2003 (8) TMI 362 - HC - Companies Law

Summary

Issues Involved:
1. Jurisdiction of SEBI over the matter.
2. Allegations of fraudulent and unfair trade practices.
3. Allegations of insider trading.
4. Applicability of lifting the corporate veil.
5. Adequacy and fairness of the offer made by Sesa Goa.

Detailed Analysis:

Jurisdiction of SEBI:
The petitioners, shareholders of Sesa Goa Limited, sought relief against the first respondent, SEBI, under Article 226 of the Constitution of India. They alleged that Sesa Goa and its subsidiary, Sesa Industries Limited, engaged in fraudulent practices. SEBI contended that it had no jurisdiction as Sesa Industries was not listed and had not applied for listing on any recognized stock exchange, thus falling outside SEBI's purview as per Section 55A of the Companies Act. The court found merit in SEBI's argument, noting that SEBI's jurisdiction extends only to listed companies or those intending to list, which was not the case with Sesa Industries.

Allegations of Fraudulent and Unfair Trade Practices:
The petitioners claimed that Sesa Goa and Sesa Industries deceived investors by misrepresenting their intentions to list Sesa Industries' shares. They argued that the companies acted fraudulently by collecting public money without intending to list the shares. SEBI maintained that it lacked jurisdiction, and the court agreed, suggesting that the petitioners could seek redress from the Central Government under Section 55A(c) of the Companies Act. The court also noted that the petitioners had already approached the Central Government for investigation.

Allegations of Insider Trading:
The petitioners alleged insider trading, claiming that the commonality of directors between Sesa Goa and Sesa Industries led to the misuse of price-sensitive information. They argued that the directors did not disclose this information to shareholders, constituting insider trading. However, the court did not find sufficient grounds to interfere with SEBI's opinion, which held that without an application for listing, SEBI had no jurisdiction over the matter.

Applicability of Lifting the Corporate Veil:
The petitioners sought to lift the corporate veil, arguing that Sesa Goa and Sesa Industries were essentially one entity and should be treated as such. They cited the Supreme Court judgment in State of U.P. v. Renusagar Power Co. to support their claim. However, the court did not delve into this aspect, given its decision on SEBI's jurisdiction and the availability of alternative remedies through the Central Government.

Adequacy and Fairness of the Offer Made by Sesa Goa:
The petitioners contended that Sesa Goa's offer to buy back shares of Sesa Industries at Rs. 30 per share was inadequate and unfair, suggesting a minimum price of Rs. 57 per share. They argued that the offer was made in bad faith. The court referred to a previous writ petition (No. 1280 of 1999) with similar grievances, which was dismissed. The court reiterated that the offer was voluntary, and shareholders were not compelled to accept it. The court emphasized that the petitioners could reject the offer if they found it unsatisfactory.

Conclusion:
The court dismissed the writ petition, concluding that SEBI had no jurisdiction over the matter as Sesa Industries was not a listed company and had not applied for listing. The petitioners were advised to seek redress from the Central Government. The court also noted that the offer made by Sesa Goa was voluntary and shareholders were free to accept or reject it. The petitioners' allegations of fraudulent practices and insider trading were not addressed in detail, as the court found no grounds to interfere with SEBI's opinion.