Court Approves Scheme for Sale of Attached Shares with Emphasis on Transparency and Price Maximization

The Court determined that the time had come to frame a Scheme for the sale of attached shares belonging to the notified parties, despite objections raised by the parties. The Court clarified the distinction between sale and distribution of assets, allowing for the independent sale of assets. The Scheme, which included the constitution of a Disposal Committee, was approved with certain norms to ensure transparency and the best possible price. The Court retained control over the sale of bulk shares and controlling blocks of shares to prevent destabilization of companies. The implementation of the Scheme was directed to proceed in phases, with the Court reserving the right to make further adjustments as necessary.

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Issues Involved:
1. Whether the time to frame the Scheme for sale of attached shares belonging to the notified parties has arrived.
2. Challenge to the validity of the Scheme.
3. Implementation of the Scheme.

Detailed Analysis:

A. Whether the time to frame the Scheme for sale of attached shares belonging to the notified parties has arrived:

The notified parties objected to the framing of the Scheme on the ground that the sale of shares cannot be effected until the date of distribution arises. They argued that the sale of attached assets is inextricably linked to the distribution of assets in the order of priority envisaged under section 11(2) of the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992. They contended that sale and distribution are not separate events and that the sale of assets cannot take place on a particular day and distribution after five years. It was argued that the distribution was dependent upon the determination of liability of the notified parties under section 9A of the Act. They further contended that the tax liabilities should be final and binding, and that pending appeals against assessments meant that the liabilities were not crystallized. The notified parties also raised the issue of nexus, arguing that the attached assets should not be sold until it is determined whether they have any nexus with illegal transactions in securities.

The Court found no merit in these arguments, emphasizing the distinction between sale and distribution. Section 11(1) deals with the sale of attached assets, while section 11(2) deals with the distribution of assets. The Court held that the sale of assets can proceed independently of the distribution process. The Court also noted that the notified parties had not produced relevant documents or statements of assets and liabilities, delaying the process. The Court concluded that the time to frame the Scheme for the sale of attached shares had indeed arrived, as the liabilities of the notified parties exceeded the attached assets.

B. Challenge to the validity of the Scheme:

The Scheme was framed under section 11(1) of the Act and was forwarded to the Union of India for approval, following the Supreme Court's directions. The Scheme provides for the constitution of a Disposal Committee to assist the Custodian in selling the attached shares. The Committee includes the Custodian, Director General (Investigation), Managing Director of UTI Securities, Managing Director of ICICI Brokerage Services Limited, and the OSD in the branch office of the Custodian at Mumbai.

Objections to the Scheme were raised on various grounds, including the composition of the Disposal Committee, the priority given to offers from public sector banks and financial institutions, and the potential conflict of interest with institutional brokers on the Committee. The notified parties argued that the Court should retain control over the sale of shares and that the Scheme should not apply uniformly to all notified parties.

The Court found no merit in the objections to the constitution of the Disposal Committee, noting that UTI Securities and ICICI Brokerage Services Limited were distinct from their parent institutions and not involved in the scam. The Court emphasized the need for institutional brokers due to the large number of shares involved. However, the Court agreed that the sale of bulk shares and controlling blocks of shares should come before the Court to ensure the best possible price and avoid destabilization of companies. The Court approved the Scheme subject to certain norms for the sale of bulk shares and controlling blocks of shares.

C. Implementation of the Scheme:

The Court outlined the procedure for the implementation of the Scheme, including the registration and dematerialization of shares. The Custodian was directed to prepare a panel of agencies for this purpose and to start the process of registration and dematerialization. The Court approved the sale of all registered shares in possession of the Custodian, except for shares of Apollo Tyres, which were pending in the Supreme Court.

The Court categorized the shares into three parts: routine shares, bulk shares, and controlling blocks of shares. Routine shares could be disposed of by the Disposal Committee, while the sale of bulk shares and controlling blocks of shares would come before the Court. The Court laid down specific norms for the preparation and sale of bulk shares and controlling blocks of shares to ensure transparency and the best possible price.

Conclusion:

The Court ordered the sale of all registered shares except Apollo Tyres, approved the Scheme subject to the outlined norms, and directed the Custodian to start the process of registration and dematerialization. The Court retained control over the sale of bulk shares and controlling blocks of shares to ensure the best possible price and avoid destabilization of companies. The Scheme was to be implemented in phases, with the Court reserving the right to make further additions based on the experience gained from the sale of registered shares.

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