2025 (1) TMI 16 - AT - SEBI

Company with paid-up capital below Rs.10 crores exempt from corporate governance under Regulation 23 SEBI LODR 2015

Remsons Industries Limited Versus National Stock Exchange of India Limited, Securities and Exchange Board of India And Remsons Industries Limited Versus BSE Limited, Securities and Exchange Board of India

The Securities Appellate Tribunal ruled in favor of the appellant company regarding exemption from corporate governance provisions under Regulation 23 of ... Applicability of corporate governance provisions - applicability of Regulation 23 of SEBI (LODR) Regulations Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 to appellant Company - Appellant’s solitary contention is that the paid-up share capital is less than Rs.10 crores, thus entitled for exemption from compliance with the corporate governance provisions - HELD THAT:- It is settled that words of a statute are understood in their natural and ordinary sense; and sentences are construed according to their grammatical meaning. It is also settled that if the enacting portion of a Section is not clear, a proviso appended to it may give an indication as to its true meaning. Contention of the appellant is that in order to get the exemption from compliance with corporate governance provisions, the entity has to satisfy both conditions, namely, that the equity share capital should not exceed Rs.10 crores and net worth not exceed Rs.25 crores. We see force in this argument because a plain reading of the proviso makes it clear that the exemption shall continue to remain applicable till the equity share capital or the net worth of the entity reduces below the specified threshold. Therefore, we are of the considered view that since the paid-up equity share capital is less than Rs.10 crores, the corporate governance provisions do not apply to the appellant entity. Appeal allowed holding that the corporate governance provisions are not applicable to the appellant as the paid-up equity capital is less than Rs.10 Crores - As the penalty is unsustainable with a further direction to refund the same with interest at 8% p.a. within a period of 8 weeks from the date of this order. 1. ISSUES PRESENTED and CONSIDEREDThe primary legal issue in this judgment concerns the applicability of Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) to the appellant company. Specifically, the question is whether the appellant company is exempt from compliance with corporate governance provisions under Regulation 15(2) of the LODR Regulations.2. ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The LODR Regulations, particularly Regulation 15(2), stipulate that a listed entity with a paid-up equity share capital not exceeding Rs.10 crores and a net worth not exceeding Rs.25 crores is exempt from certain corporate governance provisions, including Regulation 23. The interpretation of these provisions is crucial to determining the applicability of the regulations to the appellant.Court's interpretation and reasoning:The court examined the language of Regulation 15(2), emphasizing the conjunctive requirement that both the paid-up equity share capital and the net worth must meet the specified thresholds for exemption. The court considered the literal meaning of the word 'and' in the regulation, which necessitates satisfaction of both conditions for the exemption to apply.Key evidence and findings:The appellant's paid-up equity share capital as of March 31, 2021, was Rs.5.71 crores, and its net worth was Rs.31.36 crores. The appellant argued that since the paid-up share capital was below Rs.10 crores, it should qualify for the exemption. However, the net worth exceeded the Rs.25 crores threshold, which was a point of contention.Application of law to facts:The court applied the statutory language of Regulation 15(2) to the facts, concluding that the appellant did not meet both criteria for exemption. The court noted that the regulation's proviso indicated that the exemption would continue until either the equity share capital or the net worth fell below the specified thresholds, reinforcing the conjunctive requirement.Treatment of competing arguments:The appellant's argument relied on the interpretation that the exemption should apply if either condition was met. The respondent countered that both conditions must be satisfied, citing the need for strict compliance with corporate governance provisions due to their impact on the securities market. The court favored the respondent's interpretation, supported by precedents emphasizing the conjunctive nature of 'and' in statutory language.Conclusions:The court concluded that since the appellant's net worth exceeded Rs.25 crores, it did not qualify for the exemption under Regulation 15(2), despite its paid-up equity share capital being below Rs.10 crores.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning:'The word 'and' is normally conjunctive and word 'or' is normally disjunctive. The word 'and' is required to be given its literal meaning.'Core principles established:The judgment reinforces the principle that statutory language must be interpreted according to its plain and ordinary meaning, particularly when the language is clear and unambiguous. The conjunctive use of 'and' in legal provisions requires all conditions to be satisfied for applicability or exemption.Final determinations on each issue:1. The corporate governance provisions under Regulation 23 of the LODR Regulations are not applicable to the appellant, as the paid-up equity share capital is less than Rs.10 crores.2. The penalty imposed on the appellant is unsustainable, and the court directed a refund of the penalty amount with interest at 8% per annum within eight weeks.