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2023 (8) TMI 710 - HC - SEBIDelisting orders from DSE - Rishab Ispat Ltd., of which the petitioner herein was a former Director, was listed on the Delhi Stock Exchange was suspended from DSE on account of non-compliance with certain norms of the respondent no. 1/Securities and Exchange Board of India (hereinafter SEBI ) - Directions to Stock Exchanges to deal with companies exclusively listed on non-operational stock exchanges - Scope of exit policy for all derecognized/non-operational stock exchanges - On 10.10.2016, SEBI issued a circular facilitating the exit of derecognized/non-operational stock exchanges and shareholders of the Exclusively Listed Companies (hereinafter 'ELCs') by allowing them to get listed on the nationwide stock exchanges after complying with the diluted listing norms, failing which they will be moved to the Dissemination Board - HELD THAT - Since Rishabh Ispat Ltd., had neither got itself listed on a nationwide stock exchange, nor had provided an exit option to all of its shareholders, and furthermore, had also not provided a plan of action to BSE, the impugned action/order dated 30.04.2018 was taken. It can, thus, be seen that firstly, Rishabh Ispat Ltd., received a letter from BSE dated 20.10.2016, seeking from it and also from its management, compliance with SEBI's circular dated 10.10.2016. Secondly, the circular of SEBI itself provided under paragraph 6 that coercive actions may be taken against the promoters/directors of ELCs that have failed to demonstrate the adequacy of efforts for providing exit to their shareholders in conformity with the exit mechanism, as provided for under the said circular; and thirdly, Rishabh Ispat Ltd., did in fact, fail to demonstrate the adequacy of efforts for providing exit to its shareholders in conformity with the exit mechanism. Since the provisions of the circular dated 10.10.2016 had been violated by Rishabh Ispat Ltd., and also because the requirements of paragraph 3 of the circular dated 01.08.2017 had been met, BSE rightfully, in discharge of its obligations under SEBI's circular dated 01.08.2017, took the action/order dated 30.04.2018. This court finds that sufficient opportunity of hearing was provided to Rishabh Ispat Ltd., as also to the petitioner, in order for BSE to have taken the action/order dated 30.04.2018. The argument of the learned counsel for the petitioner that the petitioner having resigned from the post of the Director on 05.03.2018, and therefore, the action/order dated 30.04.2018 could not have been taken against the petitioner, is also liable to be rejected as the same is found to be baseless. If at all such an argument is to be accepted, then every director, who blatantly violates the mandatory terms of the circulars of the SEBI dated 10.10.2016 and 01.08.2017, could simply resign and claim impunity from the coercive actions that are envisaged by SEBI. The object and purpose for which the circulars were issued would, therefore, get frustrated. It must be seen that when the circular dated 01.08.2017 was issued by SEBI, in furtherance of which BSE took the impugned action/order dated 30.04.2018, the petitioner remained a Director of Rishabh Ispat Ltd. Importantly, it must also be considered, that the terms of the order dated 01.08.2017 do not require a person to hold a continued position of directorship in the ELC. The circular dated 01.08.2017, specifically paragraph 3, merely requires non-compliance with the circular dated 10.10.2016 on the part of an ELC. The petitioner s representations that are placed on record may now be briefly considered. It may be noted that the first representation placed on record is a joint letter by the petitioner and one Sh. Naresh Kumar Jain, Director, Rishabh Ispat Ltd., dated 28.04.2018.The letter is addressed to SEBI and is concerned with an action taken by SEBI on 04.04.2018. The petitioner, in the present petition, has not assailed any order/action of SEBI dated 04.04.2018. This court, therefore, finds this representation to be wholly irrelevant. The second representation is a letter by the petitioner addressed to SEBI, dated 13.11.2019. This letter is again not concerned with the action/order of BSE dated 30.04.2018. This court does not find the representations to be either relevant or supporting the case of the petitioner insofar as the present writ petition is concerned. In relation to the submission of the learned counsel for the petitioner, that the order dated 30.04.2018 is non-speaking and therefore violative of Section 11(4) of the SEBI Act, this court finds it to be wholly without merit. The action/order dated 30.04.2018 was taken by BSE and not by SEBI. While the action/order was taken by BSE, it was complying with, and taken in furtherance of, the circular dated 01.08.2017 of SEBI. With this factual matrix, this court, is unable to find any relevance or applicability of Section 11(4) of the SEBI Act. This court is, therefore, of the considered opinion that the circulars dated 10.10.2016 and 01.08.2017 issued by SEBI are legally valid, and are part of a structured scheme that deals with the situation of ELCs, and the manner in which the shareholders associated with such ELCs are to be protected. This court also does not find any infirmity in the order dated 30.04.2018 passed by BSE.
Issues Involved:
1. Validity of SEBI circulars dated 10.10.2016 and 01.08.2017. 2. Legality of the BSE order dated 30.04.2018. 3. Alleged violation of principles of natural justice. Summary: 1. Validity of SEBI Circulars: The petitioner challenged the SEBI circulars dated 10.10.2016 and 01.08.2017 as arbitrary and illegal. The court found that these circulars are a part of a structured scheme by SEBI to protect investors of Exclusively Listed Companies (ELCs) on de-recognized/non-operational stock exchanges. The circulars provide a framework for ELCs to either get listed on a nationwide stock exchange or provide an exit option to shareholders. The court held that the circulars are not arbitrary and are reasonable and proportionate to the transgressions of the promoters/directors. The court also found that the circulars provide adequate opportunities for representation and hearing. 2. Legality of BSE Order: The petitioner contended that Rishabh Ispat Ltd. was not an ELC and therefore, the SEBI circulars and the BSE order dated 30.04.2018 do not apply. The court found no evidence to support the claim that Rishabh Ispat Ltd. was delisted before the de-recognition of DSE. The court held that Rishabh Ispat Ltd. was indeed an ELC and thus subject to the SEBI circulars. The BSE order, which restricted the petitioner and others from accessing the securities market and holding directorships in listed companies, was found to be in compliance with the SEBI circulars and valid. 3. Violation of Principles of Natural Justice: The petitioner argued that the BSE order violated principles of natural justice as no opportunity for hearing was provided. The court found that sufficient opportunity was given through the SEBI circulars and the BSE letter dated 20.10.2016, which sought compliance from Rishabh Ispat Ltd. The court also rejected the argument that the petitioner's resignation as Director on 05.03.2018 exempted her from the BSE order dated 30.04.2018. The court stated that accepting such an argument would frustrate the purpose of the SEBI circulars. Conclusion: The court upheld the validity of the SEBI circulars dated 10.10.2016 and 01.08.2017 and found no infirmity in the BSE order dated 30.04.2018. The writ petition was dismissed as it lacked merit.
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