TaxTMI 
TaxTMI 
2023 (8) TMI 710
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....Respondent no. 2 to allow the Petitioner to start trading on the securities market unfettered and unfreeze the trading account of the Petitioner. d. Pass any other order as this Hon'ble Court may deem fit." 2. The facts of the case would show that a company by the name of Rishab Ispat Ltd., of which the petitioner herein was a former Director, was listed on the Delhi Stock Exchange (hereinafter 'DSE') prior to 2002. The said company was suspended from DSE on 04.03.2002 on account of non-compliance with certain norms of the respondent no. 1/Securities and Exchange Board of India (hereinafter 'SEBI'). 3. In the year 2003, SEBI issued SEBI (Delisting of Securities) Guidelines, 2003 (hereinafter 'Delisting Guidelines'). On 30.05.2012, SEBI issued a circular providing an exit policy for all derecognized/non-operational stock exchanges and established the mechanism of a Dissemination Board. On 23.05.2014, a resolution was passed by the Board of Directors of DSE for exiting as a stock exchange, through a voluntary surrender of recognition as per the SEBI circular dated 30.05.2012. On 19.11.2014, SEBI de-recognized DSE as a stock exchange and subsequently, on 15.03.2016, the....
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.... which the petitioner is an erstwhile Director, was duly suspended in the year 2002 from DSE. The learned counsel further contended that the Delisting Guidelines provide for compulsory delisting of companies that have been suspended for a period of six months. It would therefore be, according to them, logical to conclude that the delisting of Rishabh Ispat Ltd. had already taken place, and thus Rishabh Ispat Ltd. was not an ELC within the meaning of the circular dated 01.08.2017 issued by SEBI. Learned counsel further attempted to bolster their argument by submitting that despite DSE's website stating that Rishabh Ispat Ltd. is a company listed with DSE, according to him, the fact remains that Rishabh Ispat Ltd. stayed suspended and was never relisted nor was the suspension ever countermanded on DSE. 9. It was further submitted by the learned counsel that the petitioner held a nominal position in the form of a Director in a defunct company suspended from a Regional Stock Exchange (hereinafter 'RSE') in the year 2002, a company i.e., Rishabh Ispat Ltd., that had already provided adequate exit opportunity to all the shareholders who opted for it back in the year 2004. The learned ....
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....e Supreme Court has observed as under: "14. The decisions in Erusian Equipment & Chemicals Ltd. v. State of W.B. [Erusian Equipment & Chemicals Ltd. v. State of W.B., (1975) 1 SCC 70] and Raghunath Thakur v. State of Bihar [Raghunath Thakur v. State of Bihar, (1989) 1 SCC 229] as well as later decisions [Southern Painters v. Fertilizers & Chemicals Travancore Ltd., 1994 Supp (2) SCC 699; Grosons Pharmaceuticals (P) Ltd. v. State of U.P., (2001) 8 SCC 604; B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd., (2006) 11 SCC 548] have now clarified that before any executive decisionmaker proposes a drastic adverse action, such as a debarring or blacklisting order, it is necessary that opportunity of hearing and representation against the proposed action is given to the party likely to be affected. **** ****" 16. Mr. Neeraj Malhotra, Senior Advocate, assisted by Mr. Abhishek Baid, Mr. Anup Jain, Mr. Praneet Das, Mr. Ashok Kumar Jain, and Mr. Nimish Kumar, advocates for SEBI and Ms. Surekha Raman, advocate for BSE, conjointly opposed the submissions of the petitioner. 17. Learned counsel for the respondents carefully took this court through the circulars dated 10.....
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....ortunity being provided to the shareholders, BSE was constrained to take the action/issue the order dated 30.04.2018. 22. It was further contended by the learned senior counsel that the fact of an exit opportunity being provided in the year 2004 has no bearing in the present case, as the same was unrelated to BSE's notice dated 09.07.2015, letter dated 20.10.2016 as also the circular of SEBI dated 10.10.2016. 23. It is the case of the respondents that BSE is duty bound to rely upon the information provided by DSE and based on the same, had issued the notice dated 09.07.2015. It was submitted by the learned senior counsel that as per the website of erstwhile DSE, as on 04.01.2013, Rishabh Ispat Ltd. was shown as a listed company, and furthermore vide letter dated 25.05.2015, DSE informed about the transfer of ELCs to the Dissemination Board of BSE in light of the application for voluntary exit submitted by DSE, which included the name of Rishabh Ispat Ltd., as also the name of its directors and promoters. The learned senior counsel concluded this leg of the respondents' argument by submitting that BSE had relied upon the information supplied to it by DSE. 24. Learned senior....
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....xchange, in this case DSE. The said circular further provided detailed features of the Dissemination Board and the manner in which it is to function. The material part of the circular dated 30.05.2012 reads as under: "3. With regard to exit option to shareholders of exclusively listed companies, on stock exchanges seeking de-recognition and/ or exit and de-recognised stock exchanges, the following process should be followed by the exclusively listed companies. Such an exchange shall monitor the process given below until its exit: 3.1 Exclusively listed companies shall list on any other recognized stock Such other recognized stock exchanges may facilitate the listing of exclusively listed companies, and, if required, carry out changes to their listing eligibility criteria, in the interest of investors. Stock exchanges may have differential listing criteria for such exclusively listed companies in respect of following criteria viz, Market Capitalization, Dividend paying track record, profitability, and paid-up capital. In this regard, the stock exchanges shall issue the differential listing eligibility criteria for such exclusively listed companies. 3.2 The....
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....erance of its circular dated 30.05.2012 issued a circular dated 22.05.2014 bearing the subject 'Companies exclusively listed on de-recognized/Non-operational Stock Exchanges'. The said circular provided directions to stock exchanges to deal with companies exclusively listed on non-operational stock exchanges. The circular aimed at providing the requisite details relating to the transfer of an ELC from the de-recognized stock exchange to the Dissemination Board, as also for the voluntary delisting before the de-recognition of the stock exchanges by following the existing delisting norms of SEBI in terms of the SEBI (Delisting of Equity Shares) Regulations, 2009. The material part of the circular dated 22.05.2014 is reproduced as under: "Directions to Stock Exchanges to deal with companies exclusively listed on non-operational stock exchanges 3. In line with the above provisions, the following shall be applicable:- i. The exclusively listed companies of such non-compliant stock exchanges may opt for listing in nation-wide exchanges after complying with listing norms of main board or the diluted listing norms, if any, on or before the exit of the exchange, e....
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....015, after having considered the representations of the ELCs and also the interests of the investors, provided a timeline of 18 months within which the ELCs were to obtain listing upon compliance with the listing requirements of the nationwide stock exchanges or provide an exit option to the shareholders. 32. Importantly, in paragraph 3(d) of the circular dated 17.04.2015, SEBI has provided that promoters and directors of ELCs that have failed to exercise any of the exit options will have to undergo stricter scrutiny for their future association with the securities market. The material part of the circular dated 17.04.2015 is reproduced as under: "3. Subsequently, SEBI has been in receipt of representations from exclusively listed companies stating that although they are interested and eligible to migrate to the main boards of nationwide stock exchanges, they are not in a position to opt for the same due to paucity of time. Such companies have sought time to list in nationwide stock exchanges. In the interest of investors of such companies, it has been decided to allow a time line of eighteen months, within which such companies shall obtain listing upon compliance with ....
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....twithstanding any other action that may be taken against such promoters/directors/companies by SEBI. e) Nationwide Stock exchange shall have a dedicated cell to process the application of exclusively listed companies of non-operational/exited stock exchanges. The applications of these companies for compliance with this circular shall be disposed off as early as possible but not later than 2 months from the date of receipt of the application. 4. Until such listing, these companies shall continue to remain in the Dissemination Boards of the nation-wide stock exchanges." [Emphasis supplied] 33. Subsequent to the circular dated 17.04.2015, SEBI issued another circular dated 10.10.2016. The purpose of the circular was, inter alia, to provide clarifications on raising of further capital and the process of exit of ELCs from the Dissemination Board; and to further detail out the consequences that may befall upon the promoters and directors of ELCs who have failed to demonstrate adequacy of efforts for providing an exit to the shareholders in conformity with the exit mechanisms. 34. Pertinently, the said circular contained a detailed exit mechanism as 'Annex....
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....rcular. b. The designated stock exchanges shall review the plan of action and ensure completion of the process within 6 months. 6. Action against companies remaining on the DB a. Any promoter or director whose company is on the DB and has failed to demonstrate adequacy of efforts for providing exit to their shareholders in conformity with the exit mechanism as provided in this circular shall be liable for the following actions * The company, its directors, its promoters and the companies which are promoted by any of them shall not directly or indirectly associate with the securities market or seek listing for any equity shares for a period of ten years from the exit from the DB. * Freezing of shares of the promoters/directors. * List of the directors, promoters etc. of all non-compliant companies as available from the details of the company with nationwide stock exchanges shall be disseminated on SEBI website and shall also be shared with other respective agencies. * Attachment of bank accounts/other assets of promoters/directors of the companies so as to compensate the investors. [Emphasis supplied] 35. In furthe....
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....fficult situation of ELCs. It must be considered that the retail and small shareholders, who had invested in the stocks of companies that had been exclusively listed on a stock exchange that was ultimately de-recognized find themselves in a position where their investments, which often contain their savings, are at risk. 37. In such a situation, it befalls upon SEBI, which, through the SEBI Act, has been statutorily empowered to protect the small and retail investors, to develop and provide for a scheme that shields them from actions which were beyond their control. 38. SEBI through the aforementioned circulars, and the comprehensive framework contained within them, has chosen to take the route of providing a two-fold exit policy to ELCs. They can, in such a scenario, either by raising the requisite capital, get themselves listed on a nationwide stock exchange; or the management of the ELCs is required to provide an exit option to the shareholders, and until either of the options is exercised by the ELCs, they are to remain on the Dissemination Board. 39. SEBI, also, while envisaging such a framework, must provide for the contingency of the management of the ELCs not wanti....
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.... as a temporary measure till the exit option is exercised by the ELC and it is subsequently removed from the Dissemination Board. The coercive actions that are taken against the promoters/directors are then for the purpose of moving the concerned ELC and its management to exercise the exit options provided under the circulars and thereby secure the investments of the shareholders. 45. This court is, therefore, of the opinion that the circulars dated 10.10.2016 and 01.08.2017 cannot possibly be termed as being arbitrary. The submission of the petitioner that the said circulars are arbitrary and lack majorly in various aspects, are found to be nothing more than bald assertions. The scheme of the circulars evinces a well thought out planned procedure for dealing with ELCs, as also with the management of ELCs that have failed to follow the mandatory provisions of the circulars of SEBI. The provisions for coercive steps are found by this court to have been sufficiently detailed, reasonable and proportionate with the transgressions of the promoters/directors. 46. The submission of the petitioner that the said circulars are in the form of a blanket ruling being aggressively applied ....
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....epositories for initiating the action against following Exclusively Listed Companies and its Promoters/Directors in accordance with the above referred circular. The particulars shared with the Depositories are based on the extent of the data made available by De-recognized/non-operational/exited Stock Exchanges/ROC, to BSE: *** Further the consequences of non-compliant, includes the following:- 1. The non-compliant ELCs, its directors, its promoters and the companies which are promoted by any of them shall not be eligible to access the securities market for the purposes of raising capital till the promoters of such ELCs provide an exit option to the public shareholders in compliance with SEBI circular dated October 10, 2016 2. The promoters and directors of non-compliant ELCs shall not be eligible to remain or become directors of any listed company till the promoters of such non-compliant ELCs. provide an exit option to public shareholders, in compliance with the SEBI circular dated October 10, 2016" 51. The contention of the learned counsel for the petitioner that requires examination at this stage, is that according to him, in the instant ca....
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....oncompliance with the Listing Agreement. 15.2 The Stock Exchanges may also delist companies as per the norms provided in Schedule III. 15.3 The Stock Exchange shall give adequate and wide public notice through newspapers (including one English national daily of wide circulation) and through display of the notice on the notice board/ website/ trading systems of the Exchange. 15.4 The stock exchange shall give a show cause notice to a company or adopt procedure provided under Part B of Schedule III for delisting under sub-clause15.1 and 15.2. 15.5 The exchange shall provide a time period of 15 days within which representation may be made to the exchange by any person who may be aggrieved by the proposed delisting. 15.6 The stock exchange may, after consideration of the representations received from aggrieved persons, delist the securities of such companies. 15.6 A Where the stock exchange delists the securities of a company, it shall ensure that adequate and wide public notice of the fact of delisting is given through newspapers and on the notice boards/trading systems of the stock exchange and shall ensure disclosure in all such ....
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....id down in Annexure II of the existing SEBI Circular SMDRP/CIR-14/98 dated April 29, 1998 the stock exchange should give a show cause notice to these companies besides adequate and wide public notice through newspapers and on the notice boards of the stock exchanges; c) these companies should be brought into the framework of arbitration mechanism of the stock exchanges so that the investors could have the opportunity of receiving monetary compensation; d) the Department of Company Affairs may be requested to amend the Companies Act for allowing the stock exchanges to make an application for winding up of the company. However, such petitions against companies should be filed by the stock exchanges only on the basis of investor complaints." [Emphasis supplied] 62. It can, thus, be seen that the Committee report recommended that the stock exchanges are to be empowered i.e., given the power to, delist companies. There was, therefore, no such provision that allowed for an automatic delisting to take place simpliciter. 63. This court, thus, finds the argument of the learned counsel for the petitioner that there exists a logical supposition of Rishabh Ispat Ltd.....
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....reproduced as under: "3. In order to ensure that exit option is provided to the public shareholders of ELCs that are non-compliant with the provisions of the said circular dated October 10, 2016 and have not submitted plan of action to the DSEs and in order to protect the interest of investors in ELCs on DB it is hereby directed that, to, begin with: ***" [Emphasis supplied] 70. It can, thus, be seen that in order to proceed under the circular dated 01.08.2017, it must be the case that an ELC has not complied with the provisions of SEBI's circular dated 10.10.2016 which included a provision for a plan of action. 71. The material provisions of SEBI's circular dated 10.10.2016 are reproduced as under: "4. *** d. Procedure to provide exit to investors: In order to protect the interest of all shareholders of such ELCs, an exit mechanism to investors of such ELCs shall be as prescribed in Annexure- A to this circular. Accordingly, all ELCs shall be required to ensure compliance with the procedure for exit. The oversight and monitoring of such exit mechanism shall be carried out by the designated stock exchange.....
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....the valuer. vii. The exit offer shall remain open for a period of minimum five working days during which the public shareholders shall tender their shares. The promoter shall open an escrow account in favour of independent valuer/designated stock exchange and deposit therein the total estimated amount of consideration on the basis of exit price and number of outstanding public shareholders. The escrow account shall consist of either cash deposited with a scheduled commercial bank or a bank guarantee, or a combination of both. The amount in the escrow account shall not be released to the promoter unless all the payments made in respect of shares tendered for the aforesaid period of one year. viii. The promoter shall make payment of consideration within fifteen working days from the date completion of offer. ix. The promoter shall certify to the satisfaction of designated stock exchange that appropriate procedure has been followed for providing exit to shareholders of such companies. Subsequently, the designated stock exchanges upon satisfaction shall. remove the company from the dissemination board. x. The exclusively listed companies which have 1....
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....ntioned options within 3 months as stipulated. For your ready reference we are attaching copy of SEB| circular SEBI/HO/MRD/DSA/CIR/P/2016/110 dated October 10, 2016. As per the requirements of the said circular, we will soon be appointing Independent Valuers. The details of Independent Valuers with the said SEBI circular can also be viewed on our website (www.bseindia.com)." [Emphasis supplied] 75. Since Rishabh Ispat Ltd., had neither got itself listed on a nationwide stock exchange, nor had provided an exit option to all of its shareholders, and furthermore, had also not provided a plan of action to BSE, the impugned action/order dated 30.04.2018 was taken. 76. It can, thus, be seen that firstly, Rishabh Ispat Ltd., received a letter from BSE dated 20.10.2016, seeking from it and also from its management, compliance with SEBI's circular dated 10.10.2016. Secondly, the circular of SEBI itself provided under paragraph 6 that coercive actions may be taken against the promoters/directors of ELCs that have failed to demonstrate the adequacy of efforts for providing exit to their shareholders in conformity with the exit mechanism, as provided for under the s....