2025 (11) TMI 1358 - AT - Companies Law

Tribunal Upholds Promoter Reclassification, Valid Rights Issue Rejection for Non-Demat Shares Under Rule 9A, Petition Continues

Roop Ultrasonix Limited, Anant Suryakant Trivedi, Rupa Anant Trivedi, Kodur Rajagopalan Puthanvitil, Karishma Vipul Tanna and Natwarlal Vallbhdas Trivedi Versus Telsonic Holdings AG, Switzerland

The appellate tribunal held that the respondent shareholder was not a 'promoter' when the appellant company launched its March 2023 rights issue, as prior ... Relief granted beyong prayers made - re-classification of ‘promoter shareholder’ as ‘public shareholder’ in an unlisted public company - Telsonic Holding AG was a promoter on the date when the rights issue was launched by the appellant or not - responsibilities of the Appellant Company while making the rights issue - correctness in cancelling the rights issue and directing refund of share application money. Whether Telsonic Holding AG was a promoter on the date when the rights issue was launched by the appellant? - HELD THAT:- In the present case, the Appellant Company was established in 1992 as a joint venture of Telsonic Holding AG and Roop Ultrasonix Pvt. Ltd. Initially, it was incorporated as a private company and the status was changed from private to public w.e.f. 25.10.1994. A number of agreements were signed between Telsonic Holding AG and Roop Ultrasonix Limited. However, apparently Telsonic Holding AG started withdrawing from the control of the Appellant Company. The co-operation agreement made on 29.10.1997, and further on 20.09.2005, to establish strategic partnership between the two groups was cancelled by Telsonic on 24.08.2019 - Telsonic was not having any control over the Appellant Company as it was neither the majority shareholder nor had a representative on the Board of Directors, and therefore cannot be termed as ‘promoter’ by virtue of sub-section (b) or sub- section (c) of Section 2(69). Regarding applicability of sub-section(a) of Section 2(69), it can be seen that the Respondent (Telsonic) was identified as a promoter in the annual return as on 31.03.2022 and in the PAS-6 form for the period ending 30.09.2022. However, considering the termination of various agreements and withdrawal of their nominee from board of directors, the board of directors in their meeting dated 09.11.2022 resolved to reclassify Telsonic Holding AG from “promoter to public shareholder/other than promoter” - In the PAS-6 form and annual return of the subsequent period i.e. as on 31.03.2023, the Respondent (Telsonic) is not shown as a promoter of the Company. It is apparent that when the rights issue was undertaken by the Appellant Company in March, 2023, Respondent (Telsonic) was not a ‘promoter’ of the company. It is apparent that the general principle is that every procedure is to be understood as permissible till it is shown to be prohibited in law - there is no prohibition in reclassification of promoter. However, the said circular of SEBI is for listed companies, and since the Appellant Company, is an unlisted public company, the said procedure is not applicable to it - Thus, it is clear that a ‘promoter’ can be reclassified as ‘non-promoter/public shareholder’ and the Respondent (Telsonic) was correctly re-classified as ‘’public shareholder/other than promoter” on 09.11.2022, much before the launch of rights issue of equity shares. What were the responsibilities of the Appellant Company while making the rights issue and whether these were complied with? - HELD THAT:- As per Rule 9A(3)(b), it is responsibility of the holder of securities of an unlisted company to ensure that all its/his existing securities are in dematerialised form before any fresh subscription. Here, the role of the Appellant Company is only to facilitate dematerialisation of all existing securities as per Rule 9A(1)(a). Thus, for shareholders other than promoters, directors and key managerial personnel, the responsibility of the Appellant Company, as prescribed in Rule 9A(1)(b) is limited to “facilitation” of dematerialization. The steps required in ‘’facilitation’’ of the process are listed in sub rules (4) to (8A) of Rule 9A. It is not the case of the Respondent (Telsonic) that it had applied for dematerialisation which was blocked by the Appellant Company. Apparently, Telsonic had never applied for dematerialization of its shares - it is also noted that as per Rule 9A(1)(a) every unlisted public company is required to issue the securities “only” in dematerialised form. Since the shares of Telsonic were not in dematerialized form, the act of Appellant Company in rejecting the application of the Respondent is fully in consonance with Rule 9A(1)(a) of the Rules. Whether the Ld. NCLT has erred in cancelling the rights issue and directing refund of share application money? - HELD THAT:- The impugned order of Ld. NCLT cannot be sustained and the Ld. NCLT has erred in cancelling the rights issue and directing refund of share application money. The impugned order is thus set aside - it is noted that the main company petition for ‘Oppression and Mismanagement’ is still pending before the Ld. NCLT. The Ld. NCLT is requested to dispose CP No. 57/MB/2023 as expeditiously as possible, though without being influenced by any observation made in this judgment. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a shareholder previously identified as a 'promoter' in an annual return can be validly reclassified as a 'public shareholder/other than promoter' by board resolution of an unlisted public company prior to a rights issue. 2. Whether an unlisted public company making a rights issue is required, as a matter of law, to ensure dematerialisation of securities of a shareholder who is not a promoter on the record date, and the respective obligations of the company versus those of individual security-holders under Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014. 3. Whether an adjudicatory authority dealing with an interim application (seeking stay) may cancel a rights issue and order refund of application money where such relief was not specifically prayed for, having regard to pleadings, opportunity to affected allottees, and principles governing grant of relief beyond pleadings. 4. Whether non-compliance with Section 62(2) (minimum notice before opening of a rights issue) by initially fixing an opening date short of three days, and later issuing an addendum postponing the opening, vitiates the rights issue where the company corrects the opening date before the issue opens. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Reclassification of Promoter Status Legal framework: Section 2(69) (definition of 'promoter') and general company law principles; absence of express statutory prohibition on reclassification for unlisted public companies; comparative procedural guidance exists in listing regulations for listed entities. Precedent treatment: The Tribunal relied on established principles that procedural rules are permissive unless expressly prohibited (citing general jurisprudence on procedural latitude), and applied analogous reasoning to permit reclassification where not prohibited by statute. Interpretation and reasoning: The Tribunal analysed factual matrix (termination of cooperation/shareholder agreements, resignation of nominee director, subsequent annual return and PAS filings) and concluded that, as a matter of fact and law, the company's board validly reclassified the shareholder as non-promoter on 09.11.2022. The Tribunal observed there is no provision in the Companies Act forbidding such reclassification for unlisted public companies, and that SEBI reclassification machinery for listed companies is inapplicable to unlisted companies. Ratio vs. Obiter: Ratio - a promoter may be reclassified as a non-promoter in an unlisted public company by board action where facts justify loss of control or identification as promoter; absence of statutory bar permits such reclassification. Observational note - SEBI rules govern listed companies and are not transferrable to unlisted companies. Conclusions: The Tribunal concluded the shareholder was not a promoter on the date of the rights issue and that reclassification was legally effective prior to the offer. Issue 2 - Obligations under Rule 9A: Company versus Security-holder Legal framework: Rule 9A(1)-(4) and (3)(b) of Companies (Prospectus and Allotment of Securities) Rules, 2014; Depositories Act and related regulations. Precedent treatment: The Tribunal applied the express language of Rule 9A to distinguish duties of an unlisted public company (issue only in dematerialised form; facilitate dematerialisation) from duties of individual holders (to ensure their existing securities are dematerialised before subscribing to new securities under Rule 9A(3)(b)). Interpretation and reasoning: The Tribunal held that Rule 9A(2) requires an unlisted public company to ensure dematerialisation of securities of its promoters, directors and KMP before making an offer; but where a shareholder is not a promoter on the relevant date, the company's mandatory obligation under Rule 9A(2) does not extend to that shareholder. For non-promoter shareholders the company must facilitate dematerialisation, while the onus to dematerialise before subscription rests on the subscribing holder per Rule 9A(3)(b). The Tribunal observed no evidence that the company blocked an application for dematerialisation or that the shareholder had applied; therefore, the company's rejection of subscription on the ground of non-dematerialisation was consistent with Rule 9A(1)(a) when the shares were required to be issued only in dematerialised form. Ratio vs. Obiter: Ratio - delineation of statutory duties: mandatory dematerialisation obligation of the company is confined to promoters/KMP under Rule 9A(2); facilitation duty applies for other shareholders, and the subscribing shareholder bears responsibility to have existing securities dematerialised under Rule 9A(3)(b). Observational guidance - company may refuse subscription where subscriber's holdings are not in dematerialised form if issuance must be in dematerialised form. Conclusions: Because the shareholder had been validly reclassified as non-promoter prior to the rights issue, the company was not statutorily obliged under Rule 9A(2) to ensure dematerialisation of that shareholder's securities; the statutory scheme places the primary onus of dematerialisation before subscription on the holder, with facilitation duties on the company for non-promoter holders. Issue 3 - Relief Beyond Pleadings and Cancellation of Rights Issue by Adjudicatory Authority Legal framework: Principles restricting grant of relief beyond pleadings and requirement to afford opportunity on new reliefs; power of adjudicatory authority to mould relief and inherent powers to do justice tempered by fairness and opportunity theory. Precedent treatment: Tribunal examined jurisprudence holding courts should not grant relief beyond pleadings without opportunity to amend and contest, but also acknowledged precedents permitting moulding of relief where issues were fully argued and parties had opportunity to meet them. Interpretation and reasoning: The Tribunal found that the interim application before the adjudicator sought stay only, whereas the adjudicator cancelled the rights issue and ordered refund of application money after the issue had closed and allotments made. The Tribunal noted lack of notice to hundreds of allottees and absence of challenge to pricing. On facts the adjudicator exceeded appropriate remedial scope on an interim application and relied on grounds not established at interim stage. The Tribunal set aside the cancellation and refund direction, observing that the main oppression and mismanagement petition remained pending for final adjudication. Ratio vs. Obiter: Ratio - an adjudicatory authority dealing with an interim application should not cancel a rights issue and order refunds where such relief goes beyond pleadings and affects third parties without adequate notice and opportunity; relief beyond the prayer requires procedural fairness. Observations - where issues are extensively argued, relief moulding may be permissible, but procedural safeguards must be respected. Conclusions: The cancellation of the rights issue and direction for refund by the adjudicator on an interim application was held to be unsustainable and was set aside; the proper forum to decide substantive allegations is the main petition where parties and affected third parties can be heard. Issue 4 - Compliance with Section 62(2) (Three-day Notice) and Effect of Corrective Addendum Legal framework: Section 62(2) Companies Act, 2013 (requirement to dispatch notice at least three days prior to opening of rights issue). Precedent treatment: Tribunal accepted that initial dispatch schedule violated the three-day requirement but examined corrective steps taken prior to opening. Interpretation and reasoning: The Tribunal found the company issued an addendum postponing the opening date from 04.03.2023 to 09.03.2023 and thereby met the three-day prior notice requirement before the issue opened. The Tribunal treated the corrective action as fulfilling the statutory notice requirement and declined to treat the initial error as vitiating the issue where corrected before opening. Ratio vs. Obiter: Ratio - a bona fide corrective amendment to notice that satisfies the statutory minimum prior to the actual opening cures an earlier defect in notice dispatch insofar as the requirement is complied with at the time of opening. Observation - material prejudice or bad faith would require different treatment. Conclusions: The Tribunal held the requirement of Section 62(2) was met by issuance of the addendum before opening and the rights issue was not vitiated on this ground. Overall Conclusions and Directions The Tribunal concluded that (a) the shareholder was validly reclassified as non-promoter before the rights issue; (b) Rule 9A obliges the company to ensure dematerialisation of promoters/KMP but places facilitation and subscriber onus for other shareholders; (c) the adjudicator erred in cancelling the rights issue and ordering refunds on an interim application without adequate procedural safeguards to affected allottees; and (d) the defect in notice under Section 62(2) was cured by the addendum issued before opening. The impugned cancellation and contempt-related show cause directions were set aside and the main petition on oppression and mismanagement was directed to proceed on merits.