Victor Fernandes And Anr. vs Sebi

Date of order reserved: 18/04/2018 Date of Decision: 22/06/2018

Appeal No.42 of 2017

1.

Victor Fernandes

B-604, Gill-Haze Apartments,

Lourdes Colony, Orlem,

Malad (West), Mumbai - 400 064.

2. Sangeeta Fernandes

B-604, Gill-Haze Apartments,

Lourdes Colony, Orlem,

Malad (West), Mumbai - 400 064. ... Appellants

Versus

1. Securities and Exchange Board of India

SEBI Bhavan, C-4A, G-Block,

Bandra Kurla Complex, Bandra (E),

Mumbai - 400 051.

2. National Stock Exchange of India Limited

Exchange Plaza, C-1, G-Block,

Bandra Kurla Complex, Bandra (E),

Mumbai - 400 051.

3. Reliance Industries Limited

3rd Floor, Maker Chamber IV,

222, Nariman Point, Mumbai - 400 021. ...Respondents 2

Mr. Victor Fernandes and Mrs. Sangeeta Fernandes, Appellants in person.

Mr. Fredun DeVitre, Senior Advocate a/w Mr. Mihir Mody and Mr. Nishant Upadhyay, Advocates i/b K. Ashar & Co for Respondent No.1.

Mr. Rashid Boatwalla a/w Ms. Rashi Agarwal, Advocates i/b MKA & Co. for Respondent No.2.

Mr. Janak Dwarkadas, Senior Advocate a/w Mr. Rohan Rajadhyaksha, Mr. Vivek Shetty and Ms. Tanvi Dattani, Advocates i/b AZB & Partners for Respondent No.3.

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

Per : Justice J.P. Devadhar

1. Where a complaint filed before the Securities and Exchange

Board of India ("SEBI", for short) alleges that a listed company has

violated Clause 36 of the Listing Agreement by failing to disclose that it

has acquired indirect control over another listed company through a

Trust established exclusively for its benefit, then, whether SEBI is

justified in disposing of that complaint by merely recording that the

Trust is not a subsidiary of the listed company and hence no disclosures

were required to be made under Clause 36 of the Listing Agreement, is

the basic question raised in this appeal.

2. Specific case of the appellants in the complaint filed before SEBI

was that Reliance Industries Ltd. (RIL) a listed company had failed to

disclose that it had acquired indirect control over Network 18 Media &

Investments Ltd. (NW18) and TV 18 Broadcast Ltd. (TV18) through

Independent Media Trust (IMT), a Trust established on 22/11/2011 for 3

the exclusive benefit of RIL. The complaint was based on the

agreements entered into by IMT with other entities, namely, Single Unit

Agreement (SUA) dated 23/11/2011 and the Investment Agreement

dated 27/2/2012 ('ZOCD Agreement' for convenience). Apart from the

above, reliance was also placed on the decision of the Competition

Commission of India dated 28/5/2012 wherein it was specifically held

that subscribing to the Zero Coupon, Optionally & Fully Convertible

Debentures (ZOCDs) by IMT under the ZOCD Agreement dated

27/2/2012 amounts to acquiring indirect control over NW18 & TV18.

3. However, without considering merits of the complaint which

alleged serious violation of securities laws, SEBI has issued the

impugned communication dated 9/1/2017 whereby the complaint has

been disposed of on the basis of a wholly unsustainable ground that

IMT was not a subsidiary of RIL and therefore RIL was not required to

make disclosures under Clause 36 of the Listing Agreement. In our

opinion, Clause 36 of the Listing Agreement mandates that when a

listed company acquires indirect control over another listed company

either through a Trust or through any other entity, then, such

acquisition has to be disclosed to the stock exchanges. In the ordinary

course, we would have set aside the impugned decision which is not

only erroneous and detrimental to the interests of investors in the

securities market but also in effect defeats the object with which the

disclosure obligations were mandated under Clause 36 of the Listing 4

Agreement and restore the issue for fresh decision on merits and in

accordance with law.

4. However, respondents have raised a preliminary issue regarding

the maintainability of the appeal and further submitted that similar

complaint filed by the appellants alleging that RIL had acquired

indirect control over NW18 & TV18 through IMT under the SUA dated

23/11/2011 and ZOCD Agreement dated 27/2/2012 has already been

rejected in the past and therefore, in view of the principles of res

judicata, it is not open to the appellants to re-agitate that issue once

again.

Preliminary issue:

5. By way of a preliminary objection, Counsel for respondents

submit that any decision/order passed by SEBI on the SCORES platform

is an administrative decision/order under section 11(1) of SEBI Act and

hence appeal against such administrative decision is beyond the

appellate jurisdiction of this Tribunal. In support of the above

contention, reliance is placed on the Apex Court decision in case of

NSDL vs. SEBI reported in (2017) 5 SCC 517.

6. We see no merit in the above contention, because, in the present

case, nature of the complaint filed by the appellants required SEBI to

consider the scope and ambit of Clause 36 of the Listing Agreement

judicially and determine the extent to which the rights of the appellants 5

as shareholders of NW18 were prejudicially affected by the impugned

violations. In fact, by construing Clause 36 of the Listing Agreement,

SEBI has declined to entertain the complaint filed by the appellants,

solely on ground that IMT was not a subsidiary of RIL and therefore, no

disclosures were required to be made by RIL under Clause 36 of the

Listing Agreement. In these circumstances, the impugned decision

which vitally affects the rights and obligations of the appellants as

shareholders of NW18 would be a quasi judicial decision and not an

administrative decision. Accordingly, argument of the respondents

that the impugned decision of SEBI on the SCORES platform is

administrative in nature and hence appeal against that decision is not

maintainable before this Tribunal, cannot be accepted.

7. Reliance placed by the respondents on the Apex Court decision

in case of NSDL (supra) is misplaced. In that case, general

administrative circular issued by SEBI was challenged before this

Tribunal, whereas, in the present case, appellants have challenged the

quasi judicial decision of SEBI by which the complaint filed by the

appellants has been disposed of by misinterpreting Clause 36 of the

Listing Agreement. Clause 36 of the Listing Agreement could not be

interpreted administratively and had to be interpreted judicially as that

decision had direct civil consequences on the rights and obligations of

the shareholders. In fact, the parameters prescribed by the Apex Court

for considering an order to be a quasi judicial order viz. (a) there must

be a legal authority, (b) authority must be to determine questions 6

affecting the rights of the citizens, and (c) there must be a duty to act

judicially are squarely applicable to the facts of present case. In other

words, decision of the Apex Court in case of NSDL (supra) in fact

supports the case of the appellants. For all the aforesaid reasons, we

hold that the preliminary objection raised by the respondents regarding

the maintainability of the present appeal before this Tribunal is without

any merit and accordingly reject the preliminary objection raised by the

respondents.

Principles of res judicata:

8. Before considering the plea of the respondents that the question

as to whether RIL had acquired indirect control over NW18 through

IMT by subscribing to the ZOCDs under the ZOCD Agreement has

already been decided by SEBI in another complaint filed by the

appellants, it would be appropriate to note the following relevant facts:-

(a) On 22/11/2011 a Deed of Trust was executed under which

IMT was established as a Trust with Nirlab Consultancy

Pvt. Ltd. (controlled by Mr. Raghav Bahl) as a Trustee and

RIL as the sole beneficiary. Thus, IMT was

floated/established on 22/11/2011 for the exclusive benefit

of RIL.

(b) On 23/11/2011 IMT (through Mr. Raghav Bahl) entered into

a Single Unit Agreement (SUA) with six entities controlled

by Mr. Raghav Bahl and NW18 which was also 7

represented by Mr. Raghav Bahl. Thus the SUA was signed

by Mr. Raghav Bahl on behalf of all parties to the SUA. As

per the SUA, the parties thereto were to act as largest

Indian Shareholders of NW18.

(c) On 27/2/2012 investment agreement ('ZOCD Agreement'

for convenience) was entered into by and between six

private limited companies owned and controlled by Mr.

Raghav Bahl ('holding companies' for convenience), IMT

and Mr. Raghav Bahl and his wife in their individual

capacity. Under the ZOCD Agreement, IMT was to invest

funds (received from RIL) by subscribing to the ZOCDs of

the holding companies and the holding companies were

obliged to utilize ZOCD subscription amount for

subscribing to the rights issue of NW18 & TV18. The

ZOCD Agreement records that the holding companies

have been declared as promoters of NW18 & TV18. It is

equally interesting to note that like the SUA dated

23/11/2011, even the ZOCD Agreement was signed by Mr.

Rahgav Bahl as authorized representative of all the parties

to the ZOCD Agreement except his wife who has signed on

her own behalf. Thus, Mr. Raghav Bahl and his wife were

the only signatories to the ZOCD Agreement under which

IMT could exercise indirect control over NW18 at any time

IMT deemed it fit and proper.

8

(d) On 28/5/2012, the Competition Commission of India passed

an order wherein it is specifically held that by subscribing

to the ZOCDs under the ZOCD Agreement dated

27/2/2012, IMT would acquire control over the holding

companies and consequently acquire indirect control over

NW18 & TV18, however, such acquisition of indirect

control would not violate the provisions contained in the

Competition Act, 2002.

(e) On 24/3/2014 appellants filed a complaint before the

National Stock Exchange of India Ltd. (NSE) alleging that

RIL failed to disclose that it had acquired indirect control

over NW18 & TV18 through IMT and thereby violated

Clause 36 of the Listing Agreement. In support of the

above, appellants relied on SUA dated 23/11/2011, ZOCD

Agreement dated 27/2/2012 and the order of the

Competition Commission of India on 28/5/2012. The said

complaint remained pending before NSE for a long period

of time.

(f) In the meantime, on 29/5/2014, a Share Purchase

Agreement (SPA) was entered into by and between the

parties named therein. As per the SPA, IMT was to acquire

100% shares of the holding companies and another private

company controlled by Mr. Raghav Bahl and his wife. As

the said acquisition triggered open offer obligation under 9

the Takeover Regulations, 2011, IMT along with RIL and

entities who were 'persons acting in concert' with it (RIL

group) made public announcement on 29/5/2014 and

thereafter submitted a 'Draft letter of offer' seeking

approval of SEBI for acquisition of NW18 shares quantified

therein @ Rs.41.04/- per share as offer price from the

shareholders of NW18.

(g) On 25/6/2014 appellants filed a complaint before SEBI in

relation to the open offer made by IMT/RIL group. In that

complaint apart from requesting SEBI to direct RIL group

to revise the open offer price from Rs.41.04 per share to

Rs.5,68,430.32 per share, it was also alleged that RIL had

failed to disclose that it had acquired indirect control over

NW18 through IMT and thus violated Clause 36 of the

Listing Agreement.

(h) Without disposing of the said complaint, by a

communication dated 17/11/2014 SEBI gave its approval

for acquisition of shares of NW18 by the RIL group @

Rs.41.04 per share subject to compliance of certain

conditions set out therein.

(i) Accordingly, on compliance of the said conditions, public

offer process commenced and completed on 26/12/2014.

(j) On 29/12/2014 appellants filed Appeal No.55 of 2015 before

this Tribunal, inter alia, challenging the open offer price 10

approved by SEBI at Rs.41.04 per share instead of

approving the open offer price of Rs.5,68,430.32 per share

claimed by the appellants.

(k) During the pendency of the said appeal, by a

communication dated 9/2/2015 SEBI rejected the complaint

filed by the appellants on 25/6/2014. By that

communication, plea of the appellants that RIL had

indirectly acquired control over NW18 through IMT under

the SUA/ZOCD Agreement was rejected.

(l) Without challenging the said decision dated 9/2/2015 either

by amending Appeal No.55 of 2015 or by filing

independent appeal, appellants wanted to agitate in

Appeal No.55 of 2015 the issues determined by SEBI in its

communication dated 9/2/2015. This Tribunal declined to

consider any of the issues determined by SEBI in its

communication dated 9/2/2015 and proceeded to consider

the sole question raised in Appeal No.55 of 2015 relating to

the approval given by SEBI to the open offer price at

Rs.41.04 per share.

(m) However, while considering the approval given by SEBI to

the open offer price of NW18, it was noticed that the open

offer price was based on the clauses contained in the

ZOCD Agreement dated 27/2/2012. Accordingly, this

Tribunal perused the clauses contained in the ZOCD 11

Agreement and arrived at a prima facie conclusion that on

execution of the ZOCD Agreement, control over NW18

indirectly stood divested in favour of IMT. It was also

noticed by this Tribunal that SEBI had issued the

communication dated 9/2/2015 without considering the

clauses contained in the ZOCD Agreement. In these

circumstances, irrespective of the fact that the appellants

had not challenged the decision of SEBI dated 9/2/2015, this

Tribunal in the order passed in Appeal No.55 of 2015 on

13/4/2016 deemed it fit, in public interest, to direct SEBI to

reinvestigate the issue relating to acquisition of indirect

control over NW18 by IMT by subscribing to the ZOCDs

under the ZOCD Agreement and submit a report in that

behalf. It is not in dispute that Civil Appeal No.311 of 2017

filed by the appellants against the decision of this Tribunal

passed in Appeal no.55 of 2015 on 13/4/2016 has been

dismissed by the Apex Court on 27/3/2017.

(n) As per the order of this Tribunal dated 13/4/2016 SEBI

conducted reinvestigation and submitted a report in the

form of an affidavit dated 10/10/2016 to the effect that

control over NW18 was not divested on execution of the

ZOCD Agreement dated 27/2/2012. Although appellants

sought to challenge the said report of SEBI contained in the

affidavit dated 10/10/2016 by filing a praecipe in the 12

disposed of Appeal No.55 of 2015, this Tribunal by an

order dated 22/11/2016 declined to entertain the plea of the

appellants basically on ground that the affidavit filed by

SEBI on 10/10/2016 in implementation of the directions

given by this Tribunal on 13/4/2016 could not be agitated in

the disposed of appeal.

(o) In the meantime on 6/9/2016 appellants had forwarded

their complaint dated 24/3/2014 filed before NSE to SEBI

alleging that NSE has failed to consider their complaint

that RIL had violated Clause 36 of the Listing Agreement

by failing to disclose acquisition of indirect control over

NW18 through IMT by executing SUA dated 23/11/2011

and ZOCD Agreement dated 27/2/2012.

(p) By the impugned communication dated 9/1/2017, SEBI has

rejected the said complaint dated 24/3/2014 forwarded to

SEBI on 6/9/2016 by simply recording that IMT was not a

subsidiary of RIL and therefore no disclosures were

required to be made under Clause 36 of the Listing

Agreement. Challenging the said communication, present

appeal is filed.

9. With these background facts, we may now consider the plea of

the respondents that the issue relating to acquisition of indirect control

over NW18 by RIL through IMT has already been decided against the 13

appellants and hence the said plea cannot be agitated again on the

principles of res judicata.

10. Arguments advanced by Counsel for respondents that the

question as to whether RIL had acquired indirect control over NW18

through IMT under the ZOCD Agreement has already been decided

maybe summarized thus:-

(a) Complaint filed by the appellants before SEBI on 25/6/2014

alleging that RIL had violated Clause 36 of the Listing

Agreement by failing to disclose that it had acquired

indirect control over NW18 through IMT was rejected by

SEBI on 9/2/2015 and that decision has not been challenged

by the appellants and hence the said decision of SEBI dated

9/2/2015 has attained finality.

(b) In the order passed in Appeal No.55 of 2015 on 13/4/2016

this Tribunal has specifically held that the appellants

without amending Appeal No.55 of 2015 to challenge the

decision of SEBI dated 9/2/2015 cannot advance arguments

against the said decision of SEBI dated 9/2/2015. Therefore,

the appellants who are guilty of not challenging the

decision of SEBI dated 9/2/2015 cannot seek to re-agitate

the very same issue by filing the present appeal.

(c) Admittedly, appeal filed by the appellants against the

decision of this Tribunal dated 13/4/2016 has been

dismissed by the Apex Court on 27/3/2017. Thus the 14

decision of this Tribunal that the appellants cannot agitate

the issues covered under the decision of SEBI dated

9/2/2015 has attained finality and therefore, the appellants

cannot re-agitate the very same issue by filing the present

appeal.

(d) It is only on execution of a share purchase agreement on

29/5/2014, RIL acquired indirect control over NW18

through IMT and accordingly all requisite steps have been

taken in that behalf. In these circumstances, appellants at

this belated stage cannot be permitted to re-agitate the very

same issue once again by filing the present appeal.

(e) Assuming while denying that the appellants have made

out a case for interference by this Tribunal, it is submitted

that none of the reliefs sought in the appeal can be granted

as they are not in the interests of investors.

11. We see no merit in the above arguments advanced on behalf of

the respondents.

12. At the outset, it is relevant to note that by the impugned decision

dated 9/1/2017 SEBI has not rejected the complaint filed by the

appellants on the ground that the issues raised therein are covered by

its earlier decision dated 9/2/2015, but has rejected the complaint on the

wholly unsustainable ground that since IMT was not a subsidiary of

RIL, no disclosures were required to be made by RIL under Clause 36 of 15

the Listing Agreement. Sustaining such patently erroneous decision of

SEBI would be detrimental to the interests of investors in the securities

market and would encourage listed companies to acquire indirect

control over other companies through a Trust or some other entity

without making disclosures under Clause 36 of the Listing Agreement.

13. Question, however, to be considered herein is, while setting aside

the impugned decision dated 9/1/2017, would it be proper to remand

the issue for fresh decision especially when, SEBI by its decision dated

9/2/2015 has decided the very same issue and the appellants have not

challenged that decision.

14. As noted earlier, while considering the sole issue of open offer

price of NW18 raised in Appeal No.55 of 2015 which was determined

by IMT, inter alia, on the basis of ZOCD Agreement, this Tribunal on

perusal of the clauses contained in the ZOCD Agreement, observed in

the order dated 13/4/2016 that SEBI in its decision dated 9/2/2015 has

failed to consider the clauses contained in the ZOCD Agreement and,

accordingly, in public interest directed SEBI to reconsider the issue

relating to acquisition of indirect control over NW18 by IMT under the

ZOCD Agreement. In such a case, it cannot be said that the decision of

SEBI dated 9/2/2015 has attained finality.

15. No doubt that SEBI as per the directions given by this Tribunal

on 13/4/2016 has reconsidered the issue and by an affidavit dated

10/10/2016 submitted a report stating that even on re-examination SEBI 16

finds that there was no divesting of control over NW18 in favour of

IMT on account of subscribing to the ZOCDs under the ZOCD

Agreement. It is not in dispute that on re-examination of the issue,

SEBI has not passed any fresh order/decision but only submitted a

report by way of an affidavit.

16. From the aforesaid facts, it is clear that in view of the decision of

this Tribunal dated 13/4/2016 in Appeal No.55 of 2015, it cannot be said

that the decision of SEBI dated 9/2/2015 has attained finality. On the

contrary, pursuant to the directions given by this Tribunal, in public

interest, on 13/4/2016, it was obligatory on part of SEBI to reconsider the

issue decided on 9/2/2015. Admittedly, after reconsidering the issue,

SEBI has not passed any quasi judicial order but has only filed an

affidavit on the issue raised by the appellants. In these circumstances,

while setting aside the impugned decision of SEBI dated 9/1/2017, we

deem it proper to direct SEBI to decide afresh the question as to

whether RIL violated Clause 36 of the Listing Agreement by failing to

disclose that it had acquired indirect control over NW18 through IMT

by subscribing to the ZOCDs under the ZOCD Agreement.

17. In the result, we pass the following order:-

(a) Impugned decision of SEBI dated 9/1/2017, which

interprets Clause 36 of the Listing Agreement, is a quasi

judicial decision and not an administrative decision, hence

that decision could be challenged before this Tribunal. 17

Accordingly, the preliminary objection raised by the

respondents that the appeal is not maintainable before this

Tribunal, cannot be sustained.

(b) Without considering merits of the allegations made in the

complaint that RIL had violated Clause 36 of the Listing

Agreement by failing to disclose that it had acquired

indirect control over NW18 through IMT, SEBI could not

have rejected the complaint filed by the appellants by

misinterpreting Clause 36 of the Listing Agreement and

holding that IMT was not a subsidiary of RIL, and hence

no disclosures were required to be made under Clause 36

of the Listing Agreement. Accordingly, the impugned

decision which is patently erroneous and contrary to the

spirit of Clause 36 of the Listing Agreement, is quashed

and set aside.

(c) Argument that by its decision dated 9/2/2015 SEBI has

already held that there was no divestment of control over

NW18 on execution of ZOCD Agreement is without any

merit, because, in the order passed in Appeal No.55 of 2015

on 13/4/2016 this Tribunal has held that SEBI in its decision

dated 9/2/2015 has failed to consider the clauses contained

in the ZOCD Agreement and accordingly, in public

interest, directed SEBI to reconsider the issue afresh.

Admittedly, on reconsideration of the issue SEBI has not 18

passed any quasi judicial order but only submitted a report

to this Tribunal in the form of an affidavit. In these

circumstances, while setting aside the impugned decision

dated 9/1/2017, we direct SEBI to decide afresh the question

as to whether on execution of ZOCD Agreement dated

27/2/2012 RIL acquired indirect control over NW18

through IMT and failed to disclose the same in violation of

Clause 36 of the Listing Agreement.

(d) We make it clear that our prima facie view that by

subscribing to the ZOCDs under the ZOCD Agreement

dated 27/2/2012 RIL acquired indirect control over NW18

through IMT is not binding on SEBI and SEBI is directed to

reconsider the issue independently without being

influenced by the prima facie observations made by this

Tribunal in that behalf.

(e) However, if SEBI, is not agreeable to the view taken by the

Competition Commission of India on 28/5/2012 that by

subscribing to the ZOCDs under the ZOCD Agreement

dated 27/2/2012, IMT acquired indirect control over NW18,

then, SEBI shall record its reasons for taking a contrary

view.

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18. Appeal is disposed of in the aforesaid terms with no order as to

costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 22/06/2018 prepared & compared by-dg