BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI
Appeal No. 120 of 2007
Date of decision : 14.7.2008
D-Link (India) Limited …. Appellant
Versus
The Securities and Exchange Board of India …. Respondent
Mr. Amit Desai Senior Advocate with Mr . Zal Andhyarujina and Mr. Indranil
Deshmukh Advocates for the Appellant.
Mr. Shiraz Rustomjee Advocate with Haih angrang E.H. Newme Advocate for the
Respondent.
Coram:Justice N.K. Sodhi, Presiding Officer
Arun Bhargava, Member
Utpal Bhattacharya, Member
Per : Justice N.K. Sodhi, Presiding Officer
This appeal is directed against the order dated 21.8.2007 passed by the whole
time member of the Securities and Exchange Board of India (hereinafter referred to as
the Board) holding that D-Link India Limite d – the appellant herein never had the
intention to buy-back its secu rities despite having passed a resolution in the specially
convened Extraordinary General Meeti ng (EGM) and having enough opportunities to
do the same and that the announcement thereo f was only for the purpose of misleading
the investors thereby violating Regulation 5(1)(a) of the Securities and Exchange Board
of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities
Market) Regulations, 1995 (for short the Regu lations). The appellant was, therefore,
directed not to buy, sell or deal in securitie s in any manner directly or indirectly for a
period of one month.
- Section 77 of the Companies Act, 1956 (h ereinafter called the Act) prohibits a
limited company from buying its own shares. The main reason for this prohibition is 2
that it may amount to trafficking in its own shares thereby enabling the company to
influence the market price of its shares by reducing the floating stock. It also operates
as a reduction of capital to the prejudice of the creditors. Howe ver, a report of the
working group constituted by the Central Government recommending to provide buy-
back of shares was accepted and accord ingly sections 77A, 77AA and 77B were
inserted by the Companies (Amendment) Act, 1999 and they provide for buy-back of its
own securities by a company subject to the safeguards specified therein. These
provisions as amended upto date and insofar as they are relevant to the case in hand
provide that a company may purchase its own shares only if the buy-back is authorized
by its articles and sanction of the shareholders by means of a special resolution is
obtained if the buy-back is in excess of the specified limit of 10 per cent of its total paid
up equity capital and free reserves. The explanation to section 77A(2) defines the
expression “offer of buy-back” for the purposes of this clause to mean “the offer of such
buy-back made in pursuance of the resolution of the Board referred to in the first
proviso.” Sub-section (4) of section 77A mandates that every buy-back shall be
completed within twelve months from the date of the passing of the special resolution
by the shareholders of the company. The prov isions of these sec tions (sections 77A,
77AA and 77B) are administered by the Se curities and Exchange Board of India
(hereinafter referred to as the Board) in respect of companies already listed or
companies which intend to get listed. With a view to administer the provisions of
section 77A of the Act, the Board in exerci se of its powers conferred by section 11(1)
read with section 30 of the Securities and Exchange Board of India Act, 1992 has
framed the Securities and Exchange Boar d of India (Buy-Back of Securities)
Regulations, 1998 (for short the buy-back regulations). These regulations apply to buy-
back of equity shares by a company listed on a stock exchange. Buy-back regulations
then provide methods in which a company may buy-back its securities and this could be
done from the existing security holders on a proportionate basis through the tender offer
or from the open market. If a company opt s to buy-back from the open market, it has
two options (i) through the book building process, or (ii) through the stock exchange. A 3
company can also buy buy-back its securiti es from odd lot holders. The buy-back
regulations prohibit a company from buying back its securities through negotiated deals
whether on or off the stock exchange or through any spot tran saction or private
arrangement. A company which has been authorized by a special resolution shall,
before buy-back of its securities, make a public announcement in terms of the buy-back
regulations. Since we are concerned in this case with the method of buy-back from the
open market and that too, through the stoc k exchange, we shall only refer to the
concerned provisions. In the case of a co mpany which opts to buy-back its securities
from the open market through the stock exchange, the special resolution of the
shareholders shall specify the maximum price at which the buy-back shall be made and
the buy-back cannot be made from the promoter s or persons in control of the company.
Such a company has then to appoint a merchant banker and make a public
announcement as referred to above. The buy-back of the specified securities shall then
be made only through the “ order matching mechanism” of the exchange. The buy-
back regulations lay down general obligations of the company which is buying back its
securities and one of the oblig ations imposed on it is that “ it shall not withdraw the
offer to buy-back after the draft letter of offer is filed with the Board or public
announcement of the offer to buy-back is made.” This in a nutshell is the scheme of
the buy-back regulations when the buy-back is from the open market and through a
stock exchange. - We shall now deal with the facts giving rise to the present appeal.
- An extraordinary general meeting of th e shareholders of the appellant company
was held on 30.9.2002 and as per th e first item of the meeting, Article 6B was inserted
in the Articles of Association authorizi ng the company to buy-back its shares in
accordance with the provisions of the Ac t. The notice calling the EGM had an
explanatory statement annexed thereto setting out the various disclosures required to be
made by the company under the Act and the buy-back regulations. As per the 4
requirements of Schedule I to the buy-back regulations, the company disclosed the
necessity for the buy-back as under :
“The share Buy-back programme is being proposed in
pursuance of the Company’s desire to maximize returns
to investors and enhance overa ll shareholder value. The
Buyback is expected to lead to a reduction in the number
of Shares outstanding, which can lead to improvement in
earnings per share and an overall enhancement of value
for shareholders continuing with the Company.”
It is also relevant to refer to para 9 of the explanatory statem ent which is in the
following words :
“As per the provisions of the Act, the special resolution
passed by the shareholders approving the share Buy-back
will be valid for a maximum period of twelve months
from the date of passing of the special resolution (or such
extended period as may be permitted under the Act or the
Regulations or by the appropriate authorities). The
Company proposes to complete the buy-back on or
before 29th September, 2003.”
After inserting Article 6B, the members of the company resolved as under:-
“RESOLVED THAT in accordance with the provisions of
Articles of Association and Sections 77A, 77AA and 77B
and all other applicable provisions, if any, of the
Companies Act, 1956, and the provisions contained in the
Securities and Exchange Board of India (Buy-Back of
Securities) Regulations, 1998 (“Buy-back Regulations”)
(including any statutory modification(s) or re-enactment of
the Act or Buy-back Regulat ions, for the time being in
force) and subject to such other approvals, permissions and
sanctions as may be prescrib ed or imposed while granting
such approvals, permissions and sanctions which may be
agreed to by the Board of Directors of the Company
(hereinafter referred to as “the Board” may constitute to
exercise its powers, including the powers conferred by this
resolution), the consent of th e Company be and is hereby
accorded to the Board to purchase its own fully paid-up
equity shares of Rs.2/- each for an amount not exceeding
Rs.16 crores, upto a maximum price of Rs.80 per equity
share (hereinafter referred to as “Buy-Back”).”
The members of the company further resolved that:
“nothing contained hereinabove shall confer any right
on the part of any Shareholder to offer, or any
obligation on the part of the Company or the Board to
Buy-back, any shares, and/or impair any power of the
5
Company or the board to terminate any process in
relation to such Buy-back, if so permissible by law.”
The shareholders approved the implement ation of buy-back and authorized the
company to go through the methodology of open market purchases in the stock
exchanges with electronic trading facility and on such terms and conditions as the board
of directors may determine. Since buy-back of shares by the company was a price
sensitive information, it was required to immediately info rm the exchange where its
securities were listed. This is the require ment of clause 36 of the listing agreement.
Accordingly, by letter dated September 30, 2002 the Bombay Stock Exchange (BSE)
was informed that the company had altere d its Articles of Association and it had
authorized its board of directors to purchase its own fully paid up equity shares of Rs.2/-
each for an amount not exceeding Rs.16 cror es upto a maximum price of Rs.80 per
equity share. By another letter of October 4, 2002 certified true copy of the proceedings
of the EGM were also sent to the BSE. On receipt of this information/document, BSE
put up on its website under the caption “Corporate Announcements” a summary of the
information received from the appellant company regarding its proposal to buy-back its
own paid up shares. The summary as put on the website reads as under:
“D-Link India Ltd. has informed BSE that at the EGM of
the Company held on September 30, 2002 the shareholders
have :
Authorised Board of Directors to purchase own fully paid
up equity shares of Rs.2/- each for an amount not
exceeding Rs.160 million upto a maximum price of Rs.80
per equity share.”
It is common ground between the parties that the aforesaid information was
simultaneously sent to the Board as well. After passing the resolutions in the EGM as
aforesaid and having furnished that informa tion to the BSE where the securities of the
appellant company were listed, it took no further steps to buy-back the shares though
the process of buy-back could be completed within 12 months from the date of the
passing of the resolutions. The appellan t company could complete the buy-back
process if it wanted to upto September 29, 2003. Since the appellant company had taken
no steps, the Board by its letter dated A ugust 26, 2003 enquired from the company an
6
update on the status of the buy back. In respon se to this letter the appellant as per its
letter dated September 2, 2003 informed the Board “that the board of directors have not
decided to buy-back shares of the company till date.” The period within which the
shares could be bought back was over on September 29, 2003. Since the company did
not buy-back the shares, one Shri. Ravi De shmukh filed a compla int with the Board
informing the latter that in spite of passing a special resolution in the EGM to buy-back
its equity shares, the company did not buy-back those shares as a result whereof small
investors who bought shares from the open market in anticipation of the buy-back
suffered losses. On receipt of this complaint, the Board ordered investigations and
found that the company never had any intention to buy-back its shares and that the
information purveyed to the public through BSE was misleading. The Board prima
facie found that the appellant company ha d violated Regulation 5(1)(a) of the
Regulations and accordingly issued a show cause notice dated May 5, 2006 calling upon
the company to show cause why action be not taken for disseminating misleading
information as stated above. The appellant filed its detailed reply taking the stand that
it was under no obligation to buy-back its full y paid up equity shares and that the
resolution was meant only to enable the company to buy-back if it so wanted. It was
pleaded that there was no contractual obligation on the part of the company to buy-back
the shares and it was left to the board of directors to take a decision in this regard. It
was further pleaded that in any case the re solution for buy-back was valid for a period
of one year upto 29.9.2003 before which the pr ice of the scrip in the market had gone
upto Rs.80 which was the maximum price at which the company could buy-back as per
the authority given by the shareholders. Reference was made to the resolution passed in
the EGM which clearly stated that the same di d not confer any right on the part of any
shareholder to offer nor any obligation on the company or its board of directors to buy-
back any shares. The shareholders had also authorized the company and/or its board of
directors to terminate the pro cess of buy-back at any time if so permissible by law. As
regards the information sent to BSE regarding buy back, it was pleaded on behalf of the
company that that was an obligation under Cl ause 36 of the listing agreement and also
7
under the buy-back regulations and that it did not mean that the company had to buy-
back the shares. It was categorically stated in the reply that no misleading information
had been furnished to BSE and all that the company did was to send a true certified
copy of the resolution with a forwarding le tter without making any comments thereon.
The power of the Board to take action under section 11B of the Securities and Exchange
Board of India Act, 1992 was also challeng ed. The Board grante d personal hearing to
the appellant on September 13, 2006 on which date its authorized representative had
undertaken to file the writte n submissions as well. The detailed written submissions
were filed on September 21, 2006. The company gave an explanation as to why it did
not buy-back the shares after the passing of the resolution in the EGM and the
justification was stated in para 3 of th e written submissions which is reproduced
hereunder for facility of reference:
“At the outset, our clients deny that they had no intention of
implementing the Buy-back at the time of EGM or on or about
4th October, 2002, as alleged or at all. It is submitted that the
option of Buy Bank could have been exercised by the Board of
Directors of the Company from 30 th September, 2002 till 30 th
September, 2003 (hereinafter referred to as the “Relevant
Period”). With the advent and growing importance of
information technology, networ king and ancillary products,
like motherboards, switches, routers, structured cabling
products etc. (hereinafter referred to as “ New Products”), the
management of the Company decided to focus its attention on
the opportunity of investing in infr astructural facilities such as
new plant and machinery, which would enable the Company to
manufacture New Products and consolidate and further expand
the business of the Company. The opportunity to expand the
infrastructure was a sudden development which came about in
January/February, 2003 due to the decision of Economic
Development Corporation of Go a to auction 2 of its units,
located adjacent to the existing facility of the Company. In
view thereof, the Company decided to bid to purchase both the
plots along with building there on considering the long term
strategic importance of ha ving all manufacturing and
distribution set-ups at one locat ion. In view of the changed
market scenario, it was essential for the Company to make
rapid investments in infrastruc ture and other fixed assets,
required to keep pace with the emerging market requirement.
In light of the above, the Board of Directors of the Company
approved greater investment on fi xed assets and infrastructure
of the Company. Consequently, during the Financial Year
2003-04 the total additions made by the Company to its fixed
assets were about Rs.14.30 cror es, which was significantly
higher than Rs.4.08 crores, made by the Company in Financial
Year 2002-03.”
8
- After hearing the representative of the appellant the orders were reserved on
13.9.2006. By order dated 21.8.2007 the whole tim e member came to the conclusion
that the charge levelled against the appellant stood established and recorded his findings
in para 4.9 of his order which reads as under :
“From the facts and circumstances stated above, I find that
there was no intention to buy- back by the company despite
passing the resolution in the specially convened EGM and
having enough opportunities to do the same. Further by not
intimating the failure to buy-back not even through the
Annual Report, which is require d as per the provisions of
section 217(2B) of the Companies Act, 1956, fortifies the
finding that there was never an intention to buy-back the
shares and the announcement thereof was only for the purpose
of misleading the investors. This act of the company
amounted to sending out false or misleading information by
the company when it did not intend to implement the
resolution. In view of the a bove, aforesaid acts of DIL
construe as misleading information to the public which is in
violation of Regulation 5(1)(a ) of FUTP Regulations, 1995
which states that no person shall make any statement or
disseminate any information which is misleading in a material
particular which induces sale or purchase of securities.”
Accordingly, the appellant was debarred from buying, selling or dealing in securities in
any manner directly or indirectly for a period of one month. Hence this appeal.
- We have heard Shri. Amit Desai lear ned senior counsel on behalf of the
appellant and Shri. Shiraz Rustomjee Advo cate on behalf of the Board. The first
question that needs to be answered is whether the appellant company was under any
obligation to go ahead with the buy-back after its shareholders had passed a special
resolution in the EGM authorizing it to buy-ba ck its fully paid up equity shares. On a
reading of the provisions of section 77(A) of the Act and the relevant provisions of the
buy-back regulations to which detailed reference has been made in the earlier part of
our order we are of the considered view that a company is unde r no obligation to buy-
back its securities even if its shareholders have passed a special resolution authorizing it
to buy-back on the terms and conditions menti oned in the resolution. Section 77(A) of
the Act is only an enabling provision and all that it mandates is that no company shall
buy-back its own securities unl ess it is authorized by its articles and also by its 9
shareholders. But even where the sharehol ders pass a special re solution, it does not
become obligatory for the company to buy-back the shares. The passing of a special
resolution by the shareholders is the first step by which they authorize the company and
the second step would be the decision of the company to buy-back by making an offer
to its share holders. The buy- back regulations prescribe th e manner in which such an
offer could be made. Since the shareholders of the appellant company had authorized it
to buy-back the shares from the open market through the stock exchange, Regulation 15
of the buy-back regulations read with Regulation 8 requ ired it to make a public
announcement if it wanted to buy-back and the public announcement would then have
been the offer which the company would have made to its share holders. As it took no
decision to buy back, it did not come out with a public announcement and consequently
no offer to buy-back was made to the shareholders. - At this stage it would be relevant to refer to clause (d) of Regulation 19(1) of the
buy-back regulations which reads as under:
“ Obligations of the company
19.(1) The company shall ensure that; –
(a) to (c) ……………..………..
(d) the company shall not withdraw the offer to buy-back
after the draft letter of offer is filed with the Board or
public announcement of the offer to buy-back is made;
(e) …………………………………………………”
This provision is a clear indication that onc e the company has made an offer either by
issuing a letter of offer or by public announcement to its sh areholders to buy back, it
cannot withdraw the same. It follows that it is only when the second step of making an
offer to the shareholders has been taken that the company is obliged to go through with
the buy back. In the case before us the company had not come out with a public
announcement and, therefore, it was open to it not to go through with the buy back.
- However, the charge against the appella nt is that since it took no steps to buy-
back the shares after its shareholders had authorized to it to buyback, it never had the 10
intention from the beginning to buy-back and disseminated misleading information to
the public through BSE thereby violating Regulation 5(1)(a) of the Regulations.
Assuming that a company which has no inten tion to buy-back its ow n securities gets a
resolution passed from its shareholders au thorizing such a buy-back and disseminates
that misleading information to the public , it violates Regulation 5(1)(a) of the
Regulations. In the case of the appellant before us, we are of the considered opinion
that there is no material on the record to indicate that it had no intention to buy-back its
shares when the shareholders passed th e resolution in September 2002. We have
already held that even wher e such a resolution is passed, the company is under no
obligation to go through with the buy back. It, therefore, follows that it cannot be
inferred that the company had no intention to buy-back merely because it made no offer
to its shareholders to buy-back their securitie s. There has to be some other material or
circumstances from which such an inference could be drawn. We do not find any such
circumstance in the present case. Rather, the appellant company has furnished a
reasonable explanation for not going through with the buy-ba ck as authorized by its
shareholders in view of the subsequent ev ents which explanation unfortunately has not
been examined by the whole time member in the impugned order. The explanation
furnished in the written submissions has been reproduced in the earlier part of our order.
The shareholders authorized the company in their meeting held on 30 th September 2002
to buy-back the securities. According to section 77(A)(4) of the Act the buy-back could
be completed within twelve months i.e. up to 29 th September 2003. The appellant is a
Goa based company and to begin with when the special resolution was passed the desire
of the company was to maximize return s to the investors and enhance overall
shareholder value. As per section 77(A)(4) of the Act the buy-back could be completed
within twelve months from the date of the special resolution i.e. up to 29 th September - Much before this period expired the Economic Development Corporation of Goa
auctioned some time in January/February, 20 03 two of its units in Goa which were
adjacent to the existing facility of the company and it decided to purchase both the plots
along with the buildings ther eon considering the long term strategic importance of 11
having all manufacturing and distribution set-ups at one location. In view of the
changed market scenario, the company thought that it was necessary for it to make
investment in infrastructure and other fixed assets with a view to keep pace with the
emerging market requirements. Having this consideration in view the board of directors
approved greater investment on fixed assets and infrastructure of the company and they
thought that this would be more beneficial for the shareholders in the long run. Instead
of spending the money in buying back the shares, the company thought that the overall
shareholder value would be enha nced if investments were made in infrastructure. It is
primarily for this reason that the company did not go throu gh with the buy-back offer.
As already observed, this is a reasonable explanation furnished by the company and we
cannot lose sight of the fact that the company and its board of directors are the best
judges of the interest of th eir shareholders and it was primarily a business decision
which the company took and neither the Board nor we can substitute our own views for
theirs. We wonder how the Board is concerned whether the company increases the
investor wealth of its shareholders through the buy-back pr ocess or by making
investments in infrastructure. This is not a matter which affects the securities market.
The Board is primarily a market regulator and its duty is to ensure that the market
remains a safe place for the investors to i nvest. It cannot interfere with the business
decisions taken by the company so long as they do not prejudicially affect the securities
market. The learned counsel for the respond ent very strenuously contended that this
was not the explanation furnished by K. G. Prabhu the company secretary when his
statement was recorded on February 1, 2005 during the course of the investigations. He
also pointed out that in the reply filed to the show cause notice the stand taken by the
appellant was that it was under no obligation to go through with the buy-back offer. He
contends that the explanation furnished in the written submissions is an afterthought.
We are unable to agree with him. The appe llant has furnished a detailed explanation
giving the approximate time of the auction of the two plots in Goa which are said to be
adjacent to the company’s premises. These are facts which could be verified and the
Board in our opinion should have looked into this aspect. The written submissions were 12
filed on September 21, 2006 and the impugned order was passed after almost a year and
the Board had sufficient time to look into this explanation if it want ed to. We see no
reason why the explanation should be disregar ded merely because it was furnished in
the written submissions. The appellant was right when it submitted in its reply to the
show cause notice that it was under no obligation to go through with the buy-back even
after its shareholders had passed a special resolution to that effect. In this view of the
matter and having regard to the explanation furnished by the appellant, we cannot agree
with the Board that the appellant had no intention to buy-back the shares even when the
resolution was passed in September 2002. - There is yet another reason why we cannot find any fault with the appellant. It
is common ground between the parties that the sharehol ders had authorized the
company to buy-back its securities up to a maximum amount of Rs.16 crores at a price
not exceeding Rs.80 per share. They had al so authorized the company to buy-back the
shares from the open market through the st ock exchange which means that the shares
were to be bought back at the market price through the price order matching mechanism
of the exchange subject to the maximum lim it of Rs.80 per share. It is also not in
dispute and it has been noticed in the impugned order as well that the price of the scrip
of the company had reached Rs.80 on August 3, 2003 by which time there were still two
months left for the implementation of the buy-back resolution. It is also agreed between
the parties that the price of the scrip con tinued to rise thereafter and never came down
below Rs.80 till September 29, 2003 which was the outer limit for implementing the
buy-back resolution. This being so, it becam e impossible for the company to buy-back
its shares because the shareholders had au thorized them to buy-back only up to the
maximum price of Rs.80. This was the prec ise explanation offered by Shri K. G.
Prabhu in his statement recorded during the course of the in vestigations and we cannot
understand why the same was not accepted. As already noticed the company had twelve
months at its disposal to implement the buy-back and before that period expired it
became impossible in twelve months to impl ement that resolution as the price of the 13
scrip had reached Rs.80 and above. It cannot therefore be said that the company had no
intention ever to implement the buy-back re solution and the Board was not justified in
proceeding against the appellant when before the expiry of the period, the
implementation had become impossible. We cannot, therefore, uphold the findings
recorded in the impugned order. - The learned counsel for the respondent laid great stress on the letter dated 2 nd
September 2003 addressed by the company to th e Board in response to its letter dated
August 26, 2003 wherein the company had said that it had taken no decision to buy-
back the shares. By its letter dated A ugust 26, 2003, the Board had enquired from the
company regarding the status of the implem entation of the buy-back resolution. We do
not think that anything hinge s on the reply furnished by th e company. As a matter of
fact, the query made by the Board was not tena ble because by that time the price of the
scrip had gone beyond Rs.80/- and the questio n of buy-back had become impossible.
The Board should have taken note of this aspect. Reference was then made to the letter
dated 16th April 2004 addressed by the National Stock Exchange (NSE) by which it had
forwarded a complaint made by one Ravi Deshmukh to the company asking for the
latter’s explanation on the complaint to contend that the appellant never had the
intention to implement the buy- back resolution. It is in teresting to note that the
complainant in his complaint had made the following grievance:
“It may be noted that in the entire process, small investors
had purchased shares in anticipation that they may offer the
shares in the buy back. Howe ver, these investors were
made an easy prey and were forced to sell the shares at a
loss since the offer for buy-back was never made.”
This complaint on the face of it is absurd and we do not think that NSE should have
called upon the appellant company to offer its explanation and it appears that the
complaint was sent in routine without any one applying his mind. The kind of buy-back
which the shareholders of the company had authorized was such that we see no logic for
any one to purchase shares from the market in anticipation of the buy-back offer. As
already observed, the company was to buy-back the shares at the market price through
14
the price order matching mechanism of the ex change subject to the maximum limit of
Rs.80 per share. The so-called innocent i nvestors whose cause was being pleaded by
the complainant would have purchased the shares only from the market through the
price order matching mechanism of the ex change. We wonder why any one will buy
shares in anticipati on at the market price knowing th at the company is going to buy
them back at the market price through the exchange unless he anticipates the price to go
up. If that were to happen (in the instan t case the price did go up in August 2003) and
the price were to reach Rs.80 or above, the company will be unable to buy-back though
the shares could still be sold in the market and the investor would make profit. Such a
purchase/investment can have nothing to do with the buy-back offer. The period for
implementing the buy-back resolution was up to 29 th September 2003 and we presume
that no “innocent investor” would have sold hi s shares till then and if he was forced to
sell the shares thereafter because the compa ny did not offer to buy-back, he should not
be complaining because the price had gone up. In this view of the matter the complaint
should have been rejected summarily but th at could be done only if somebody were to
apply his mind. It is expect ed of the Board and other re gulatory bodies like the stock
exchanges to apply their mind on receipt of a complaint to find out whether there is
prima facie substance in it before calling upon a ny entity or market player to explain.
We have examined the reply of the co mpany dated April 20, 2004 sent to NSE in
response to its letter dated April 16, 2004. The reply is quite pl ausible and does not
support the contention of the respondent that it (company) had no intention from the
beginning to buy-back its shares.
- Shri Shiraz Rustomjee learned counsel for the Board then relied upon the
statement of Shri K. G. Prabhu to contend that on a reading of the same it is amply clear
that the company never intended to buy-back its shares and that the resolution had been
passed by the shareholders only to purvey mi sleading information to the market. We
find no merit in this contention either. We have already observed that the explanation
which Mr. Prabhu had furnishe d should have been accepte d by the Board because he 15
did give the details showing that it had become impossible for the company to
implement the buy-back because of the incr ease in the price of the scrip of the
company. The learned counsel then referred to the reply filed by the company to the
show cause notice and our attention was dr awn to paragraphs 3.9 onwards. We have
examined the same and find that the company was not only justifying its action but also
taking up a plea that it had not violated regula tion 5(1) of the Regulations as it did not
disseminate any information which was misleadi ng in material particulars. This aspect
of the matter was also argued before us by the appellant but we do not think it necessary
to decide the same in this case as we are of the view that the company had justifiable
reasons for not going through with the buy-back resolution. - It was then argued that lack of intention on the part of the company could be
inferred from the fact that it did not a ppoint a merchant banker nor made a public
announcement. We do not think that any such inference could be drawn as is sought to
be argued on behalf of the Board. A merchant banker would have been appointed if the
company had decided to go ahead with the buy-back resolution. Since it was not
buying back its securities, there was no questio n of its appointing a merchant banker or
making a public announcement. Lastly, it was ur ged that the board of directors of the
company violated section 217(2B) of the Act in asmuch as they did not in their report
furnish to the company reasons for the failure to complete the buy-b ack process. This
argument is also devoid of merit. Sub-sect ion (2B) of section 217 of the Act requires
that the board of directors of the company shall in their report specify reasons for the
failure, if any, to complete the buy-back with in the time specified in sub-section (4) of
section 77A. The company did not go throug h with the buy-back and, therefore, it
cannot be said that there was any failure in completing the buy-b ack within twelve
months period specified in section 77A. If it had gone through with the buy-back and
not completed the same within the prescribed time, it was required to record reasons for
the delay. We cannot, therefore, hold that the company or its board of directors violated 16
this provision or that their not having furnished any reason s in their report, we could
infer that the company had no intention to buy-back its securities. - No other point was raised.
For the reasons recorded above, we allow the appeal and set aside the impugned.
There is no order as to costs.
Sd/-
Justice N.K. Sodhi
Presiding Officer
Sd/-
Arun Bhargava
Member
Sd/-
Utpal Bhattacharya
Member
14.7.2008
ddg