TaxTMI 
TaxTMI 
2023 (8) TMI 710
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....he 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 Central Government also withdrew DSE's recognition on the ground of ....
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....d 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 counsel concluded this leg of their argument by submitting that the petitioner is not encompassed in the j....
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....usian 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 10.10.2016, and 01.08.2017 issued by SEBI. Learned senior counsel submitted that the actions envisaged under these circulars are for the pr....
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....ded 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 counsel also submitted, that if at all the petitioner intends to refute the information supplied by DSE, the same should have been made a party to th....
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.... 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 exclusively listed companies, which fail to obtain listing on any other stock exchange, will cease to be a listed company and will be moved to the dissemination board by the exiting stock....
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....usively 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, either on voluntary or compulsory basis. Nation-wide stock exchanges shall facilitate the listing of these companies on priority basis in a time bound manner. For this purpose, these nation-wide stock exchanges shall immediately create a separate dedicated cell to expedite processi....
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.... 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 the listing requirements of the nation-wide stock exchange, subject to the following:- a) Listing in nationwide stock exchanges is permitted only in respect of those class of securities that were already listed in the non-operational stock exchanges. b) The exclusively listed companies seeking listing on nationwide....
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....s 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 'Annexure A', that may be provided to the shareholders of an ELC. Paragraph 5(a) also provided that ELCs on the Dissemination Board which have not expressed their intention to exercise either of the two exit options, shall submit their plan of action to the designated stock exchanges, latest within three months from the date of issuance of the circular to the satisfaction of the desi....
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.... 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 furtherance of the circular dated 10.10.2016, SEBI, on 01.08.2017, issued another circular bearing the subject 'Action against Exclusively Listed Companies and its Promoters/Directors pending Exit Offer to the Shareholders'. The said circular further crystallized the exact steps which are to be taken out of the many that were mentioned under paragraph 6 of the circular dated 10.10.2016. The material part of the circular dated 01.08.2017 reads as under: "3. In order to ensure that exit option is provided to th....
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.... 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 wanting to exercise either of the exit options. In such a case, the shareholders of the ELC find themselves to be in a state of limbo-beholden to the will and mercy of the management of the ELC-whose actions, or the lack thereof, shall determine the fate of their investments. 40. In such a case, SEBI, initially through its circular dated 17.04.2015, which was further detailed out in its circular dated 10.10.2016, has provided the coercive steps that are to take place against the promoters/directors of the ELCs who have not attempted to exercise....
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....ner 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 on individual directors with no provisions of proper representations on behalf of the aggrieved directors is equally fallacious. As has been observed above, the coercive steps against the promoters/directors are temporary measures, taken to move the ELCs into complying with the terms of the circular dated 10.10.2016, and thereby providing an exit option to the shareholders. 47. The opportunity of being represented is provided for under the terms of the said circulars themselves. Indeed, the manner in which the circulars are worded clearly shows that it ....
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.... 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 case, Rishabh Ispat Ltd. is not an ELC. The circulars dated 10.10.2016 and 01.08.2017 issued by SEBI which provide force and ratification to the order/action of BSE, therefore, do not apply to Rishabh Ispat Ltd. The petitioner is then, not a promoter/director of a non-compliant ELC, and thus the BSE could not have proceeded against the petitioner. 52. The distinction between a company exclusively listed on a stock exchange that was de-recognized, and a company that is additionally found to be listed on a stock exchange other than the stock exchange that was de-recognized, was initially provided by SEBI und....
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....e 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 notices of the fair value of such securities determined in accordance with the Explanation to clause 16.1" 58. A bare perusal of Clause 15 of the Delisting Guidelines would reveal that under Clause 15.1, discretion is being given to the concerned stock exchange, as to whether it wishes to delist the suspended company. 59. Great stress is laid by the learned counsel for the petitioner on the words "compulsory delisting" as they appear in the heading of Clause 15, to argue that delisting must necessarily take place after a suspension. However, the definition of 'compulsory delisting', as provided under clause 3.1(d) would indicate otherwise. For clarity, clauses 3.1(d) and (j) a....
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...." [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. being delisted under Clause 15 of the Delisting Guidelines since it had previously been suspended, to be fallacious and completely without merit. 64. It must also be considered that if at all Rishabh Ispat Ltd., was delisted under Clause 15 of the Delisting Guidelines, as per the provisions of Clauses 15.3 and 15.4, DSE would have issued a public notice through newspapers and also provided a show cause notice to Rishabh Ispat Ltd. 65. Learned counsel for the petitioner has brought nothing on record to suggest that Rishabh Ispat Ltd., had been delisted by DSE under the provisions of Clause 15 of the Delisting Guidelines, prior to the de-recognition of DSE. On the other hand, learned counsel for the respondent no. 2 has brought on record a letter dated 25.05.....
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.... 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. i. Designated stock exchanges shall further ensure that the promoters have made adequate efforts in terms of the above provisions for providing exit to their shareholders before removing ELCs from the DB. ii. The designated stock exchange shall display the list of companies willing to provide exit to their investors on their website on a monthly basis. 5. In order to facilitate the raising of capital or provide exit to investors as mentioned under para 4.c and 4.d, it is prescribed that: a. The ELCs on the DB which are yet to indicate their intention to comply with listing or to provide exit shall submit their plan of action to designated stock exchanges latest within three months from the date of this circular to the satisfaction of the designated stock exchanges, failing which the designated exchange shall recomm....
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....priate 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 100% promoter holding shall be removed from the dissemination board on obtaining a compliance certification from any independent professional with regard to the holding of shares of these companies and submit to the designated stock exchanges. xi. The names of the companies providing exit opportunity to its shareholders and their promoters shall be displayed in a separate section on the website of the designated stock exchange." 73. The scheme of SEBI's circular dated 10.10.2016, therefore, is that at the threshold stage, an ELC has to express its intention to the concerned stock exchange of choosing either of the two alternatives available to an ELC on the Dissemination Board. In the event that an ELC fails to do so, the ELC must, as per paragraph 5 of the said circular, submit a plan of action to the concerned stock exchange within 3 months from the date of issuance of the said circular failing which coercive measures ag....
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....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 said circular; and thirdly, Rishabh Ispat Ltd., did in fact, fail to demonstrate the adequacy of efforts for providing exit to its shareholders in conformity with the exit mechanism. 77. Since the provisions of the circular dated 10.10.2016 had been violated by Rishabh Ispat Ltd., and also because the requirements of paragraph 3 of the circular dated 01.08.2017 had been met, BSE rightfully, in discharge of its obligations under SEBI's circular dated 01.08.2017, took the action/order dated 30.04.2018. 78. This court finds that sufficient opportunity of hearing was provided to Rishabh Ispat Ltd., as also to the petitioner, in order for BSE to have taken the action/order dated 30.04.2018. 79. The argument of the learned counsel for the petitioner that the petitioner having resigned from the post of the Director on 05.03.2018, and therefore, the action/order dated 30.04.2018 could not have been taken against the petitioner, is also liable to be rejected as the same is found to be baseless....