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TMI Blog2022 (3) TMI 412X X X X Extracts X X X X X X X X Extracts X X X X ..... The Regulation clearly prohibit public shareholding of Promoter pursuant to reclassification to be counted towards achieving compliance with minimum public shareholding requirement under Rule 19A as noted above. Thus, shareholding of 2.14%, which was held by erstwhile Promoter Group, even if they were treated as public shareholding cannot be counted towards 25% shareholding, which is statutory requirement to be maintained. Thus, Structure one on 15.05.2018, on the date when Plan was approved ok on 18.05.2018, did not permit subscribing of 75% shareholding by the Tata Steels - there are no error in the action of Respondents in proceeding to opt to acquire the equity shares of the Promoter Group by asking them to sell the equity shares @ INR 2/- after subscribing 72.65% of equity shares, so that after purchase of the equity shares of Existing Promoter Group, the Respondent may have 75% of shareholding leaving 25% to the public shareholding. The Resolution Plan as per Section 30(2) (e) of the Code has to be in accordance with law for the time being in force. Section 30(2) sub-clause (e) mandates does not contravene any of the provisions of the law for the time being in force ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Plan submitted by M/s. Tata Steel Limited was approved by the Adjudicating Authority on 15.05.2018. M/s. Tata Steel Limited implemented the Plan on 18.05.2018 by making payment to the creditors and appointing necessary managerial officials. (iii) On 18.05.2018, Bamnipal Steel Ltd., a subsidiary of M/s. Tata Steel Limited wrote to the Promoters including the Appellants to transfer all of their unpaid equity shares of the Company held by them to Bamnipal Steel Ltd. for consideration @ INR 2/- per share. Details of dematerialized account were also set out in the letter. The Appellants did not reply to letter nor sold their shares as requested. (iv) On 26.05.2018, a letter was written by Bhushan Steel Limited to National Stock Exchange (NSE) and Bombay Stock Exchange informing that pursuant to the approval of the Resolution Plan by the Adjudicating Authority on 15.05.2018, the same is being implemented and requesting National Stock Exchange of India Limited as well as to Bombay Stock Exchange Limited for Reclassification under Regulation 31A, sub-clause (5) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as Regulation 2015). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equity shares of the Company at a face value of INR 2/- and has written to the Appellants to sell their equity shares held by Existing Promoter Group i.e. 256,53,813 @ INR 2/- per share, which was not permissible. It is submitted that eventuality of purchasing of equity shares of Existing Promoter Group was to arise only when SEBI does not allow the erstwhile Existing Promoter Group shareholding to be counted towards public shareholding. In the present case on 26.05.2018, a letter has already been written to National Stock Exchange and Bombay Stock Exchange for reclassification under Regulation 31A of Regulation 2015, which reclassification could ultimately be allowed on 25.06.2018. There was no occasion to sell the equity shares by erstwhile Promoters Group. It is submitted that closing date for the purposes of Resolution Plan is not 18.05.2018 as claimed by Tata Steel Ltd., rather it will be 25.06.2018, when National Stock Exchange and Bombay Stock Exchange permitted reclassification of equity shares of erstwhile Promoter Group. On 25.06.2018 when approval was granted by SEBI for reclassification there was no restraint in treating the erstwhile Promoter Group share into public s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25.06.2018. The closing date is dependent on SEBI s approval. The Adjudicating Authority in paragraph 82 of the order dated 15.05.2018 has observed that the Resolution Applicant to obtain necessary approval has to approach the competent Authorities, which also impel the Resolution Applicant to approach the SEBI for obtaining reclassification. 8. Shri Ramji Srinivasan, learned Advocate appearing for the Tata Steel refuting the submissions of learned Counsel for the Appellants submits that purchase of erstwhile Promoters equity shareholding in Bhushan Steel Limited is an integral part of the Resolution Plan approved on 15.05.2018. The mode and manner of acquiring shares of erstwhile Promoter is provided in the approved Resolution Plan in para-3 of Annexure 5. The Resolution Applicant implemented the entire Resolution Plan on 18.05.2018 by taking all necessary steps required to be taken under the Plan. The closing day was 18.05.2018, on which day Resolution Applicant completed all steps. Entire outstanding financial debt was discharged on 18.05.2018. Tata Steel made financial payment of INR 35,232.57 crores to the Financial Creditors and towards the equity of the Corporate Debtor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere obliged to sell the equity shares at the rate of INR 2/-. 10. Shri Srinivasan further submits that all acts taken by Respondents were in accordance with the Resolution Plan and above Option 2 in the Clause 3 of Annexure 5 was elected by the Respondent since Option 1 on the relevant date that is 18.05.2018 was not permissible, there being a specific prohibition from treating the reclassified Promoter shareholding towards minimum public shareholding i.e. 25%. Option 1 in the Clause 3 thus was not permissible and was statutorily prohibited, hence opting for contingency plan as provided in the Resolution Plan was perfectly in accordance with Plan and no exception can be taken by the Appellants. The Appellants, who are erstwhile Promoter and who are responsible for insolvency of the Corporate Debtor cannot be allowed to continue their shareholding in the Bhushan Steel, now undertaken by the Tata Steel in defiance of Resolution Plan. The attempt of the Appellants to claim continuous of their shareholding is not only in violation of the terms of the Resolution Plan, but is a serious impediment in proper implementation of the Approved Resolution Plan and the Appellant from last so m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholding to be counted towards public shareholding, then the following structure will be adopted instead of the structure indicated above in this step 3: On the Closing Date, the Company shall issue, by way of preferential allotment, and the Resolution Applicant shall subscribe to 79,44,28,986 (Seventy Nine Crore Forty Four Lakh Twenty Eight Thousand Nine Hundred and Eighty Six) equity shares of the Company at face value of 2 (Indian Rupees two only) per share. Further, the Resolution Applicant shall on the Closing Date, purchase, and the Existing Promoter Group shall be bound to sell, all the shares held by the Existing Promoter Group (i.e. 256,53,813 equity shares) for a consideration of 2 (Indian Rupees two only) per share, such that the Resolution Application holds 75% of the fully paid up equity share capital of the Company (on a fully diluted basis). Upon the Plan being approved by the Adjudicating Authority, the terms of this Plan including Annexure 5 are deemed to be accepted by the Existing Promoter Group in their capacity as shareholders of the Company. As a result of such issuance, the shareholding pattern of the Company shall be as indicated in the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is 2.14% that is 256,53,813 was to be in rest 25% shareholding. The first structure was to take place in event erstwhile Existing Promoter Group shareholding is not counted towards promoter shareholding for the purposes of Regulation 2015. We may at this juncture notice the relevant provisions of Regulation 2015 as well as the provisions of Securities Contracts (Regulation) Rules, 1957. The Securities Contracts (Regulation) Rules, 1957, Rule 19A provided that Every listed company other than public sector company shall maintain public shareholding of at least twenty five percent . The Bhushan Steel being listed company, it was obliged to maintain public shareholding of at least 25%. Now we come to Regulation 2015. Regulation 31A, sub-regulation (7), which is relevant for the present case is as follows: 31A(7) Without prejudice to sub-regulations (5) and (6), re-classification of promoter as public shareholders shall be subject to the following conditions: (a) Such promoter shall not, directly or indirectly, exercise control, over the affairs of the entity. (b) Increase in the level of public shareholding pursuant to re-classification of promoter shall not be count ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned subject matter. 2. As per the approved Resolution Plan, Tata Steel Limited is acquiring the Company through its wholly owned subsidiary, Bamnipal Steel Limited ( Bamnipal ). 3. Pursuant to the approved Resolution Plan, we request you to transfer all unpledged equity shares of the Company held by you to Bamnipal for a consideration of INR 2 (Rupees two only) per share (which is the same price as the price at which Bamnipal is subscribing to the equity shares) at the earliest. The details of our dematerialized account are set out in Annexure A below. 4. We look forward to receiving your support and co-operation on implementing the terms of the Resolution Plan which has been approved by the NCLT. 5. Any communication pursuant to this letter should be addressed to the following: Bamnipal Steel Limited Address: Tarapur Complex, Plot No.F8, MIDC, Tarapur Industrial Area, Palghar Thane, Maharashtra 401506. Attention: Mr. R Ranganath Tel. No.: 033 22883332 Email: [email protected] With a copy to: Attn: Managing Director Bhushan Steel Limited Ground Floor, Hyatt Regency Complex, Bhikaji Cama Place, N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication shall not remain in control of the listed entity; and (ii) Such re-classification along with the underlying rationale shall be disclosed to the stock exchanges within one day of the resolution plan being approved. 16. The amended Regulation dated 31st May, 2018 made in 2015 Regulation were only prospective in nature and shall be applicable with effect from 1st June 2018 when Notification was gazetted, which notification was not applicable on 15.05.2018 or 18.05.2018. The prohibition contained in Regulation 31A, sub-regulation 7(b) was very much in existence on the day when Resolution Plan was approved. In this context, learned Counsel for the Appellant has referred to Clause 10 of the Resolution Plan, by which Reliefs and concessions were asked for Resolution Applicant. In clause 10 of the Resolution Plan, which deals with relief and concessions in para 10.1.26, it is provided: 10. Reliefs and concessions 10.1.26 SEBI shall: a) provide dispensation from Regulation 31A(7)(b) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 in respect of shareholding of the Existing promoter Group post re-classification of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itiated by the said application mentions that it was not initiated to achieve minimum public shareholding. In paragraph 5 of the said application, following was specifically stated: 5) The reclassification process has not been initiated to achieve minimum public shareholding. 20. The Respondent could have very well acquired the equity shares of the existing Promoter Group as per the Resolution Plan without awaiting for reclassification by National Stock Exchange and Bombay Stock Exchange, since the Resolution Plan itself provided for two structures for acquiring the equity shares of the existing Promoter Group. When on 18.05.2018 after Board Resolution was passed divesting rights of the existing Promoter Group, the Plan was fully implemented on 18.05.2018 for subscribing the equity shares as per Para-3, Tata Steel was not to wait till reclassification of application was to be decided. 21. Much arguments have been addressed by the parties on the expression if SEBI does not allow in respect of para-3 of the Resolution Plan. It is contended by the Appellant that word SEBI used in para-3 is the word as per definition Clause in Resolution Plan itself. When Respondent acte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following effect: 34. That the plea taken by the Respondent No.2 and 3 that the equal treatment shall be given to the price with respect to Pledge and Un-pledge shares, in terms of Clause 6 of the Resolution Plan, in our considered view it does not merit consideration since the clause 6 solely deals with the pledged shares. 35. If unpledged shares are allowed to be transferred at the market price, then the same will result in modification in the terms of the resolution plan. Since, the resolution plan has a specific clause dealing with a specified rate INR 2.00 with respect to unpledged shares. Any other interpretation of the same shall result in modification in the terms of the Resolution Plan which is not permissible in light of the law laid down by the Hon ble Supreme Court in the matter of Ebix Singapore Private Limited vs. Committee of Creditors of Educomp Solutions Limited Anr. Civil Appeal No.3224 of 2020 dated 13.09.2021. The extract of the relevant portion is reproduced below: 203.. In this context, we hold that the existing insolvency framework in India provides no scope for effecting further modifications or withdrawals of CoC-approved Resolution Pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y with regard to other grievances, if any. What is being agitated by the Appellants before the Adjudicating Authority while opposing the Application filed under Section 60 sub-Section (5) of the Code is that they cannot be compelled to sell their shares @ INR 2/- per equity share and they are entitled to keep their shares with them without selling it. When the Resolution Plan clearly contemplated that in event Structure two was followed by Respondent to oblige the Appellant to sell their equity shares @ INR 2/- and specific number of shares that is 256,53,813 as mentioned in the Plan itself, the Appellants cannot refuse to follow the aforesaid portion of the Resolution Plan. As per Section 31, sub-section (1) of the Code, after approval of the Resolution Plan, same is binding on Corporate Debtor, its employees, members, creditors. Section 31, sub-section (1) is to the following effect: 31. Approval of resolution plan. - (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling of shares. 27. We fully endorse of the above observations made by the Adjudicating Authority while allowing the Application filed by Respondent seeking direction to the Appellants to sell their Promoter group shares @ INR 2/- per equity shares. 28. We thus are of the view that the Resolution Plan as per Section 30(2) (e) of the Code has to be in accordance with law for the time being in force. Section 30(2) sub-clause (e) mandates does not contravene any of the provisions of the law for the time being in force . The implementation of the Resolution Plan has to be thus in accordance with the existing law and the Respondent could not have implemented the Plan following Structure one in para-3, which could have been in contravention of Regulation 31A(7)(b) of 2015 Regulation. Thus, the implementation of Resolution Plan by following Structure two as provided in para 3 of Annexure 5 was fully permissible and no exception can be taken by the Appellants when they are asked to sell their equity shares as per Plan itself. We do not find any error in the judgment of the Adjudicating Authority allowing the Application filed by Respondent while holding that erstwhile Promoters ..... X X X X Extracts X X X X X X X X Extracts X X X X
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