Mr. Rajeev Thakkar & Ors. vs Sebi

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), Mumbai- 400 080

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, Mumbai- 400 104

5. Mr. Srinivasan Ravindran D 701, Sterling Terraces, 100 Feet Ring Rd., BSK 3rd Stage, Bangalore- 560 085

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 2

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, Surat- 395 001

10. Ms. Manjari P. Vaidya 1, Adarsh Society, Athwalines, Surat- 395 001

11. Ms. Anita A. Vaidya 1, Adarsh Society, Athwalines, Surat- 395 001

12. Mr. Anand P. Vaidya 1, Adarsh Society, Athwalines, Surat- 395 001

13. Ms. Kalyani P. Vaidya 1, Adarsh Society, Athwalines, Surat- 395 001

14. Ms. Anjali J. Mehta 1, Adarsh Society, Athwalines, Surat- 395 001

15. Prafullachandra Bappalal Vaidya HUF 1, Adarsh Society, Athwalines, Surat- 395 001

16. Mr. Dheeraj K. Lohia OC-2/502, Orange Country, Ahinsa Khad-I, Indirapuram, Ghaziabad- 201 014, U.P.

17. Mr. P. Sridhar B4, Sun View Apartments, 20, Avvai Shanmugam Salai, 1 st Lane, Chennai- 600 014 3

18. Ms. S. Brinda B4, Sun View Apartments, 20, Avvai Shanmugam Salai, 1 st Lane, Chennai- 600 014

19. Mr. Hitesh Satishchandra Doshi 1602/A, Eternia, Hiranandani Gardens, Main Street, Powai, Mumbai- 400 076

20. Mr. Satishchandra Shantilal Doshi 1602/A, Eternia, Hiranandani Gardens, Main Street, Powai, Mumbai- 400 076

21. Ms. Bhanumati Satishchandra Doshi 1602/A, Eternia, Hiranandani Gardens, Main Street, Powai, Mumbai- 400 076

22. Ms. Pratiksha Satishchandra Doshi 1602/A, Eternia, Hiranandani Gardens, Main Street, Powai, Mumbai- 400 076

23. Mrs. Alka Dua D-166, Sector- 61, Noida- 201 307

24. Mr. Pawan Kumar Saraf 244, Sukhdev Vihar, New Delhi- 110 025

25. Ms. Seema Saraf 244, Sukhdev Vihar, New Delhi- 110 025

26. Mr. Girish Saraf 244, Sukhdev Vihar, New Delhi- 110 025

27. Ms. Anita Saraf 244, Sukhdev Vihar, New Delhi- 110 025 4

28. Mr. Ajay Pancholi Paschim Apartments, Opp. Kirti College, Dadar West, Mumbai- 400 028

29. Mr. Parasmal Pancholi A- 1803/4, Gokul Gagan CHS, Thakur Village, Kandivali East, Mumbai- 400 101

30. Mr. Arun Pancholi A- 1803/4, Gokul Gagan CHS, Thakur Village, Kandivali East, Mumbai- 400 101

31. Mr. Ketan Dedhia 502/3, Raheja Haven, 10th Road, JVPD Scheme, Opposite Pushpa Narsee Park, Vile Parle West, Mumbai- 400 049 ...Appellants

Versus

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

2. Schneider Electric President Systems Ltd.

5C/1, KIADB Industrial Aria, Attibele, Bangalore- 562 107, 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, Mumbai- 400 026, Maharashtra 5

5. Mr. Sugata Sircar Apt. D- 1402, Palm Springs Golf Course Road, Sector- 54, Gurgaon- 122 003, Haryana

6. Mr. Subramanian Vishar Vasudevan Flat No. D-102, Road No. 12, Fortune Enclave Block-D, Banjara Hills, Hyderabad- 500 034, Telangana

7. Ms. Rachna Mukherjee A-26/3,2nd Floor, SFS DDA Flats, Saket, New Delhi- 110 017

8. Mr. Javed Ahmed 38 Regency Heights, Cleveland Road, Fraser Town, Bangalore- 560 005, Karnataka, India

9. Mr. Swaminathan Venkataraman 18/102 Siddhachal Housing Complex, Phase-III, Pokhran Rd.-2, Thane- 400 601

10. Mr. Damodar Kalavala Flat No. 407, Pinnacle No- 42/3, Kanakapura Road, J. P. Nagar, 1st Phase, Bangalore- 560 078, Karnataka

11. National Stock Exchange of India Limited Exchange Plaza, C-1 Block G, Bandra Kurla Complex, Bandra East, Mumbai- 400 051 6

12. Bombay Stock Exchange of India Limited Phirozee Jeejeebhoy Towers, Dalal Street, Mumbai- 400 001

13. Metropolitan Stock Exchange of India Limited Vibgyor Towers, 4th Floor, Plot No. C62, G-Block, Opp. Trident Hotel, Bandra Kurla Complex, Bandra East, Mumbai- 400 051 ...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 7

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 8

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 9

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. 10

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 11

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 12

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 13

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 14

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.

15

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 16

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