Nagarjuna Fertilizers & Chemicals Ltd. vs Sebi

DATE : 30.10.2015

Appeal No. 89 of 2013

Nagarjuna Fertilizers & Chemicals Ltd. Nagarjuna Hills, Punjagutta, Hyderabad - 500 082. ..... Appellant

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. Bombay Stock Exchange Limited P. J. Tower, Dalal Street, Mumbai - 400 001.

3. National Stock Exchange of India Ltd.

Exchange Plaza, Bandra Kurla Complex, Mumbai - 400 051. ...... Respondents

Mr. Shyam Mehta, Senior Advocate with Mr. Ankit Lohia, Advocate i/b Desai & Diwanji for the Appellant.

Mr. Prateek Seksaria, Advocate with Mr. Saurabh Bachhawat, Ms. Shruti Chiniwar, Advocates i/b K. Ashar & Co. for the Respondent No. 1. Mr. Ajay Khaire, Advocate i/b The Law Point for the Respondent No. 2. None for the Respondent No. 3.

CORAM : Justice J. P. Devadhar, Presiding Officer Jog Singh, Member

Per : Justice J. P. Devadhar (Oral)

1. Appellant claims to be aggrieved by the decision of the Securities

and Exchange Board of India ("SEBI" for short) whereby, according to the

appellant, SEBI has rejected the application of the appellant forwarded to

SEBI through the Bombay Stock Exchange ("BSE" for short) and the

National Stock Exchange ("NSE" for short) with their recommendations 2

dated December 13, 2011 and January 13, 2012 respectively for grant of

relaxation / waiver of the conditions set out under Rule 19(2)(b) of the

Securities Contract (Regulation) Rules, 1957 ("SCRR" for short) for the

purposes of listing the shares of the appellant on the respective stock

exchanges.

2. Regulation 19 of SCRR provides that a public company desirous of

getting its securities listed on a recognized stock exchange shall apply for

that purpose to the stock exchange and forward the application to SEBI

alongwith the recommendation of the stock exchange, as also various

documents and particulars set out under Regulation 19 of SCRR. Shares of

a public company are listed on the stock exchanges only when SEBI

approves such listing. Regulation 19(7) of SCRR provides that SEBI may

at its own discretion or on the recommendations of a recognized stock

exchange, waive or relax the strict enforcement of any or all of the

requirements while seeking approval of SEBI for listing the shares of a

company on the stock exchanges.

3. In the present case, on the basis of a composite scheme of

Arrangement and Amalgamation ("Scheme" for short) between the

appellant and various other entities, duly sanctioned by the Andhra Pradesh

High Court as also by the Bombay High Court, the appellant, with a view to

list its shares on the stock exchanges, submitted its application to the BSE

and NSE seeking their "in principle approval" and their recommendation to

SEBI for waving / relaxing the conditions set out in Rule 19(2)(b) of

SCRR.

4. It is not in dispute that the BSE with its in-principle approval for

listing forwarded the application of the appellant to SEBI on December 13, 3

2011 recommending waiver / relaxation of Rule 19(2)(b) of the SCRR for

listing the shares of the appellant on the BSE. Similarly, NSE granted in-

principle approval and recommended to SEBI that the conditions set out

under Rule 19(2)(b) of SCRR be waived / relaxed for listing the shares of

the appellant on NSE.

5. On perusal of the above application of the appellant as also the

recommendations of BSE and NSE, SEBI was of the opinion that the

appellant had got the scheme of Arrangement / Amalgamation sanctioned

by deliberately and willfully suppressing vital and material facts and

thereby practicing fraud on the Courts. It appears that the prima facie view

of SEBI was based on the report of M/s. Bansi S. Mehta & Co., an

independent valuer wherein it was reported that the valuation of the assets

and liabilities / goodwill of the companies involved in the scheme of the

appellant were not in accordance with law.

6. Based on the valuation report submitted by M/s. Bansi S. Mehta &

Co., SEBI filed Company Applications before the Bombay High Court

seeking review of its order sanctioning composite scheme of Arrangement

and Amalgamation submitted by the appellant. During the pendency of the

aforesaid Company Applications before the Bombay High Court, SEBI

deemed it fit not to pass any order on the applications submitted by the

appellant through the stock exchanges seeking waiver / relaxation from

Rule 19(2)(b) of SCRR.

7. The appellant was of the opinion that SEBI has wrongfully rejected

the application of the appellant and, accordingly, filed the present appeal

before this Tribunal in March 2013 by claiming that SEBI was not justified 4

in rejecting the applications submitted to SEBI through the two stock

exchanges seeking relaxation / waiver of Rule 19(2)(b) of SCRR.

8. In its affidavit in reply SEBI contended that in the present case, no

order has been passed on the applications submitted by the appellant

through the stock exchanges and since appeal under Section 15T of SEBI

Act is maintainable only against an order passed by SEBI, the present

appeal filed even before passing an order is not maintainable. In the

ordinary course, this Tribunal would have rejected the above argument of

SEBI and directed SEBI to pass appropriate orders on the applications

submitted by the appellant forthwith. However, in view of the fact that

SEBI was of the opinion that the appellant got the scheme of Arrangement /

Amalgamation sanctioned by practicing fraud on the Court and the

applications filed by SEBI seeking review of the order sanctioning the

scheme was pending before the Bombay High Court, this Tribunal deemed

it fit to keep the appeal pending till the disposal of the applications filed by

SEBI before the Bombay High Court.

9. Admittedly, by a judgment and order dated September 10, 2015 the

Bombay Stock Exchange has dismissed the company applications filed by

SEBI, by holding that, firstly, SEBI does not have any locus to intervene in

a petition filed under Sections 391 and 394 of the Companies Act, 1956 and

secondly, even on merits, there is no merit in the contention of SEBI that

the appellant had suppressed vital and material facts and got the scheme

sanctioned by practicing fraud on the Courts.

10. Relying on the aforesaid decision of the Bombay High Court, counsel

for appellant submitted that it is high time that SEBI be directed to pass 5

appropriate orders on the applications of the appellant which are pending

before SEBI since December 2011.

11. Counsel for SEBI, on the other hand submitted that, firstly, the

present appeal is not maintainable, because, appeal under Section 15T of

SEBI Act is maintainable only when the appellant is aggrieved by an order

passed by SEBI and in the present case, SEBI has not yet passed any order

on the applications of the appellant and, therefore, appellant cannot be said

to be aggrieved by any order of SEBI and consequently, the appeal filed by

the appellant would not be maintainable under Section 15T of SEBI Act. In

support of the above contention, counsel for SEBI relied on a decision of

this Tribunal dated October 15, 2007 in Appeal No. 123 of 2007 (C. A.

Arun Goenka vs. Siemens Diagnostics Holding II B. V. and Ors.) and a

decision of Madras High Court in case of Pentamedia Graphics Ltd. vs.

SEBI reported in 2007-1-L. W. 337. Secondly, it is submitted on behalf of

SEBI that challenging the order passed by the learned Single Judge of the

Bombay High Court, SEBI has filed appeal before the Division Bench of

the Bombay High Court and till that appeal is disposed of SEBI cannot be

compelled to pass any order on the applications of the appellant. Counsel

for SEBI further submitted that even if the appeal is dismissed by the

Division Bench of the Bombay High Court, SEBI has a right to file appeal

before the Apex Court and, therefore, till the issue is finally decided by the

Apex Court, SEBI cannot be compelled to pass any order on the application

of the appellant.

12. We have carefully considered the rival submissions.

13. SEBI is established under the SEBI Act to protect the interests of

investors in securities and to promote the development of and to regulate 6

the securities market. While protecting the interests of investors and

promoting development and regulating the securities market SEBI is bound

and liable to function within the parameters prescribed under the SEBI Act

and the Rules and Regulations framed by the Central Government / SEBI.

Under Rule 19(7) of SCRR framed by the Central Government, SEBI is

conferred with the power to relax / waive certain conditions set out under

SCRR which are required to be fulfilled while seeking approval from SEBI

for listing the shares of a company on the stock exchange. Even if the stock

exchanges recommend relaxation / waiver of certain conditions set out

under SCRR, it is open to SEBI to decline waiver / relaxation for valid

reasons.

14. In the present case, it is contended on behalf of SEBI that the

applications of the appellant have not been disposed of because, according

to SEBI, appellant has got the scheme of Arrangement / Amalgamation

sanctioned by suppressing material facts and by practicing fraud on the

Courts. As noted above, the Bombay High Court, has found no merit in the

above contention of SEBI and in the judgment delivered on September 10,

2015 the learned Single Judge of the Bombay High Court has categorically

recorded a finding that the appellant has not suppressed any facts or

document and the appellant has not practiced fraud on the Court. Thus, the

Court which sanctioned the scheme has found that SEBI is not justified in

contending that the appellant got the scheme sanctioned by suppressing

vital facts, documents and by practicing fraud on Courts. Once the Court

which sanctioned the scheme has rejected the claim of SEBI that the

scheme was got sanctioned by practicing fraud on Courts, then, SEBI

cannot refuse to act on the basis that the scheme has been validly 7

sanctioned in accordance with law, especially when the order passed by the

learned Single Judge has not been stayed by any higher authority.

15. Argument of SEBI that till the issue relating to the appellant getting

the scheme sanctioned by practicing fraud on Court is decided by the

Division Bench of the Bombay High Court and ultimately by the Apex

Court, SEBI cannot be compelled to pass an order on the application of the

appellant seeking waiver of Rule 19(7) of SCRR is without any merit.

Whether relaxation / waiver should be granted or not is within domain of

SEBI. The above discretionary power vested in SEBI is coupled with a

duty to exercise its discretion one way or the other within a reasonable

time. In the present case, the applications submitted by the appellant

seeking waiver / relaxation of the conditions set out under Rule 19(7) of

SCRR are pending before SEBI since December 2011. Prima facie view of

SEBI that the appellant got the scheme sanctioned by fraudulent means, has

been admittedly rejected by the learned Single Judge of the Bombay High

Court. In such a case, inspite of the decision of the learned Single Judge,

SEBI cannot refuse to pass an order on the application of the appellant,

merely because SEBI has filed an appeal before the Division Bench against

the decision of the learned Single Judge.

16. Argument of SEBI that since SEBI has not passed any order on the

applications in question, no appeal could be filed under Section 15T of

SEBI Act is also without any merit. Failure on part of SEBI to perform

duties conferred on it under the securities laws if causes prejudice to any

person in the securities market, then that person being an aggrieved person

would be entitled to file an appeal under Section 15T of the SEBI Act. In

the present case failure on part of SEBI to dispose of the application

seeking waiver / relaxation of Rule 19(2)(b) of SCRR has caused serious 8

prejudice to the appellant because, in the absence of deciding the

application, the appellant is unable to list its shares on the stock exchanges.

Argument of SEBI that the appellant may get its shares listed without

seeking waiver / relaxation of Rule 19(2)(b), is wholly unjustified, because,

under SCRR appellant has a right to seek relaxation / waiver of Rule

19(2)(b) and SEBI has a right either grant or reject relaxation / waiver of

Rule 19(2)(b). Merely because, SEBI considers that the appellant has got

the scheme sanctioned by practicing fraud on the Court cannot be a ground

for SEBI to exercise its discretionary power one way or the other. Appeal

under Section 15T can be filed by any person connected with the securities

market, if that person is aggrieved by any action or inaction on part of

SEBI. If the argument of SEBI that only persons who are aggrieved by the

action of SEBI in passing an order are entitled to prefer appeal under

Section 15T of SEBI Act, is accepted, then, it would mean that persons who

are aggrieved by inaction on part of SEBI in failing to discharge its

obligation under the SEBI Act and Rules and Regulations framed

thereunder have no remedy of filing an appeal under Section 15T of SEBI

Act. Such a restricted meaning to Section 15T of SEBI Act is unwarranted.

In our opinion, on a proper construction of Section 15T, it is apparent, that

any person who is aggrieved by the action or inaction on part of SEBI

would be entitled to file an appeal under Section 15T of SEBI Act. In the

present case, since the appellant is aggrieved by the inaction on part of

SEBI in disposing of the application of the appellant is justified in filing an

appeal under Section 15T of SEBI Act. Moreover, Rule 21 of the

Securities Appellate Tribunal (Procedure) Rules, 2000 empowers this

Tribunal to pass such directions as is necessary to secure the ends of justice.

Therefore, in the facts of present case, we deem it necessary to direct SEBI 9

to pass an order on the application of the appellant seeking waiver /

relaxation of Rule 19(2)(b) of SCRR.

17. Reliance placed by counsel for SEBI on the decision of this Tribunal

in case of C. A. Arun Goenka (supra) is misplaced, as the said decision is

distinguishable on facts. In that case after receiving green signal from

SEBI in respect of the draft of the offer documents, the acquirer proceeded

with the public offer to make payment to the shareholders of the target

company who had offered their shares to the acquirer. Since there was

delay on part of the acquirer to make payments to the shareholders within

the stipulated time, the acquirer therein in the absence of any order passed

by SEBI voluntarily paid 10% interest on the amount paid belatedly. When

the shareholder filed an appeal demanding higher rate of interest, in the

absence of any order passed by SEBI directing the acquirer to pay interest

on the delayed payments, it was held that the appeal is not maintainable

under Section 15T of the SEBI Act, 1992. In that case, neither there was

any application made before SEBI seeking interest nor there was any order

passed by SEBI granting interest. In such a case, where the acquirer had

paid interest voluntarily, there was no question of SEBI passing an order

granting higher rate of interest. In that context, it was held by this Tribunal

that the appeal is not maintainable. In the present case, Rule 19(7) of the

SCRR permits a company to seek waiver / relaxation of certain conditions

set out under SCRR for listing its shares on the stock exchanges and SEBI

is obliged to pass an order on the said application. Therefore, the decision

of this Tribunal in case of C. A. Arun Goenka (supra) is distinguishable on

facts. Similarly, the decision of the Madras High Court in case of

Pentamedia Graphics Ltd. (supra) is distinguishable on facts, because, as

held in that case, even after the scheme is sanctioned, it is open to SEBI or 10

to the stock Exchange to insist on compliance of its Rule as a condition for

listing and in the event of any violation thereof, reject the application. In

the present case, the grievance of the appellant is that the SEBI has failed

either to grant or reject the applications filed by the appellant. Thus, the

decision of the Madras High Court in case of Pentamedia Graphics Ltd.

(supra) is distinguishable on facts.

18. Fact that SEBI in its discretion may refuse relaxation / waiver,

cannot be a ground for SEBI to refuse to exercise that discretion one way or

the other. In view of the plea taken by SEBI that the appellant had got the

scheme sanctioned by practicing fraud on the Bombay High Court, we

waited all these years for the Bombay High Court to pass an order on the

issue of fraud alleged by SEBI. Now that the learned Single Judge of the

Bombay High Court has held that there is no fraud committed by the

appellant, we see no reason as to why SEBI should not be directed to take a

decision and pass an appropriate order on the application of the appellant.

19. In these circumstances, we hold that SEBI is not justified in

withholding the application forwarded to it by the appellant through BSE /

NSE seeking waiver / relaxation of Rule 19(2) of SCRR for listing the

shares of the appellant on BSE / NSE, especially when the prima facie view

of SEBI that the appellant has got the scheme sanctioned by practicing

fraud on the Court has been rejected by the Court which Court had

sanctioned the scheme and that decision has not been stayed by any higher

Court.

20. For all the aforesaid reasons, we allow the appeal by directing SEBI

to pass an order on the applications submitted by the appellant through the

stock exchanges within a period of 12 weeks from today. 11

21. We make it clear that we have not expressed any opinion on merits

of the applications in question.

22. Appeal is disposed of in the above terms with no order as to costs.

Sd/-

Justice J. P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

30.10.2015 Prepared & Compared by PTM