Appellate Tribunal remands case for re-hearing under Companies Act, 2013

The Appellate Tribunal set aside the previous order and remanded the case for re-hearing. The Tribunal was directed to consider the Regional Director's affidavit and allow all parties to present arguments. The Tribunal was instructed to expedite the decision under the Companies Act, 2013, and scheduled a hearing for all parties at the NCLT, Chennai Bench on 28th May 2018. No costs were awarded.

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Issues Involved:
1. Compliance with SEBI Circulars and Regulations
2. Valuation Methodology
3. Utilization of Company Funds for Share Buyback
4. Consideration of Affidavit by Regional Director
5. Voting Process and Shareholder Approval

Issue-wise Detailed Analysis:

1. Compliance with SEBI Circulars and Regulations:
The appellant argued that the SEBI Circulars dated 29th December 2008, 30th May 2012, 22nd May 2014, and 17th April 2015, which provide guidelines for exit opportunities to non-promoter shareholders, were not followed. The appellant contended that the fair price of shares should have been determined by an independent valuer from the panel of the designated stock exchange, and the promoters should not have used company funds to finance the exit opportunity. The respondent countered that all provisions of the Companies Act, 2013, were complied with and that the SEBI Circular dated 10th October 2016 was applicable retrospectively to all de-recognised/non-operational stock exchanges.

2. Valuation Methodology:
The appellant challenged the valuation of shares at Rs. 107 per share, arguing it was much less than the Fair Market Value (FMV) and that the Discounted Cash Flow (DCF) method used by the company’s valuer did not consider cash and bank balances, non-current investments, and liabilities. The respondent defended the valuation, stating that it was conducted by M/s P. Pattabiramen and Company, Chartered Accountants, and that the valuation was in accordance with SEBI regulations. The Regional Director's affidavit also raised concerns about the valuation methodology, suggesting that the Net Asset Value (NAV) method should have been used, which valued shares at Rs. 351 per share.

3. Utilization of Company Funds for Share Buyback:
The appellant argued that the promoters used company funds, including the Securities Premium Account and General Reserves, to buy back shares from non-promoters, which enriched the promoters at the expense of the company. The respondent countered that such utilization is permissible under sub-section (1) of Section 52 of the Companies Act, 2013, and referenced the judgment in In re: Nestle India Ltd and the Supreme Court decision in G.L. Sultania Vs SEBI, which upheld the legality of such transactions.

4. Consideration of Affidavit by Regional Director:
The appellant argued that the Tribunal did not consider the affidavit dated 18.9.2017 by the Regional Director, which raised significant objections regarding the valuation and compliance with SEBI regulations. The respondent contended that the affidavit was filed beyond the statutory period, and thus, the Tribunal was right in not considering it. However, the Appellate Tribunal found that the affidavit was filed before the judgment date and should have been considered to ensure compliance with the principle of natural justice.

5. Voting Process and Shareholder Approval:
The appellant contended that the votes of public shareholders and promoters were not counted separately, which would have shown the defeat of the resolution for the reduction of share capital. The Regional Director also noted that the scrutinizer should have segregated the voting by promoters and non-promoters for better appreciation of the facts. The respondent maintained that the special resolution was passed with 89.56% shareholder approval, and all procedural requirements were met.

Conclusion:
The Appellate Tribunal set aside the impugned order dated 4.10.2017 and remanded the matter back to the Tribunal for re-hearing. The Tribunal is directed to consider the affidavit dated 18.9.2017 by the Regional Director and provide an opportunity for all parties to argue on the same. The Tribunal is also instructed to decide the Company Petition expeditiously in terms of Section 422 of the Companies Act, 2013, and allow parties to argue on other issues as well. The parties are directed to appear before the NCLT, Chennai Bench, on 28th May 2018. No order as to cost.

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