Ankit Mehta-Ex-Director Of M/S. Janice ... vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI DATE : 15.01.2019

Appeal No. 205 of 2018

Ankit Mehta-Ex-Director of M/s. Janice Textiles Ltd. (now amalgamated) 1st Floor, 261, Yusuf Meherali Road, Mumbai 400 003. ..... Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent

Mr. Rohan Sawant, Advocate i/b Mona Vora for the Appellant. Mr. Vishal Kanade, Advocate with Ms. Vidhi Jhawar, Mr. Nikhil Kapoor, Advocates i/b The Law Point for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C. K. G. Nair, Member

Per : Justice Tarun Agarwala, Presiding Officer (Oral)

1.

The appellant being an ex-director of the noticee company has filed

the present appeal against the order of the Adjudicating Officer (hereinafter

referred to as "AO") dated April 27, 2018 under Section 15I of the

Securities and Exchange Board of India Act, 1992, hereinafter referred to as

"SEBI Act" read with Rule 5 of the Securities and Exchange Board of India

(Procedure for Holding Inquiry and Imposing Penalties by Adjudicating

Officer) Rules, 1995 (hereinafter referred to as the "Rules 1995") in

respect of Janice Textiles Ltd. (hereinafter referred to as "the noticee

company") holding that the appellant had not obtained SCORES

authentication and consequently levied a monetary penalty of Rs. Six lacs

under the provisions of 15HB of the SEBI Act .

2

2. The contention of the appellant is that a scheme of amalgamation of

the noticee company, Janice Textiles Ltd. with another company known as

Alka India Ltd. was duly approved by the Board of Directors of both the

companies on March 26, 2004, pursuant to which, a scheme of

amalgamation was sanctioned by the High Courts of Bombay and Gujarat

on August 26, 2005 and November 16, 2005 respectively. It was contended

that pursuant to the scheme becoming effective, the transferor company,

namely, the noticee company i.e. Janice Textiles Ltd. stood dissolved

without winding up. It was contended that the noticee company had

complied all the procedural requirements as directed by the High Courts

and necessary Form 21 was filed before the Registrar of Companies

Maharashtra, Mumbai ('MCA' for short) on February 24, 2006. Necessary

information was also sent to the BSE as a result the portal of the MCA 21

portal and BSE website indicated the status of the noticee company as

amalgamated.

3. Inspite of the aforesaid amalgamation and merger of the transferor

company with the transferee company, a show cause notice dated May 26,

2017 was issued to the noticee company under Rule 4 of the SEBI

Adjudication Rules, 1995 to show cause as to why the noticee company

should not be penalized for failing to obtain SCORES authentication as per

various SEBI's circulars of the year 2011, 2013 and 2014. On receipt of

show cause notice the appellant being an ex-director replied intimating the

AO that the noticee company had amalgamated with Alka India Ltd.

pursuant to order passed by the High Court of Judicature at Bombay dated

August 26, 2005 and that the said company stood dissolved.

4. Inspite of submitting all the necessary documents and information,

the AO by the impugned order dated April 27, 2018 held that the noticee 3

company had failed and neglected to comply with the SEBI's circulars and

that the scrips of the noticee company remained listed upto September 2,

2015. The AO further held that since the noticee company continued to be

a listed company till September 2, 2015 it violated the SEBI's circulars and

consequently, was liable to a penalty of Rs. Six lacs under Section 15HB of

the SEBI Act.

5. We have heard Mr. Rohan Sawant, the learned counsel for the

appellant and Mr. Vishal Kanade, the learned counsel for the respondent.

Admittedly, the noticee company had been amalgamated with the transferee

company, namely, Alka India Ltd. pursuant to the order passed by the High

Court of Judicature at Bombay dated August 26, 2005. The Bombay High

Court held that "..... AND THIS COURT DOTH FURTHER ORDER

that upon the Scheme becoming effective the Transferor Company shall

stand dissolved without winding up...". Pursuant to the aforesaid order

requisite Form 21 was filed before the Registrar of Companies on February

24, 2006, and that requisite information was sent to the BSE as a result their

website indicated that the noticee company had amalgamated with Alka

India Ltd.

6. Subsequent to the merger of the noticee company with the transferee

company SEBI issued circular dated August 13, 2012 requiring all

companies to obtain SCORES authentication by September 14, 2012 whose

securities were listed on the stock exchange. Thereafter, SEBI issued a

public notice dated January 13, 2013 against the companies which had

failed to obtain SCORES authentication. By this notice companies who

had not obtained SCORES authentication were advised to obtain the same

within seven days from the date of advertisement. Subsequently, another

circular dated April 17, 2013 was issued requiring the companies to obtain 4

SCORES authentication within 30 days. Thereafter, another circular dated

December 18, 2014 was issued on the same lines.

7. Having heard the learned counsel for the parties, we are of the opinion

that when two companies amalgamate and merge into one, the transferor

company loses its entity as it ceases to have its business. The corporate

entity of the transferor company ceases to exist with effect from the date the

amalgamation is made effective. This observation has been made by the

Supreme Court in the matter of Saraswati Industrial Syndicate Ltd. vs.

C. I. T. Haryana, H. P., Delhi [AIR 1991 SC (70)]. The said decision is

squarely applicable in the present case. The fact that the scrips of the

noticee company remained listed up to September 2, 2015 in the BSE will

have no effect in so far as the merger is concerned. Even otherwise, the

noticee company cannot be found at fault with the listing of its scrips on the

stock exchange. The noticee company had informed the Registrar of

Companies in the year 2006 by filing Form 21 which, in turn, was

intimated to the stock exchange. The portal of BSE also indicated that the

noticee company had amalgamated in 2011. Thus, the mere fact that the

exchange continued to list and show the noticee company as a listed

company is on account of the fault of BSE for which the noticee company

cannot be blamed. Even otherwise, we are of the opinion that once the

company stood dissolved in the year 2005 and the scheme of amalgamation

was made effective the company ceased to exist. The circulars issued by

SEBI in the year 2012, 2013 and 2014 would not have any bearing with the

noticee company as it ceased to exist. Consequently, we are of the opinion

that issuance of the show cause notice and imposition of penalty of Rs. Six

lacs was wholly erroneous and without jurisdiction. 5

8. For the reason stated aforesaid, the appeal is allowed. The impugned

order dated April 27, 2018 passed by the AO is quashed.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member 15.01.2019 Prepared & Compared by PTM