BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 78 of 2011
Date of decision: 9.11.2011 M/s Kalpena Plastiks Limited
3, Saheed Nityananda Saha Sarani,
Kolkata – 700 001.
… Appellant
Versus The Bombay Stock Exchange Limited
Phiroze Jeejeebhoy Towers,
Dalal Street, Fort,
Mumbai – 400 001.
… Respondent Mr. Somasekhar Sundaresan, Advocate with Mr. Ravichandra S. Hegde,
Mr. Paras Parekh, Ms. Delna Aga, Advocates for the Appellant.
Mr. P. N. Modi, Advocate with Mr. Faraz Alam Sagar, Advocate for the
Respondent.
CORAM : Justice N. K. Sodhi, Presiding Officer
P. K. Malhotra, Member
S. S. N. Moorthy, Member
Per : P. K. Malhotra, Member
The appellant before us is a company registered under the Companies
Act, 1956 and its shares are listed on the Bombay Stock Exchange Limited (BSE),
Calcutta Stock Exchange and Delhi St ock Exchange since 1992. The appellant
company was incorporated in the year 1989 in the name of Sarla Gems Limited
and its name was changed to Kalpena Plas tiks Limited in the year 2009. It was
initially engaged in the business of marketing and exporting of gems and
jewellery which was reportedly diversifie d into activities relating to export,
buying and selling of synthetics, resins, rubbers and plastics.
- With a view to raise its resources, the appellant decided to issue 32,60,035
equity shares of ` 10/- each for cash at par, on preferential basis to the promoters
of the company i.e. 12,60,035 equity shar es to M/s. Tara Holdings Private
Limited and 20,00,000 equity shares to Kalpena Industries Limited. A resolution
was passed to this effect in the extra ordinary general meeting of the shareholders 2
held on September 5, 2009 and it was al so intimated to a ll the three stock
exchanges vide letter of the same date. The allotment of the shares on preferential
basis also triggered the open offer unde r Regulations 10 and 12 of the Securities
and Exchange Board of Indi a (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 (for short the takeover code). The allottees made a public
announcement under the takeover code and also submitted the draft letter of offer
to the Securities and Exchange Board of India (for short the Board) on August 25, - The open offer was closed on D ecember 14, 2009. Simultaneously, the
appellant also filed an application with BSE on August 27, 2009 for ‘in-principle’
approval as per clause 24(a) of the lis ting agreement for listing of shares. The
said clause reads as under:-
“24.(a) The company agrees to obt ain ‘in-principle’ approval for
listing from the exchanges havi ng nationwide trading terminals
where it is listed, before issuing further shares or securities. Where
the company is not listed on an y exchange having nationwide
trading terminals, it agrees to obtain such ‘in-pr inciple’ approval
from all the exchanges in which it is listed before issuing further
shares or securities. The company agrees to make an application to
the Exchange for the listing of any new issue of shares or securities
and of the provisional documents relating thereto.”
It is the case of the appellant that it ke pt on pursuing the matter with BSE for the
said approval but there was no response. The appellant was in dire need to infuse
funds which were delayed and the proposed allottees were reluctant to block their
funds any further. Therefore, the appe llant, vide its letter dated December 28,
2009, intimated the BSE that the appellant would proceed with the preferential
allotment of shares under the presumpti on that the BSE has no objection for the
said issuance of shares on preferential allotment basis. As there was no response
from the BSE, the appellant allotted 32,60,035 equity shares on preferential basis
to the promoters on January 6, 2010. Therea fter, vide its letter dated January 19,
2010, the appellant requested BSE for listi ng of the said shares on the stock
exchange. It is at this stage that, for the first time, BSE responded to the
appellant, vide its e-mail dated Ja nuary 27, 2010, calling for some further
information and asking for an undertaking from the company that it will
recompute the issue price of shares on co mpletion of six mont hs of scrip being
listed on the exchange and accordingly colle ct the difference, if any, from the 3
allottees. The BSE also objected to the appellant going ahead with the allotment
of shares without obtaining prior in-principle approval which amounts to violation
of clause 24(a) of the listing agreement. Th e appellant responded to the said
e-mail i n t e r -a l i a stating that as there was no re sponse from BSE for four months,
the company was in dire need of money and the promoters were not willing to
block their money for indefinite peri od, the company went ahead with the
allotment of preferential shares under intimation to BSE presuming that clause
24(a) of the listing agreement has been complied with. As regards undertaking
from the company for recomputing the issu e price of shares on completion of six
months of scrip being listed on the excha nge, the appellant, vide its letter dated
January 30, 2010, submitted as under:-
“4. As regards undertaking from the company for re-computing the
issue price of shares on completi on of 6 months of scrip being
listed on the exchange, we have to state as under:-
That the provisions stated in Regulation 76(2) and 76(3) of the
SEBI (ICDR) Regulations, 2009 ar e not applicable to our
Company.
The provisions of Regulations 76(2) and 76(3) are reproduced
herein as follows:-
76(2): If the equity shares of the issuer have been listed on a
recognized stock exchange for a period of less than six months
as on the relevant date, the equity shares shall be allotted at a
price not less than the higher of the following:
(a) the price at which equity shares were issued by the issuer in
its initial public offer or the value per share arrived at in a
scheme of arrangement under sections 391 to 394 of the
Companies Act, 1956, pursuant to which the equity shares
of the issuer were listed, as the case may be; or
(b) the average of the weekly high and low of the closing
prices of the related equity shares quoted on the recognised
stock exchange during the peri od shares have been listed
preceding the relevant date; or
(c) the average of the weekly high and low of the closing
prices of the related equity shares quoted on a recognised
stock exchange during the two weeks preceding the
relevant date. 76(3): Where the price of the equity shares is determined in
terms of sub-regulation (2), such price shall be recomputed by
the issuer on completion of six mo nths from the date of listing
on a recognised stock exchange with reference to the average
of the weekly high and low of th e closing prices of the related
equity shares quoted on the recognised stock exchange during
these six months and if such r ecomputed price is higher than
the price paid on allotment, the difference shall be paid by the
allottees to the issuer. 4
We would like to draw your a ttention to the first line of the
Regulation 76(2) which states ve ry clearly that the provisions
of this Regulation apply to only those Companies which are
listed for less than 6 months. Our Company has been listed
with your exchange since 1992.
The shares of our Company were suspended for trading
purpose only for certain period due to some procedural non
compliances of Listing Agreement. However, this situation
can not be construed as the Co mpany’s shares are not having
been listed. In fact, the susp ension of trading was revoked by
your exchange vide your letter dated 16th October, 2009.
The above facts were also stat ed to your officials during the
meeting on 12 th November, 2009 in presence of Mr. Gopal
Kirishna Iyer, General Manager, Corporate Services.
Since there is no confusion to th e fact that the shares of the
Company is listed since 1992 (which is certainly for a period of
more than 6 months), the requir ement of collecting differential
amount and putting the shares unde r lock-in till the time such
amount is paid by the allottees, is not applicable in our case.”
There was further exchange of correspondence between the parties and ultimately
the BSE, vide its letter dated November 10, 2010, finally conveyed its decision to
the appellant, inter- alia, stating that Regulation 76(1) of the Securities and
Exchange Board of India (Issue of Ca pital and Disclosure Requirements)
Regulations, 2009 (for short the Regulations ) which deal with the pricing of the
equity shares makes a reference to the closing price of the equity shares quoted on
the recognised stock exchange. Since the scrip of the company was under
suspension during the entire period, no tradi ng price data was available. Further
chapter VII of the Regulations does not specify any method of computation to
deal with the cases where the scrip of a company is suspended during the relevant
pricing period. The BSE, thereafter, referr ed to the minutes of the joint meeting
of the Board, BSE and NSE, held on May 8, 2008 where it was decided that for
companies whose shares have been suspended from trading in the past and
subsequently revoked and in case of companies with le ss than six months of
trading history subsequent to revocation of suspension of trading, the pricing may
be taken as higher of the following:-
“(a) As per clause 20(5) of SAST guidelines, or
(b) Average pricing of the available period (> than two weeks)
(c) Average price of at least two weeks, subject to recomputation
of the price at the end of six months, as provided in clause 5
13.1.1.2 of erstwhile SEBI (DIP) guidelines. As per this
decision of the meeting, the companies may be asked to give
an undertaking to recompute the price and pay the difference
amount, if any, if recomputed price is higher.”
Based on this decision, the BSE asked the appellant to furnish an undertaking for
re-computation of the price of preferential shares at the end of six months of
listing. Being aggrieved by the said direct ion of BSE, the appellant has preferred
this appeal for setting aside the said decision.
- We have heard learned counsel for th e parties who have taken us through
the records. During the course of he aring, though learned counsel on both sides
made submissions on issues like the a ppellant going ahead with allotment of
preferential shares without first obtaining in-principle approval under clause 24(a)
of the listing agreement, we are of the cons idered view that it is not necessary for
us to go into these issues for deciding the appeal. It is common case of the parties
that scrip of the company, though liste d on the stock exchanges since 1992, its
trading remained suspended till October 9, 2009 and no pricing data of the scrip
was available. The pricing of the equity shares of the company cannot be worked
out as per formula as prescribed under Regulation 76(1) of the Regulations due to
non availability of pricing data. Therefor e, BSE, relying on the minutes of the
meeting held on May 8, 2008 between the Board, BSE and NSE and based on the
decision taken in that meeting, asked th e company to give an undertaking to
recompute the price of preferential equity shares at the end of six months of
listing. The decision on the basis of which undertaking was asked from the
appellant reads as under:-
“SEBI-BSE/NSE MEETING ON PRIMARY MARKET/LISTING RELATED ISSUES
Item Contents Discussions and decision taken in the
Meeting held on May 8, 2008
List of members present in the meeting is given in Annexure I.
10 Pricing in case of
preferential issue cases
and QIP
(i) Companies whose shares have been
suspended from trading in the past and
subsequently revoked
In case of companies, with less than 6
months of trading hi story subsequent to
revocation of suspension of trading, it was
decided that the pricing may be higher of
6
the following:
a. As per Clause 20(5) of SAST
Guidelines or
b. Average pricing for the available
period (> than 2 weeks)
c. Average price for at least 2 weeks
Subject to re-computation of the price at
the end of 6 months, as provided in
clause 13.1.1.2 of DIP. If recomputed
price is higher than the balance amount
to be brought in by the acquirer
otherwise the lock-in on shares so
allotted to allottee shall continue.
Securities and Exchange Board of India, Mumbai – Private Circulation Only”
The short question that has to be deci ded by us is whether BSE was right in
asking the appellant to furnish an undert aking for revising pr ice of preferential
shares after six months on the basis of the aforesaid minutes. We are of the
considered view that, in the facts and circumstances of the case, the answer to the
issue has to be in the negative. Admittedly, the decision was taken in the meeting
held by the Board but no action has been taken in furtherance of this decision
either by issuing the rules, order or ci rcular making such decision known to the
public. The minutes are specifically mark ed as for “private circulation only”.
There is no doubt that the Board is empowered to take any decision to protect the
interest of the investors in securities and to promote the development of securities
market. However, such decision has to be made known to the public through
some communication. A decision taken in the closed doors of the Board room
which has not been made known to the inve stors, intermediaries or other players
of the market cannot place any obligation on the market players. Such decision,
to be binding, must be made known to the public in the form of rules, regulations,
orders or circulars. The decision relied upon by BSE in issuing the impugned
letter was taken way back on May 8, 2008. The appellant approached BSE for
in-principle approval on August 27, 2009 and it did not respond to appellants
repeated requests till January 27, 2010. Ev en thereafter, it took BSE ten months
to convey its decision, that too, based on th e minutes of meeting held on May 8,
2008 which were not made public. Si nce the Board had not issued any
order/circular making its decision public, it was not competent for BSE to base its
decision on such minutes. Further, the a llotment of the shares under preferential
7
allotment triggered the open offer under Regulations 10 and 12 of the takeover
code and the allottees submitted the draft letter of offer with the Board on August
25, 2009. The Board gave its observations on the letter of offer and did not raise
any issue on the price as offered by the pr oposed allottees. In the absence of any
provision for computation of price of preferential shares in respect of scrip which
is listed on the stock excha nge but whose trading is su spended and the price, as
offered by the proposed allottees, having been accepted by the Board in the draft
offer letter, we are of the considered view that the BSE erred in asking the
appellants to furnish an undertaking to revi se the price of pref erential shares, if
necessary, after six months of its listi ng on the stock exchange on the basis of
minutes of the meeting held on May 8, 2008 which were not made public.
In the result, the appeal is allowed and the impugned order is set aside.
The respondent is directed to list the s ubject shares on its exchange. There is no
order as to costs.
Sd/-
Justice N. K. Sodhi
Presiding Officer
Sd/-
P. K. Malhotra
Member
Sd/-
S. S. N. Moorthy
Member
9.11.2011
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