BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved on: 19.3.2019
Date of Decision : 3.4.2019
Appeal No.275 of 2017
Debi Prasad Patra
CJ-332, Sector-II,
Salt Lake City, Kolkata – 700 091.

….. Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot C4-A,
G Block, Bandra-Kurla Complex,
Bandra (E), Mumbai – 400 051.

…… Respondent
Mr. Vinay Chauhan, Advocate with Mr. K.C. Jacob, Advocate
i/b. Corporate Law Chambers India for the Appellant.
Mr. J.P. Sen, Senior Advocate with Mr. Karan Bhosale, Mr.
Balagopal Menon and Mr. Pratik Ingle, Advocates i/b.
Singhania Legal Services for the Respondent.
With
Appeal No.289 of 2017
Tantra Narayan Thakur
B-1/46, (2nd Floor), Safdarjung Enclave,
New Delhi – 110 029.

….. Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot C4-A,
G Block, Bandra-Kurla Complex,
Bandra (E), Mumbai – 400 051.

…… Respondent
2
Mr. Vinay Chauhan, Advocate with Mr. K.C. Jacob, Advocate
i/b. Corporate Law Chambers India for the Appellant.
Mr. Karan Bhosale, Mr. Balagopal Menon and Mr. Pratik Ingle,
Advocates i/b. Singhania Legal Services for the Respondent.
With
Appeal No.290 of 2017
Nand Gopal Khaitan
1B, Old Post Office Street
Kolkata-700 001.

….. Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot C4-A,
G Block, Bandra-Kurla Complex,
Bandra (E), Mumbai – 400 051.

…… Respondent
Mr. P.N. Modi, Senior Advocate with Mr. Vinay Chauhan, Mr.
Kunal Kataria and Mr. K.C. Jacob, Advocates i/b. Corporate
Law Chambers India for the Appellant.
Mr. Karan Bhosale, Advocate with Mr. Balagopal Menon and
Mr. Pratik Ingle, Advocates i/b. Singhania Legal Services for
the Respondent.
With
Appeal No.296 of 2017
Amit Kiran Deb
DA-38, Sector-1, Salt Lake,
Bidhannagar (N), North 24
Parganas, Kolkata – 700064.
Versus
….. Appellant
3
Securities and Exchange Board of India
SEBI Bhavan, Plot C4-A,
G Block, Bandra-Kurla Complex,
Bandra (E), Mumbai – 400 051.

…… Respondent
Mr. Vinay Chauhan, Advocate with Mr. K.C. Jacob, Advocate
i/b. Corporate Law Chambers India for the Appellant.
Mr. Karan Bhosale, Advocate with Mr. Balagopal Menon and
Mr. Pratik Ingle, Advocates i/b. Singhania Legal Services for
the Respondent.
CORAM: Justice Tarun Agarwala, Presiding Officer
Dr. C.K.G. Nair, Member
Justice M.T. Joshi, Judicial Member
Per : Justice Tarun Agarwala
1.

These group of appeals are against a common order and
consequently the same are being decided together. For facility,
the facts stated in Appeal No.290 of 2017 are being taken into
consideration.
2.

DPSC Ltd. (hereinafter referred to as ‘DPSC’) was
incorporated as a Company on 2nd July, 1919 under the Indian
Companies Act, 1913 and was primarily engaged in the
business of generation, distribution and supply of electrical
energy and matters incidental thereto. India Power Corporation
Ltd. (hereinafter referred to as ‘IPCL’) is an unlisted Company
4
and is the sole promoter entity of DPSC holding 93% of the
shareholding in DPSC.
3.

The Securities Contracts (Regulation) Act, 1956 (SCRA)
was enacted to prevent undesirable transactions in securities by
regulating the business of dealings therein, and by providing for
certain other matters connected therewith. Further, for carrying
out the mandate of the SCRA, the Securities Contracts
(Regulation) Rules, 1957 (hereinafter referred to as ‘SCRR’)
were framed by the Central Government. Section 21 of the
SCRA mandates the compliance, by all listed companies, of the
conditions of the listing agreement with the stock exchange. The
SCRR inter-alia prescribes the requirements which are required
to be satisfied by the companies for the purpose of getting their
securities listed on any stock exchange in India.
4.

The SCRR was amended vide notification of the Securities
Contracts (Regulation) (Amendment) Rules, 2010 (‘First
amendment’) by the Central Government dated June 04, 2010
and amended again vide Securities Contracts (Regulation)
(Second Amendment) Rules, 2010 (‘Second amendment’) in
terms whereof Rule 19(2)(b) was amended and a new rule
namely, Rule 19(A) was inserted.

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5.

The amended Rule 19(2)(b) and newly introduced Rule
19(A) of SCRR reads as under:
“(19)(1) A public company as defined under the
Companies Act, 1956 desirous of getting its securities
listed on a recognized stock exchange, shall apply for the
purpose to the stock exchange and forward along with its
application the following documents and particulars:
……………………………
19(2) Apart from complying with such other terms and
conditions as may be laid down by a recognized stock
exchange, an applicant company shall satisfy the stock
exchange that:
(a) ………………….
(b) (i) At least twenty five per cent of each class or kind of
equity shares or debentures convertible into equity shares
issued by the company was offered and allotted to public
in terms of an offer document; or
(ii) At least ten per cent of each class or kind of equity
shares or debentures convertible into equity shares issued
by the company was offered and allotted to public in terms
of an offer document if the post issue capital of the
company calculated at offer price is more than four
thousand crore rupees:
Provided that the requirement of post issue capital being
more than four thousand crore rupees shall not apply to a
company whose draft offer document is pending with the
Securities and Exchange Board of India on or before the
commencement of the Securities Contracts (Regulation)
(Amendment) Rules, 2010, if it satisfies the conditions
prescribed in clause (b) of sub-rule 2 of rule 19 of the
Securities Contracts (Regulation) Rules, 1956 as existed
prior to the date of such commencement:
6
Provided further that the company, referred to in sub
clause (ii), shall increase its public shareholding to at least
twenty five per cent, within a period of three years from
the date of listing of the securities, in the manner specified
by the Securities and Exchange Board of India.
Continuous Listing Requirement.
19A. (1) Every listed company other than public sector
company shall maintain public shareholding of at least
twenty five per cent.:
Provided that any listed company which has public
shareholding below twenty five per cent, on the
commencement of the Securities Contracts (Regulation)
(Amendment) Rules, 2010, shall increase its public
shareholding to at least twenty five per cent, within a
period of three years from the date of such
commencement, in the manner specified by the Securities
and Exchange Board of India.
Explanation: For the purposes of this sub-rule, a company
whose securities has been listed pursuant to an offer and
allotment made to public in terms of sub-clause (ii) of
clause (b) of sub-rule (2) of rule 19, shall maintain
minimum twenty five per cent, public shareholding from
the date on which the public shareholding in the company
reaches the level of twenty five percent in terms of said
sub-clause.
(2) Where the public shareholding in a listed company
falls below twenty five per cent. at any time, such
company shall bring the public shareholding to twenty five
per cent within a maximum period of twelve months from
the date of such fall in the manner specified by the
Securities and Exchange Board of India.
(3) Notwithstanding anything contained in this rule, every
listed public sector company shall maintain public
shareholding of at least ten per cent.:
7
Provided that a listed public sector company(a) which has public shareholding below ten per cent, on
the date of commencement of the Securities Contracts
(Regulation) (Second Amendment) Rules, 2010 shall
increase its public shareholding to at least ten per cent, in
the manner specified by the Securities and Exchange
Board of India, within a period of three years from the
date of such commencement;
(b) whose public shareholding reduces below ten per cent,
after the date of commencement of the Securities
Contracts (Regulation) (Second Amendment) Rules, 2010
shall increase its public shareholding to at least ten per
cent, in the manner specified by the Securities and
Exchange Board of India, within a period of twelve
months from the date of such reduction.”
6.

Thus the provisions quoted above require all listed
companies to achieve and maintain the minimum public
shareholding of 25% of each class or kind of equity shares or
debentures convertible into equity shares issued by such
companies. Those companies with public shareholding of less
than 25% are required to achieve the same, within a period of
three years from the date of commencement of the first
amendment i.e. by June 03, 2013 in the manner specified by the
Securities and Exchange Board of India (SEBI).
7.

In order to achieve the requirement as per the aforesaid
provisions Securities and Exchange Board of India (hereinafter
referred to as ‘SEBI’) issued various circulars dated 16th
December, 2010, 8th February, 2012 and 29th August, 2012
8
prescribing various methods for complying with the Minimum
Public Shareholding requirement (referred to hereinafter as
‘MPS’) such as issuance of shares to the public through
prospectus, offer for sale of shares held by promoters to public
through prospectus, sale of shares held by promoters through
the secondary market, bonus shares to public shareholders, etc.
8.

In the light of the aforesaid amendments in the SCRR, the
Company was required to offload its shareholdings to the
public, i.e., IPCL was required to reduce its shareholding from
93% to below 75%. In order to achieve this target and comply
with the amended Rules, a Scheme of Arrangement and
Amalgamation under Section 390, 391 and 394 of the
Companies Act, 1956 was issued and filed for sanction before
the Calcutta High Court. The Scheme of Arrangement and
Amalgamation provided that:
“(a) the investment division of IPCL would be transferred
to an Independent Trust with independent trustees (“Power
Trust”);
(b) Inter alia 38,95,15,856 shares (40%) held by IPCL
would be transferred to the Trust;
9
(c) After that, IPCL would be amalgamated into DPSC
which would take over its business. IPCL would cease to
exist and the balance shareholding of IPCL in DPSC
would get cancelled;
(d) DPSC would issue 112,02,75,823 new shares to the
shareholders of the IPCL, after which the holding of the
said Trust would be only 24.69%;
(e) After the said amalgamation was complete, the said
Trust would be holding 24.69%, which would be classified
as a public shareholding.”
The said Scheme was considered and sanctioned by the Calcutta
High Court by an order dated 17th April, 2013 passed in
Company Petition No.206 of 2012.
9.

It transpires that SEBI issued a letter dated 15th April,
2013 asking information from the Company pertaining to
compliance with the MPS requirement by the Company in terms
of Rule 19(2) (b) and Rule 19A of the SCRR Rules. In response
to the said letter, the Company replied vide their letter dated 3rd
May, 2013 intimating them that the Scheme of Arrangement
and Amalgamation has been sanctioned by the Calcutta High
Court by an order dated 17th April, 2013 and pursuant to the said
10
Scheme 38,95,15,856 shares held by the sole promoter of IPCL
would be transferred to a Trust which will have public
participation.

It was also intimated that pursuant to the
amalgamation of IPCL with DPSC, IPCL would cease to exist
and the balance shareholding of IPCL and DPSC would get
cancelled. Subsequently, another letter dated 3rd June, 2013 was
issued intimating SEBI and the Stock Exchange that pursuant to
the transfer of shares of the Trust in terms of the Scheme of
Amalgamation, the promoters shareholding of DPSC stood
reduced to 68.31% and thus the MPS requirement in terms of
Rule 19 and Rule 19A of the SCRR Rules has been complied
with.
10. In spite of the aforesaid information being supplied, it
transpires that SEBI was under an impression that the Company
had failed to achieve the MPS requirement and, consequently,
passed an ex-parte interim order dated 4th June, 2013 against the
Company and its Directors. The gist of the restraint order is:
(a) Voting rights and corporate benefits of the promoters
shares would stand frozen;
(b) All promoters and directors were restrained from
dealing in the shares of their respective companies;
11
(c) All promoters and directors were restrained from
holding any new position as a director in any listed
company.
11. The appellant upon coming to know of the ex-parte
interim order immediately replied vide letter dated 5th June,
2013 and eventually a personal hearing was granted on 5th
August, 2013 pursuant thereto SEBI decided that necessary
clarification would be sought from the Calcutta High Court.
Accordingly, SEBI filed an application before the Calcutta High
Court on 12th December, 2013 contending that the shares held
by the Trust cannot be construed as public shareholding and
must be considered as promoter shareholding for the purpose of
MPS requirement and accordingly sought modification of the
order
sanctioning
Amalgamation.

the
Scheme
of
Arrangement
and
The Calcutta High Court disposed of the
application of SEBI by an order dated 27th January, 2017
directing the Trust to sell 32,63,16,563 shares to the public by
30th April, 2017 in order to achieve the MPS requirement. For
facility, the relevant portion of the order dated 27th January,
2017 passed by the Calcutta High Court is extracted hereunder:
“The trust will cite this order and make a public offer for
sale of the said 32,63,16,563 shares. Advertisements in
12
such regard will be published in such newspapers as may
be suggested by SEBI within a week of the form of the
advertisement being forwarded to the office of SEBI in
Kolkata. Such form of the advertisement should be
forwarded to the relevant office within three weeks from
date. The directions herein are in modification of the
interim order of February 20, 2015 that restrains the
amalgamated company from dealing with its shares.”
12. In compliance of the order of the Calcutta High Court, the
Trust issued an advertisement on 6th April, 2017 for sale of
32,63,16,563 shares. Subsequently, the Trust issued another
advertisement on 26th April, 2017 for sale of its shares.
Through this advertisement only 7,73,051 shares were
subscribed. Since the time period was elapsing as per the order
of the Calcutta High Court and the shares were not being
subscribed by the public the Trust moved an application before
the Calcutta High Court for extension of time. The Calcutta
High Court by an order dated 25th August, 2017 granted time till
end of February, 2018 to sell its shares. Pursuant to the said
direction the Trust issued an advertisement dated 21st
December, 2017 and again on 30th January, 2018 and again on
15th February, 2018 for sale of its shares. It was submitted that
some shares were subscribed by the public but the MPS
requirement was not achieved as per Rule 19 and 19A of the
SCRR Rules.

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13. In the meanwhile, while the Trust was going ahead with
the sale of its shares to the public SEBI confirmed the ex-parte
interim order by the impugned order dated 25th July, 2017
holding that the appellant being a Director was responsible for
ensuring compliance with the regulatory guidelines as per Rule
19 and 19A of the SCRR Rules. The Whole Time Member
held:
“Under the facts and circumstances mentioned above, I am
of the view that the Noticees, being the directors of the
Company (DPSC) ought to have ensured that the
functioning of the Company (DPSC) was in full
compliance with the applicable laws including the
provisions of Securities Contracts (Regulation) Rules,
1957.”
And further held:
“I note that the present promoter shareholding (including
the shareholding of Power Trust) is 92.9%. This clearly
indicates that DPSC has not complied with the MPS
requirement as mandated by the provisions of SCRR and
SCRA till date.
The failure on the part of DPSC and its directors
including the Noticees herein to comply with the
directions of the Hon’ble High Court cannot be
condoned.”
14. The appellant being aggrieved by the order of the WTM
dated 25th July, 2017 has filed the present appeal. We have
heard Mr. P.N. Modi, Senior Advocate assisted by Mr. Vinay
Chauhan, Mr. Kunal Kataria and Mr. K.C. Jacob, Advocates for
14
the appellant and Mr. J.P. Sen, Senior Advocate assisted by Mr.
Karan Bhosale, Mr. Balagopal Menon and Mr. Pratik Ingle,
Advocates for the respondent at length. Admittedly, after the
amendment in SCRR Rules in 2010, promoters in a public listed
Company cannot hold more than 75% shares of that Company.
The requirement of law was for greater public participation in a
listed Company and, therefore, atleast 25% of the shares in a
listed Company was required to be held by the public. The
amendment stipulated that those Companies with public
shareholding of less than 25% was required to achieve the same
within a period of 3 years from the date of commencement of
the first amendment that is by 3rd June, 2013.

In order to
achieve this target, the Company came out with a Scheme of
Arrangement and Amalgamation under Sections 390, 391 and
394 of the Companies Act, 1956 by which the MPS
requirements would be achieved. The Scheme was initially
sanctioned but was subsequently modified on the intervention of
SEBI by the Calcutta High Court. It was found that the transfer
of shares by IPCL to the Trust was not sufficient compliance of
the MPS requirement under Rule 19 and 19A of the SCRR
Rules. The Calcutta High Court accordingly directed that in
15
order to achieve the 25% minimum public shareholding in the
amalgamated Company 32,63,16,563 shares were required to be
sold by the Trust to the public through a public offer. We find
from a perusal of the orders of the Calcutta High Court that a
specific direction was issued to the Trust to divest its shares by
making a public offer. No direction whatsoever was given to
the Company or its Directors.
15. The contention of the respondent that if the MPS
requirement was not achieved through this public offer pursuant
to the direction of the Calcutta High Court it was still open to
the Company and its Directors to ensure compliance of the
requirement of law by adopting any of the methods as
prescribed by SEBI vide its circulars cannot be accepted as it
would run counter to the Scheme of Arrangement and
Amalgamation as sanctioned by the Calcutta High Court. It
would also violate the directions given by the Calcutta High
Court.
16. We are, thus, of the opinion that the Whole Time Member
has misinterpreted the orders of the Calcutta High Court and has
committed an error in holding that the DPSC and its Directors
had not complied with the MPS requirement and that there was
16
a failure on the part of DPSC and its Director to comply with
the directions of the Calcutta High Court. The directions of the
Calcutta High Court was only against the Trust and not against
the Company and its Directors.
17. There is no doubt that the MPS requirement as per Rule 19
and 19A is required to be achieved and if the same cannot be
achieved through the Scheme of Amalgamation as sanctioned
by the Calcutta High Court, SEBI and/or the Company and its
Directors are required to approach the Calcutta High Court for
further directions and modification of the Scheme of
Amalgamation.

However,
noncompliance
of
the
MPS
requirement cannot at this stage result in issuance of a restraint
order. We are of the opinion that once SEBI approached the
Calcutta High Court for modification of the Scheme of
Amalgamation it was no longer available to SEBI to restrain the
Directors for noncompliance of the MPS requirement. We are
further of the view that since the Calcutta High Court had
directed the Trust to divest its shares in order to achieve the
MPS requirement under Rule 19 and 19A of the SCRR Rules it
was no longer open to adopt any other method as per the
circulars without taking leave from the Calcutta High Court.

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18. In view of the aforesaid, the impugned ex-parte interim
order dated 4th June, 2013 passed by the Whole Time Member
and the confirmatory order dated July 25, 2017 cannot be
sustained and are quashed. In the light of the aforesaid it is not
necessary for this Tribunal to dwell into the contention as to
whether the appellant being a Non Executive Director was
otherwise responsible for the affairs of the Company or not.
The appeals are allowed. In the circumstances of the case, there
shall be no order as to costs.

Sd/Justice Tarun Agarwala
Presiding Officer
Sd/Dr. C. K. G. Nair
Member
Sd/Justice M.T. Joshi
Judicial Member
3.4.2019
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