2025 (11) TMI 867 - AT - SEBI

Regulator barred capital-mobilization applications during debarment; allowed internal discussions and shareholder resolutions stating debarment until Oct 22, 2025

One Life Capital Advisors Limited & Anr., Prabhakara Naig Versus Securities and Exchange Board of India

The AT held that the regulator was correct to bar any application seeking permission to mobilize capital during the debarment, but allowed the appellant ... Seeking board's and shareholder Permission to pass internal corporate resolutions during debarment - permission for Rights issue and preferential shares - HELD THAT:- In our view, SEBI is right in contending that permitting the appellant to make any application to the regulator seeking permission to mobilize capital may result in diluting our order dated May 02, 2025. However, so far as the shareholders’ resolution is concerned, his contention is that appellant may pass the resolutions, if it thinks that there is no bar. In our view, the order of debarment which is challenged in this appeal should not restrain the appellants from holding internal discussions and to pass the resolution of shareholders be passed, subject however, by making it clear in the agenda that debarment by SEBI is in force till October 22, 2025. We say so because the same will be within the knowledge of shareholders. Appellants are permitted to obtain the shareholders’ resolution by clearly mentioning in the agenda and also in the resolution that the debarment period is in force till October 22, 2025. Accordingly, this application is disposed of permitting the appellant to obtain the shareholders’ resolution by clearing mentioning in the in the agenda and the resolution that debarment is in force till October 22, 2025. The request of filing the application to Stock Exchanges and SEBI is rejected. ISSUES PRESENTED AND CONSIDERED 1. Whether a party subject to a regulatory debarment order may be permitted, before expiry of the debarment period, to pass internal corporate resolutions (including shareholders' resolutions) relating to a proposed share-swap and capital-raising transaction. 2. Whether a party subject to a regulatory debarment order may be permitted, before expiry of the debarment period, to submit applications or seek permissions from the securities regulator or stock exchanges for carrying out preferential/rights issues or related capital-raising steps. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Permissibility of passing internal corporate resolutions during debarment Legal framework: Corporate decision-making requires board and shareholder approvals for structural transactions (share swaps, transfers of subsidiaries, and capital-raising) under company law and listing/regulatory regimes; regulatory debarment orders operate to restrict dealings with the regulator and may affect the ability to obtain external permissions, but do not automatically nullify internal corporate governance processes unless expressly stated. Precedent Treatment: The Tribunal considered the debarment order's operative effect as limiting interaction with the regulator rather than an absolute prohibition on internal corporate acts; no prior authority was cited overruling this approach, and the Tribunal treated internal resolution-passing as distinct from seeking regulatory permissions. Interpretation and reasoning: The Court reasoned that permitting internal deliberations and passage of shareholders' resolutions does not dilute the debarment order so long as the agenda and the resolution expressly record the existence and duration of the debarment. The Tribunal balanced the affected party's ability to plan corporate affairs against the object and effect of debarment, concluding that transparency in the agenda/resolution preserves shareholder awareness and avoids misleading third parties or undermining the debarment. Ratio vs. Obiter: Ratio - A regulatory debarment does not, by itself, bar a company from holding internal meetings or passing shareholders' resolutions concerning proposed transactions, provided the resolutions and agendas clearly disclose the debarment and its expiry. Obiter - Observations on the propriety of particular internal preparatory steps beyond disclosure (e.g., preparatory negotiations) are not determinative here. Conclusion: The Tribunal permitted passage of shareholders' resolutions for the proposed share-swap and related matters, subject to a mandatory disclosure in the agenda and the resolution that the debarment remains in force until the stated expiry date. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Permissibility of filing applications with regulator/stock exchanges during debarment Legal framework: Applications to securities regulators and stock exchanges for permissions to effect share-swaps, preferential/rights issues and capital raising are governed by regulatory rules; a debarment order aims to prevent access to regulatory processes and approvals during its operative period. Precedent Treatment: The Tribunal adhered to the effect and spirit of the debarment order previously made and declined to permit pre-expiry engagement with the regulator or exchange for the purposes of obtaining permissions. No precedent was adopted to allow regulatory access in face of an extant debarment. Interpretation and reasoning: The Tribunal accepted the respondent's contention that allowing submission of applications to SEBI/stock exchanges before debarment expiry would be inconsistent with the earlier debarment order and could effectively dilute its operative effect. The Court distinguished internal corporate acts (addressed in Issue 1) from outward regulatory engagement that would seek to circumvent the debarment by initiating approval processes prior to expiry. Ratio vs. Obiter: Ratio - Permission to file applications or seek regulatory/exchange approvals during an active debarment period is not to be granted, as such steps would be contrary to the debarment's object and effect. Obiter - The notion that the debarred party may undertake limited preparatory work that does not involve regulator/exchange filings was noted but not extended into a broader permission to engage the regulator. Conclusion: The Tribunal rejected the prayers seeking leave to submit applications/requests to the securities regulator and stock exchanges until expiration of the debarment period; the application to seek such permissions was dismissed. Cross-References and Interplay Between Issues The Court differentiated between internal corporate governance acts (allowed with disclosure) and external regulatory engagement (prohibited). The permitted internal acts are subject to explicit, contemporaneous disclosure of debarment status in agendas and resolutions to ensure shareholder knowledge and to prevent any implied regulatory clearance or circumvention of the debarment. Practical Directives and Outcome The Tribunal ordered that shareholders' resolutions may be passed only if the agenda and the resolution expressly mention the existence and expiry date of the debarment; all requests to file or submit applications to the securities regulator and stock exchanges for permissions to raise capital or implement the share-swap prior to debarment expiry were denied.