BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Order Reserved On: 06.11.2019 Date of Decision : 26.11.2019 Appeal No. 51 of 2018
1. Mr. Rajeev Thakkar 1301 B Wing, Park Royale, Pandit Madan Malviya Road, Mulund (West), Mumbai400 080
2. Mr. Vinod Maganlal Shah 7C Ajanta Apartment, M.L. Dahanukar Marg, Mumbai-400 026
3. Mr. Sudesh Mohunta E/202, Great Eastern Links, Bldg. No. 2, Ram Mandir Rd., Goregaon-W, Mumbai-400 104
4. Mr. Kedar Ramesh Deshpande A 402, Kshitij GE Links, Ram Mandir Rd., Goregaon-W, Mumbai400 104
5. Mr. Srinivasan Ravindran D 701, Sterling Terraces, 100 Feet Ring Rd., BSK 3rd Stage, Bangalore560 085
6. Mr. Mohanlal Kabra 3A/504, Accolade CS Ltd., Louiswadi, Hajuri Dargah Rd., Thane (W)- 400 604
7. Ms. Premlata Kabra 3A/504, Accolade CS Ltd., Louiswadi, Hajuri Dargah Rd., Thane (W)- 400 604
8. Mohanlal Kabra HUF 3A/504, Accolade CS Ltd., Louiswadi, Hajuri Dargah Rd., Thane (W)- 400 604
9. Ms. Sudhaben P. Vaidya 1, Adarsh Society, Athwalines, Surat395 001
10. Ms. Manjari P. Vaidya 1, Adarsh Society, Athwalines, Surat395 001
11. Ms. Anita A. Vaidya 1, Adarsh Society, Athwalines, Surat395 001
12. Mr. Anand P. Vaidya 1, Adarsh Society, Athwalines, Surat395 001
13. Ms. Kalyani P. Vaidya 1, Adarsh Society, Athwalines, Surat395 001
14. Ms. Anjali J. Mehta 1, Adarsh Society, Athwalines, Surat395 001
15. Prafullachandra Bappalal Vaidya HUF 1, Adarsh Society, Athwalines, Surat395 001
16. Mr. Dheeraj K. Lohia OC-2/502, Orange Country, Ahinsa Khad-I, Indirapuram, Ghaziabad201 014, U.P.
17. Mr. P. Sridhar B4, Sun View Apartments, 20, Avvai Shanmugam Salai, 1st Lane, Chennai600 014
18. Ms. S. Brinda B4, Sun View Apartments, 20, Avvai Shanmugam Salai, 1st Lane, Chennai600 014
19. Mr. Hitesh Satishchandra Doshi 1602/A, Eternia, Hiranandani Gardens, Main Street, Powai, Mumbai400 076
20. Mr. Satishchandra Shantilal Doshi 1602/A, Eternia, Hiranandani Gardens, Main Street, Powai, Mumbai400 076
21. Ms. Bhanumati Satishchandra Doshi 1602/A, Eternia, Hiranandani Gardens, Main Street, Powai, Mumbai400 076
22. Ms. Pratiksha Satishchandra Doshi 1602/A, Eternia, Hiranandani Gardens, Main Street, Powai, Mumbai400 076
23. Mrs. Alka Dua D-166, Sector61, Noida201 307
24. Mr. Pawan Kumar Saraf 244, Sukhdev Vihar, New Delhi110 025
25. Ms. Seema Saraf 244, Sukhdev Vihar, New Delhi110 025
26. Mr. Girish Saraf 244, Sukhdev Vihar, New Delhi110 025
27. Ms. Anita Saraf 244, Sukhdev Vihar, New Delhi110 025
28. Mr. Ajay Pancholi Paschim Apartments, Opp. Kirti College, Dadar West, Mumbai400 028
29. Mr. Parasmal Pancholi A1803/4, Gokul Gagan CHS, Thakur Village, Kandivali East, Mumbai400 101
30. Mr. Arun Pancholi A1803/4, Gokul Gagan CHS, Thakur Village, Kandivali East, Mumbai400 101
31. Mr. Ketan Dedhia 502/3, Raheja Haven, 10th Road, JVPD Scheme, Opposite Pushpa Narsee Park, Vile Parle West, Mumbai400 049 …Appellants
Versus
1. Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai400 051
2. Schneider Electric President Systems Ltd. 5C/1, KIADB Industrial Aria, Attibele, Bangalore562 107, Karnataka, India
3. Schneider Electric South East Asia (HQ) Pte. Ltd. 10, ANG KIO, Street-65, Singapore
4. Mr. Shravan Vijaykumar Sharma 52, Himgiri Peddar Road, Mumbai400 026, Maharashtra
5. Mr. Sugata Sircar Apt. D1402, Palm Springs Golf Course Road, Sector54, Gurgaon122 003, Haryana
6. Mr. Subramanian Vishar Vasudevan Flat No. D-102, Road No. 12, Fortune Enclave Block-D, Banjara Hills, Hyderabad500 034, Telangana
7. Ms. Rachna Mukherjee A-26/3,2nd Floor, SFS DDA Flats, Saket, New Delhi110 017
8. Mr. Javed Ahmed 38 Regency Heights, Cleveland Road, Fraser Town, Bangalore560 005, Karnataka, India
9. Mr. Swaminathan Venkataraman 18/102 Siddhachal Housing Complex, Phase-III, Pokhran Rd.-2, Thane400 601
10. Mr. Damodar Kalavala Flat No. 407, Pinnacle No42/3, Kanakapura Road, J. P. Nagar, 1st Phase, Bangalore560 078, Karnataka
11. National Stock Exchange of India Limited Exchange Plaza, C-1 Block G, Bandra Kurla Complex, Bandra East, Mumbai400 051
12. Bombay Stock Exchange of India Limited Phirozee Jeejeebhoy Towers, Dalal Street, Mumbai400 001
13. Metropolitan Stock Exchange of India Limited Vibgyor Towers, 4th Floor, Plot No. C62, G-Block, Opp. Trident Hotel, Bandra Kurla Complex, Bandra East, Mumbai400 051 …Respondents
Mr. Somasekhar Sundaresan, Advocate with Mr. Sumit Agrawal, Ms. Yugandhara Khandelwal and Mr. Mahaveer Rajguru, Advocates i/b Regstreet Law Advisors for Appellants. Mr. Anubhav Ghosh, Advocate with Ms. Rashi Dalmia, Advocate i/b The Law Point for Respondent No. 1 & 12. Mr. Pulkit Sukhramani, Advocate with Ms. Vidhi Jhawar, Advocate i/b J. Sagar Associates for Respondent Nos. 2 to 10. Ms. Rinku Valanju, Advocate i/b R.V. Legal for Respondent No. 13. CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M. T. Joshi, Judicial Member Per: Dr. C.K.G. Nair
1. This appeal has been preferred being aggrieved by the
SCORES communication dated September 20, 2017 issued by Securities and Exchange Board of India (“SEBI” for convenience) thereby treating the complaints filed by the appellants on the substantive issues of non-listing of an Exclusively Listed Company (“ELC” for convenience) namely Schneider Electric President Systems Ltd. (“Schneider” for convenience) and valuation of its shares.
2. The 31 appellants who filed this appeal are public
shareholders of Schneider, holding around 9% of the company’s equity capital. Schneider was listed in the Bangalore Stock Exchange and Pune Stock Exchange which got closed down like many other Regional Stock Exchanges (“RSEs” for convenience). On account of such closure of RSEs SEBI issued a series of Circulars/ Guidelines regarding the steps/ approach that such companies and stock exchanges had to adopt. These Circulars/ Guidelines were dated December 29, 2008, May 30, 2012, May 22, 2014, April 17, 2015, October 10, 2016 and January 05, 2017. It is the stand of the appellants that Schneider neither made any effort to get itself listed in any national level exchange nor followed the guidelines in valuing its shares for providing a reasonable exit option to the public shareholders, which these Circulars mandated.
3. Learned counsel Shri Somasekhar Sundaresan, appearing
for the appellants inviting attention to para 8 of the Circular dated December 29, 2008 contended that, it shall be mandatory for ELCs to seek listing on national level stock exchanges and only for genuine reasons alternatively they can provide an exit option to the shareholders as per SEBI Delisting Guidelines/ Regulations, after taking shareholders approval for the same within a time frame to be specified by SEBI. Further, citing para 3.2 of the May 30, 2012 Circular, it was contended that if such ELCs, which fail to obtain listing on any other stock exchange, will be moved to the dissemination board (DB) by the exiting stock exchange. Therefore, in the interest of investors of ELCs a mechanism of dissemination board have been set-up by stock exchanges having nationwide trading terminals. Citing the relevant part of the May 22, 2014 Circular, it was further argued that the nationwide stock exchanges wherein such ELCs have migrated to during the transition should facilitate listing of such companies on a priority basis and on a light touch regulation approved by SEBI for listing ELCs including exemptions from the Takeover Code. With regard to providing exit to investors, in case of failure to get the company listed, specific procedure was provided in the Circular dated October 10, 2016 which inter alia states as follows:- “The oversight and monitoring of such exit mechanism shall be carried out by the designated stock exchanges. Designated stock exchanges shall further ensure that the promoters have made adequate efforts in terms of the above provisions for providing exit to their shareholders before removing ELCs from the DB. The designated stock exchange shall display the list of companies willing to provide exit to their investors on their website on a monthly basis.”
4. The crux of the contention of the learned counsel for the
appellants, therefore, is that the first endeavor of such ELCs is to mandatorily get listed on a nationwide exchange. Only in the event that for some reason beyond their control if they are not able to get listed they can provide an exit option and for providing such an exit option the entire procedure for the same as in the case of voluntary delisting needs to be followed and one of the main criteria for the same is a proper and unbiased valuation of the equity shares of the company so that a fair exit is provided to the public shareholders. Given this underlying principles and objectives, it was contended by the learned counsel, that Schneider never made any efforts in getting it listed in the nationwide exchanges despite the fact that it was eligible to get listed in the BSE Limited, but rather communicated to its shareholders that it was not eligible to get listed in any of the nationwide stock exchanges and decided to exit / delist with an undervalued offer to the public shareholders. The valuation got conducted by Schneider, it was vehemently argued, did not take into account the complete assets and strength of the company.
5. It was further contended by the learned counsel for the
appellants that the appellants had taken up this matter with the company and SEBI as early as March 10, 2017 when it sent detailed letters to SEBI dated March 10, 2017, March 29, 2017 and followed up with communication dated May 10, 2017 etc. Despite providing detailed evidence relating to the fact that Schneider was not making any effort in getting listed in the nationwide stock exchanges and the valuation of its shares got done by Schneider was without taking all factors into account, instead of carrying out at least an examination, SEBI has treated these representations as just ordinary SCORES complaints like individual investors’ complaint such as non-receipt of shares, dividend etc. It was also asserted by the learned counsel that the national level stock exchanges and SEBI have adopted a completely unconcerned approach and directed the appellants to approach the Bangalore Stock Exchange and Pune Stock Exchange (which are not even functional) or the Company Schneider (which itself is against the public shareholders). Given the mandate of investor protection, such an approach adopted by SEBI as a Regulator is completely untenable. In support of the appellants’ contention the learned counsel also relied on the order of this Tribunal in Pawan Kumar Saraf vs. SEBI & Ors. (Appeal No. 183 of 2018 decided on 19.09.2019) which in para 6 clearly held that SEBI cannot be oblivious to how the offered price was arrived at.
6. Learned counsel Shri Anubhav Ghosh, appearing for
Respondent No. 1 SEBI and Respondent No. 12 BSE Limited, submitted that it was never mandatory for ELCs to seek listing in national level stock exchanges; what is mandatory is either to seek listing or to provide exit. At a later stage, even a third option was provided that of compulsory delisting. The learned counsel also relied on the orders of the Hon’ble Supreme Court in Pardeep Aggarbatti, Ludhiana vs. State of Punjab & Ors. (1997) 8 SCC 511 and Gujarat Urja Vikas Nigam Ltd. vs. Essar Power Ltd. (2008) 4 SCC 755 on the issue of interpretation of statutes and thereby the meaning of “shall” by invoking the chapter on “exceptional construction” as well as principle of noscitur a sociis.
7. On valuation issue, the learned counsel submitted that in
the case of the ELCs, SEBI does not directly monitor those companies, including submission of their plans etc. which is the responsibility of the exchange on whose dissemination board the ELC has been placed. Therefore, the impugned decision communicated by SEBI on September 20, 2017 stating that ‘if the complainant has any concern on the valuation, you are advice to take up the matter directly with the company or the stock exchange’ is perfectly in order. Moreover, the learned counsel further contended that the appellant has lost the right to agitate now because the said decision was communicated to them earlier on March 17, 2017, which is not challenged. Moreover, the appellant has not given any calculations or data regarding the inadequacy/ inaccuracy of valuation done by Schneider.
8. Learned counsel Shri Pulkit Sukhramani, appearing for
Respondent No. 2, Schneider, in addition to supporting the contentions made by the learned counsel for Respondent Nos. 1 and 12 further submitted that the open offer was opened in March 2017 and closed in March 2018; the appellant never raised any concern regarding valuation in their legal notice sent to the company on May 10, 2017; company had responded to the appellants soon thereafter and therefore this is a belated appeal filed on the pretext of challenging the valuation but no relief has been sought on valuation per se. As far as the company getting listed it is neither possible nor it was mandated upon ELCs to get listed. The company had the option of delisting by submitting a plan of action to the stock exchange (NSE) where it was on dissemination, which has been done and as per the proposed plan of action the company got the valuation done through an NSE empanelled valuer on the basis of which exit option has been given which remained open for 1 year during March 2017 to March 2018. Therefore, it was contended that the appeal has no merit.
9. Having heard the learned counsel for the aforesaid parties,
and having perused the documents and various Circulars issued by SEBI relating to companies listed in the erstwhile regional stock exchanges, we are left to wonder whether public shareholders in such companies are children of lesser god. Despite submissions to the effect that it is not mandatory for ELCs to get listed on the national level stock exchanges, we notice that the language, tone and tenor of the Circulars relating to the same issued by SEBI on various dates mandate at least a serious endeavour from the side of the company to get listed failing which they have the option of voluntary delisting, failing even which getting compulsorily delisted. That is why SEBI’s Circular dated May 30, 2012 elaborately prescribed a light touch approach to eligibility criteria etc. for listing such ELCs and directed the stock exchanges to monitor the progress further. By the October 10, 2016 Circular such ELCs were given exemption from some of the provisions of ICDR for raising capital. Therefore in the light of these directions and its tone and tenor it is clear that listing is the first option and only in the event of failing to get listed an exit option should be adopted. Further, the guidelines relating to the exit option as provided under the October 10, 2016 Circular at ‘Annexure A’ lists a number of obligations cast upon the designated stock exchanges as well as on the management of the company to discharge. Nothing on record has been brought before us whether all these steps have been followed or monitored by the concerned stock exchange. What is produced on record by one of the respondents (Metropolitan Stock Exchange of India Limited) is that the appellant-company had never approached them with a request for listing. Moreover, the appellants contention that the company was eligible to be listed in BSE Limited is not even disputed by any of the respondents except by the company.
10. In the light of the above stated facts and investor
protection being one of the basic mandates of SEBI, we are of the considered opinion that issues relating to continued listing, exit and valuation of shares of the ELCs cannot be treated as minor individual investor complaints by SEBI. Therefore, when substantive questions on these issues are raised by minority/ public shareholders SEBI shall examine those issues and pass a reasoned order. This is not done in the instant matter. We also note that SEBI has delegated lot of responsibility to the stock exchange(s) which also does not seem to have discharged any responsibility assigned to them in terms of the various Circulars issued by SEBI. What appears on record is that the company prepared a plan of exit, got a valuation done and provided an exit option. No authority seems to have discharged any of their responsibilities including monitoring.
11. Given the importance of investor protection, though we
observe certain gaps in the appeal particularly in the way the reliefs have been sought, we set aside the order/ communication dated September 20, 2017 passed by SEBI and in the interest of justice we direct SEBI to pass a reasoned order in the matter. The said order shall also address the issue relating to the stand of SEBI on the need for the ELCs to make a serious effort in continued listing and the procedure and monitoring of their endeavour in listing and / or the exit process when failing to get listed.
12. SEBI shall pass a reasoned order in the matter within three
months from today. Appeal is allowed on above terms with no order on costs. Sd/- Justice Tarun Agarwala Presiding Officer Sd/- Dr. C.K.G. Nair Member Sd/- Justice M. T. Joshi Judicial Member 26.11.2019 Prepared & Compared By: PK