Suresh N. Vijay vs Sebi

Order Reserved on : 7.12.17 Date of Decision : 20.12.2017

Appeal No.27 of 2016

Suresh N. Vijay S/o. Late Mr. Shadilal Vijaywargia, R/o Bungalow No.4, Vijaydwar, People's Campus, Karond-Bhanpur, By-pass, Bhopal, Madhya Pradesh. ..... Appellant

Versus

1.

Securities & Exchange Board of India SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400051.

2. DB Corp Ltd.

Plot No.280, Sarkhej, Gandhinagar Highway, Near YMCA Club, Makarba, Ahmedabad -

380 051. Gujarat, India. ...... Respondents

Mr. Amalpushp Shroti, Advocate for the Appellant.

Mr. Kumar Desai, Advocate with Mr. Sonam Shethia and Mr. Sochit Kumar, Advocates i/b Juris Corp for the Respondent no. 1. Mr. Ankur Mody, Advocate with Ms. Bijal Vora, Advocate i/b. Clove legal for Respondent no.2.

CORAM : Justice J.P. Devadhar, Presiding Officer Dr. C.K.G.Nair, Member

Per : Justice J.P. Devadhar

1. This appeal is filed to challenge the order passed by the Whole Time

Member ('WTM') of Securities and Exchange Board of India ('SEBI' for

short) on 11th December, 2015. By the said order complaint filed by the

appellant alleging that the Respondent no.2 had misrepresented /suppressed 2

material facts in the prospectus issued at the time of Initial Public Offering

(IPO) in the year 2009 in gross violation of SEBI (Issue of Capital and

Disclosure Requirements) Regulations, 2009 ('ICDR Regulations' for

short) has been rejected.

2. Facts as set out in the memo of appeal/written submissions filed on

behalf of the appellant are as follows:

a) In April, 1972 a partnership firm was formed by 4 partners,

interalia to print and publish a newspaper known as 'Dainik Bhaskar'

('newspaper business' for convenience) from Bhopal.

b) By an agreement of sale dated 13th March, 1985 the said firm

through its partner Shri Dwarka Prasad Agarwal allegedly transferred

the newspaper business alongwith its property and goodwill to

Writers and Publishers Ltd. ("Writers" for convenience) for Rs.5 lakh

for 10 years.

c) Writers had filed civil suit no.74A of 1987 before the First

Additional Judge, Bhopal, inter alia seeking a declaration that Writers

is the owner of the business of Dainik Bhaskar published from Bhopal

and its goodwill since 1.4.1985 and that nobody else is entitled to

publish a newspaper in the name of "Dainik Bhaskar" from anywhere

in India.

d) There were interse disputes between the partners of the firm

and their family members and hence several proceedings were

initiated before different authorities/courts. In one such proceedings

being Writ Petition No.802 of 1992 filed before the M.P. High Court

a compromise memo was filed on 29.6.1992 and the said Writ

Petition was disposed of on 29.6.1992 itself in terms of the 3

compromise memo. Dwarka Prasad Agarwal who was also a party

respondent in the said Writ Petition was neither a party to the

settlement nor signatory to the settlement memo.

e) Thereafter, the Registrar of Newspapers for India ('RNI' for

short) on or about 3.9.1992 recorded the name of Writers as the owner

of the newspaper 'Dainik Bhaskar'. In view of the above decision of

M.P. High Court, appellant claims that an application was filed for

withdrawal of Civil Suit No.74 A of 1987 and accordingly by order

dated 27.10.1993 the said suit was dismissed as withdrawn.

f) Dwarka Prasad Agarwal filed appeals before the Apex Court

to challenge the order of M.P. High Court dated 29.6.1992 and order

of RNI dated 3.9.1992.

g) On 19.7.1993 Dwarka Prasad Agarwal passed away.

h) By its decision dated 7.7.2003 reported in (2003) 6 SCC

230 the Apex Court allowed the appeals filed by Dwarka Prasad

Agarwal by holding that the settlement was fraudulent and hence

illegal and accordingly the Apex Court inter alia quashed the order of

M.P. High Court dated 29.6.1992 and order of RNI dated 3.9.1992.

The Apex Court further held that all orders and actions taken

pursuant to or in furtherance of compromise memo must be declared

as wholly illegal and without jurisdiction. Appellant submits that

since Civil Suit No.74 A of 1987 was withdrawn pursuant to M.P.

High Court decision dated 29.6.1992, on the Apex Court setting aside

the order of M.P. High Court, the Civil Suit No.74 A of 1987 stood

revived and became an outstanding litigation.

4

i) On an application filed by Writers, the Gujarat High Court on

10.10.2006 sanctioned a scheme of arrangement in the nature of

demerger. As a result of demerger, the business of publishing the

newspaper Dainik Bhaskar was transferred to Respondent no.2. By a

subsequent order dated 22.12.2006 the Gujarat High Court modified

the said order dated 10.10.2006 to clarify that on demerger, only the

publishing business of writers stood transferred to the Respondento.2.

j) On 20.12.2009, Respondent no.2 came out with an IPO and

accordingly issued a prospectus thereby offering shares of Respondent

no.2 to the investing public on terms as more particularly set out

therein. It is the case of the appellant that the prospectus issued by

Respondent no.2 contained several misrepresentations and

suppression of material facts from the investors which were in gross

violation of ICDR Regulations.

k) By a deed of assignment dated 24.2.2010 some of the family

members of Late Dwarka Prasad Agarwal assigned their proprietary

rights title and interest in the business of the newspaper Dainik

Bhaskar to the appellant.

l) Thereafter, appellant filed an application in Civil suit no.74

A of 1987 for being impleaded as party defendant in the said suit

which according to the appellant stood revived pursuant to the order

of the Apex Court dated 7.7.2003.

m) However, by an order dated 7.5.2013 the first Additional

District Judge Bhopal dismissed the application filed by the appellant

on ground firstly that civil suit no.74 A of 1987 was not dismissed on

the basis of compromise memo but was dismissed on the basis of 5

application filed by the plaintiff (Writers) that it did not want to

proceed further in the case and therefore, the Apex Court decision

dated 7.7.2003 had no relevance to the present case. Secondly,

assuming that the Apex Court's decision dated 7.7.2003 was

applicable to facts of present case, since plaintiff (Writers) had not

moved any application for restoration of the suit, the appellant who

was not even a party to the suit could neither seek restoration of the

suit nor seek an order for being impleaded as party defendant in the

suit. Thirdly it was held that Dwarka Prasad Agarwal had died during

the pendency of the suit and as the plaintiff had not initiated any

proceedings for bringing the legal heirs of Dwarka Prasad Agarwal on

record no further action could be taken in the suit till the legal heirs of

the dead party were brought on record.

n) Appellant, thereupon filed a complaint before SEBI on

15.5.2013 alleging that in the prospectus issued in the year 2009

during the IPO, the respondent no.2 had

i. suppressed agreement of sale dated 13.3.1985,

ii. suppressed civil suit no.74A of 1987,

iii. misrepresented that on demerger, the wind farm

business was also transferred to the respondent no.2,

iv. suppressed the scheme of demerger by failing to offer

the same for inspection.

In view of the above gross violation of ICDR Regulations, the

appellant requested SEBI to issue suitable directions against

respondent no.2.

6

o) By an order dated 22.11.2013 the WTM of SEBI rejected

the complaint filed by the appellant for the reasons set out therein.

The said decision was challenged by the appellant and by an order

dated 13.11.2014 this Tribunal set aside the order of WTM dated

22.11.2013 and directed SEBI to pass fresh order on merits and in

accordance with law.

p) Thereafter, the matter was heard again and by the impugned

order dated 11.12.2015 the WTM of SEBI held that there was no

misrepresentation or suppression of material facts in the prospectus

issued by Respondent no.2 and accordingly disposed of the complaint

filed by the appellant without issuing any direction to the Respondent

no.2.

3) Mr. Shroti learned advocate appearing on behalf of the appellant

submitted as follows:

a) Ownership of the newspaper Dainik Bhaskar was allegedly

acquired by Writers under an agreement of sale deed dated 13.3.1985

and Respondent no.2 had acquired the business of publishing the

newspaper Dainik Bhaskar from Writers on account of demerger.

Thus the agreement of sale dated 13.3.1985 being the nucleus of title

of Respondent no.2 over 'Dainik Bhaskar', under Rule 57(2)(a)(ii) of

the rules framed by SEBI read with Part A, Item 1(a) of Schedule VIII

of ICDR Regulations, the respondent no.2 ought to have disclosed the

same in the prospectus. Moreover, the agreement of sale dated

13.3.1985 was not shown under 'Other Information' in the list of

material contract with the prospectus as required under Part A Item

(2) XVI (A)(i)(2) and (3) of Schedule VIII of ICDR Regulations. 7

Thus, the respondent no.2 had suppressed agreement of sale dated

13.3.1985 in the prospectus.

b) WTM of SEBI has accepted the plea of the appellant that the

agreement of sale dated 13.3.1985 was the nucleus of title, however,

the WTM of SEBI has held that the agreement of sale dated 13.3.1985

was the document of title of Writers and not the document of title of

Respondent no.2 and therefore the Respondent no.2 was not required

to disclose the agreement of sale dated 13.3.1985 in the prospectus.

According to the WTM, disclosure of various letters issued by RNI

including the letter dated 18.6.2004 and disclosure of the orders

passed by the Gujarat High Court approving the scheme of demerger

were sufficient disclosure in the prospectus. Appellant submits that

the Respondent no.2 had conceded before the Gujarat High Court that

the demerger proceedings were not for determination of right title and

interest of the parties in the business of publishing the newspaper

Dainik Bhaskar. Apex Court decision in the case of S.S. Apparao vs.

B. Laxmi Narayan reported in AIR 1962 SC 586 was also brought to

the notice of the appellant wherein it is held ownership of the press is

to be decided by a civil suit and not by way of declaration made

before RNI. However, ignoring the above facts on record the WTM

has erroneously held that the agreement of sale dated 13.3.1985 which

was the nucleus of title was not required to be disclosed in the

prospectus.

c) Civil suit no.74 A of 1987 filed by Writers claiming

ownership of the business of publishing the newspaper Dainik

Bhaskar, which was dismissed as withdrawn on 27.10.1993 stood 8

revived pursuant to the decision of the Apex court dated 7.7.2003.

Thus, Civil Suit No.74A of 1987 being an 'Outstanding litigation'

ought to have been disclosed in the prospectus as contemplated under

the SEBI rules and ICDR Regulations. Fact that the respondent no.2

had disclosed in the prospectus that the ownership of publishing the

newspaper Dainik Bhaskar was challenged in the past and could be

challenged again in the future and such challenge if upheld could have

adverse impact on the reputation and goodwill of respondent no.2

could not be a ground for the WTM to hold adequate disclosures were

made in the prospectus. In the absence of disclosure of the name of

the person who had challenged the ownership of Dainik Bhaskar and

in the absence of disclosure of the case number, merely on the basis of

vague statement made in the prospectus the WTM could not have held

that there is no failure to disclose outstanding litigation in the

prospectus.

d) The Respondent no.2 had made false representation in the

prospectus by stating that under the scheme of demerger approved by

the Gujarat High Court they had also acquired the wind farm business.

Neither in the order dated 10.10.2006 nor in the order dated

22.10.2006 the Gujarat High Court had recorded that on demerger the

wind farm business has also been transferred to the Respondent no.2.

On the contrary, by order dated 22.10.2006, the Gujarat High Court

had clarified that only the publishing business has been transferred to

respondent no.2. However, by relying on clause 1.9 of the scheme of

arrangement which defined the expression "publishing business"

would include the wind farm business, the WTM has purported to hold 9

that the wind farm business was also transferred to Respondent no.2.

Admittedly clause 1.9 of the scheme of arrangement was not

reproduced anywhere in the prospectus. In these circumstances, the

WTM is not justified in rejecting the plea of the appellant that the

Respondent no.2 had misrepresented to the investors that the wind

farm business was also transferred under the scheme of arrangement.

e) Similarly, the respondent no.2 is guilty of suppressing the

scheme of demerger in the prospectus. Neither the order of Gujarat

High Court approving scheme of demerger on 10.10.2006 nor the

clarificatory order issued by Gujarat High Court on 22.12.2006 was

shown under 'other information' in the list of material contract with

the prospectus and produced before SEBI for inspection as required

under the ICDR Regulations. In these circumstances counsel for the

appellant submitted that the order passed by the WTM of SEBI being

totally erroneous and contrary to the facts on record deserves to be

quashed and set aside.

4. We see no merit in the above contentions.

5. First grievance of the appellant is that the agreement of sale dated

13.3.1985 being the nucleus of title for the respondent no.2 to carry on the

business of publishing the newspaper 'Dainik Bhaskar', the said agreement

of sale ought to have been disclosed in the prospectus. It is relevant to note

that pursuant to the agreement of sale dated 13.3.1985 Writers were entitled

to print and publish the newspaper 'Dainik Bhaskar' and on demerger,

Respondent no.2 acquired that right from Writers. Admittedly on

demerger, all consents and approvals issued to Writers including the RNI 10

Registrations in relation to printing and publishing 'Dainik Bhaskar' were

transferred from Writers to the name of respondent no.2.

6. In the prospectus issued in the year 2009, the respondent no.2 had

disclosed that the ownership right of publishing 'Dainik Bhaskar', as per

the RNI records, was with Writers and that the respondent no.2 had

acquired the right to publish 'Dainik Bhaskar' from Writers on account of

demerger approved by the Gujarat High Court on 10.10.2006.

7. Appellant contends that disclosing the ownership right of publishing

'Dainik Bhaskar' without disclosing the agreement of sale dated 13.3.1985

amounts to suppressing material facts in the prospectus. We see no merit in

the above contention, because, Office of the Registrar of Newspapers for

India (RNI) established under the Press and Registration of Books Act,

1867 which is regulating and monitoring the business of printing and

publishing newspapers in India is statutorily required to maintain records

relating to the ownership rights of the persons publishing newspapers in

India. Therefore, office of the RNI being the competent authority in

relation to publishing newspapers in India, the records maintained by the

office of RNI would be the material information relating to the news paper

business. In the present case, the respondent no.2 had disclosed in the

prospectus the ownership details based on the records maintained by RNI.

Since the office of RNI is the competent authority in relation to printing

and publishing newspapers in India, it was open to the respondent no.2 to

rely on facts recorded by the office of RNI.

8. It is neither the case of the appellant that the ownership details given

in the prospectus are contrary to the records maintained by the office of

RNI nor it is the case of the appellant that under the agreement of sale dated 11

13.3.1985 Writers did not have the right to publish 'Dainik Bhaskar'.

Therefore, the details given in the prospectus relating to ownership right of

publishing Dainik Bhaskar being true and in consonance with the details

available with RNI, the appellant is not justified in holding that non

disclosure of the agreement of sale dated 13.3.1985 amounts to suppressing

material facts in the prospectus.

9. As rightly observed in the impugned order, object of making

disclosures in the offer documents is to provide adequate information about

the issuer company, its business activities and any risk on the investment to

the investor by investing in the said company. Since the ownership details

relating to publishing Dainik Bhaskar were disclosed in the prospectus as

per the records maintained by RNI, in the facts of present case, it cannot be

said that any information relating to the ownership of publishing 'Dainik

Bhaskar' has been suppressed in the prospectus.

10. Material information required to be disclosed in the prospectus was

the name of the owner publishing 'Dainik Bhaskar'. Fact that Writers

under the agreement of sale dated 13.3.1985 had the ownership right to

publish 'Dainik Bhaskar' is not in dispute. Therefore, in the facts of

present case, since contents of the agreement of sale dated 13.3.1985 were

disclosed in the prospectus, it cannot be said that the said agreement of sale

was suppressed from the investors.

11. No doubt that there were disputes between the Agarwal family

members relating to the ownership of publishing 'Dainik Bhaskar'.

Although some of the said family members had entered into a compromise

memo on 29.6.1992 and the same was accepted by the M.P. High Court,

the Apex Court on 7.7.2003 had set aside the compromise memo, M.P. 12

High Court decision and all orders passed on the basis of the compromise

memo. It is relevant to note that the office of RNI had taken note of the

Apex Court decision dated 7.7.2003 and accordingly intimated to several

District Judges in Madhya Pradesh regarding the ownership of 'Dainik

Bhaskar' as on 29.6.1992 and after 29.6.1992 and the respondent no.2 had

disclosed the same in the prospectus. Thus, the prospectus disclosed the

status of the family disputes relating to the ownership of publishing 'Dainik

Bhaskar' even after the Apex Court decision dated 7.7.2003.

12. Apart from the above, since the ownership dispute continued even

after the Apex Court decision dated 7.7.2003, the respondent no.2 had also

disclosed in the prospectus as follows:-

"The ownership of the newspaper "Dainik Bhaskar" has been

challenged in the past and we cannot assure you that such

persons will not raise any similar or other disputes in future. In

the event such disputes are raised and subsequently determined

against our Company, the same could have an adverse impact

on our reputation and goodwill." and that "The title 'Dainik

Bhaskar' also vests with persons other than promoter group".

Such disclosures/statements were made under the head "Risk

Factors" in the Company's Prospectus."

Thus, in the facts of present case, since material facts relating to the

ownership of publishing 'Dainik Bhaskar' and the disputes relating thereto

as also the consequences of the said disputes were disclosed in the

prospectus, in our opinion, the appellant is not justified in contending that

non disclosure of agreement of sale dated 13.3.1985 amounts to

suppressing material facts in the prospectus.

13

13. Argument advanced on behalf of the appellant that the agreement of

sale dated 13.3.1985 was the nucleus of title for carrying on the business of

publishing 'Dainik Bhaskar' and therefore, the said agreement of sale ought

to have been disclosed in the prospectus is without any merit, because,

admittedly the nucleus of title, namely the ownership flowing from the said

agreement of sale deed was disclosed in the prospectus. In other words, the

nucleus of title which was the material fact was disclosed, but not the

document in which the nucleus of title was set out. In such a case, since

contents of agreement of sale dated 13.3.1985 were disclosed, the appellant

is not justified in contending that the agreement of sale dated 13.3.1985 has

been suppressed in the prospectus.

14. Strong reliance was placed by the counsel for appellant on the

decision of the Apex Court in case of S.S. Apparao (supra). In that case the

Apex Court has held that ownership of the press is to be decided by a Civil

Suit and not by way of a declaration made before RNI. In our opinion, that

decision has no bearing on the facts of present case, because, the

disclosures made in the prospectus were not for the purpose of establishing

title but to disclose the facts that existed on the date of issuing prospectus.

In fact, the disclosure made in the prospectus relating to the ownership right

of Writers to publish 'Dainik Bhakar' was the substance of the agreement

of sale dated 13.3.1985. Moreover, it is also disclosed in the prospectus

that disputes were raised in the past and could be raised in the future

relating to the ownership of publishing Dainik Bhaskar and if those

disputes are allowed it would adversely affect the reputation and goodwill

of respondent no.2. Thus the decision of the Apex Court in case of S.S.

Appa Rao (supra) is wholly distinguishable on facts. 14

15. Second argument of the appellant is that in view of the Apex Court

decision dated 7.7.2003, Civil Suit No.74A of 1987 filed by Writers

became an 'outstanding litigation' and therefore, that outstanding litigation

ought to have been disclosed in the prospectus. We see no merit in the

above contention. As rightly held by the WTM, Civil Suit No.74A of 1987

was dismissed as withdrawn in view of the application filed by Writers for

withdrawal of the suit and not on the basis of the compromise memo

approved by the M.P. High Court. Assuming that the said suit was

dismissed as withdrawn in view of the compromise memo, admittedly no

steps were taken for restoration of the suit even after the Apex Court set

aside the compromise memo on 7.7.2003. In such a case, it cannot be said

that Civil Suit No.74A of 1987 became an outstanding litigation after the

Apex Court decision dated 7.7.2003. Moreover, Dwarka Prasad Agarwal

who was defendant in Suit No.74A of 1987 had died on 19.7.1993 and

admittedly his legal heirs were not been brought on record. Thus, on the

date on which the prospectus was issued, admittedly Suit No.74A of 1987

was not a pending litigation and therefore argument of the appellant that

Civil suit no. 74A of 1987 was an outstanding litigation and failure to

disclose the same in the prospectus amounts to suppressing material facts in

the prospectus cannot be accepted.

16. Third argument of the appellant is that the respondent no.2 had made

false statement in the prospectus that under the scheme of demerger

approved by the Gujarat High Court they had also acquired the wind farm

business, because, neither in the order dated 10.10.2006 nor in the order

dated 22.10.2006 the Gujarat High Court had recorded that the wind farm

business had also been transferred to the respondent no.2. We see no merit 15

in the above contention, because, clause 1.9 of the scheme of arrangement

approved by the Gujarat High Court defines the expression 'publishing

business' thereunder would include the wind farm business. Fact that

clause 1.9 of the scheme of arrangement was not reproduced in the

prospectus would not falsify the fact that wind farm business was

transferred to the respondent no.2. Moreover, factually the respondent no.2

is carrying on wind farm business is not in dispute. In such a case,

argument of the appellant that the respondent no.2 had made a false

statement in the prospectus regarding the wind farm business cannot be

accepted.

17. Last argument of the appellant is that the respondent no.2 is guilty of

suppressing the scheme of demerger in the prospectus by failing to produce

the same before SEBI for inspection as required under the ICDR

Regulations. We see no merit in the above contention, because, fact that

the respondent no.2 had been publishing 'Dainik Bhaskar' pursuant to the

demerger approved by Gujarat High Court on 10.10.2006 is not in dispute.

Since that fact was disclosed in the prospectus, fact that the scheme of

demerger and the Gujarat High Court order approving the demerger were

not made available for inspection cannot be a ground to hold that the

scheme of demerger was suppressed in the prospectus. It is equally

important to note that all the above grievances relating to the prospectus

issued in the year 2009 are made in the year 2015 not by any investor who

had invested in the shares of respondent no.2 but by the appellant who

claims to have acquired certain rights in the year 2010. In such a case,

proper course for the appellant is to seek remedy through Civil Court and

not by filing complaint before SEBI.

16

18. For all the aforesaid reasons we see no merit in the appeal and the

same is hereby dismissed with no order as to costs.

Sd/-

Justice J. P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G.Nair Member

20.12.2017 Prepared and compared by RHN