2019 (10) TMI 112 - AT - SEBI

Related party transactions - Sale of assets of the Company - additional transactions without PB Notice - as submitted Company had sought shareholders approval through special resolution inter alia regarding the sale of assets of the Company - As submitted that since Respondent no.17 JMF ARC has acquired 26% of the equity of Respondent no.2 Company against the provisions of the Takeover Regulations, 2011 it should have been prohibited by the Respondent no.1 SEBI from participating in the voting under the provisions of Regulation 32 of the Takeover Regulations - HELD THAT - During the pendency of the appeal, in view of the directions of Respondent no.1 SEBI in the impugned order, Respondent Company had issued fresh PB Notice adding the explanatory note further explaining the additional transactions. We were told at the Bar that the process of voting is complete and the date of declaration of the result was scheduled as 18th September, 2019. Therefore, vide order dated 13th September, 2019 we directed Respondent no.2 Company not to declare the results of the postal ballot in question till we deliver the judgement. In view of the dismissal of Appeal no.357 of 2019 the interim order will have to be vacated. Hence the following order. In the result, Appeal filed by ITC Ltd. fails while Appeal filed by JMF ARC is allowed. The interim order dated is hereby vacated.

Summary

Issues Involved:
1. Alleged related party transactions involving promoters and directors.
2. Technical breach of Takeover Regulations by J.M. Financial Asset Reconstruction Co. Ltd. (JMF ARC).
3. Voting rights of promoters, directors, and JMF ARC in the approval of the proposed sale transactions.

Detailed Analysis:

1. Alleged Related Party Transactions Involving Promoters and Directors:
The appellant ITC Ltd. contended that the proposed sale transactions of Hotel Leelaventures Ltd. (the Company) with Brookfield, including additional transactions with promoters and directors, should be considered related party transactions. ITC argued that these transactions are composite and interdependent, thus, related parties should not vote on these resolutions.

SEBI, after reviewing the case, concluded that only one transaction related to the intellectual property assignment of the trademark 'Jamavar' could be considered a related party transaction. SEBI directed that this transaction should be excluded from the vote if it is material per relevant regulations. For other transactions, SEBI mandated a fresh Postal Ballot Notice (PB Notice) with specific disclosures.

The tribunal held that the transactions between the Company and Brookfield, and between Brookfield and the promoters, do not qualify as related party transactions under Regulation 23 of the LODR Regulations. The tribunal emphasized that the language of the provisions is clear and does not require interpretation to include transactions where directors have an interest. Thus, the promoters and directors are not precluded from voting.

2. Technical Breach of Takeover Regulations by JMF ARC:
ITC Ltd. argued that JMF ARC's acquisition of 26% equity in the Company violated the Takeover Regulations, and SEBI should have barred JMF ARC from voting. SEBI acknowledged a technical breach but deemed it fit for exemption.

The tribunal examined Regulation 10(1)(i) of the Takeover Regulations, which provides exemptions for acquisitions under the Strategic Debt Restructuring Scheme. The tribunal found that the conversion of debt into equity by JMF ARC was in line with the Corporate Debt Restructuring (CDR) scheme and thus exempt from the open offer requirements. The tribunal concluded that there was no breach, technical or otherwise, of the Takeover Regulations by JMF ARC.

3. Voting Rights of Promoters, Directors, and JMF ARC:
ITC Ltd. sought to restrict the voting rights of the promoters, directors, and JMF ARC on the proposed sale transactions, arguing that they are related parties and stand to gain from the transactions.

The tribunal concluded that since the transactions are not related party transactions as per the LODR Regulations, the promoters, directors, and JMF ARC are not restricted from voting. The tribunal dismissed ITC Ltd.'s appeal and allowed JMF ARC's appeal, thereby permitting them to vote on the resolutions.

Conclusion:
- The tribunal dismissed ITC Ltd.'s appeal, allowing the promoters, directors, and JMF ARC to vote on the proposed sale transactions.
- The tribunal allowed JMF ARC's appeal, finding no breach of the Takeover Regulations.
- The tribunal vacated the interim order preventing the declaration of the postal ballot results.

This comprehensive analysis ensures that the shareholders are provided with sufficient information to make an informed decision, aligning with the regulatory framework and protecting the interests of all parties involved.