2022 (3) TMI 412 - AT - Insolvency and Bankruptcy

Directions to comply with the resolution plan - sale of shares - HELD THAT - Resolution Plan provides two structures (methods) for allotment of equity shares to the Resolution Applicant. As per first structure (method) Resolution Applicant has to subscribe 75% of equity shares that is 89,70,44,238. The Existing Promoter Group equity share is 2.14% that is 256,53,813 was to be in rest 25% shareholding. The first structure was to take place in event erstwhile Existing Promoter Group shareholding is not counted towards promoter shareholding for the purposes of Regulation 2015. It is noticed the relevant provisions of Regulation 2015 as well as the provisions of Securities Contracts (Regulation) Rules, 1957. The Securities Contracts (Regulation) Rules, 1957, Rule 19A provided that Every listed company other than public sector company shall maintain public shareholding of at least twenty five percent . The Bhushan Steel being listed company, it was obliged to maintain public shareholding of at least 25%. The Regulation clearly prohibit public shareholding of Promoter pursuant to reclassification to be counted towards achieving compliance with minimum public shareholding requirement under Rule 19A as noted above. Thus, shareholding of 2.14%, which was held by erstwhile Promoter Group, even if they were treated as public shareholding cannot be counted towards 25% shareholding, which is statutory requirement to be maintained. Thus, Structure one on 15.05.2018, on the date when Plan was approved ok on 18.05.2018, did not permit subscribing of 75% shareholding by the Tata Steels - there are no error in the action of Respondents in proceeding to opt to acquire the equity shares of the Promoter Group by asking them to sell the equity shares @ INR 2/- after subscribing 72.65% of equity shares, so that after purchase of the equity shares of Existing Promoter Group, the Respondent may have 75% of shareholding leaving 25% to the public shareholding. The Resolution Plan as per Section 30(2) (e) of the Code has to be in accordance with law for the time being in force. Section 30(2) sub-clause (e) mandates does not contravene any of the provisions of the law for the time being in force . The implementation of the Resolution Plan has to be thus in accordance with the existing law and the Respondent could not have implemented the Plan following Structure one in para-3, which could have been in contravention of Regulation 31A(7)(b) of 2015 Regulation. Thus, the implementation of Resolution Plan by following Structure two as provided in para 3 of Annexure 5 was fully permissible and no exception can be taken by the Appellants when they are asked to sell their equity shares as per Plan itself - there are no error in the judgment of the Adjudicating Authority allowing the Application filed by Respondent while holding that erstwhile Promoters have to sell their shares to the Applicant (Tata Steel) @ INR 2/- per share. The Appeal is dismissed.

Summary

Issues Involved:
1. Compliance with the Resolution Plan by erstwhile Promoters.
2. Validity of the Resolution Plan's provision for selling shares at INR 2/- per share.
3. Determination of the closing date for the Resolution Plan.
4. Reclassification of promoter shares as public shares under SEBI regulations.
5. Implementation of the Resolution Plan in accordance with existing laws.

Issue-wise Detailed Analysis:

1. Compliance with the Resolution Plan by erstwhile Promoters:
The Appellants, erstwhile Promoters of Bhushan Steel Limited, challenged the order directing them to comply with the Resolution Plan by selling their shares to the Applicant at INR 2/- per share. The Adjudicating Authority had directed strict compliance with the Resolution Plan, which included the sale of shares held by the Promoters to the Applicant.

2. Validity of the Resolution Plan's provision for selling shares at INR 2/- per share:
The Resolution Plan approved on 15.05.2018 required Tata Steel Limited to subscribe to a specific number of equity shares and for the Promoters to sell their shares at INR 2/- per share. The Appellants argued that this provision was not permissible and that the shares should be reclassified as public shareholding. However, the Tribunal upheld the provision, stating that the Plan was binding and the Promoters were obliged to sell their shares as per the Plan.

3. Determination of the closing date for the Resolution Plan:
The Appellants contended that the closing date should be 25.06.2018, when the reclassification of shares was approved by the National Stock Exchange and Bombay Stock Exchange. However, the Tribunal held that the closing date was 18.05.2018, when Tata Steel implemented the Plan by subscribing to the equity shares and making payments to creditors.

4. Reclassification of promoter shares as public shares under SEBI regulations:
The Appellants argued that their shares should be reclassified as public shares, which would allow them to retain their shareholding. However, the Tribunal noted that Regulation 31A(7)(b) of SEBI regulations prohibited counting reclassified promoter shares towards public shareholding for achieving the minimum public shareholding requirement. The Tribunal upheld the Resolution Plan's provision for the Promoters to sell their shares to Tata Steel.

5. Implementation of the Resolution Plan in accordance with existing laws:
The Tribunal emphasized that the Resolution Plan must comply with existing laws, including SEBI regulations. The Plan provided two structures for share allocation, and the second structure was adopted due to the prohibition under Regulation 31A(7)(b). The Tribunal found no error in the Respondent's actions and upheld the Resolution Plan's implementation, including the sale of shares by the Promoters at INR 2/- per share.

Conclusion:
The Tribunal dismissed the Appeal, upholding the Adjudicating Authority's order for the Promoters to sell their shares at INR 2/- per share as per the Resolution Plan. The Tribunal found that the implementation of the Plan was in accordance with existing laws and regulations, and the Promoters were bound by the terms of the Plan.