2006 (10) TMI 244 - HC - Companies Law

Compromise and arrangement - sanction of the scheme - challenging the order of the Bombay Stock Exchange - direct the stock exchange to list the shares - whether the no objection from the stock exchange is to be treated as a mandatory requirement - HELD THAT - The listing agreement requiring placing of the scheme before the exchange and a requirement that the arrangement is not contrary to the securities law show that given the authority to the exchanges under the Securities Contracts (Regulation) Act and the Securities and Exchange Board of India Act, 1992 the undertaking given as per the listing agreement needs to be given its due weightage, that, should there be any claim from a company for listing contrary to the provisions of the SEBI Act, the question of insisting on recognition under the protective umbrella of the approval order does not arise. Now, coming to the reference from the SEBI as regards the direction to the Bombay Stock Exchange to grant its approval, it must be noted that it is not a blanket direction, but an approval to be granted subject to its bye-laws and if the Bombay Stock Exchange finds that the terms of arrangement are contrary to its regulations or the requirement under the listing agreement the same has to be tested in a manner known to law and as provided under the Securities and Exchange Board of India Act. It may also be noted that the Bombay Stock Exchange, apart from referring to the non-satisfaction of the listing requirement, had also pointed out to the conduct of the transferor company, namely, Pentamedia Graphics Ltd., as regards issuance of fake certificates in the market. In the background of this and the view on writing off of assets to a huge sum, it is better the question as to the satisfaction of the listing agreement and the correctness of the order of this court is left to the expert body, viz ., Bombay Stock Exchange, and the appellate forum, if the applicant so chooses to test the correctness of the same. In the light of the view that I have taken, I do not accept the plea of the applicants. I accept the objections raised by the Bombay Stock Exchange. The question is what would be the effect of the order of this court granting approval. It must be noted that the Act provides for an appeal against the order of the Bombay Stock Exchange before the Appellate Tribunal. In the face of such an expert body to deal with the matters relating to the views expressed, it is but proper that the applicants seek their remedy by way of appeal before the Appellate Tribunal. Until such time, the listing cannot take place as regards Mayajaal Entertainment Ltd., or on the question of allotment of shares to the shareholders of Pentamedia Graphics Ltd. The approval granted to the scheme cannot stand in the way of the stock exchange considering the compliance of the listing agreement. In the view that I have taken, subject to the result in the appeal before the Appellate Tribunal the clause in the scheme as regards listing has to await the outcome of proceedings. In the face of section 392(1)( b ), the applicants herein are directed to exhaust their appeal remedy to satisfy the listing agreement, particularly sub-clause ( g ) so that clause 34 of the scheme breathes life. In the circumstances, the applications are dismissed reserving the liberty to the applicants to move the Tribunal if they so choose. Until then, clause 34 in the approved scheme cannot be enforced by reason of the order of this court dated November 8, 2004. There will, however, be no order as to costs.

Issues Involved:
1. Validity of the refusal by the Bombay Stock Exchange to list the shares of Mayajaal Entertainment Ltd.
2. Compliance with the requirements of the Companies Act, SEBI regulations, and Stock Exchange bye-laws.
3. Jurisdiction and role of the Court in sanctioning the Scheme of Amalgamation.
4. Impact of the Stock Exchange's refusal on the approved Scheme of Amalgamation.

Issue-wise Detailed Analysis:

1. Validity of the refusal by the Bombay Stock Exchange to list the shares of Mayajaal Entertainment Ltd.:
The applicants challenged the Bombay Stock Exchange's refusal to list the shares of Mayajaal Entertainment Ltd. despite the Scheme of Amalgamation being approved by the Court. The Bombay Stock Exchange's refusal was based on alleged non-compliance with its bye-laws and regulations, particularly Clause 24(f) of the Listing Agreement, which requires prior approval from the Stock Exchange before presenting the Scheme to the Court. The Stock Exchange also cited concerns about the company's financial mismanagement and the issuance of fake share certificates by Pentamedia Graphics Ltd.

2. Compliance with the requirements of the Companies Act, SEBI regulations, and Stock Exchange bye-laws:
The Court examined the compliance of the Scheme with the Companies Act, SEBI regulations, and Stock Exchange bye-laws. It was noted that while the Madras Stock Exchange had issued a No Objection letter, the Bombay Stock Exchange had not. The Court emphasized the importance of compliance with Clause 24(f) and 24(g) of the Listing Agreement, which mandate that the Scheme should not violate securities laws or Stock Exchange requirements. The Stock Exchange's role as a regulatory body was highlighted, and its authority to reject the listing application if it found violations of securities laws was upheld.

3. Jurisdiction and role of the Court in sanctioning the Scheme of Amalgamation:
The Court's jurisdiction in sanctioning the Scheme of Amalgamation was discussed. It was stated that the Court's role is supervisory, ensuring that the procedural requirements of the Companies Act are met and that the Scheme is not violative of any law or public policy. The Court does not delve into the commercial wisdom of the Scheme but ensures compliance with statutory procedures. The Court noted that the absence of a No Objection from the Stock Exchange does not invalidate the Scheme but highlighted the importance of Stock Exchange regulations in protecting public interest.

4. Impact of the Stock Exchange's refusal on the approved Scheme of Amalgamation:
The Court acknowledged that the refusal of the Bombay Stock Exchange to list the shares impacts the implementation of the Scheme. It was noted that the approval of the Scheme by the Court does not override the regulatory authority of the Stock Exchange. The Court directed the applicants to exhaust their appeal remedy before the Securities Appellate Tribunal to resolve the issue. The clause in the Scheme regarding listing was held to be unenforceable until the appeal process is completed, emphasizing the need for compliance with the Listing Agreement and securities laws.

Conclusion:
The applications were dismissed, and the applicants were directed to seek remedy through the appellate process. The Court upheld the regulatory authority of the Bombay Stock Exchange and emphasized the importance of compliance with securities laws and Stock Exchange bye-laws in the listing process. The approved Scheme of Amalgamation remains subject to the outcome of the appeal before the Securities Appellate Tribunal.

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