2018 (12) TMI 1685 - HC - SEBI

Exit option to stock exchanges that had been de-recognized or had become non-operational - petitioners claim that in terms of a Circular dated 10.10.2016 BNL could either raise capital for listing on a Nation-wide Stock Exchange or provide an exit to the investors as specified in Annexure-A to the said Circular. Therefore, removal of BNL from BSE Dissemination Board is contrary to the Circular dated 10.10.2016 - DSE was derecognised on 19.11.2014 and on 13.07.2015, DSE sent BNL on the Dissemination Board of BSE. In the meanwhile, on 19.02.2015, BNL was listed on the Calcutta Stock Exchange (CSE). It is stated that BNL sent several communications stating that it was not required to be placed on the Dissemination Board of BSE as it was listed on a recognized exchange, namely, CSE HELD THAT - According to BNL, it had secured the listing on CSE and therefore was not required to be shifted to the Dissemination Board of BSE. Prima facie , this contention is unmerited for two reasons. First, that such companies, which were exclusively listed on a derecognised stock exchange were required to be listed on the Nation-wide Stock Exchange on or before the exit of the derecognised stock exchange. And, second, the provisions of sub-paragraph (v) of paragraph 3 of the Circular dated 22.05.2014 has to be read in conjunction with sub-paragraph (i) of paragraph 3 of that Circular; which means that the listing must be on a Nation-wide Stock Exchange. Admittedly, CSE is not one such Stock Exchange. However, it is not necessary to examine this issue any further, in view of the events that have transpired subsequent to the filing of the present petitions. On 20.03.2018, the learned ASG appeared for SEBI and made a statement that BNL was one of the 63 companies, which was listed on CSE which has now been re-transferred to the Dissemination Board of BSE/NSE and therefore, the petitioners grievance would not survive. BNL had not opted for any of the two options as mentioned in the letter dated 10.08.2018 and, therefore, is required to be transferred to the Dissemination Board. In view of the above, the principal grievance of the petitioners does not survive. This is so because the petitioners challenge to SEBI s clarification dated 06.04.2017 was premised on the basis that it had permitted companies listed on the CSE to be removed from the Dissemination Board contrary to its earlier circular dated 22.05.2014 and 10.10.2016. This Court does not consider it necessary to examine the question whether the removal of BNL s name from the Dissemination Board of BSE was otherwise illegal as BNL is now required to be replaced on the Dissemination Board. The petitioners have also raised certain other issues with regard to the manner in which the shares of the existing shareholders are to be valued. Controversy in this regard is premature and further not a subject matter of the petitions as originally filed. It is, thus not necessary to examine that issue. The aforesaid questions are, accordingly, left open and all contentions of the parties are reserved. In addition, the petitioner has also raised certain grievances regarding the identity of the promoters of BNL. This court is of the view that the said issues are required to be examined by SEBI in the first instance. It would thus be open for the petitioners to make a complaint to SEBI. Needless to state that if such complaint is made, SEBI shall examine the same in accordance with law.

Summary

Issues Involved:
1. Legality of the removal of Bharat Nidhi Limited (BNL) from the Dissemination Board of Bombay Stock Exchange (BSE).
2. Compliance with SEBI Circulars dated 22.05.2014 and 10.10.2016.
3. Validity of SEBI Circular dated 06.04.2017.
4. Valuation of shares for existing shareholders.
5. Identity of the promoters of BNL.

Detailed Analysis:

1. Legality of the Removal of BNL from the Dissemination Board of BSE:
The petitioners, shareholders of BNL, were aggrieved by the removal of BNL from the Dissemination Board of BSE. BNL was initially placed on the Dissemination Board of BSE after the Delhi Stock Exchange (DSE) was derecognized. However, it was later removed from the Dissemination Board as it secured a listing on the Calcutta Stock Exchange (CSE). The petitioners argued that this removal was illegal and void, asserting that BNL's removal contradicted SEBI Circular dated 10.10.2016, which mandated that companies on the Dissemination Board either raise capital to list on a Nationwide Stock Exchange or provide an exit to investors.

2. Compliance with SEBI Circulars dated 22.05.2014 and 10.10.2016:
The petitioners contended that BNL's removal violated the SEBI Circulars dated 22.05.2014 and 10.10.2016. The Circular dated 22.05.2014 required companies listed exclusively on derecognized stock exchanges to either list on a Nationwide Stock Exchange or be moved to the Dissemination Board. The Circular dated 10.10.2016 provided two options for companies on the Dissemination Board: raise capital for listing on a Nationwide Stock Exchange or provide an exit to investors. The petitioners claimed that BNL did not fulfill these criteria, thus its removal was non-compliant.

3. Validity of SEBI Circular dated 06.04.2017:
The petitioners challenged the SEBI Circular dated 06.04.2017, which allowed companies listed on a derecognized stock exchange and also listed on CSE to be removed from the Dissemination Board. They alleged that this circular was issued to favor certain companies, including BNL, and was contrary to the earlier SEBI Circulars. However, SEBI's subsequent actions, including re-transferring BNL to the Dissemination Board, rendered this issue moot.

4. Valuation of Shares for Existing Shareholders:
The petitioners raised concerns about the valuation of shares for existing shareholders. However, the court deemed this issue premature and not within the scope of the original petitions. The court left this question open for future consideration, reserving all contentions of the parties.

5. Identity of the Promoters of BNL:
The petitioners also raised issues regarding the identity of BNL's promoters. The court directed that these concerns should be examined by SEBI in the first instance. The petitioners were advised to file a complaint with SEBI, which would then investigate the matter in accordance with the law.

Conclusion:
The court disposed of the petitions, noting that the principal grievance regarding BNL's removal from the Dissemination Board had been addressed by SEBI's actions. The court did not find it necessary to further examine the legality of BNL's removal or the valuation of shares at this stage. The petitioners were permitted to raise their concerns about the promoters' identity with SEBI. All pending applications were also disposed of.