2020 (2) TMI 105 - AT - SEBI

Non-listing of an Exclusively Listed Company ( ELC for convenience) namely Schneider Electric President Systems Ltd. ( Schneider for convenience) and valuation of its shares - HELD THAT - Listing is the first option and only in the event of failing to get listed an exit option should be adopted. Further, the guidelines relating to the exit option as provided under the October 10, 2016 Circular at 'Annexure A' lists a number of obligations cast upon the designated stock exchanges as well as on the management of the company to discharge. Nothing on record has been brought before us whether all these steps have been followed or monitored by the concerned stock exchange. What is produced on record by one of the respondents (Metropolitan Stock Exchange of India Limited) is that the appellant-company had never approached them with a request for listing. Moreover, the appellants contention that the company was eligible to be listed in BSE Limited is not even disputed by any of the respondents except by the company. Investor protection being one of the basic mandates of SEBI, we are of the considered opinion that issues relating to continued listing, exit and valuation of shares of the ELCs cannot be treated as minor individual investor complaints by SEBI. Therefore, when substantive questions on these issues are raised by minority/public shareholders SEBI shall examine those issues and pass a reasoned order. This is not done in the instant matter. We also note that SEBI has delegated lot of responsibility to the stock exchange(s) which also does not seem to have discharged any responsibility assigned to them in terms of the various Circulars issued by SEBI. What appears on record is that the company prepared a plan of exit, got a valuation done and provided an exit option. No authority seems to have discharged any of their responsibilities including monitoring. Set aside the order/communication dated September 20, 2017 passed by SEBI and in the interest of justice we direct SEBI to pass a reasoned order in the matter. The said order shall also address the issue relating to the stand of SEBI on the need for the ELCs to make a serious effort in continued listing and the procedure and monitoring of their endeavour in listing and/or the exit process when failing to get listed.

Summary

Issues:
1. Interpretation of SEBI Circulars regarding listing and valuation of shares for Exclusively Listed Companies (ELCs).
2. Obligations of ELCs in getting listed on national exchanges or providing exit options to shareholders.
3. SEBI's role in monitoring ELCs and ensuring investor protection.
4. Dispute over valuation of shares and the adequacy of the exit option provided by the company.

Analysis:
1. The appeal challenged a SEBI communication regarding complaints on non-listing of an Exclusively Listed Company (ELC) and the valuation of its shares. The appellants, public shareholders of the company, alleged that the company, Schneider, did not make efforts to list on national exchanges or follow SEBI guidelines on valuation for providing an exit option to shareholders as mandated by Circulars issued by SEBI.

2. The appellants argued that ELCs must first attempt to list on national exchanges, and only if unable to do so, provide an exit option to shareholders. They contended that Schneider did not make efforts to list on nationwide exchanges and instead decided to exit with an undervalued offer to shareholders. SEBI was criticized for not addressing the concerns raised by the appellants and directing them to non-functional stock exchanges or the company itself.

3. SEBI, represented by Respondent No. 1, contended that ELCs were not mandated to list on national exchanges but had the option to seek listing, provide exit, or opt for compulsory delisting. The respondent argued that SEBI does not directly monitor ELCs and that the responsibility lies with the exchanges on which the ELCs are placed.

4. The dispute also involved the valuation of shares and the adequacy of the exit option provided by Schneider. The company, represented by Respondent No. 2, defended its actions, stating that it followed the required procedures, including obtaining a valuation through an NSE empanelled valuer and providing an exit option to shareholders.

5. The Tribunal noted that SEBI's Circulars emphasized listing as the primary option for ELCs, with exit options being secondary. It criticized SEBI and the stock exchanges for not adequately monitoring the listing or exit processes of ELCs. The Tribunal set aside SEBI's communication and directed SEBI to pass a reasoned order addressing the issues of continued listing, exit, and valuation of shares for ELCs within three months.

In conclusion, the judgment highlighted the importance of investor protection and the need for SEBI to address substantive issues raised by minority shareholders regarding the listing, exit, and valuation processes of Exclusively Listed Companies.