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TMI Blog2013 (7) TMI 856X X X X Extracts X X X X X X X X Extracts X X X X ..... aw formulated at the final hearing without there being any change in facts or circumstances - Held that:- Authority has a discretion to refuse to give a ruling on a question of law even in respect of matters outside the proviso to Section 245R(2) of the Act, yet this discretion of refusing to rule on a question cannot be arbitrary. The Authority can exercise its discretion not to give a ruling only in cases where fraud and/or illegality is ex facie evident or the fraud or illegality has been established in some proceedings. Such a discretion is not to be exercised on a mere suspicion of illegality or fraud having taken place - Authority is not correct in refusing to give a ruling at the time of final hearing in the absence of any fresh material, merely on the basis of the suspicion. The Authority may be entitled to consider questions of public interest and not answer the questions when the foundation of the transaction is on the face of it coloured by illegality/or mis-representation of facts in making the application to the Authority - Decided in favour of Petitioner. - Writ Petition No.2632 of 2012 - - - Dated:- 25-7-2013 - MOHIT S. SHAH AND M.S. SANKLECHA, JJ. For the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wns shares in M/s. Tech Mahindra Ltd. (TML). TML is engaged in the business of information technology and telecommunication in India. The shareholding of TML was originally distributed between Mahindra and Mahindra Ltd. (M M) and British Telecommunication (BT) in the ratio of 60:40 respectively. (c) On 28 December, 2004, TML had entered into a Software and Professional Services agreement with one SBC Services Inc USA now known as AT T (AT T). In order to motivate AT T to give business to TML it was understood between them that AT T that would be offered an opportunity to become a shareholder of TML by TML granting it option to purchase shares of TML. However, this option could only be exercised by AT T if it was able to achieve/generate certain level of business for TML by 30 April, 2010. (d) However the aforesaid obligation of the TML to offer an option to AT T to purchase its shares would hinder TML from making a public issue of its shares in view of it being construed to be in breach of Guideline 2.6.1 of the SEBI Guidelines. The SEBI Guideline 2.6.1 reads as under:- "Outstanding Warrants of Financial Instruments 2.6.1 No unlisted company shall make a pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecember, 2009, ahead of 30 April, 2010, dead line. At that point of time, AT T decided to exercise its option to purchase shares of TML with the petitioner, in terms of the option agreement dated 10 May, 2005. Therefore, in terms of the option agreement dated 10 May, 2005, the petitioner sold a part of its 9931631 equity shares i.e. 9870912 shares in TML to AT T at US dollars 3.5022 per share on 22 March, 2010. On the above sale of 9870912 shares to AT T the petitioner earned long term capital gain of Rs.91.01 crores. (i) Accordingly, on 20 September, 2012, the petitioner filed an application before the Authority under Section 245Q(1) of the Act seeking a ruling from the Authority on the following questions of law( regarding capital gains) arising out of transfer of shares it held in TML (Indian Company) to AT T (an American Company):- (a) Whether the applicant, a tax resident of Mauritius, is not chargeable to capital gains tax in India under Article 13(4) of the Double Taxation Avoidance Agreement ("DTAA") between India and Mauritius in respect of transfer of 98,70,912 shares of an Indian company, to AT T International inc, a corporation organized and existing u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the general public. In answering the above question, the Authority did concede that the issue of legality of a transaction and/or the circumvention of the concerned SEBI Guidelines is within the purview of the authorities entrusted with the obligation to ensure its compliance. Nevertheless the impugned order holds that when the jurisdiction of the Authority is invoked then the Authority would not shut its eyes to the illegality and proceed to give a ruling on such a transaction. The Authority concluded that the entire cause of action giving rise to the formulated questions is based on an illegal act committed by the petitioner. In these circumstances, the Authority held that it would not be proper for the Authority to give a ruling on the question of law posed before it, as according to the Authority, it emanates from the circumvention of SEBI Guidelines. In any event the Authority held that it has discretion to refuse to give a ruling in an appropriate case and the present case before it, is one such case. 5. When this petition reached hearing before us, Mr. Tejveer Singh learned Counsel appearing for the respondents submitted a letter dated 9 May, 2013, received by him from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervations of the Authority. The petitioner responded to the same explaining all the facts by its letter dated 5 April, 2013, and the communication of SEBI dated 7 May, 2013, to the Director of Income-tax (Respondent No.1 herein) was after considering the petitioner's response. Copy of the letter dated 5 April, 2013, addressed by the petitioner to SEBI was handed over to us and the Counsel appearing for the respondents. Thus. Mr. Dastur, learned Senior Counsel on behalf of the petitioner submits that in view of the clarification now issued by SEBI letter dated 7 May, 2013, it is clear that there is/nor has been any breach/circumvention of the SEBI Guideline 2.6.1. In the circumstances, he prays that the impugned order of the Authority be quashed and the Authority be directed to give a ruling on the questions posed before it. 7. Mr. Tejveer Singh, learned Counsel for the respondents submits that in view of the communication dated 7 May, 2013, from SEBI, the petitioner should move the Authority for appropriate relief and this Court should not entertain this petition. Mr. Singh states that under Rule 18 of Advance Ruling(Procedure)Rules 1996 (Advance Ruling Rules) the petitioner can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 May, 2013, received by the Director of Income-tax from SEBI. On examination of the letter dated 7 May, 2013, we are of the view that it states that the agreement entered into in 2004 between TIL and AT T was not acted upon due to commercial reasons and that the Draft Prospectus filed with SEBI in 2006 while coming out with the IPO had disclosed the agreement entered into by it with AT T. From the above, it is clear that on examination of the facts of the Petitioner's case SEBI has concluded that there has been no breach of SEBI guidelines. In case there had been any breach of its guidelines and/or an illegal act as suggested by the Authority in its impugned order, SEBI would have issued to the petitioner a notice to show cause. In these circumstances, it must be held that there is in fact no contravention of the SEBI Guidelines even according to SEBI. 10. The Counsel for the respondents does not dispute the above position but his submission is that on the basis of the communication of SEBI dated 7 May, 2013, the petitioner move the Authority for either modification or rectification. We see no reason to direct the petitioner to move the Authority for modification and/or rectific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court settling the point against an applicant, if the applicant seek advance rulings with a view to stall further proceedings, it may then be a fit case to reject the application at the stage of consideration under section 245R(2). Another instance that can be visualized is in a case where the applicant raises frivolous or hypothetical legal issues without factual foundation." The above observations would have no application to the present facts. None of the situations contemplated in the above case arise here. Moreover, it may be pointed out that the Authority in the Microsoft Operations (supra) exercised its discretion at the time of admission. 13. In this case, we find that the Authority has refused to give a ruling merely on the assumption that an illegality has been committed by the applicant by circumventing SEBI Guidelines. The authorities administering the SEBI provision did not find it so, as is evident from the fact that no show-cause notice or adjudication order for contravention of the SEBI Guidelines has been issued to /or against the petitioner. In these circumstances, the Authority is not correct in refusing to give a ruling at the time of final hearing in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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