BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
DATE : 15.01.2019
Appeal No. 205 of 2018
Ankit Mehta-Ex-Director of
M/s. Janice Textiles Ltd.
(now amalgamated)
1st Floor, 261, Yusuf Meherali Road,
Mumbai 400 003.

….. Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai – 400 051.

… Respondent
Mr. Rohan Sawant, Advocate i/b Mona Vora for the Appellant.
Mr. Vishal Kanade, Advocate with Ms. Vidhi Jhawar, Mr. Nikhil Kapoor,
Advocates i/b The Law Point for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer
Dr. C. K. G. Nair, Member
Per : Justice Tarun Agarwala, Presiding Officer (Oral)
1.

The appellant being an ex-director of the noticee company has filed
the present appeal against the order of the Adjudicating Officer (hereinafter
referred to as “AO”) dated April 27, 2018 under Section 15I of the
Securities and Exchange Board of India Act, 1992, hereinafter referred to as
“SEBI Act” read with Rule 5 of the Securities and Exchange Board of India
(Procedure for Holding Inquiry and Imposing Penalties by Adjudicating
Officer) Rules, 1995 (hereinafter referred to as the “Rules 1995”)
in
respect of Janice Textiles Ltd. (hereinafter referred to as “the noticee
company”) holding that the appellant had not
obtained SCORES
authentication and consequently levied a monetary penalty of Rs. Six lacs
under the provisions of 15HB of the SEBI Act .

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2.

The contention of the appellant is that a scheme of amalgamation of
the noticee company, Janice Textiles Ltd. with another company known as
Alka India Ltd. was duly approved by the Board of Directors of both the
companies on March 26, 2004, pursuant to which, a scheme of
amalgamation was sanctioned by the High Courts of Bombay and Gujarat
on August 26, 2005 and November 16, 2005 respectively. It was contended
that pursuant to the scheme becoming effective, the transferor company,
namely, the noticee company i.e. Janice Textiles Ltd. stood dissolved
without winding up.

It was contended that the noticee company had
complied all the procedural requirements as directed by the High Courts
and necessary Form 21 was filed before the Registrar of Companies
Maharashtra, Mumbai (‘MCA’ for short) on February 24, 2006. Necessary
information was also sent to the BSE as a result the portal of the MCA 21
portal and BSE website indicated the status of the noticee company as
amalgamated.

3.

Inspite of the aforesaid amalgamation and merger of the transferor
company with the transferee company, a show cause notice dated May 26,
2017 was issued to the noticee company under Rule 4 of the SEBI
Adjudication Rules, 1995 to show cause as to why the noticee company
should not be penalized for failing to obtain SCORES authentication as per
various SEBI’s circulars of the year 2011, 2013 and 2014. On receipt of
show cause notice the appellant being an ex-director replied intimating the
AO that the noticee company had amalgamated with Alka India Ltd.
pursuant to order passed by the High Court of Judicature at Bombay dated
August 26, 2005 and that the said company stood dissolved.

4.

Inspite of submitting all the necessary documents and information,
the AO by the impugned order dated April 27, 2018 held that the noticee
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company had failed and neglected to comply with the SEBI’s circulars and
that the scrips of the noticee company remained listed upto September 2,
2015. The AO further held that since the noticee company continued to be
a listed company till September 2, 2015 it violated the SEBI’s circulars and
consequently, was liable to a penalty of Rs. Six lacs under Section 15HB of
the SEBI Act.

5.

We have heard Mr. Rohan Sawant, the learned counsel for the
appellant and Mr. Vishal Kanade, the learned counsel for the respondent.
Admittedly, the noticee company had been amalgamated with the transferee
company, namely, Alka India Ltd. pursuant to the order passed by the High
Court of Judicature at Bombay dated August 26, 2005. The Bombay High
Court held that “….. AND THIS COURT DOTH FURTHER ORDER
that upon the Scheme becoming effective the Transferor Company shall
stand dissolved without winding up…”. Pursuant to the aforesaid order
requisite Form 21 was filed before the Registrar of Companies on February
24, 2006, and that requisite information was sent to the BSE as a result their
website indicated that the noticee company had amalgamated with Alka
India Ltd.

6.

Subsequent to the merger of the noticee company with the transferee
company SEBI issued circular dated August 13, 2012 requiring all
companies to obtain SCORES authentication by September 14, 2012 whose
securities were listed on the stock exchange. Thereafter, SEBI issued a
public notice dated January 13, 2013 against the companies which had
failed to obtain SCORES authentication.

By this notice companies who
had not obtained SCORES authentication were advised to obtain the same
within seven days from the date of advertisement. Subsequently, another
circular dated April 17, 2013 was issued requiring the companies to obtain
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SCORES authentication within 30 days. Thereafter, another circular dated
December 18, 2014 was issued on the same lines.

7.

Having heard the learned counsel for the parties, we are of the opinion
that when two companies amalgamate and merge into one, the transferor
company loses its entity as it ceases to have its business. The corporate
entity of the transferor company ceases to exist with effect from the date the
amalgamation is made effective. This observation has been made by the
Supreme Court in the matter of Saraswati Industrial Syndicate Ltd. vs.
C. I. T. Haryana, H. P., Delhi [AIR 1991 SC (70)]. The said decision is
squarely applicable in the present case. The fact that the scrips of the
noticee company remained listed up to September 2, 2015 in the BSE will
have no effect in so far as the merger is concerned. Even otherwise, the
noticee company cannot be found at fault with the listing of its scrips on the
stock exchange.

The noticee company had informed the Registrar of
Companies in the year 2006 by filing Form 21 which, in turn, was
intimated to the stock exchange. The portal of BSE also indicated that the
noticee company had amalgamated in 2011. Thus, the mere fact that the
exchange continued to list and show the noticee company as a listed
company is on account of the fault of BSE for which the noticee company
cannot be blamed. Even otherwise, we are of the opinion that once the
company stood dissolved in the year 2005 and the scheme of amalgamation
was made effective the company ceased to exist.

The circulars issued by
SEBI in the year 2012, 2013 and 2014 would not have any bearing with the
noticee company as it ceased to exist. Consequently, we are of the opinion
that issuance of the show cause notice and imposition of penalty of Rs. Six
lacs was wholly erroneous and without jurisdiction.

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8.

For the reason stated aforesaid, the appeal is allowed. The impugned
order dated April 27, 2018 passed by the AO is quashed.

Sd/Justice Tarun Agarwala
Presiding Officer
Sd/Dr. C. K. G. Nair
Member
15.01.2019
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