BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI
Appeal No. 32 of 2008
Date of decision: 20.6.2008
Temptation Foods Limited ….. Appellant
Versus
Bombay Stock Exchange Limited
Securities and Exchange Board of India …… Respondents
Mr. Subhash Jha Advocate with Mr. Prasha nt Aher and Ms. Laxmi Menon Advocates for the Appellant.
Mr. P.N. Modi Advocate with Mr. Sagar Divekar Advocate for Respondent No.1.
Dr. Poornima Advani Advocate with Mr . Haihangrang E.H. Newme 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)
This order will dispose of two Appeal s no.32 and 33 of 2008 in which identical questions of law and fact ar ise. Since arguments were a ddressed in Appeal no.32 of 2008 we are making reference to th e facts of this case. It is not even necessary to refer to the detailed facts because we are upholding the prelimin ary objection raised by the learned counsel appearing for the Bombay Stock Exchange (BSE) which is Respondent
no.1 in both the appeals.
Challenge in the appeal is to the communication dated October 18, 2007 sent by BSE to the appellant informi ng the latter that it s application under clause 24(a) of the listing agreement for prior in-principle appr oval for the issue of 2,90,000 equity shares of Rs.10/- each at par to the promoters and business associates on a preferential basis stands rejected. The ground on which the in-principle approval has been declined is that the appellant company failed to comply w ith clause 13.4.1 of the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 (for short the guidelines). The learned counsel for BSE at the outset contended that in view of the subsequent developments, the present appeal has become infructuous. Facts in so far as they are necessary for the disposal of the appeal may now be stated. An Extraordinary General Meeti ng (EGM) of the appellan t company was held on June 26, 2006 in which a resolution, among others, was passed for making a preferential allotment of 3,30,000 equity shares of Rs.10/- each at par to the directors and business associates of the company. Having armed itsel f with this resolution and before making the allotment, the appellant company filed an application with BSE for seeking in- principle approval for the allotment. This was necessary in view of clause 24(a) of the listing agreement between the appellant and BS E. Since the appellant did not make the allotment within 15 days from the passing of the resolution by the shareholders in the EGM, the in-principle approva l was declined and it is that decision of BSE which is now under challenge. In the meantime comp any sent a notice dated 29.11.2007 to its shareholders for holding an EGM on 26.12.2007. Th is notice contained an Explanatory Statement and this is what the shareholders had been informed:
“A proposal to issue 3,10,000 Equity Shares to the Directors and Business Associat es at par value of Rs.10/-
had been approved earlier by the members at an Extraordinary General Meetin g of the Company on 26th June, 2006 and application for listing under Clause 24(a) of the Listing Agreement with the Bombay Stock Exchange was submitted albeit after the statutory period of 15 days as provided by Clause 13.4.1 of SEBI (DIP) Guidelines, 2000. As a result, the BSE, vide its letter dated 18th October, 2007 rejected the same. The Resolution for 3,10,000 Fully Convertible Warrants, is, therefore, being put to shareholders for consideration and is at a price as per pricing formula specified by SEBI in this behalf. By a subsequent corrigendum the compa ny clarified that the figure 3,10,000 wherever appearing would mean 3,30,000.” From the afor esaid disclosure made by the company to its shareholders it is ev ident that in lieu of 3,30,000 equi ty shares which were to be allotted to the directors and the business a ssociates as approved in the EGM held on June 26, 2006, the company was now propos ing to issue 3,30,000 fu lly convertible warrants because its application seeking in-principle approval under clause 24(a) of the listing agreement had been declined by BS E and, therefore, the fresh proposal was being put up to the shareholders for their consideration. In the EGM held on 26.12.2007 one of the shareholders–Mr. Dindayal Khandelwal referred to the Explanatory Statement annexed to the notice and made an enquiry from the Chairman of the meeting as to whether the convertible warrants were being issued in lieu of the earlier 3,30,000 equity shares which were sought to be allotted in pursuance to the EGM held on June 26, 2006 or were the warrants in addition to those shares. The Chairman informed that the issue of warrants under the resolution was in addition to the issue of the equity shares to the shareholders whic h had been approved earlier and not in lieu thereof. This querry and the explanation furnished by the Chairman of the meeting finds mention in the minutes of the EGM as recorded by the company. When we read the minutes of the EGM held on 26.12.2007 alongwith the Explanatory Statement annexed to the notice convening that meeting, we find that the two are contradictory. The Explanatory Statement recites that the wa rrants were being issu ed in lieu of the equity shares approved in the earlier EGM whereas the minutes record that those were being issued in addition to those shares. The matter does not end here. The Board of Directors of the company then prepared their report on 5.4.2008 and in that report they again inform the shareholders that the conve rtible warrants proposed to be allotted to the directors and business associates are in lieu of the equity shares earlier approved by the shareholders in the EGM held on June 26, 2006. It will be seen that this statement in the Directors’ Report is in consonance with what the shareholders had been informed in the Explanatory Statement to the noti ce convening the EGM held on 26.12.2007. The directors in their report ha ve clarified that the offe r of 3,10,000 equity shares on preferential basis in the earli er year had lapsed due to the non-grant of in-principle approval by BSE. From what has been stated above it is clear that the company and its directors make one disclosure in the Explanatory Statem ent and in the Directors’ Report whereas in the minutes of the EGM they record that the warrants were in addition to the equity shares approved in th e earlier year. One wonders as to which of the two statements is correct. However, there can be no doubt that the shareholders had been informed that the warrants were in lieu of the equity shares approved in the earlier EGM. We say so because it is the Explan atory Statement and the Directors’ Report which were sent to the shareholders. Th e minutes of the EG M which record the contrary version are only w ith the company. On the conclusion of the EGM in December, 2007 in which the resolution for th e allotment of convertible warrants had been approved, the company again applied to BSE seeking an in-principle approval under clause 24(a) of the listing agreement and this application is presently pending. In view of the aforesaid events which took place subsequent to the impugned communication, we are satisfied that the co mpany has misled its shareholders and having done so we are not inclined to entertain the appeal. The appellant who approaches this Tribunal must come with clean hands. The appellant is a market player and cannot be allowed to mislead its investors. It is not in the interest of the securities market. This apart, the directors in their re port have already informed the shareholders that the proposed offer of allotment made in pursuance to the approval granted in the EGM held on 26.6.2006 has lapsed. The directors themselves having said that the previous approval has lapsed and, therefore, the learned counsel appearing for BSE is right in pointing out that the present appe al has become infructuous. It has become infructuous because the approval granted by the shareholders in the EGM held on 26.12.2007 for the allotment of convertible warra nts is in lieu of the equity shares proposed to be allotted to the directors and the business associates earlier. The proposed allotment of convertible warrants is not in addition to that allotment and for this allotment the appellant has filed a fresh application seeking approval under clause 24(a)
of the listing agreement which is pending.
In Appeal no. 33 of 2008 the preferenti al allotment was sought to be made of convertible warrants in favour of two parties namely Ventur e Business Advisors Pvt. Ltd. and NRI Tax Services.com Pvt. Ltd. He re again, the appellant company obtained the approval from its shareholders in the EGM held on 17.9.2007 and thereafter applied for in-principle approval to BSE wh ich has been dec lined by the impugned communication dated 15.11.2007. After the re fusal by BSE the company once again placed the same matter before the shar eholders in the EGM held on 26.12.2007 though for slightly higher number of warrants. He re also the warrants now proposed to be issued are in lieu of the warrants which had earlier been approved by the shareholders in the EGM held on 17.9.2007. Although the director s here do not say that the earlier proposal has lapsed but it obviously has because the company has again approached BSE for approval to the propos ed allotment of c onvertible warrants to the aforesaid preferential allottees. The Explanatory Statement to the notice convening the subsequent EGM makes it abundantly clear th at the proposal that was being placed before the shareholders was in lieu of the earlier approval granted. This being so we are of the opinion that this appeal has also be come infructuous because for the subsequent proposed allotment, the application for approval is pending with BSE. It goes with out saying that the pending applications with BSE shall be disposed of in accordance with law.
For the reasons recorded above, both th e appeals are dismissed as infructuous. No costs.
Sd/-
Justice N.K. Sodhi
Presiding Officer
Sd/-
Arun Bhargava
Member
Sd/-
Utpal Bhattacharya
Member
20.6.2008
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