Tribunal quashes SEBI orders on directors' non-compliance, citing misinterpretation, directs further court directions

The Tribunal quashed SEBI's ex-parte interim order and subsequent confirmatory order, finding that the directors were not responsible for non-compliance with Minimum Public Shareholding (MPS) requirements. The Tribunal held that SEBI misinterpreted the Calcutta High Court's orders and should have sought further directions from the Court. The appeals were allowed with no order as to costs.

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Issues Involved:
1. Compliance with Minimum Public Shareholding (MPS) requirements.
2. Validity of the Scheme of Arrangement and Amalgamation.
3. SEBI's ex-parte interim order and subsequent confirmatory order.
4. Responsibility of the Directors for non-compliance.

Detailed Analysis:

1. Compliance with Minimum Public Shareholding (MPS) Requirements:
The core issue revolves around the compliance with the Minimum Public Shareholding (MPS) requirement as per Rule 19 and Rule 19A of the Securities Contracts (Regulation) Rules, 1957 (SCRR). The amended rules mandated that all listed companies must maintain a public shareholding of at least 25%. Companies with less than 25% public shareholding were required to achieve this threshold by June 03, 2013. The amendments aimed to ensure greater public participation in listed companies.

2. Validity of the Scheme of Arrangement and Amalgamation:
To comply with the MPS requirements, a Scheme of Arrangement and Amalgamation was proposed and sanctioned by the Calcutta High Court. The scheme involved transferring shares held by the promoter entity, IPCL, to an independent trust ("Power Trust"), and subsequently amalgamating IPCL into DPSC. The scheme was designed to reduce IPCL's shareholding from 93% to below 75% and classify the trust's shareholding as public. However, SEBI contended that the shares held by the trust should be considered promoter shareholding, not public shareholding, and sought modification of the High Court's order.

3. SEBI's Ex-parte Interim Order and Subsequent Confirmatory Order:
Despite the sanctioned scheme, SEBI issued an ex-parte interim order on June 4, 2013, against the company and its directors, freezing the voting rights and corporate benefits of the promoter's shares, restraining the promoters and directors from dealing in shares, and barring them from holding new director positions in any listed company. SEBI later confirmed this order on July 25, 2017, arguing that the company and its directors had failed to ensure compliance with the MPS requirements.

4. Responsibility of the Directors for Non-compliance:
The Whole Time Member (WTM) of SEBI held that the directors of DPSC were responsible for ensuring compliance with the regulatory guidelines. The WTM stated, "the Noticees, being the directors of the Company (DPSC) ought to have ensured that the functioning of the Company (DPSC) was in full compliance with the applicable laws including the provisions of Securities Contracts (Regulation) Rules, 1957." However, the Tribunal found that the Calcutta High Court's orders directed the trust, not the company or its directors, to divest shares to the public.

Tribunal's Findings:
The Tribunal concluded that the WTM misinterpreted the Calcutta High Court's orders and erroneously held the company and its directors responsible for non-compliance. The Tribunal emphasized that any deviation from the sanctioned scheme required further directions from the Calcutta High Court. The Tribunal stated, "We are of the opinion that the Whole Time Member has misinterpreted the orders of the Calcutta High Court and has committed an error in holding that the DPSC and its Directors had not complied with the MPS requirement."

Conclusion:
The Tribunal quashed the ex-parte interim order dated June 4, 2013, and the confirmatory order dated July 25, 2017, stating that SEBI should have sought further directions from the Calcutta High Court rather than restraining the directors. The Tribunal allowed the appeals and concluded that it was unnecessary to determine whether the appellant, being a Non-Executive Director, was responsible for the company's affairs. The appeals were allowed with no order as to costs.

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