BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI
Appeal No. 4 of 2007
Date of decision : 16.4.2008
Palco Metals Limited …… Appellant
Versus
1.Ahmedabad Stock Exchange Ltd.
2.Securities and Exchange Board of India …… Respondents
Mr. A.S. Asthavadi Advocate for the Appellant.
None present for Respondent No.1.
Mr. Devanshu Desai Advocate with Ms. Dhwani Mehta Advocate for Respondent No.2.
Coram : Justice N.K. Sodhi, Presiding Officer
Arun Bhargava, Member
Utpal Bhattacharya, Member
Per : Justice N.K. Sodhi, Presiding Officer (Oral)
The appellant before us is a limited co mpany incorporated under the provisions of the Companies Act, 1956. Its shares we re listed on the Ahmedabad Stock Exchange (for short the exchange) some time in the year 1960 and they continued to remain listed till 11.4.1993. The company was de-listed with effect from 12.4.1993 on account of non-payment of listing fee. The exchange allowe d re-listing of the shares from July 9, 1997 because by that time the appellant company had paid the arrears of the listing fee. On February 15, 1997 the shareholders of th e company in an extraordinary general meeting authorized the board of director s to allot 900520 addi tional shares on preferential basis under section 81(1A) of the Companies Act. It is not in dispute that in pursuance to this resolution, the board of directors made the allotment on 8.3.1997. The company then applied on 19.8.1997 to the exchange for the listing of the preferential shares. This application rema ined pending with the exchange for a few years and during this period corresponde nce was being exchanged between the exchange and the Board. By letter date d October 18, 2002 the Board informed the exchange that the preferential allotment made by the company was without complying with the regulatory requirements as the sh ares of the company were not listed on any stock exchange. The exchange was advised “ not to list these shares as the allotment was made during the period when the compan y was de-listed from the exchange and without complying the regulatory requirements.” In view of this advice, the exchange by its letter dated 22.10.2002 informed the appe llant company that its application for listing had been closed. Feeling aggrieved by the action of the exchange in rejecting the application, the appellant file d Appeal no. 8 of 2003 before this Tribunal. It may be mentioned that when the company filed the application for listing of the preferential shares on 19.8.1997 it had already been re-liste d with effect from 9.7.1997. When the appeal came up for hearing on 22.9.2004 the le arned counsel appearing for the Board took the stand that it (Board) does not advise stock excha nges as to whether a scrip could be listed or not and that it is for th e stock exchange to take a decision in that regard. Having advised the exchange to reject the application for listing, it should have defended its action rather than shirking its responsibility to own that decision before the Tribunal. Instead of doing that it washed its hands off and left it to the exchange to take a decision.
The learned counsel appearing for the exchange w ithdrew the impugned order because the ground on which the application had been rejected was no longer then subsisting. Of course, liberty was given to the exchange to pass a fresh order. After the appeal filed by the appellant had been disposed of, the exchange again took up the matter with the Board and with some independent company secretaries for advice as to how the application for listi ng could be dealt with. The Board sent a communication dated November 18, 2004 to the exchange pointing out that the company had contended that it was a listed co mpany when the shares were issued on preferential basis on March 8, 1997 and that it had signed the listing agreement with the exchange on October 31, 1996. In view of these facts, the Board drew an absurd inference that the regulatory requirements applicable to listed companies in making preferential allotment had not been complie d with. The Board did not point out any specific regulatory requirement which the co mpany is said to have violated. The exchange by its communication dated July 26, 2006 again informed the company that its application for the listing of 900520 equity shares of Rs.10 each issued on preferential basis stood rejected. The opera tive part of this communication reads as under :
“Taking into considerations of all the facts and circumstances, SEBI’s advise vide its le tter no.CFD/DCR/TO/AT/25769/2004 dated 18 th November 2004 to the Exchange as well as opinions received from M/s. Kapoor and Ved, Practicing company Secretaries, as well as submissions made by the Company in respect of observations made in the opinions received, the L & D Committee after discussi on viewed that the requirement as to auditor’s certificate in respect of pricing of shares may be waived keeping in view the non trading of the securities. However, in respect of complia nce under the provisions of SEBI (Substantial Acquisitions of Shares and Takeovers) Regulations, the L & D Committee was of the view that company has failed to comply with the prevalent SEBI (SAST) Regulations and to waive or exempt the company from the requirements of SEBI Preferential issue guidelines as well as SEBI (SAST ) Regulations lies within the purview of SEBI and not with the Exchange. Over and above SEBI vide its no. CFD/DCDR/TO/AT/25769/2004 dated 18 th November 2004 has advised the Exchange to take decision on the application of the company in accordance with the rules, regulations and bye laws of the Exchange, after taking into facts and circumstances of the case, interests of the shareholders of the company and the securities market, the listing application of the company should be rejected.
In view of the foregoing the L& D committee has decided to reject the listing application of 900520 equity shares each of Rs.10/- issued on preferential basis by your company at ASE. This is for your information.”
It is against this re jection that the present appeal has been pref erred under section 22A of the Securities Contracts (Regulation) Act, 1956. We have heard the learned counsel for th e parties and are of the view that the
appeal deserves to succeed. After the application for listing had been filed on 19.8.1997 there was correspondence exchanged between the exchange and the Board as to whether the preferential shares issued by the appella nt company should be listed or not. As already observed, the Board was of the view that since the allotment was made during the period when the company had been de-l isted from the exchange, the preferential shares could not be listed wit hout complying with the regula tory requirements. It had not been pointed out as to which regulatory requirement had not been complied with by the appellant company. During the course of the exchange of correspondence between the exchange and the Board the former had informed the latter by its communication dated 15.11.2000 as under :
“ASE SHALL HAVE “NO OBJECT ION” TO THE LISTING OF ABOVE EQUITY SHARES, PROVIDED IN THE CIRCUMSTANCES AND ON FACTS OF THE CASE, SEBI DEEMS IT FIT AND PROPER TO PERMIT THE LISTING OF THESE ADDITIONAL SHARES.”
Again, by its letter dated 9.3.2001 the exchange informed the Board as under :
“FURTHER, RE-LISTING CASE WAS ALSO DISCUSSED WITH SEBI DIVISION CHIEF MR. R. C. FUPTA, AT THE TIME OF HIS VISIT TO AHMEDABAD DURING SE BI INSPECTION AND WE WERE ADVISED TO CONSIDER CASE FOR RE-LISTING AS THE COMPANY HAVING GOOD INVESTOR BASE AND IN THE INTEREST OF PUBLIC SHAREHOLDERS AT LARGE.”
Despite the fact that the exchange had no obj ection to the listing of the preferential shares, the Board did not allow the exchange to list those shares as, according to it, those had been allotted at the time when the company had been de-listed. This is no ground for refusing listing. The order of re jection passed by the exchange was then withdrawn when the same had been challenge d in appeal and the following order was
passed by the Tribunal on 22.9.2004.
“The appeal is taken up with the consent of parties. It is settled law that SEBI does not advise Stock Exchanges as to whether a scrip could be listed or not but, that is the job of the Stock Exchange. However, it can give its opinion with regard to any violation of Regulation, if pointed out. In that view of the matter, the learned counsel for the respondent seeks le ave on the court to withdraw the impugned order with liberty to pass an appropriate order, if necessary, in accordance with law. The appeal is disposed of accordingly. No order as to costs.” In pursuance to the liberty gr anted by this Tribunal to pass a fresh order, the exchange has again rejected the listing application and th e operative part of the order has been reproduced hereinabove. It is mentioned that the listing and delisting committee of the exchange was of the view that the appell ant company had failed to comply with the provisions of the Securities and Exchange Board of India (Substantial Acquisitions of Shares and Takeovers) Regulations without referring to any specific regulation that had been violated. Again, it is not clear whethe r the Board advised the exchange to reject the application or whether the exchange took a decision on its own and, in any case, whoever took that decision has given no reas ons as to why the application for listing deserves to be rejected. As already observed, neither the exchange nor the Board in its
correspondence has pointed out any specific provision of any regulatory requirement that is said to have violat ed by the company. Having re gard to the fact that the exchange on its own had no objection to the listing of the shares, we see no reason why the application for listing should not be a llowed. Although the exchange had expressed its willingness to list the pref erential shares in the year 2000, for some reason or the other and presumably at the behest of the Board they have not been allowed to be listed till date. The Board and the exchange should realize the loss suffered by the shareholders of the company who have been deprived of the opportunity to trade their shares in the market. This is not the way to protect their interests.
Before concluding, we may mention that the exchange has not put in appearance despite service and we have had no assistance from its side. The Bo ard, as usual, has taken the stand that the issue is between the appellant and the concerned stock exchange, though earlier it had not permit the exchange to allow listing.
In view of what has been stated above, the appeal is allowed and the decision of the exchange to reject the application for listing set aside. The exchange will now list the preferential shares allotted by the appe llant company within two weeks from the date of receipt of a copy of this order. The appellant will have its costs from the respondents which are assessed at Rs. 1 lac to be shared by the respondents equally.
Justice N.K. Sodhi
Presiding Officer
Arun Bhargava
Member
Utpal Bhattacharya
Member
16.4.2008
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