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TMI Blog2019 (7) TMI 1616X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment of India, FMC or any other financial market Regulatory. Thus, on 23.07.2011 itself, the FMC had found Kailash Gupta as not fit and proper person and the shares held by NOL were eclipsed - even if for any technicality or reason the FMC Order dated 23.07.2011 and all consequential actions against Appellant and Kailash Gupta were to get quashed still, Mr. Kailash Gupta may not be able to claim that he has a general reputation and record of fairness and integrity, and should be deemed to be a fit and proper person. Mr. Kailash Gupta who attended the shareholders Meeting and who claims himself to be authorized signatory of the Appellant being not fit and proper person, could not have voted and was rightly not allowed to vote. We have gone through the Reports of Chairman (Annexure I Page 113) and Scrutinizer (Page 127) and part of the Report we have reproduced at para 11 (supra). We are aware of the general rule of such meetings where adjournment can be there for want of quorum and at adjourned meeting, quorum figure would stand relaxed. As such, Chairman had no reason to fudge Report. We have no reasons to doubt the Reports. Considering Para 25(2) of Report of Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-7-2019 - Justice A.I.S. Cheema Member (Judicial) And Balvinder Singh Member (Technical) For the Appellant : Shri Hitesh Buch, PCS For the Respondents : Shri Navin Pahwa, Sr. Advocate with Ms. Vatsala Kak, Shri Manish Handa, Shri Sumesh Dhawan, Shri Mohit D. Ram and Ms. Geetika, Advocates JUDGEMENT A.I.S. CHEEMA, J. : Arising of the Appeals Three Impugned Orders 1. CA 90 91 of 2018 (hereafter referred as earlier Appeal ) arise out of proceedings which were filed before National Company Law Tribunal, Ahmedabad Bench (NCLT in short) for amalgamation of Respondent No.1 National Multi Commodity Exchange of India Limited (NMCE in short) with Respondent No.2 India Commodity Exchange Ltd. (ICE in short). The earlier Appeal was filed against Orders passed at interim stage which were passed on 31st January, 2018 (First Impugned Order) and 21st February, 2018 (Second Impugned Order). The proceedings which were initiated by the Respondents for amalgamation by proposing scheme of amalgamation as per provisions of Sections 230 and 232 of the Companies Act, 2013 (Act in short), got approved by common Order dated 27.08.2018 (Third Impugned Ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... malgamation proceedings. (A) The Appellant claims to be the founder, co-founder and largest shareholder of Respondent No.1 NMCE holding 5768464 shares. The Board of Directors comprised of shareholders, nominated Directors as well as Independent Directors nominated by Forward Markets Commission (FMC) (now SEBI - since September, 2014). The Appellant claimed that it had right to nominate a new Managing Director of NMCE. It appears that there was some Anil Mishra who was nominated by Appellant as Chief Executive Officer of NMCE who resigned on 27.09.2010. The Appellant claims that Kailash Gupta raised objection to unexplained resignation of Anil Mishra from the Board and FMC started alleged enquiry into the affairs of the Company. FMC Order dated 23.07.2011 (B) FMC enquired and on 23rd July, 2011 passed Orders (copy of the Order is at Page 44 of the Reply of Respondent No.2 in CA 324 of 2018). Perusal of the Order shows that FMC had various issues against the Appellant and Kailash Gupta and others. In this Appeal, we take note but we are not concerned for decision of those issues as they are not subject for us to decide. FMC on that date of 23.07.2011 passed Orders givi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NOL and Kailash Gupta was held not fit and proper person for purposes specified. (C) It is stated that after such Order dated 23.07.2011, NMCE started taking various actions against NOL and Kailash Gupta. According to the Appellant, in the meeting of shareholders dated 19.09.2011 of NMCE, they passed Resolution to cancel shareholding of the Appellant and remove Kailash Gupta from the Board. Company Petition was also filed to seek cancelation of the shares of the Appellant. Appellant claims that the Appellant moved Hon ble High Court of Gujarat which interfered with the Order dated 23.07.2011 of FMC as well as the Resolution dated 19.09.2011 passed by Respondent No.1. It is stated that against such interference, NMCE as well as FMC and other parties moved before the Hon ble Supreme Court which stayed the Orders which had been passed by the Gujarat High Court on 9th February, 2012 and 28th February, 2012 with a direction that any action, decision or proceedings taken in view of the FMC Order dated 23.07.2011 would abide by the result of the Special Leave Petition. (D) It is claimed that the Managing Director of Respondent No.1 filed FIR against Kailash Gupta with Crime Branc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meetings of the equity shareholders and unsecured creditors of NMCE with ICS and as regards question whether the scheme was sustainable or not were referred and First Impugned Order referred to the observations of Hon ble Supreme Court dated 22nd March, 2012 in SLP (C) 10225 10227 and 6246 of 2012 where Hon ble Supreme Court while staying the operation of Order of High Court observed:- As a result of the interim order passed now the order dated 23.07.2011 passed by the petitioner Forward Markets Commission gets restored but any proceedings, decision or action taken in pursuance of that order shall abide by the final result of the special leave petitions. 8. The first Impugned Order took note of the Order of FMC and held in para 29 that the situation which was emerging from the developments and litigations, was that:- Therefore, the situation, as it emerges now, does not permit the participation of NOL in shareholders meeting, wherein the proposed Scheme will be placed for approval. It further observed in para 32:- 32. In case the Scheme is approved by the shareholders and unsecured creditors and in case NMCE comes up before this Tribunal with a petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Page 113 and Chairperson filed Report (Page 115) along with Report of scrutinizers. The Report shows that the Appellant, through Mr. Kailash Gupta, raised objections even before the Chairperson and the Chairperson in his Report recorded:- 20. It may further be observed that out of 57,68,464 equity shares held by Neptune Overseas Ltd., the Enforcement Directorate has attached 46,42,629 shares (24.29%) which now stand transferred in the name of the Deputy Director, Directorate of Enforcement, whose name appears in the list of share holders. It may further be observed that the said attachment orders of the Directorate of Enforcement are challenged by Neptune Overseas Ltd. by filing appeals which are pending for hearing before the Appellate Tribunal under PMLA 2002. It may also be observed that at present 11,25,835 shares of NMCE are standing in the name of Neptune Overseas Ltd. However, they are also not entitled to vote in view of the regulatory guidelines dated May 6, 2014 referred to hereinabove. It may be observed that Regulation 19 of the Securities Contracts (Regulation) (Stock Exchange and Clearing Corporations), Regulations, 2012 provides for eligibility for hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations. Both the Petitioner Companies are recognized Stock Exchanges dealing in commodity derivatives. It is also not in dispute that the objector Neptune Overseas Limited does not have any voting rights in respect of any shares held by it. All the voting rights have stood extinguished by virtue of the order dated 23.07.2011 made by FMC read with the guidelines issued by FMC read with the relevant SCRA Regulations 2012. 42. It was also noted by this Tribunal that though the Objector has filed appeal challenging the order made by Forward Market Commission before SAT, it is reported that there is no stay granted by SAT until this date. The shares are attached by the Enforcement Directorate on the ground that the shares are proceeds of crime. The Appellate Tribunal under PMLA has also observed in Para 28 that the order dated 10.07.2018 made by it shall have no bearing in other proceedings. This order has since been stayed by the Hon ble High Court of Gujarat. Even otherwise, the Appellate Tribunal had also observed that it had no concern as to whether the Neptune Overseas Limited be allowed or not be allowed to exercise its voting rights as the same is not within the domain of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts stakeholders. The Scheme is valid. The shareholders and the creditors of both the Companies, in their commercial wisdom, have decided to enter into the arrangement of amalgamation. This Tribunal cannot substitute its wisdom with the commercial wisdom of shareholders and creditors of petitioner companies. The objections taken by the Objector even otherwise do not suggest that the Scheme is illegal or prohibited by law. On the contrary, it appears that the Scheme is proposed so as to ensure compliance with the SEBI regulations and other guidelines issued by the Government of India. SEBI being the regulator has also issued directions to seek expeditious sanction to the Scheme. 13. Consequently, the NCLT was of the view that the scheme will be in the interest of the Company and of all stock holders and proceeded to reject the objections of the Appellant and allowed the petitions and merger scheme was sanctioned subject to decision made by higher Forums. Arguments 14. We have heard Counsel for both sides. Counsel for both sides have referred to the developments and litigations as referred above and which is reflected even in the 3 Impugned Orders. The arguments raised bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th May, 2014 issued by FMC, it became applicable for a recognized commodity exchange to have a minimum net worth of ₹ 100 Crores. The Counsel referred to Regulation 14(1) which states that:- Every recognized stock exchange shall have a minimum networth of one hundred crore rupees at all times .. It is argued that NMCE tried to raise fresh capital to comply with the requirement but could not achieve the net worth criteria. SEBI advised NMCE to be in compliance with the revised norms and R1 and R2 agreed to enter into the scheme. The Counsel referred to the acts of the Appellant and Kailash Gupta which led to the Respondent No.1 Company coming into difficulties. It is argued that detailed Order of FMC dated 23.07.2011 held Shri Kailash Gupta in the capacity of MD of NMCE and as promoter and controlling person of the Appellant (NOL) to be in complete breach of fiduciary responsibilities towards NMCE and held him responsible for committing systematic fraud, misappropriation and committing series of crimes to benefit himself and his family members and the companies/entities owned and controlled by him or his family members. The learned Counsel for Respondents referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant and directed taking of steps to cancel the same. The operative Orders of FMC which we have referred in para 6 above, also found Shri Kailash Gupta to be a person not fit and proper to hold any position in the management and the Board of any Exchange recognized or registered by the Government of India, FMC or any other financial market Regulatory. Thus, on 23.07.2011 itself, the FMC had found Kailash Gupta as not fit and proper person and the shares held by NOL were eclipsed. This position continued when the meeting took place and remained the same when final hearing of these Appeals took place. On 6th May, 2014, the Government of India conveyed to NMCE vide Annexure R5 (Reply Page 145) the Revised Norms dated 06.05.2014 regarding shareholder, ownership, net worth, fit and proper criteria, etc. applicable to Nationwide Multi Commodity Exchanges (NMCEs). These norms were issued by Forward Markets Commission in the Department of Economic Affairs, Ministry of Finance, Government of India revising earlier applicable norms. Relevant paragraph of Norm 2 relating to net worth requirements specifies:- 2. Net worth requirements: (1) Every recognized commodity exch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf shall be final. 6. Consequences of ceasing to be a fit and proper person In the event of any person ceasing to be a fit and proper person or being declared so by the Commission, such person shall forthwith divest his shareholding. Further, pending divestment of shares, the voting rights of such person shall stand extinguished and any corporate benefit in lieu of such holding shall be kept in abeyance/withheld by exchange. The exchange shall take necessary steps as it may deem fit so as to ensure that the shareholding of such person is divested forthwith. Considering (a) as above, it appears to us that now, even if for any technicality or reason the FMC Order dated 23.07.2011 and all consequential actions against Appellant and Kailash Gupta were to get quashed still, Mr. Kailash Gupta may not be able to claim that he has a general reputation and record of fairness and integrity, and should be deemed to be a fit and proper person. On 5th April, 2018, the meeting of shareholders of Respondent No.1 took place. The FMC Order was in force and these revised norms were also in place and apart from the FMC Order holding Kailash Gupta not fit and proper person, these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Appellant with regard to the scheme, some of them were already answered by SEBI itself. It may be recalled that the Appellant claimed to have sent representation to SEBI against the proposed merger and when SEBI did not respond, the Appellant moved the Hon ble Supreme Court and sought directions. The letter of SEBI dated 9th August, 2017 by way of Reply is at Annexure H of CA 90-91 of 2018 (Page 85). Part of the letter is reproduced below:- 2. With regard to the Order dated July 23, 2011 passed by the erstwhile Forward Markets Commission ( FMC ) in the matter of National Multi Commodity Exchange of India Limited ( NMCE ), Ahmedabad, it is observed from the available records that the Hon ble Supreme Court of India has passed its interim Order dated March 22, 2012, vide which, the Apex Court has stayed the operation of the Order dated 09-02-2012 passed by the Hon ble Gujarat High Court, with a direction that any actions, decisions or proceedings taken in pursuance of FMC order shall be subject to the final outcome of the pending Special Leave Petitions. As a result, the Order dated 23-07-2011 passed by the erstwhile FMC got restored for enforcement. National Multi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worth including by way of issuing of Bonus shares, however, it could not enhance its net-worth. NMCE has also stated that coming up IPO is not feasible in the current situation particularly when, critical litigations are pending with NOL. In view of the continuous non-compliance by NMCE with the minimum net-wroth requirement of ₹ 100 crore as prescribed by SEBI, it is liable to face penal action by the regulator, which may adversely affect its trading activities thereby further affecting its financial position to the detriment of its shareholders. Further, NMCE has also not been able to meet the minimum number of required members, viz, fifty, as per the SEBI Regulations. NMCE has, presumably therefore, opted for merger with ICEX with a view to enhance its net-worth and comply with other mandatory regulatory requirements without which, its continuance as a recognised commodity derivative exchange could be unviable and questionable. In spite of such communication by SEBI which is a Regulatory, the Appellant has kept harping that ICE is a company which was bleeding and had no net worth and that NMCE could have raised its own cash net worth. Nothing is shown that the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of amalgamation of Respondents 1 and 2. We observe this as we are of the view that looking to the legal requirements, it was, but a necessity, for the Respondent No.1 to either raise its net worth or seek alternative options. The letter of SEBI dated 9th August, 2017 (referred supra) makes the picture clear. Respondent No.1, in the situation, chose amalgamation and has gone through the process of getting scheme of amalgamation approved. Only because the rights of Appellant were eclipsed (for which there appears to be contribution of Mr. Kailash Gupta himself), even if for any reason the eclipse was to get over, it would not be in public interest to reverse the clock. May be, in such situation, the Appellant may be entitled to other reliefs but undoing the amalgamation does not, in our view, appear to be in the interest of the Respondent No.1. For reasons recorded in para 16, even if the litigation arising from the FMC Order and FMC Order was to be set aside, Mr. Kailash Gupta may still not be able to claim himself to be fit and proper person. We have expressed these views in the alternative. The directions of the higher Forums would naturally prevail considering the caveat rec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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