TaxTMI 
TaxTMI 
2020 (11) TMI 1013
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....ober 20, 2020 passed by the Whole Time Member ('WTM' for short) of Securities and Exchange Board of India ('SEBI' for short) under Section 11 and 11B of the Securities and Exchange Board of India Act, 1992. 2. The facts leading to the filing of the present appeal is, that on January 21, 2019 the Board of Directors of the appellant no. 1 Company approved the sale of its shareholding in its subsidiary called Sunfresh Agro Industries Private Limited ('Sunfresh' for short) to Tirumala Milk Products Private Limited ('Tirumala' for short) on terms and conditions contained in the share purchase agreement and business transfer agreement. This fact was disclosed by the Company to the National Stock Exchange of India Limited ('NSE' for short) and BSE Limited ('BSE' for short) under Regulation 30 of the LODR Regulations. The Company also informed the stock exchange on the same date that a substantial portion of the sale consideration would be distributed to the shareholders after meeting the tax liability, indemnity, transaction cost, payments to advisors, etc. 3. The resolution of the board of directors was subsequently approved by the 92% of the shareholders of the company presen....
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....listing process. 7. Based on the approval granted by the majority shareholders of the Company for delisting, a formal application dated December 23, 2019 was filed for approval of the delisting of the Company under Regulation 8(1) of the Delisting Regulations. 8. In the meanwhile, based on certain news items, the respondent asked for certain information from the Company regarding the sale consideration of its subsidiary and the distribution of the sale consideration to its shareholders. It is submitted that the appellants provided all the requisite information but SEBI not being satisfied directed the stock exchanges to independently conduct a critical analysis of the disclosures made by the appellant no. 1 Company. On this basis, BSE submitted a report on December 12, 2019 indicating that no serious effort was being made by the appellant no. 1 Company to distribute the proceeds to its shareholders and that the delisting offer of Rs. 310.81 crore calculated on the basis of floor price of Rs. 63.77 per share is far lower than Rs. 872 crore parked by the appellant no. 1 Company in the escrow account. NSE in its report dated January 3, 2020 advised SEBI to conduct a forensi....
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....he amount of Rs. 1292.46 Crore to an interest bearing Special Escrow Account ["Escrow Account in Compliance with SEBI Order dated October 20, 2020 - A/c (in the name of the Company)"] in a Nationalized Bank. The Audit Committee of PDL shall directly monitor the process of creation of this Special Escrow Account and its funding as directed by this Order and furnish a Compliance Report to SEBI by October 30, 2020. (ii) The subsequent operations in the above mentioned Special Escrow Account shall be monitored by JM Financial as its manager till the completion of the forensic audit. Further, JM Financial shall allow debits from the Special Escrow Account only for the purposes of administrative expenses of PDL. The funds in the Special Escrow Account shall not be used by PDL for any other lines of business (including for deployment towards its residual business i.e. animal nutrition and cattle feed business), as committed in its disclosure to the stock exchanges on March 25, 2019. (iii) PDL shall furnish a weekly statement of debits / credits/balance in the above mentioned Special Escrow Account commencing from October 30, 2020, to JM Financial till the completion....
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....learned senior counsel at some length we are of the opinion that the present dispute is between the directions issued by SEBI and the appellants. The lis is between the appellants and the respondent and therefore the applicant intervener is not a necessary party nor is required to be impleaded as a respondent in the appeal. Further, we are of the opinion that the interest of the intervener is protected as, on their own showing, the impugned order has been passed pursuant to the complaint filed by them. However, even though the applicant intervener cannot be impleaded as a respondent, nonetheless, we allow the intervener to be heard. Accordingly, the intervention application is allowed with the limited purpose that the intervener would be heard. In this regard we have heard Shri P.N. Modi, the learned senior counsel at some length. 16. The contention of Shri Janak Dwarkadas, the learned senior counsel for appellants is, that the impugned order has been passed without any application of mind. The direction to deposit 1292.46 crore in a special escrow account and further restraining the appellant no.1 Company from making any expenditure in its subsidiary business is certainly ....
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....protecting the interest of the minority shareholders holding 49% of the shares of the Company. On the other hand, the promoters and the promoter group of the Company holds 51% of the shares of the Company. It was, thus, contended that according to the Company Rs. 854.41 crore was required to be distributed to the shareholders towards share consideration. 50% of the amount would go to the promoters which comprises of 51% and 49% would go to the minority shareholders. It was, thus, submitted that 50% of Rs. 854 crore would come to Rs. 427 crore for which SEBI at best could have passed an order to protect their interest but under no circumstances the order directing the appellant to deposit Rs. 1292.46 crore could be passed. 19. It was also contended that the respondent are only considering the floor price of Rs. 63.77 paise which is not the final price and was only determined in accordance with Regulation 15(2) of the Delisting Regulations. It was submitted that the discovered price in the delisting will be based on the price at which the bids are placed by the public shareholders as part of the reverse book building mechanism specified in the Delisting Regulations. It was su....
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....d be set aside. 23. Shri Rafique Dada, the learned senior counsel for the respondent contended that the intention of the respondent in passing the impugned order was solely to protect the interest of the shareholders of the Company. It was contended that Company itself had indicated that substantial portion of the proceeds of the sale consideration would be distributed to the shareholders which till date has not been done. Further, the appellant was required to declare the financial audited results for the fourth quarter before July 31, 2020 which they have failed to do so and therefore an irresistible inference was drawn that there is something suspicious going on in the affairs of the Company and therefore in order to protect the interest of the investors, it was necessary to pass urgent orders. 24. Shri. Rafique Dada, the learned senior counsel for the respondent further contended that the distribution of the sale consideration to the shareholders should not be mixed with the consideration of payment to be made under the delisting application. It was urged that the sale consideration is required to be paid by the appellant no. 1 Company and if the delisting applicatio....
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....nding etc. According to the Company which is recorded in the impugned order, the total amount comes to Rs. 1026.44 crore and the balance left for distribution of the shareholders is Rs. 854.40 crore which amount is also reflected in the annual report 2018-19 as well as in the report of BSE dated December 12, 2019. It may be stated here that 50% of Rs. 854.41 crore which comes to Rs. 427 crore will go the promoters and promoters group and approximately Rs. 427 crore would go to the minority shareholders comprising 49%. Thus, the direction to deposit the entire sale consideration of Rs. 1292 is neither appropriate nor beneficial to the survival of the Company at this stage. The fact that 50% of the sale consideration is also required to be distributed to the promoters and promoters group has not been disputed by the respondent. 27. We also find that the reason for the respondent to be suspicious is, that they are taking into consideration the floor price of Rs. 63.77 per share which works out to Rs. 310.81 crore and compared it to the total amount of Rs. 854.40 crore lying in the escrow account. The conclusion drawn by taking the floor price is patently erroneous and against ....
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....ees which is neither in the interest of the Company nor in the interest of its shareholders. 30. We are further of the opinion that the appellant is required to cooperate and supply all the requisite documents asked for in terms of the reference made by SEBI and should cooperate in the submission of the forensic report. This is essential in order to find out as to what is the inflow pursuant to the sale and what amount is left after meeting the tax liabilities, indemnity, transaction cost, etc. We also find that the distribution of the sale consideration and / or the distribution of the share price of the shareholders pursuant to the delisting application are required to be done at the earliest as it is necessary in the interest of the minority shareholders. In this regard Shri Janak Dwarkadas fairly conceded that the Company will cooperate and provide all the requisite papers asked by the forensic auditor. Shri Dwarkadas further submitted that under the sale consideration an amount of Rs. 427 crore is liable to be distributed to the shareholders and if the offer of the acquirer is accepted then the acquirer are liable to pay approximately Rs. 490 crore. 31. Be that as i....