AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (5) TMI 985
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....g off the hard-earned money of the investors. 2. The Petitioner's contention is that the Respondent No. 3 BSE is empowered under the statutory provisions to list or to suspend the trading of shares/ stocks/ securities and the listed companies on the stock exchange keeping in view Rule 19(5) of the Securities Contracts (Regulation) Rules, 1957 and the power to suspend the listed company is being arbitrarily used by Respondent No. 3 being the stock exchange, merely on the grounds of non-compliance of procedural disclosures under listing agreement, non-payment of the listing fees etc. and the shares/ stocks/ securities of the listed companies have been suspended from time to time. 3. It has been stated that large number of companies have been suspended from continued listing by Respondent No. 3 and subsequently many of them have been de-listed without ensuring any protection to investors and, therefore, appropriate mechanism should be in place to take action against those persons who are duping the investors. 4. It has been further stated that the Respondent No. 2 is the apex regulatory body and the Securities and Exchange Board of India Act, 1992 (SEBI Act) was enacted to pr....
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.... of a writ of mandamus directing the Respondent No. 2 to issue the directions to Respondent No. 3 so as to come out with more stringent and effective alternative penal provisions against promoters and management of the errant listed companies; iii. Issue a writ of mandamus or any other appropriate writ(s) / order(s) / direction(s) to the Respondent No. 2 to constitute an internal panel to monitor the conduct of the promoters of a listed company whose trading of shares / stocks / securities is proposed to be suspended; iv. Issue a writ of mandamus or any other appropriate writ(s) / order(s) / direction(s) to the Respondent No. 1 to institute a grievance redressal mechanism within Respondents No. 2 and 3 for the redressal of grievances of the public investors of the listed companies whose trading of shares already remains suspended and to trace out the promoters and management of such listed companies and make them settle the dues of innocent public shareholders / investors; v. Issue a writ of mandamus or any other appropriate writ(s) / order(s) / direction(s) to the Respondent No. 3 for not implementing the new norms for the revocation of suspension of tra....
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....nment to make rules for the purpose of carrying the objects of SCRA and it also provides for the requirements which shall be complied with by public companies for the purpose of getting their securities listed on any stock exchange. It has been further stated that SCRA prescribes the requirement with respect to the listing of securities on a recognized stock exchange and it empowers the stock exchange to suspend or withdraw admission to the dealings in the securities of a company for breach of any condition of admission to dealings or any other reason, to be recorded in writing. 11. It has been further stated that the SCRA also provides that the stock exchange shall provide a reasonable opportunity to the concerned company to show cause against the proposed action and a remedy of appeal is provided to the aggrieved company or a body corporate before the Securities Appellate Tribunal. Thus, the stand of Respondent No. 2 is that there is a complete mechanism in place to deal with the companies who are playing fraud upon the investors. 12. In respect of the Petitioner's contention that the promoters and the management of the company's default in complying with the listing agreem....
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....tion 11B of the SEBI Act and issued orders against the defaulting companies and their directors/ promoters prohibiting them from associating in any way with the capital market activities. At the time when reply was filed, the SEBI has furnished figures and has informed that SEBI has passed orders under Section 11B of SEBI Act against 102 companies and 391 of its promoters/ directors debarring them from activities connected with capital market, raising funds from capital markets and dealing in securities. 17. It has been further stated that the Indian regulatory framework is based on a disclosure based regime and the SEBI has taken large number of measures to enhance disclosures and tighten the regulatory framework. The measures taken by SEBI as detailed in the affidavit are reproduced as under: a) The issuer company is required to inter alia make disclosures of complete profile of the promoters and directors alongwith photograph, Voter ID Number, Driving License Number, DIN, age etc. in the offer document. Further, the Permanent Account Number, Bank Account Number and Passport Number of the promoters are required to be submitted to the Stock Exchanges on which securitie....
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.... (Regulations) Act, 1956 provides for complete mechanism for dealing with complaints. Section 23L of the SCRA provides for a remedy to any person aggrieved by the order or decision of a recognized stock exchange before the Securities Appellate Tribunal. It has been further contended that the Securities Exchange Board of India Act, 1992 and Securities Contracts (Regulations) 1956 empowers the Securities and Exchange Board of India to supervise and to have a control over the stock exchanges. It has been further contended that Section 21 of the SCRA mandates that where securities are listed, on the application of any person in any recognized Stock Exchange, such person shall comply with the conditions of the listing agreement with that stock exchange. 20. It has been further stated that Rule 19 of the Securities Contracts (Regulation) Rules, 1957 provides various formalities and procedures required to be mandatorily complied with by a Public Limited Company, before its shares and securities can be traded on the floor of the recognized stock exchange. 21. The Respondent No. 3 has further stated that the Securities and Exchange Board of India (Delisting of Equity Shares) Regulatio....
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....es would not remain listed on any recognized stock exchange which has nationwide trading terminals. In such kind of delisting exit opportunity to the public shareholders is provided in accordance with Chapter IV (Voluntary Delisting). [Regulation 6 (b)]. iii. Compulsory Delisting [Chapter V of the Delisting Regulations] 24. The Respondent No. 3 has further stated that Section 21A (2) of the SCRA provides that a listed company or an aggrieved investor may file an appeal before the Securities Appellate Tribunal against the decision of the recognized stock exchange delisting the securities. It has been further stated that Section 23 (2) of the SCRA provides that any person who fails to comply with the provisions of Section 21 and 21A of SCRA shall be liable for a punishment with an imprisonment for a term which may extend to ten years or with fine, which may extend to twenty five crores rupees, or with both. 25. It has been further stated that Rule 19 (5) of the SCRR states that a recognized stock exchange, may suspend or withdraw admission to dealings in the securities of a company or body corporate either for a breach of or noncompliance with, any of the conditions of....
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....e granted to its securities either for breach of or no-compliance with any of the listing conditions or requirements or for any other reason whatsoever to be recorded in the minutes." 29. It has been further stated that the aforesaid statutory provisions provide for transparent mechanism of delisting of securities, adequate participation and/ or representation of public shareholders in the process of delisting and also provides for challenge to the decision of delisting by any aggrieved investor. The Respondents have further stated that even in case of compulsory delisting which is a disciplinary mechanism an aggrieved investor may file an appeal before the Securities Appellate Tribunal against the decision of the recognized stock exchange delisting the securities under section 21A (2) of the SCRA. 30. The Respondent No. 3 has further stated that the Listing Agreement also explicitly mentions that the Company agrees and declares that all or any of its securities listed on the stock exchange shall remain on the list entirely at the discretion of the stock exchange and that stock exchange may, in its absolute discretion, suspend or remove the securities from the list at any tim....
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....N OF SUSPENSION, WHERE THE SUSPENSION IS FOR A PERIOD LESS THAN 1 YEAR 1. Entire issued capital of the company must be listed. 2. No investor complaints pending against the company. 3. The company is in compliance with clauses of the listing agreement, filings under SEBI regulations/ circulars, SCRA and SCRR. 4. The shareholding of promoter and promoter group entities shall be under lock-in for a period of 3 months from the date of commencement of trading, post revocation of suspension. 5. Company should have its own website. 6. Payment of reinstatement fees as applicable." 32. It has been further stated that the aforesaid norms are approved in the interest of investors. The aforesaid norms are necessary and vital for enabling the investor to take an informed decision with regards to their investments and to deal safely in securities market. The contention of Respondent No. 3 is that the aforesaid norms are not extraneous, unreasonable and can be complied easily by the Listed Company thereby enabling the investor to deal in securities market prudently and safely. 33. It has been further stated that the Respondent No. 3 has....
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....gistering and regulating the working of the depositories, 19[participants,] custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries as the Board may, by notification, specify in this behalf.] (c) registering and regulating the working of 20[venture capital funds and] collective investment schemes, including mutual funds; (d) promoting and regulating self-regulatory organisations; (e) prohibiting fraudulent and unfair trade practices relating to securities markets; (f) promoting investors' education and training of intermediaries of securities markets; (g) prohibiting insider trading in securities; (h) regulating substantial acquisition of shares and takeover of companies; (i) calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges ^21[, mutual funds, other persons associated with the securities market,] intermediaries and self-regulatory organisations in the securities market; ^22[(ia) calling for information and records from any person including any bank or any other authority or board or corporatio....
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....iscovery and production of books of account and other documents, at such place and such time as may be specified by the Board; (ii) summoning and enforcing the attendance of persons and examining them on oath; (iii) inspection of any books, registers and other documents of any person referred to in Section 12, at any place;] [(iv) inspection of any book, or register, or other document or record of the company referred to in sub-section (2-A); (v) issuing commissions for the examination of witnesses or documents;] [(4) Without prejudice to the provisions contained in sub-section (1), (2), (2-A) and (3) and Section 11-B, the Board may, by an order, for reasons to be recorded in writing, in the interests of investors or securities market, take any of the following measures, either pending investigation or inquiry or on completion of such investigation or inquiry, namely:- (a) suspend the trading of any security in a recognised stock exchange; (b) restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities; (c) suspend any office....
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.... 15-EB, 15-F, 15-G, 15-H, 15-HA and 15-HB after holding an inquiry in the prescribed manner.] [(5) The amount disgorged, pursuant to a direction issued, under Section 11-B of this Act or Section 12-A of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or Section 19 of the Depositories Act, 1996 (22 of 1996) 34[or under a settlement made under Section 15-JB or Section 23-JA of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or Section 19-IA of the Depositories Act, 1996 (22 of 1996)], as the case may be, shall be credited to the Investor Protection and Education Fund established by the Board and such amount shall be utilised by the Board in accordance with the regulations made under this Act.] xxxxxxxx [11-B. Power to issue directions [and levy penalty].- [(1)] Save as otherwise provided in Section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary- (i) in the interest of investors, or orderly development of securities market; or (ii) to prevent the affairs of any intermediary or other persons referred to in Section 12 being conducted in a manner detrimental to the in....
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.... Delisting of securities.-(1) A recognised stock exchange may delist the securities, after recording the reasons therefor, from any recognised stock exchange on any of the ground or grounds as may be prescribed under this Act: Provided that the securities of a company shall not be delisted unless the company concerned has been given a reasonable opportunity of being heard. (2) A listed company or an aggrieved investor may file an appeal before the Securities Appellate Tribunal against the decision of the recognised stock exchange delisting the securities within fifteen days from the date of the decision of the recognised stock exchange delisting the securities and the provisions of Sections 22-B to 22-E of this Act, shall apply, as far as may be, to such appeals: Provided that the Securities Appellate Tribunal may, if it is satisfied that the company was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding one month.] xxxxxx 23. Penalties.-(1) Any person who- (a) without reasonable excuse (the burden of proving which shall be on him) fails to comply wit....
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....h may extend to twenty-five crore rupees, or with both.] (2) Any person who enters into any contract in contravention of the provisions contained in Section 15 or who fails to comply with the [ [provisions of [Section 21 or Section 21-A] or with the orders of] or the Central Government under Section 22 [or with the orders of the Securities Appellate Tribunal] [shall, without prejudice to any award of penalty by the Adjudicating Officer under this Act, on conviction, be punishable with imprisonment for a term which may extend to ten years or with fine, which may extend to twenty-five crore rupees, or with both]. xxxxxx 30. Power to make rules.-(1) The Central Government may, by notification in the Official Gazette, make rules for the purpose of carrying into effect the objects of this Act. (2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for,- (a) the manner in which applications may be made, the particulars which they should contain and the levy of a fee in respect of such applications; (b) the manner in which any inquiry for the purpose of recognizing any stock exchange may be ....
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....r may be prescribed. [(3) Every rule made under this Act shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both House agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.]" 39. The aforesaid provisions of law provide for delisting of the securities and the mechanism to protect the interest of investors. The aggrieved investor can certainly prefer an Appeal before the Securities Appellate Tribunal (SAT) in case he is aggrieved in the matter of delisting of the security. 40. Section 30 of the SCRA empowers the Central Government to frame Rules for carrying on the objects the SCRA, and Rules have....
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....usiness carried on or intended to be carried on by the company) together with a brief description of the terms, subject-matter and general nature of the documents. (j) A brief history of the company since its incorporation giving details of its activities including any reorganisation, reconstruction or amalgamation, changes in its capital structure, (authorised, issued and subscribed) and debenture borrowings, if any. (k) Particulars of shares and debentures issued- (i) for consideration other than cash, whether in whole or part, (ii) at a premium or discount, or (iii) in pursuance of an option. (l) A statement containing particulars of any commission, brokerage, discount or other special terms including an option for the issue of any kind of the securities granted to any person. (m) Certified copies of- ^42[(i) acknowledgement card or the receipt of filing offer document with the Securities and Exchange Board of India;] (ii) agreements, if any, with the Industrial Finance Corporation, Industrial Credit and Investment Corporation and similar bodies. (n) Particulars of shares forfeited. ....
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....ue of four hundred crore rupees, if the post issue capital of the company calculated at offer price is more than one thousand six hundred crore rupees but less than or equal to four thousand crore rupees; (iii) at least ten per cent of each class or kind of equity shares or debentures convertible into equity shares issued by the company, if the post issue capital of the company calculated at offer price is above four thousand crore rupees 45[but less than or equal to one lakh crore rupees]: [(iv) at least such percentage of each class or kind of equity shares or debentures convertible into equity shares issued by the company equivalent to the value of five thousand crore rupees and at least five per cent of each such class or kind of equity shares or debenture convertible into equity shares issued by the company, if the post issue capital of the company calculated at offer price is above one lakh crore rupees: Provided that the company referred to in this sub-clause (iv) shall increase its public shareholding to at least ten per cent within a period of two years and at least twenty-five per cent. within a period of five years, from the date of listing of ....
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....rs of right, (v) that letters of allotment and letters of right will state how the next payment of interest or dividend on the securities will be calculated, (b) to issue, when so required, receipts for all securities deposited with it whether for registration, sub-division, exchange or for other purposes; and not to charge any fees for registration of transfers, for sub-division and consolidation of certificates and for sub-division of letters of allotment, renounceable letters of right, and split, consolidation, renewal and transfer receipts into denominations of the market unit of trading; (bb) to issue, when so required, consolidation and renewal certificates in denominations of the market unit of trading to split certificates, letters of allotment, letters of right, and transfer, renewal, consolidation and split receipts into smaller units, to split call notices, issue duplicates thereof and not require any discharge on call receipts and to accept the discharge of members of stock exchange on split, consolidation and renewal receipts as good and sufficient without insisting on the discharge of the registered holders; (c) when documents are l....
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....the stock exchange copies of statutory and annual reports and audited accounts as soon as issued, including directors' report; (k) to forward to the stock exchange as soon as they are issued, copies of all other notices and circulars sent to the shareholders including proceedings of ordinary and extraordinary general meetings of the company and to file with the stock exchange certified copies of resolutions of the company as soon as such resolutions become effective; (l) to notify the stock exchange prior to intimating the shareholders of any new issue of securities whether by way of right, privilege bonus or otherwise and the manner in which it is proposed to offer or allot the same; (m) to notify the stock exchange in the event of re-issue of any forfeited securities or the issue of securities held in reserve for future issue; (n) to notify the stock exchange of any other alteration of capital including calls; (o) to close the transfer books only for the purpose of declaration of dividend or issue of right or bonus shares or for such other purposes as the stock exchange may agree and to give notice to the stock exchange as many day....
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....time, with such further listing requirements as may be promulgated by the exchange as a general condition for new listings. [(4) An application for listing shall be necessary in respect of the following: (a) all new issues of any class or kind of securities of a company to be offered to the public; (b) all further issues of any class or kind of securities of a company if such class or kind of securities of the company are already listed on a recognised stock exchange.] (5) A recognised stock exchange may suspend or withdraw admission to dealings in the securities of a company or body corporate either for a breach of or non-compliance with, any of the conditions of admission to dealings or for any other reason, to be recorded in writing, which in the opinion of the stock exchange justifies such action: Provided, however, that no such action shall be taken by a stock exchange without affording to the company or body corporate concerned a reasonable opportunity by a notice in writing, stating the reasons, to show cause against the proposed action: [Provided further that where a recognised stock exchange has withdrawn admission to d....
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....be recorded in writing. It also provides for a remedy to the aggrieved company or body corporate to prefer an appeal before the SAT. 42. The SEBI in exercise of powers conferred by Section 31 read with Section 21A of the SCRA and Section 30, Sub Section (1) of Section 11 and Sub Section (2) of Section 11A of the SEBI Act, has made regulations known as Securities and Exchange Board of India (Delisting of Equity Shares) Regulation, 2021. Chapter-III and Chapter-IV deals with voluntary delisting and Chapter-V deals with compulsory delisting. Regulation 31, 32, 33 and 34 of the aforesaid regulations reads as under: "31. Cancellation of outstanding depository receipts.- After delisting of equity shares from all the recognized stock exchanges having nationwide trading terminals, the company shall be required to compulsorily cancel all the outstanding depository receipts issued overseas and change them into the underlying equity shares in the home jurisdiction after termination of the depository receipts program(s), within one year of such delisting. 32. Compulsory delisting by a stock exchange.-(1) A recognised stock exchange may, by a reasoned order, delist equity s....
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....e names and addresses of the promoters of the company who would be liable under sub-regulation (4) of Regulation 33 of these regulations; (b) inform all other stock exchanges where the equity shares of the company are listed, about such delisting; and (c) upload a copy of the said order on its website. (6) The provisions of Chapter IV of these regulations shall not be applicable to a compulsory delisting made by a recognised stock exchange under this Chapter. 33. Rights of public shareholders in case of compulsory delisting.-(1) Where the equity shares of a company are delisted by a recognised stock exchange under this Chapter, the recognised stock exchange shall appoint an independent valuer(s) who shall determine the fair value of the delisted equity shares. (2) The recognised stock exchange shall form a Panel of expert valuers and from the said Panel, the valuer(s) for the purposes of sub-regulation (1) shall be appointed. (3) The value of the delisted equity shares shall be determined by the valuer(s) having regard to the factors mentioned in sub-regulation (2) of Regulation 20 of these regulations. (4) The promoter....
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....liance thereof in accordance with the provisions of these regulations." 43. The aforesaid delisting regulations provide Provisions with respect to the rights of the share-holders and all kind of checks and balances are in place under the Regulations. It is pertinent to note that Section 23(2) of the SCRA gives a special power to SEBI to penalize any person who contravenes the Provisions inter alia Section 21 or Section 21A or Section 22, and a punishment upto 10 years or a fine which may extend up to Rs. 25 crores can be inflicted. 44. Not only this, as stated in the written reply filed by the SEBI, for vanishing companies, the exercise was undertaken by the Registrars of companies and action has been initiated in the matter against them. Thus in short, the statutory provisions do provide a robust mechanism to safeguard the interest of investors and by no stretch of imagination, it can be said that the interest of investors is not at all protected. Section 23L of the SCRA reads as under: "Appeal to Securities Appellate Tribunal. 23L. (1) Any person aggrieved, by the order or decision of the recognised stock exchange or the adjudicating officer or any order m....