact, by construing Clause 36 of the Listing Agreement, SEBI has declined to entertain the complaint filed by the appellants, solely on ground that IMT was not a subsidiary of RIL and therefore, no disclosures were required to be made by RIL under Clause 36 of the Listing Agreement. In these circumstances, the impugned decision which vitally affects the rights and obligations of the appellants as shareholders of NW18 would be a quasi judicial decision and not an administrative decision. Accordingly, argument of the respondents that the impugned decision of SEBI on the SCORES platform is administrative in nature and hence appeal against that decision is not maintainable before this Tribunal, cannot be accepted.
7. Reliance placed by the respondents on the Apex Court decision in case of NSDL (supra) is misplaced. In that case, general administrative circular issued by SEBI was challenged before this Tribunal, whereas, in the present case, appellants have challenged the quasi judicial decision of SEBI by which the complaint filed by the appellants has been disposed of by misinterpreting Clause 36 of the Listing Agreement. Clause 36 of the Listing Agreement could not be interpreted administratively and had to be interpreted judicially as that decision had direct civil consequences on the rights and obligations of the shareholders. In fact, the parameters prescribed by the Apex Court for considering an order to be a quasi judicial order viz. (a) there must be a legal authority, (b) authority must be to determine questions 6 affecting the rights of the citizens, and (c) there must be a duty to act judicially are squarely applicable to the facts of present case. In other words, decision of the Apex Court in case of NSDL (supra) in fact supports the case of the appellants. For all the aforesaid reasons, we hold that the preliminary objection raised by the respondents regarding the maintainability of the present appeal before this Tribunal is without any merit and accordingly reject the preliminary objection raised by the respondents.
Principles of res judicata:
8. Before considering the plea of the respondents that the question as to whether RIL had acquired indirect control over NW18 through IMT by subscribing to the ZOCDs under the ZOCD Agreement has already been decided by SEBI in another complaint filed by the appellants, it would be appropriate to note the following relevant facts:-
(a) On 22/11/2011 a Deed of Trust was executed under which IMT was established as a Trust with Nirlab Consultancy Pvt. Ltd. (controlled by Mr. Raghav Bahl) as a Trustee and RIL as the sole beneficiary. Thus, IMT was floated/established on 22/11/2011 for the exclusive benefit of RIL.
(b) On 23/11/2011 IMT (through Mr. Raghav Bahl) entered into a Single Unit Agreement (SUA) with six entities controlled by Mr. Raghav Bahl and NW18 which was also 7 represented by Mr. Raghav Bahl. Thus the SUA was signed by Mr. Raghav Bahl on behalf of all parties to the SUA. As per the SUA, the parties thereto were to act as largest Indian Shareholders of NW18.
(c) On 27/2/2012 investment agreement ('ZOCD Agreement' for convenience) was entered into by and between six private limited companies owned and controlled by Mr. Raghav Bahl ('holding companies' for convenience), IMT and Mr. Raghav Bahl and his wife in their individual capacity. Under the ZOCD Agreement, IMT was to invest funds (received from RIL) by subscribing to the ZOCDs of the holding companies and the holding companies were obliged to utilize ZOCD subscription amount for subscribing to the rights issue of NW18 & TV18. The ZOCD Agreement records that the holding companies have been declared as promoters of NW18 & TV18. It is equally interesting to note that like the SUA dated 23/11/2011, even the ZOCD Agreement was signed by Mr. Rahgav Bahl as authorized representative of all the parties to the ZOCD Agreement except his wife who has signed on her own behalf. Thus, Mr. Raghav Bahl and his wife were the only signatories to the ZOCD Agreement under which IMT could exercise indirect control over NW18 at any time IMT deemed it fit and proper.8
(d) On 28/5/2012, the Competition Commission of India passed an order wherein it is specifically held that by subscribing to the ZOCDs under the ZOCD Agreement dated 27/2/2012, IMT would acquire control over the holding companies and consequently acquire indirect control over NW18 & TV18, however, such acquisition of indirect control would not violate the provisions contained in the Competition Act, 2002.
(e) On 24/3/2014 appellants filed a complaint before the National Stock Exchange of India Ltd. (NSE) alleging that RIL failed to disclose that it had acquired indirect control over NW18 & TV18 through IMT and thereby violated Clause 36 of the Listing Agreement. In support of the above, appellants relied on SUA dated 23/11/2011, ZOCD Agreement dated 27/2/2012 and the order of the Competition Commission of India on 28/5/2012. The said complaint remained pending before NSE for a long period of time.
(f) In the meantime, on 29/5/2014, a Share Purchase Agreement (SPA) was entered into by and between the parties named therein. As per the SPA, IMT was to acquire 100% shares of the holding companies and another private company controlled by Mr. Raghav Bahl and his wife. As the said acquisition triggered open offer obligation under 9 the Takeover Regulations, 2011, IMT along with RIL and entities who were 'persons acting in concert' with it (RIL group) made public announcement on 29/5/2014 and thereafter submitted a 'Draft letter of offer' seeking approval of SEBI for acquisition of NW18 shares quantified therein @ Rs.41.04/- per share as offer price from the shareholders of NW18.
(g) On 25/6/2014 appellants filed a complaint before SEBI in relation to the open offer made by IMT/RIL group. In that complaint apart from requesting SEBI to direct RIL group to revise the open offer price from Rs.41.04 per share to Rs.5,68,430.32 per share, it was also alleged that RIL had failed to disclose that it had acquired indirect control over NW18 through IMT and thus violated Clause 36 of the Listing Agreement.
(h) Without disposing of the said complaint, by a communication dated 17/11/2014 SEBI gave its approval for acquisition of shares of NW18 by the RIL group @ Rs.41.04 per share subject to compliance of certain conditions set out therein.
(i) Accordingly, on compliance of the said conditions, public offer process commenced and completed on 26/12/2014.
(j) On 29/12/2014 appellants filed Appeal No.55 of 2015 before this Tribunal, inter alia, challenging the open offer price 10 approved by SEBI at Rs.41.04 per share instead of approving the open offer price of Rs.5,68,430.32 per share claimed by the appellants.
(k) During the pendency of the said appeal, by a communication dated 9/2/2015 SEBI rejected the complaint filed by the appellants on 25/6/2014. By that communication, plea of the appellants that RIL had indirectly acquired control over NW18 through IMT under the SUA/ZOCD Agreement was rejected.
(l) Without challenging the said decision dated 9/2/2015 either by amending Appeal No.55 of 2015 or by filing independent appeal, appellants wanted to agitate in Appeal No.55 of 2015 the issues determined by SEBI in its communication dated 9/2/2015. This Tribunal declined to consider any of the issues determined by SEBI in its communication dated 9/2/2015 and proceeded to consider the sole question raised in Appeal No.55 of 2015 relating to the approval given by SEBI to the open offer price at Rs.41.04 per share.
(m) However, while considering the approval given by SEBI to the open offer price of NW18, it was noticed that the open offer price was based on the clauses contained in the ZOCD Agreement dated 27/2/2012. Accordingly, this Tribunal perused the clauses contained in the ZOCD 11 Agreement and arrived at a prima facie conclusion that on execution of the ZOCD Agreement, control over NW18 indirectly stood divested in favour of IMT. It was also noticed by this Tribunal that SEBI had issued the communication dated 9/2/2015 without considering the clauses contained in the ZOCD Agreement. In these circumstances, irrespective of the fact that the appellants had not challenged the decision of SEBI dated 9/2/2015, this Tribunal in the order passed in Appeal No.55 of 2015 on 13/4/2016 deemed it fit, in public interest, to direct SEBI to reinvestigate the issue relating to acquisition of indirect control over NW18 by IMT by subscribing to the ZOCDs under the ZOCD Agreement and submit a report in that behalf. It is not in dispute that Civil Appeal No.311 of 2017 filed by the appellants against the decision of this Tribunal passed in Appeal no.55 of 2015 on 13/4/2016 has been dismissed by the Apex Court on 27/3/2017.
(n) As per the order of this Tribunal dated 13/4/2016 SEBI conducted reinvestigation and submitted a report in the form of an affidavit dated 10/10/2016 to the effect that control over NW18 was not divested on execution of the ZOCD Agreement dated 27/2/2012. Although appellants sought to challenge the said report of SEBI contained in the affidavit dated 10/10/2016 by filing a praecipe in the 12 disposed of Appeal No.55 of 2015, this Tribunal by an order dated 22/11/2016 declined to entertain the plea of the appellants basically on ground that the affidavit filed by SEBI on 10/10/2016 in implementation of the directions given by this Tribunal on 13/4/2016 could not be agitated in the disposed of appeal.
(o) In the meantime on 6/9/2016 appellants had forwarded their complaint dated 24/3/2014 filed before NSE to SEBI alleging that NSE has failed to consider their complaint that RIL had violated Clause 36 of the Listing Agreement by failing to disclose acquisition of indirect control over NW18 through IMT by executing SUA dated 23/11/2011 and ZOCD Agreement dated 27/2/2012.
(p) By the impugned communication dated 9/1/2017, SEBI has rejected the said complaint dated 24/3/2014 forwarded to SEBI on 6/9/2016 by simply recording that IMT was not a subsidiary of RIL and therefore no disclosures were required to be made under Clause 36 of the Listing Agreement. Challenging the said communication, present appeal is filed.
9. With these background facts, we may now consider the plea of the respondents that the issue relating to acquisition of indirect control over NW18 by RIL through IMT has already been decided against the 13 appellants and hence the said plea cannot be agitated again on the principles of res judicata.
10. Arguments advanced by Counsel for respondents that the question as to whether RIL had acquired indirect control over NW18 through IMT under the ZOCD Agreement has already been decided maybe summarized thus:-
(a) Complaint filed by the appellants before SEBI on 25/6/2014 alleging that RIL had violated Clause 36 of the Listing Agreement by failing to disclose that it had acquired indirect control over NW18 through IMT was rejected by SEBI on 9/2/2015 and that decision has not been challenged by the appellants and hence the said decision of SEBI dated 9/2/2015 has attained finality.
(b) In the order passed in Appeal No.55 of 2015 on 13/4/2016 this Tribunal has specifically held that the appellants without amending Appeal No.55 of 2015 to challenge the decision of SEBI dated 9/2/2015 cannot advance arguments against the said decision of SEBI dated 9/2/2015. Therefore, the appellants who are guilty of not challenging the decision of SEBI dated 9/2/2015 cannot seek to re-agitate the very same issue by filing the present appeal.
(c) Admittedly, appeal filed by the appellants against the decision of this Tribunal dated 13/4/2016 has been dismissed by the Apex Court on 27/3/2017. Thus the 14 decision of this Tribunal that the appellants cannot agitate the issues covered under the decision of SEBI dated 9/2/2015 has attained finality and therefore, the appellants cannot re-agitate the very same issue by filing the present appeal.
(d) It is only on execution of a share purchase agreement on 29/5/2014, RIL acquired indirect control over NW18 through IMT and accordingly all requisite steps have been taken in that behalf. In these circumstances, appellants at this belated stage cannot be permitted to re-agitate the very same issue once again by filing the present appeal.
(e) Assuming while denying that the appellants have made out a case for interference by this Tribunal, it is submitted that none of the reliefs sought in the appeal can be granted as they are not in the interests of investors.
11. We see no merit in the above arguments advanced on behalf of the respondents.
12. At the outset, it is relevant to note that by the impugned decision dated 9/1/2017 SEBI has not rejected the complaint filed by the appellants on the ground that the issues raised therein are covered by its earlier decision dated 9/2/2015, but has rejected the complaint on the wholly unsustainable ground that since IMT was not a subsidiary of RIL, no disclosures were required to be made by RIL under Clause 36 of 15 the Listing Agreement. Sustaining such patently erroneous decision of SEBI would be detrimental to the interests of investors in the securities market and would encourage listed companies to acquire indirect control over other companies through a Trust or some other entity without making disclosures under Clause 36 of the Listing Agreement.
13. Question, however, to be considered herein is, while setting aside the impugned decision dated 9/1/2017, would it be proper to remand the issue for fresh decision especially when, SEBI by its decision dated 9/2/2015 has decided the very same issue and the appellants have not challenged that decision.
14. As noted earlier, while considering the sole issue of open offer price of NW18 raised in Appeal No.55 of 2015 which was determined by IMT, inter alia, on the basis of ZOCD Agreement, this Tribunal on perusal of the clauses contained in the ZOCD Agreement, observed in the order dated 13/4/2016 that SEBI in its decision dated 9/2/2015 has failed to consider the clauses contained in the ZOCD Agreement and, accordingly, in public interest directed SEBI to reconsider the issue relating to acquisition of indirect control over NW18 by IMT under the ZOCD Agreement. In such a case, it cannot be said that the decision of SEBI dated 9/2/2015 has attained finality.
15. No doubt that SEBI as per the directions given by this Tribunal on 13/4/2016 has reconsidered the issue and by an affidavit dated 10/10/2016 submitted a report stating that even on re-examination SEBI 16 finds that there was no divesting of control over NW18 in favour of IMT on account of subscribing to the ZOCDs under the ZOCD Agreement. It is not in dispute that on re-examination of the issue, SEBI has not passed any fresh order/decision but only submitted a report by way of an affidavit.
16. From the aforesaid facts, it is clear that in view of the decision of this Tribunal dated 13/4/2016 in Appeal No.55 of 2015, it cannot be said that the decision of SEBI dated 9/2/2015 has attained finality. On the contrary, pursuant to the directions given by this Tribunal, in public interest, on 13/4/2016, it was obligatory on part of SEBI to reconsider the issue decided on 9/2/2015. Admittedly, after reconsidering the issue, SEBI has not passed any quasi judicial order but has only filed an affidavit on the issue raised by the appellants. In these circumstances, while setting aside the impugned decision of SEBI dated 9/1/2017, we deem it proper to direct SEBI to decide afresh the question as to whether RIL violated Clause 36 of the Listing Agreement by failing to disclose that it had acquired indirect control over NW18 through IMT by subscribing to the ZOCDs under the ZOCD Agreement.
17. In the result, we pass the following order:-
(a) Impugned decision of SEBI dated 9/1/2017, which interprets Clause 36 of the Listing Agreement, is a quasi judicial decision and not an administrative decision, hence that decision could be challenged before this Tribunal. 17
Accordingly, the preliminary objection raised by the respondents that the appeal is not maintainable before this Tribunal, cannot be sustained.
(b) Without considering merits of the allegations made in the complaint that RIL had violated Clause 36 of the Listing Agreement by failing to disclose that it had acquired indirect control over NW18 through IMT, SEBI could not have rejected the complaint filed by the appellants by misinterpreting Clause 36 of the Listing Agreement and holding that IMT was not a subsidiary of RIL, and hence no disclosures were required to be made under Clause 36 of the Listing Agreement. Accordingly, the impugned decision which is patently erroneous and contrary to the spirit of Clause 36 of the Listing Agreement, is quashed and set aside.
(c) Argument that by its decision dated 9/2/2015 SEBI has already held that there was no divestment of control over NW18 on execution of ZOCD Agreement is without any merit, because, in the order passed in Appeal No.55 of 2015 on 13/4/2016 this Tribunal has held that SEBI in its decision dated 9/2/2015 has failed to consider the clauses contained in the ZOCD Agreement and accordingly, in public interest, directed SEBI to reconsider the issue afresh. Admittedly, on reconsideration of the issue SEBI has not 18 passed any quasi judicial order but only submitted a report to this Tribunal in the form of an affidavit. In these circumstances, while setting aside the impugned decision dated 9/1/2017, we direct SEBI to decide afresh the question as to whether on execution of ZOCD Agreement dated 27/2/2012 RIL acquired indirect control over NW18 through IMT and failed to disclose the same in violation of Clause 36 of the Listing Agreement.
(d) We make it clear that our prima facie view that by subscribing to the ZOCDs under the ZOCD Agreement dated 27/2/2012 RIL acquired indirect control over NW18 through IMT is not binding on SEBI and SEBI is directed to reconsider the issue independently without being influenced by the prima facie observations made by this Tribunal in that behalf.
(e) However, if SEBI, is not agreeable to the view taken by the Competition Commission of India on 28/5/2012 that by subscribing to the ZOCDs under the ZOCD Agreement dated 27/2/2012, IMT acquired indirect control over NW18, then, SEBI shall record its reasons for taking a contrary view.
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18. Appeal is disposed of in the aforesaid terms with no order as to costs.
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Justice J.P. Devadhar Presiding Officer Sd/-
Dr. C.K.G. Nair Member 22/06/2018 prepared & compared by-dg