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2021 (12) TMI 1524 - AT - Companies LawAssignment of debt - amounts due and payable by the appellant Company to Dena Bank became due and payable by the appellant Company to RARE - contention of the respondent is that the provisions of LODR Regulations and the Companies Act are not inconsistent with the provisions of the SARFESI Act and therefore these provisions will have to be complied with - HELD THAT - Section 9 provides that an asset reconstruction company can convert any part of a debt into shares of a borrower company. Before converting the debt into shares and allotting it to the asset reconstruction company it became necessary for the borrower company namely the appellant Company to take recourse to certain provisions of the Companies Act namely Section 62 which provides for a provision for issuance of additional equity shares under certain circumstances through a resolution passed by the shareholders or by a special resolution by shareholders of the Company - without complying with the provisions Section 62 of the Companies Act namely without getting a resolution from the shareholders no further issue of the share capital can be issued by issuance of further shares to the asset reconstruction company. The contention that Section 35 of the SARFESI Act overrides the provisions of the other acts and consequently Section 37 of the SARFESI Act is not applicable in the given case is patently misconceived. In the first instance Section 35 of the SARFESI Act provides that the provisions of the SARFESI Act will have effect if any other provision under any other Act or law is not inconsistent with the provisions of the SARFESI Act. Nothing has been pointed out as to which provision of LODR Regulations or the Companies Act is inconsistent with Section 9 of the SARFESI Act - The issuance of shares has to be done under the provisions of Section 62 of the Companies Act which procedure is required to be followed and which is not inconsistent with Section 9 of the SARFESI Act. Therefore Section 35 of the SARFESI Act is not applicable in the instant case. Under Section 28 of the LODR Regulations in-principle approval is required to be taken from the Stock Exchange. Admittedly the same was not done. Therefore the application of the appellant Company to the Stock Exchange for listing of its shares was rightly rejected. Conclusion - The appellant s failure to obtain in-principle approval from the Stock Exchange and shareholder approval under Section 62 of the Companies Act rendered the issuance of shares non-compliant. The Stock Exchange s decision to reject the application for listing the shares uupheld. There are no error in the decision taken by the Stock Exchange for rejecting the application of the appellant for listing of its shares on the Stock Exchange platform. The appeal fails and is dismissed.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS 1. Requirement of In-Principle Approval from Stock Exchange Relevant Legal Framework and Precedents: Regulation 28 of the LODR Regulations mandates that a listed entity must obtain an in-principle approval from recognized stock exchanges before issuing securities. Court's Interpretation and Reasoning: The Tribunal noted that the appellant company did not obtain the required in-principle approval from the Stock Exchange. The Tribunal emphasized that the requirement under Regulation 28 is clear and mandatory. Application of Law to Facts: The Tribunal found that the appellant's failure to obtain the in-principle approval from the Stock Exchange was a violation of the LODR Regulations, justifying the rejection of the application for listing the shares. 2. Requirement of Shareholder Approval under Section 62 of the Companies Act Relevant Legal Framework and Precedents: Section 62 of the Companies Act, 2013 requires that any increase in subscribed capital by issuing further shares must be approved by a resolution of the shareholders. Court's Interpretation and Reasoning: The Tribunal held that the appellant company was required to comply with Section 62 of the Companies Act by obtaining a resolution from the shareholders before issuing additional shares to the asset reconstruction company. Application of Law to Facts: The Tribunal concluded that without the requisite shareholder resolution, the issuance of shares was not compliant with the Companies Act. 3. Interaction between SARFESI Act and Other Laws Relevant Legal Framework and Precedents: Sections 9, 35, and 37 of the SARFESI Act were examined to determine their interaction with the Companies Act and LODR Regulations. Court's Interpretation and Reasoning: The Tribunal clarified that Section 35 of the SARFESI Act provides that its provisions override other laws only if there is an inconsistency. However, Section 37 states that the SARFESI Act is in addition to, and not in derogation of, other laws. Key Evidence and Findings: The Tribunal found no inconsistency between the SARFESI Act and the provisions of the Companies Act or LODR Regulations that would justify the appellant's non-compliance with the latter. Application of Law to Facts: The Tribunal determined that the SARFESI Act did not exempt the appellant from complying with the requirements of the Companies Act and LODR Regulations. Treatment of Competing Arguments: The appellant's argument that the SARFESI Act provisions override other laws was rejected as misconceived, with the Tribunal emphasizing the harmonious application of all relevant laws. SIGNIFICANT HOLDINGS Core Principles Established:
Final Determinations on Each Issue:
The appeal was dismissed, with the Tribunal finding no error in the Stock Exchange's decision to reject the application for listing the shares. The Tribunal's order was digitally signed due to the circumstances of the COVID-19 pandemic.
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