2015 (4) TMI 685 - HC - Companies Law

Court dismisses application on share listing issues, advises Civil Court for share price matters

The court dismissed the application, finding no merit in the claims related to listing shares on stock exchanges, providing an open exit option for ... Enforceability of a court sanctioned scheme of arrangement - basic structure of the sanctioned scheme - inherent powers under Rule 9 of the Companies (Court) Rules, 1959 - scope of Company Court under sections 391/394 of the Companies Act, 1956 - statutory discretion of SEBI and stock exchanges in listing decisions - exit option and determination of share price as a substantive right - availability of alternative remedies and jurisdiction of civil courtsBasic structure of the sanctioned scheme - enforceability of a court sanctioned scheme of arrangement - Clause 3.7 (obligation to list shares) is not an indispensable part of the scheme's basic structure such that its non implementation renders the sanctioned scheme unworkable. - HELD THAT: - The Court examined whether Clause 3.7 formed a mandatory element of the sanctioned scheme essential to its object and satisfactory working. The Court relied on its own order of 7.8.2008 which explicitly envisaged the possibility that listing might not be achieved because listing falls within the domain of statutory authorities, and accordingly provided an alternative by preserving an exit option for minority shareholders. The fact that an appeal against the 7.8.2008 order (DB Appeal No. 15/2009) was withdrawn reinforced that a predetermined exit price was not integral to the scheme. Thus delayed or non implementation of the listing clause did not make the scheme incapable of working satisfactorily.Clause 3.7 is not part of the scheme's basic structure whose non implementation would invalidate the sanctioned scheme; the scheme remains enforceable without a fixed listing timeline or preset exit price.Inherent powers under Rule 9 of the Companies (Court) Rules, 1959 - exit option and determination of share price as a substantive right - Rule 9 inherent powers cannot be used to determine the substantive question of the fair share price for exercising an exit option. - HELD THAT: - Rule 9 embodies the Court's inherent procedural powers and is akin to section 151 CPC; it is confined to practice and procedure and is not a vehicle to adjudicate substantive rights. Determination of the fair price for shares is a substantive, fact sensitive enquiry dependent on evidence and market conditions and cannot be resolved in a Rule 9 application. The Court emphasised established authority that inherent powers must be exercised with circumspection and cannot be used as a substitute for available alternative remedies or to grant reliefs that affect substantive rights.The application under Rule 9 is not an appropriate forum to fix the exit price; that substantive remedy cannot be granted in this proceeding.Scope of Company Court under sections 391/394 of the Companies Act, 1956 - statutory discretion of SEBI and stock exchanges in listing decisions - The Company Court (or this Court in exercise of Rule 9) cannot compel SEBI or stock exchanges to grant listing; it lacks jurisdiction to direct compulsory listing within a given timeframe. - HELD THAT: - Listing permission is an exercise of discretion by SEBI and the recognised stock exchanges, governed by their statutory/regulatory regimes. The power to sanction a scheme under sections 391/394 does not extend to directing autonomous statutory authorities to exercise their discretion in a particular manner. The Court relied on precedent recognising that stock exchanges and SEBI exclusively decide listing eligibility and that ordering compulsory listing would exceed the Company Court's jurisdiction. The Court also noted that listing was not shown to be the raison d'e tre of the sanctioned scheme and that the company has represented its intention to seek listing when commercial and regulatory conditions permit.No direction for compulsory listing or a specific listing timetable can be issued by this Court.Availability of alternative remedies and jurisdiction of civil courts - Claim for determination of share price and related substantive reliefs are matters for appropriate forums (including civil courts) and not for adjudication in this Rule 9 proceeding. - HELD THAT: - There is no provision in the Companies Act, 1956 or the sanctioned scheme that furnishes the particular remedy claimed by applicants in this Rule 9 petition for fixing a share price. The Court observed authorities indicating that where the Act does not oust ordinary civil jurisdiction, shareholders may seek redress in civil courts for contractual or common law disputes. Given the substantive nature of the price dispute and absence of a statutory mechanism in the present context, the applicants were directed to pursue remedies in competent fora.Applicants are free to approach civil courts or other competent forums for determination of share price and related substantive reliefs.Enforceability of a court sanctioned scheme of arrangement - Requests for ancillary reliefs (appointment of a minority director and compensation for delayed listing) lie outside the scope of the sanctioned scheme and are not maintainable in this Rule 9 application. - HELD THAT: - The Court found that the reliefs seeking appointment of a minority representative on the board and compensation for delayed listing do not arise from the scheme's object or its enforceable provisions. Such measures are not authorised by the sanctioned scheme or by Rule 9's procedural/inherent jurisdiction. The Court therefore treated these heads as ex facie beyond the scope of the proceedings and rejected them.Claims for appointment of a director from minority shareholders and for compensation are beyond the remit of this application and are dismissed.Final Conclusion: The application under Rule 9 is dismissed. Clause 3.7's non implementation does not vitiate the sanctioned scheme; the Court will not determine the exit price or compel listing (matters being substantive or within SEBI/stock exchanges' domain). Applicants remain free to pursue appropriate remedies (including civil courts) for substantive relief. Issues Involved:1. Listing of shares on stock exchanges.2. Continuous open exit option for minority shareholders.3. Appointment of a representative of minority shareholders on the Board of Directors.4. Compensation for delay in listing shares.Issue-wise Detailed Analysis:1. Listing of Shares on Stock Exchanges:The applicants requested that the respondent company be directed to list its shares on stock exchanges as per Clause 3.7 of the sanctioned Scheme of Arrangement dated 8.5.2006. The clause mandated listing on NSE and BSE. Despite efforts, the company failed to obtain necessary relaxations from SEBI under Rule 19(2)(b) of the Securities Contract (Regulations) Rules, 1957. The company's AGM on 12.12.2007 resolved to seek deletion of Clause 3.7 due to listing difficulties, but the Company Court on 7.8.2008 ordered the company to initiate the listing process within 18 months. The company faced severe financial setbacks, including the cancellation of its licenses by the Supreme Court, making listing unviable. The court concluded that listing shares within a specified time frame could not be mandated as it was beyond the jurisdiction of the Company Court and dependent on statutory authorities like SEBI and stock exchanges.2. Continuous Open Exit Option for Minority Shareholders:The applicants sought a continuous open exit option at a fair value, arguing that the company offered an inadequate exit price of Rs. 10 per share. The Company Court's order dated 7.8.2008 provided an exit option if listing did not occur. The respondent company argued that the applicants, having subscribed to additional shares at Rs. 10 per share in March 2011, negated their exit option. The court found that determining the share price for the exit option was a substantive right issue, not a procedural one, and could not be addressed under Rule 9 of the Companies (Court) Rules, 1959. The applicants were advised to approach a jurisdictional Civil Court for grievances regarding share price for their exit.3. Appointment of a Representative of Minority Shareholders on the Board of Directors:The applicants sought the appointment of a minority shareholder representative on the Board of Directors. The court held that this relief was beyond the scope of Rule 9 of the Companies (Court) Rules, 1959, and thus, not tenable.4. Compensation for Delay in Listing Shares:The applicants sought compensation for the delay in listing shares, claiming it caused them financial loss. The court found no provision under the Companies Act or any other legislation for such compensation. The court emphasized that the applicants' acquisition of additional shares in March 2011 contradicted their claim of suffering losses due to delayed listing.Conclusion:The court dismissed the application, finding no merit in the claims. It advised the applicants to seek remedies available in law, such as approaching a Civil Court for issues related to share price for exit options. The court reiterated that the inherent powers under Rule 9 of the Companies (Court) Rules, 1959, could not be used to determine substantive rights or compel statutory authorities to act beyond their discretion.