TaxTMI 
TaxTMI 
TaxTMI 
2015 (4) TMI 685
X X X X Extracts X X X X
X X X X Extracts X X X X
....d further that the company aforesaid be directed to give "a continuous open exit option to the minority share-holders" at a value deemed fit by this Court from amongst the value of Rs. 220/- as per the valuation of Uninor, Rs. 156/- as per the purported agreement between the promoters and the financial strategic investor or Rs. 49.31- the price at which the Russian Federal Agency was allotted shares of the respondent company. Other misc. reliefs such as appointment of a representative of minority shareholders on the Board of Directors of the respondent company for the protection of their interests and compensation to the minority shareholders for the unnecessary delay since 2008 in the "buy back" of the applicants' shares resulting in a purported loss to them have also been sought. The facts relevant to this application under Rule 9 of the Rules of 1959 and reiterated by counsel in his submissions are that the four applicants presently jointly hold approximately 21 lacs shares in the respondent company. Pursuant to a Scheme of Arrangement/ amalgmation in accordance with the provisions of Section 391 (2) and 394 of the Companies Act, 1956 (hereinafter 'the Act of 1956'), on sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ertainty of listing of respondent company's shares on the BSE and NSE. The applicants allege that in view of the promoters holding about 82% of the equity of the respondent company the shareholders with the requisite statutory majority passed a resolution for modification of the scheme of arrangement sanctioned by the Company Court on 8.5.2006 despite stiff opposition of minority shareholders and approved deletion of Clause 3.7 aforesaid. Subsequently on 28.12.2007 SEBI, finally and formally informed the respondent company that it was not eligible for relaxation of Rule 19(2)(b) of the Rules of 1957 on account of non-fulfilling of certain conditions. Thereupon the respondent company filed an application under section 392 of the Act of 1956 before the Company Court seeking a modification of the original scheme sanctioned on 8.5.2006 and sought deletion of clause 3.7 Part-III of the aforesaid scheme according to which the equity shares of the STLL as on the Transfer Date including any further shares issued by STLL were to be listed and / or admitted to trading on NSE and BSE. The Company Court after hearing the respondent company and the objectors, however, vide order dated 7.8.2008....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... listing of shares of the respondent company, the market price of the shares would have been discovered to be much higher and minority shareholders would had then exercised their right to continue as members of the company or exit it. It has further been submitted that the shares of the respondent company have not been listed owing to the mechanizations of the promoters- majority shareholders to bring in foreign investors without the obligation of making an open offer as other were mandated in law for a listed company. It has been submitted that even though more than 46 months have elapsed since the order dated 7.8.2008 passed by the Company Court refusing to delete clause 3.7 in the sanctioned scheme dated 8.5.2006 yet no compliance with such directions has been made. It has also been pointed out that in absence of listing of its shares by the respondent company an exit offer was specifically required to be given to the minority shareholders by the respondent company on a continuous basis but this has also been wanting. The assertion is that it was not for the shareholders to exercise their exit option on their own but a fair reasonable exit option offering a just and reasonable ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ty Listing Agreement with the stock exchanges. The said "in-principle approval" was granted subject to SEBI granting relaxation under Rule 19(2)(b) of the Rules of 1957 and compliance with the clause 8.3.5 of SEBI (DIP) Guidelines and rules, bye-laws and regulations of exchange/s. The aforesaid communication addressed by BSE and NSE were annexed to the explanatory statement dated 1.9.2005 under section 393 of the Act of 1956 and circulated to the members of Shyam Telecom Ltd (hereinafter 'the STL') who were thus fully aware of the conditionalities that were to control the prospect of listing of the respondent company's equity shares on BSE and NSE. The consent of the equity shareholders of the company to the propagated scheme had been given fully conscious of these conditionalities on which relaxation under Rule 19(2)(b) of the Rules of 1957 was to be made and the shares listed. It has been submitted that, subsequent to the sanction of the scheme under Company Court's order dated 8.5.2006 all possible measures and steps to facilitate listing of the equity shares of the respondent company were taken. However SEBI appeared not in favour of granting relaxation to the respondent compan....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... considerably. However grant of licenses by the Department of Telecommunication in 2008 came under severe judicial and regulatory scrutiny, the most prominent being the Public Interest Litigations in regard thereto before the Hon'ble Apex Court starting 2010 questioning the very proprietary of the issue of licenses by the Department of Telecommunication. Thereupon the Hon'ble Apex Court vide its judgment dated 2.2.2012 quashed all 122 licenses granted to various telecom operators on or after 10.1.2008 including the 21 telecom licenses allotted to the respondent company in 2008. This was a severe blow to the business of the respondent company resultant to which it was forced to close down operations in 13 circles out of 21 where it has been awarded UAS licenses. Presently the respondent company is serving 8 telecom circles apart from the Rajasthan telecom circle and has had to re-structure its entire business operation in the wake of developments not of its making and in the process suffered massive losses. The accumulated loss per share starting 2008-09 was Rs. 2.85 but climbed to Rs. 9.02 in the year 2012-13. The accumulated losses of the respondent company in the year 2008-08 sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the main relief that they be allowed an exit at a share price hundreds of times higher than the current value of their shares. Aside of the above, it has been submitted that since listing of shares is subject to varied statutory regimes and dependent upon statutory approvals such as of SEBI and concerned stock exchanges, which conditions the respondent company is not suited to fulfill at the present stage, a direction for compulsory listing in the nature of a writ of mandamus through the vehicle of rule 9 of the Rules of 1959 application would be legally impermissible, wholly unjust and unrelated to the main object of the sanctioned scheme. It has been pointed out that the concerned statutory authorities cannot be mandated, overlooking their discretion, to require listing of shares of respondent company. Statutory discretion is to be exercised in the larger investor interest. It has been further submitted that in a dynamic market, the correct timing for making a public offer is crucial for its success and is best left to the prudence of the company, its independent consultants and merchant bankers. In this regard attention of this Court has been drawn to the affidavit of one Mr.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the applicants for seeking an exit option at violently varying price of Rs. 220/-, 156/- and 49.31/- per equity share when the right issues were availed by them at Rs. 10/- per share as recently in March 2011 have been emphasized to submit that the mechanism of this Court is sought to be utilized for rank profiteering and not ex debito justitiae. Further the malafide intent of the applicants has been pointed out by stating that the factum of obtaining substantial number of shares in the right issue of March 2011 was suppressed from this Court by the applicants who are thus guilty of suppressio veri and a brazen attempt to mislead this Court. It has been submitted that the inherent powers of this Court under Rule 9 of the Rules of 1959 are equitable in nature, and applicants, seeking to invoke such powers, who approach this Court suppressing relevant facts ought to be thrown out at the threshold and the application ought to be dismissed on this count alone. It has been submitted that the order dated 7.8.2008 passed by this Court only reaffirmed the 'option' of public shareholders to exit by exercising their rights in law and no special relief was carved out for the applicants. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Court, post which the respondent company's financial condition has deteriorated substantially. It has been submitted in the alternative that if this Court were inclined to hold that the respondent company was to provide the applicants an 'exit option' it be made clear that the price of such an exit offer would necessarily bear nexus to the current market value of the equity shares of the respondent company at the relevant time. It has been submitted that the order dated 7.8.2008 passed by this Court cannot be susceptible to any interpretation / construction which would give the applicants unfettered right to seek an exit option of their liking on a price far removed from the extant commercial and market factors determining the real / current value of the respondent company's shares. It has been submitted that therefore none of the three violently varying prices of Rs. 220/-, 156/- and 49.31/- for their shares by the applicants have any relevance to the exit sought as shareholders of the respondent company. It has been pointed out that SISTEMA purchased additional 10% stake in the respondent company at a price of Rs. 9.20/- per share and even otherwise the allegations of the shares ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nvestors in the respondent company can be the subject matter of a Rule 9 of the Rules of 1959 application purportedly seeking enforcement of the sanctioned scheme dated 8.5.2006 as further clarified vide order dated 7.8.2008. It has been however submitted that the promoters' stake sale to SISTEMA was at the time when there was complete uncertainty regarding listing of company shares since SEBI was not responding to the application for relaxation on the one hand and the respondent company was required to urgently find funds to operate its business on the other. It has been submitted that the funds obtained from the sale of promoters' stake and subsequent dilution of the company's equity were essential for running the businesses of the respondent company and it was only for that reason that the respondent company was able to apply for and procure 21 new licenses to have an all India imprint. It has been pointed out that in-fact the induction of financial / strategic long term investors for expansion and success of the respondent company's business was indeed one of the objectives of the sanctioned scheme and thus far from acting contrary to the scheme or stalling its implementation t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rily with or without modification thereof it can on an application made or suo moto order winding up of the company and such order would then relate to the powers of the Court under section 433 of the Act of 1956. It is thus evident that when a scheme of arrangement or compromise is sanctioned by the Court, it continues to have jurisdiction and is empowered to enforce such a scheme even by modifying it where warranted as to secure its object and purpose thus ensuring that the scheme is not rendered unworkable. However, it would be well to remember that every clause / condition of the sanctioned scheme cannot be conferred equal weightage as the satisfactory workability of the scheme is the underlying test for its enforceability. The issue which therefore requires consideration in the case at hand is as to whether Clause 3.7 of the sanctioned scheme dated 8.5.2006 was a mandatory part of the scheme- a part of its "basic structure" essential to its object and purpose and its satisfactory workability. In my considered view for an answer to this question one need not go further than the order dated 7.8.2008 passed by this Court with regard to the sanctioned scheme in issue. Therein the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bu Singh, 2008(2) SCC 85 the Hon'ble Apex Court has observed that even though the inherent powers of the Court are very wide their exercise must emanate logically from the underlying legal findings and the "judicial result must be seen to be principled and supportable on those findings" (underlining mine). The Hon'ble Apex Court in the case of State of West Bengal v. Karan Singh, 2002(4) SCC 188 has held that the inherent powers of the Court cannot be invoked for reopening settled matters as the Court cannot act as an appellate or revising authority. In the context of the scope of the inherent powers of the Courts detailed above, the substance of the application under Rule 9 of the Rules of 1959 under consideration reveals that the applicants inter-alia require the Court to determine the share price for them exercising the "exit option" in terms of the order dated 7.8.2008 passed by this Court. However, the determination of share price is not a matter of procedure but of a substantive right dependent upon the evidence of the parties with regard to the price of shares of a company at a given point of time. Share prices are not static but dynamic in nature changing from time to time....
X X X X Extracts X X X X
X X X X Extracts X X X X
....allowed "exit option" with the price of the shares to be sold in the exercise of such "exit option" to be determined as per the claim of the applicants either at Rs. 220/-, 156/- or 49.31. There is evidently no remedy provided under the Act of 1956 for the relief claimed by the applicants by resort to a particular Court or Forum by invoking any particular machinery. In the circumstances I am of the considered opinion that the applicants would be well within their rights to approach the jurisdictional Civil Court for ventilating their grievance with regard to the share price for their exit, if so advised. As far as compulsory listing of the shares of the respondent company is concerned, in the context of the order dated 7.8.2008 passed by the Company Court, it is evident that the Court visualized the possibility of non-listing of the shares of the respondent company for the obvious reason that the jurisdiction of a company Court is limited under section 391(2) read with section 394 of the Act of 1956 to ensuring statutory compliance in the decision making process relating to a scheme ensuring that the scheme is not contrary to public interest. It does not extend to directing autono....