2022 (5) TMI 659 - SCH - SEBI

Supreme Court affirms Securities Appellate Tribunal decision on related party voting.

The Supreme Court upheld the decision of the Securities Appellate Tribunal in a case involving an alleged violation of Regulation 23 of SEBI Regulations ... Related party transaction - Company proposed to enter into a transaction with one Neelkanth Realtors Private Limited for purchase of 40,000 sq. ft. of residential space - Extra-Ordinary General Meeting was convened for rescinding the resolution in which, the related parties also voted - violation of Regulation 23 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 - HELD THAT:- The Securities Appellate Tribunal has not approved this order passed by the Adjudicating Officer and has allowed the appeal filed by the present respondents while, inter alia, holding that the bar of voting as per Section 188 of the Companies Act, 2013 on related parties operated only at the time of entering into a contract or arrangement, i.e., when the resolution dated 15.07.2014 was passed; and therein the said related parties indeed abstained from voting. The Appellate Tribunal found no fault in the said parties voting in the recalling/rescinding of the said resolution. The view, as taken by the Appellate Tribunal, in the given set of facts and circumstances of the present case, appears to be a plausible view of the matter. In fact, nothing of ill-intent on the part of the respondents has been established in the present case. The hyper-technical stance of the appellant could have only been, and has rightly been, disapproved on the given set of facts and circumstances. Issues Involved:- Alleged violation of Regulation 23 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015- Interpretation of Section 188 of the Companies Act, 2013 regarding related party transactionsAnalysis:1. Alleged Violation of Regulation 23 of SEBI Regulations:The case revolved around the alleged violation of Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The appellant, SEBI, issued a notice alleging a violation of this regulation concerning a transaction between R. T. Exports Limited and Neelkanth Realtors Private Limited. The Adjudicating Officer penalized the respondents with a cumulative sum of Rs. 35 lakhs for this alleged violation. However, the Securities Appellate Tribunal overturned this decision, holding that the related parties were not at fault for voting during the rescinding of a resolution, as the bar on related parties voting per Section 188 of the Companies Act, 2013 applied only at the time of entering into the initial contract or arrangement.2. Interpretation of Section 188 of the Companies Act, 2013:The crux of the matter involved interpreting Section 188 of the Companies Act, 2013, which deals with related party transactions. The Appellate Tribunal emphasized that the prohibition on related parties voting applied specifically when the resolution approving the transaction was passed. In this case, the related parties had abstained from voting when the initial resolution was approved on 15.07.2014. However, during the Extra-Ordinary General Meeting convened later to rescind the resolution, the related parties did vote. The Tribunal found this action permissible under the law, as the prohibition under Section 188 did not extend to the rescinding of a resolution.In conclusion, the Supreme Court, comprising Hon'ble Mr. Justice Dinesh Maheshwari and Hon'ble Mr. Justice Aniruddha Bose, dismissed the appeal, upholding the decision of the Securities Appellate Tribunal. The Court concurred with the Tribunal's view that the related parties had not acted with ill-intent and that the hyper-technical stance of the appellant, SEBI, was not justified in the circumstances of the case. Therefore, the appeal was dismissed, and all pending applications were disposed of accordingly.