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TMI Blog2023 (8) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... ge, nor had provided an exit option to all of its shareholders, and furthermore, had also not provided a plan of action to BSE, the impugned action/order dated 30.04.2018 was taken. It can, thus, be seen that firstly, Rishabh Ispat Ltd., received a letter from BSE dated 20.10.2016, seeking from it and also from its management, compliance with SEBI's circular dated 10.10.2016. Secondly, the circular of SEBI itself provided under paragraph 6 that coercive actions may be taken against the promoters/directors of ELCs that have failed to demonstrate the adequacy of efforts for providing exit to their shareholders in conformity with the exit mechanism, as provided for under the said circular; and thirdly, Rishabh Ispat Ltd., did in fact, fail to demonstrate the adequacy of efforts for providing exit to its shareholders in conformity with the exit mechanism. Since the provisions of the circular dated 10.10.2016 had been violated by Rishabh Ispat Ltd., and also because the requirements of paragraph 3 of the circular dated 01.08.2017 had been met, BSE rightfully, in discharge of its obligations under SEBI's circular dated 01.08.2017, took the action/order dated 30.04.2018. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 11(4) of the SEBI Act, this court finds it to be wholly without merit. The action/order dated 30.04.2018 was taken by BSE and not by SEBI. While the action/order was taken by BSE, it was complying with, and taken in furtherance of, the circular dated 01.08.2017 of SEBI. With this factual matrix, this court, is unable to find any relevance or applicability of Section 11(4) of the SEBI Act. This court is, therefore, of the considered opinion that the circulars dated 10.10.2016 and 01.08.2017 issued by SEBI are legally valid, and are part of a structured scheme that deals with the situation of ELCs, and the manner in which the shareholders associated with such ELCs are to be protected. This court also does not find any infirmity in the order dated 30.04.2018 passed by BSE. - HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV For the Petitioner Through: Mr. Sahib Gurdeep Singh and Mr. Sidhant Rai Sethi, Advocates For the Respondent Through: Mr. Neeraj Malhotra, Senior Advocate, alongwith Mr. Abhishek Baid, Mr. Praneet Das, Mr. Ashok Kumar Jain, Mr. Anup Jain and Mr. Dimish Kumar, Advocates for R-1/SEBI. Ms. Surekha Rana, Advocate for R-2/BSE.) JUDGME ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are as many as 38 non-compliant ELCs. Therefore, vide order dated 30.04.2018, BSE directed the following actions/consequences to flow against noncompliant ELCs-their directors, promoters and companies:- Further the consequences of non-compliant, includes the following:- 1. The non-compliant ELCs, its directors, its promoters and the companies which are promoted by any of them shall not be eligible to access the securities market for the purposes of raising capital till the promoters of such ELCs provide an exit option to the public shareholders In compliance with SEBI circular dated October 10, 2016. 2. The promoters and directors of non-compliant ELCs' shall not be eligible to remain or become director of any listed company till the promoters of such non-complaint ELCs provide exit option to public shareholders, in compliance with SEBI circular dated October 10, 2016. 6. Mr. Sahib Gurdeep Singh and Mr. Sidhant Rai Sethi, learned counsel appearing for the petitioner submitted that the circulars dated 10.10.2016, and 01.08.2017 issued by SEBI are arbitrary and illegal. It is their case that the said circulars are in the form of a blanket ruling being aggressive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the order/action dated 30.04.2018 was taken by BSE, and that the representations of the petitioner were neither replied to nor considered. 12. It is their contention that SEBI has made no efforts to hear the petitioner. SEBI has therefore, according to learned counsel for the petitioner, failed to acknowledge that the petitioner had already resigned from her position as a Director on 05.03.2018, while the impugned action was taken on 30.04.2018. SEBI has also neglected to examine the role of the petitioner in the management of the company, and without enquiring into the actual status of the petitioner in the company, has proceeded on the basis of extraneous considerations. Furthermore, SEBI has overlooked the fact that Rishabh Ispat Ltd. remains a defunct entity that had already given an exit to the majority of its shareholders (96%) back in the year 2004, and the remaining shareholders are untraceable. 13. These averments, the learned counsel contended, could have been brought to the notice of the respondents had an opportunity of hearing been provided to the petitioner. 14. Learned counsel for the petitioner further submitted that there was no application of mind on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors and promoters was also supplied by DSE, with the same being published vide BSE s notice dated 09.07.2015. 19. It was further submitted by the learned senior counsel that through the circular dated 10.10.2016, SEBI prescribed two options to the ELCs, either to raise the requisite capital in order to get listed on a nationwide stock exchange or to give an exit option to its investors. Furthermore, BSE vide letter dated 20.10.2016 advised Rishabh Ispat Ltd to submit a plan of action, and upon it not being submitted, BSE, in compliance with SEBI s circular dated 01.08.2017, which provided for the actions that are to be taken against non-compliant ELCs, proceeded against the petitioner and took the order/action dated 30.04.2018. 20. It was submitted by the learned senior counsel that the circulars issued by SEBI are structured as a cogent scheme in which a transitional arrangement in the form of a Dissemination Board is provided for the companies that were ELCs. This arrangement is made till the requisite action is taken on the part of the management of the ELCs that ultimately ensures that the shareholders are protected. 21. Learned senior counsel also laid stress on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eates a categorization between companies that are listed on a stock exchange in addition to the stock exchange that has been de-recognized; and companies that are listed exclusively on the de-recognized stock exchange i.e., ELCs. 27. Subsequently, the said circular provides that it shall be mandatory for ELCs to either seek listing at other exchanges or provide for exit option to the shareholders. Paragraph 8 of the said circular is reproduced as under: 8. The companies which are listed in such de-recognised RSEs and also listed in any other stock exchange(s) may continue to remain listed in the other stock exchange(s). In case of companies exclusively listed on those de-recognised stock exchanges, it shall be mandatory for such companies to either seek listing at other stock exchanges or provide for exit option to the shareholders as per SEBI Delisting Guidelines / Regulations after taking shareholders' approval for the same, within a time frame, to be specified by SEBI, failing which the companies shall stand delisted through operation of law. 28. The policy under the circular dated 29.12.2008 was further revised/updated by SEBI through its circular dated 30.05.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d companies. Every stock exchange hosting a dissemination board shall clearly bring out the guidelines in respect of the Dissemination Board on its website. Features of Dissemination Board: i. Exiting Stock Exchanges will be required to enter into an agreement with at least one of the stock exchanges with nationwide trading terminals providing the Dissemination Board. The exiting stock exchange shall pay a one-time fee for the arrangement as may be decided in the agreement. The fee may be based on number of companies moving on to the dissemination board, number of public shareholders in those companies, their paid up capital etc. ii. Exchanges having nationwide trading terminal will not have listing agreement with these companies. However, information received from such companies will be disseminated. iii. The buyers/ sellers will be required to register with broker of the exchange where the dissemination board is set up. iv. No contract note is required to be issued for such transactions. v. The matched trades will not be settled through the stock exchange Clearing Corporation mechanism and hence, there will be no recourse to the Settlement/ Trade Gua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary delisting, if they so desire, it is clarified that for such companies as referred to at Para 2( ) above, the requirements of 'Minimum Public Shareholding' prescribed in Rules 19(2)(b) and 19A of the Securities Contracts (Regulation) Rules, 1957 and Clause 40A of the Listing Agreement, shall not be applicable. iv. In case of companies exclusively listed in the non-operational stock exchanges that are not traceable or where the data available is more than three years old, the process of inclusion in list of companies identified as 'Vanishing'(maintained by Ministry of Corporate Affairs) may be initiated by the respective stock exchanges. v. As per the 'Exit Circular' the exclusively listed companies, which fail to obtain listing on any other stock exchange, which do not voluntary delist or which are not considered as 'Vanishing companies', will cease to be listed company and will be moved to the dissemination board by the existing stock exchange. It shall be the responsibility of the exchanges which are being derecognized either on voluntary or compulsory basis, to place their exclusively listed companies on the dissemination board. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anges. However, they may not be in a position to obtain the NOC or other requisite confirmations from the non-operational/exited stock exchanges wherein they were originally listed In such instances, for the purpose of direct listing, the exclusively listed companies which were filing returns for the last two financial years with their respective Registrar of Companies ( RoC ) may be treated as a compliant company and the requirement of No Objection Certificate ( NOC ) or any other documents from non-operational/exited stock exchanges may not be insisted upon by the nationwide exchange which is providing the listing platform. For the listing purpose, the company shall obtain compliance certification from any independent professionals and submit to the nation wide stock exchanges. The nationwide stock exchanges shall also carry out independent verification for ensuring the compliance of the requirements. d) All the promoters and directors of such companies, who have failed to provide the trading platform or exit to its shareholders, even after the extended time of eighteen months will have to undergo stricter scrutiny for their any future association with securities mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es as follows: *** b.The ELCs on the DB would be required to exercise one of the two optionsas mentioned in Para 4.c or 4.d of the circular. c. Raising capital for listing on Nationwide Stock Exchanges. *** d. Procedure to provide exit to investors: In order to protect the interest of all shareholders of such ELCs, an exit mechanism to investors of such ELCs shall be as prescribed in Annexure- A to this circular. Accordingly, all ELCs shall be required to ensure compliance with the procedure for exit. The oversight and monitoring of such exit mechanism shall be carried out by the designated stock exchange. i. Designated stock exchanges shall further ensure that the promoters have made adequate efforts in terms of the above provisions for providing exit to their shareholders before removing ELCs from the DB. ii. The designated stock exchange shall display the list of companies willing to provide exit to their investors on their website on a monthly basis. 5. In order to facilitate the raising of capital or provide exit to investors as mentioned under para 4.c and 4.d, it is prescribed that: a. The ELCs on the DB which are v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of sale, pledge, etc., of any of the equity shares and the corporate benefits such as dividend, rights, bonus shares, split, etc. shall be frozen, for all the equity shares, held by the promoters or directors of non-compliant Exclusively Listed Companies till the promoters of such non-compliant Exclusively Listed Companies provide an exit option to the public shareholders in compliance with SEBl circular dated October 10, 2016, as certified by the concerned Designated Stock Exchanges; b. The non-compliant Exclusively Listed Companies, its directors, its promoters and the companies which are promoted by any of them shall not be eligible to access the securities market for the purposes of raising capital till the promoters of such non-compliant Exclusively Listed Companies provide an exit option to the public shareholders incompliance with SEBI circular dated October 10, 2016, as certified by the concerned Designated Stock Exchanges. c. The promoters or directors of non-compliant Exclusively Listed Companies shall not be eligible to remain or become director of any listed company till the promoters of such noncompliant Exclusively Listed Companies provide an exit op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors of the ELCs. 41. It is thus seen that the circular dated 01.08.2017 is part of a stage-wise effort on the part of SEBI to ensure that either the ELCs get listed on a nationwide stock exchange or an exit option gets provided to the shareholders, ultimately leading to the investments of the retail investors becoming secure. 42. It must further be considered as to whether there is a specific trigger that initiates coercive action against the promoters/directors of the ELCs. It can be seen that paragraph 5 of the circular dated 10.10.2016 casts a mandatory obligation upon the ELCs on the Dissemination Board, that have not indicated their intention to comply with the listing option or the option of providing an exit to the shareholders. Such ELCs are to submit their plan of action to the designated stock exchanges latest within three months from the date of issuance of the circular, failing which coercive actions, as specified under paragraph 6 of the said circular, can be taken. 43. Similarly, the condition requirement for taking the coercive steps against the promoters/directors under the circular dated 01.08.2017 is provided in paragraph 3 of the said circular. It being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme of the circulars themselves. This being the case, the argument of the learned counsel of the petitioner is found to be totally unfounded. 48. This court, thus, finds the circulars dated 10.10.2016 and 01.08.2017 issued by SEBI to be valid in the eyes of law and not deserving any interference. 49. Having decided upon the issues relating to the validity of the aforementioned circulars, this court must now decide the issues relating to the legality of the action/order dated 30.04.2018 passed by BSE. 50. Through the action/order of BSE dated 30.04.2018, noncompliant ELCs, their directors, promoters and the companies, which are promoted by any of them, were deemed ineligible to access the securities market for the purposes of raising capital; and were also deemed ineligible to remain or become directors of any listed company till the promoters of such non-compliant ELCs provide an exit option to public shareholders, in compliance with SEBI circular dated 10.10.2016. This action/order of BSE contained a table that noted the name of the petitioner and indicated that the action is taken for a period of 10 years. The material part of the action/order dated 30.04.2018 reads a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es whose equity shares were exclusively listed at a recognised stock exchange at the time of exit of such exchange and were subsequently moved to the Dissemination Board of NSE and BSE and whose shares are available for buying and selling on Dissemination Board. 53. It is not disputed that DSE was the only stock exchange on which the Rishabh Ispat Ltd. was listed. The proposition intended to be advanced by the petitioner is that Rishabh Ispat Ltd. had been delisted prior to the de-recognition of DSE, which took place through an order of SEBI dated 19.11.2014. 54. It is the case of the petitioner that Rishabh Ispat Ltd. was delisted 6 months after it got suspended by DSE on 04.03.2002 according to the provisions of the Delisting Guidelines, specifically Clause 15. 55. As pointed out by the learned counsel for BSE, with which this court is in agreement, there is nothing brought on record by the petitioner that factually suggests that Rishabh Ispat Ltd was delisted on a date prior to the de-recognition of DSE. 56. This court must now examine the legal contention of the petitioner that given that Rishabh Ispat Ltd. was suspended by DSE, a logical supposition could be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y by a promoter or an acquirer or any other person other than the stock exchange(s). 60. A bare perusal of the definitions would reveal that the word compulsory as used in the heading of Clause 15 of the Delisting Guidelines is aimed at emphasizing that the procedure contained therein allows delisting at the behest of the stock exchange, as opposed to a voluntary delisting which provides for delisting by a promoter or acquirer of a body corporate. The use of the word compulsory thus cannot possibly indicate a system of automatic delisting once suspension has taken place and 6 months have passed. 61. The Report of the Delisting Committee on Delisting of Shares dated 13.08.2002 set up under the convenorship of Shri. Pratip Kar, former Executive Director of SEBI, later accepted by SEBI, had made certain recommendations relating to the delisting of securities under the Indian regime. Based on the recommendations of the Committee, the Delisting Guidelines had been issued. In paragraph 4.34 of the said report, the following recommendations were made in relation to Compulsory Delisting of Companies by the Stock Exchanges : *** The Committee therefore recommends t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tains the name of Rishabh Ispat Ltd., at Sl. No. 980. 66. This court, is thus, of the opinion that the petitioner has not been successful in convincing this court that Rishabh Ispat Ltd. had been delisted prior to the de-recognition of DSE. It is, thus, the case that Rishabh Ispat Ltd. fell within the definition of an ELC as defined inter alia under paragraph 4 of the circular dated 01.08.2017 issued by SEBI. BSE is, thus, found to be vested with the requisite legal jurisdiction to have issued the order/taken the action dated 30.04.2018 against the petitioner. 67. This court must now consider the submission of the learned counsel for the petitioner relating to the violation of the principles of natural justice. 68. The first claim relates to the petitioner not having been provided an opportunity of being heard before BSE took the action/order dated 30.04.2018. 69. The order/action of BSE dated 30.04.2018 was taken in order to comply with the circular issued by SEBI dated 01.08.2017. The said circular provided initial steps that are to be taken in order to ensure that the exit option is provided to the shareholders of ELCs that have not complied with the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: Annexure-A. i. The promoter in consultation with the designated stock exchange shall appoint an 'independent valuer' from the panel of expert valuers of the designated stock exchange. ii. In case the fair value determined is positive the promoter of the company shall acquire shares of such companies from the public shareholders by paying them such value determined by the valuer. iii. The promoter shall undertake to complete the entire process within seventy five working days. iv. The promoter of the company to make a public announcement in at least one national daily with wide circulation, one regional language newspaper of the region where the exited stock exchange was located and the website of the designated stock exchanges. v. The public announcement shall contain all material information of the fact of such exit opportunity to its shareholders, disclosing therein the name and address of company, including exit price offered by the promoter with the justification therefore, and shall not contain any false or misleading statement. vi. The announcement shall contain a declaration about the liability of the promoter to acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through a letter dated 20.10.2016 addressed to Rishabh Ispat Ltd., communicated that as per SEBI's circular dated 10.10.2016, Rishabh Ispat Ltd. is to either raise the capital for listing on a nationwide stock exchange or provide exit to investors. The letter then asked of Rishabh Ispat Ltd., to communicate to BSE its intention of opting for either one of the two alternatives. The material part of the letter dated 20.10.2016 reads as under: As you are aware that your company was transferred to the Dissemination Board of BE pursuant to circular issued by Securities and Exchange Board of India (SEBI) circular CIR/MRD/DSA/05/2015 dated April 17 and the company has not been listed on any of the Nationwide Stock Exchanges. Now SEBI vide circular SEBI/HO/MRD/DSA/CIR/P/2016/110 dated October 10, 2016 has given following two options to the companies which were Exclusively Listed Companies (ELCs) on De-recognised / nonoperational / exited Stock Exchanges and whose names are still appearing on the Dissemination Board of Nationwide stock Exchange. 1) Raising capital for listing on Nationwide Stock Exchange 2) Provide exit to investors. At BSE you can avail any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very director, who blatantly violates the mandatory terms of the circulars of the SEBI dated 10.10.2016 and 01.08.2017, could simply resign and claim impunity from the coercive actions that are envisaged by SEBI. The object and purpose for which the circulars were issued would, therefore, get frustrated. 81. It must be seen that when the circular dated 01.08.2017 was issued by SEBI, in furtherance of which BSE took the impugned action/order dated 30.04.2018, the petitioner remained a Director of Rishabh Ispat Ltd. Importantly, it must also be considered, that the terms of the order dated 01.08.2017 do not require a person to hold a continued position of directorship in the ELC. The circular dated 01.08.2017, specifically paragraph 3, merely requires non-compliance with the circular dated 10.10.2016 on the part of an ELC. 82. The petitioner s representations that are placed on record may now be briefly considered. It may be noted that the first representation placed on record is a joint letter by the petitioner and one Sh. Naresh Kumar Jain, Director, Rishabh Ispat Ltd., dated 28.04.2018. The letter is addressed to SEBI and is concerned with an action taken by SEBI on 04.04.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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