SECURITIES APPELLATE TRIBUNAL, MUMBAI
Ramniranjan
Kedia Tourism Services (P.) Ltd.
v.
Aditya
Birla Nuvo Ltd.
JUSTICE
N.K. SODHI, PRESIDING OFFICER,
ARUN
BHARGAVA AND UTPAL BHATTACHARYA, MEMBER
APPEAL
NO. 145 OF 2006
January
17, 2008
Section 15T of the Securities and Exchange Board of India Act, 1992 -
Securities Appellate Tribunal - Appeals to - Respondent No.1 company came out
with a right issue in 2006 and as per SEBI (Disclosure and Investor Protection)
Guidelines 2000 issued a draft letter of offer to shareholders - Appellant
filed a complaint before SEBI alleging that disclosures made in draft letter of
offer were not adequate and were misleading - SEBI however, did not find any
merit in said complaint and approved draft letter of offer - Subsequently
appellant filed an appeal before Tribunal and sought an order of interim stay
to restrain respondent to proceed with its proposed right issue - Tribunal
admitted appeal, but did not grant any interim stay and even objection raised
by respondents regarding locus standi of appellant was also left open to be
decided at final hearing - Whether since letter of offer having been approved
by SEBI rights issue was allowed to proceed, shares allotted in pursuance to
rights issue had been traded in market for almost a year, and most of them
would have changed hands several times, appellant’s appeal had become
infructuous and, therefore, was liable to be dismissed – Held, yes - Merchant
bankers be directed to resist from making false, misleading disclosure in letter
of offer had no merit - Held, yes
The respondent No. 1 company came out with a right issue in the year 2006 under section 81(1) of the Companies Act 1956 and as per the SEBI (Disclosure and Investor Protection) Guidelines, 2000, the merchant banker, on behalf of the company, prepared a draft letter of offer which was to be sent to the shareholders and submitted the same to the SEBI for its comments. The Board, by an order dated 20-11-2006 approved the draft letter of offer. The appellant filed complaint before the SEBI contending that the disclosures made in the draft letter of offer were not adequate and were misleading. The Board found no merit in the complaint. The appellant, therefore, filed an appeal before the Tribunal and sought interim stay of the proposed rights issue. The Tribunal admitted the appeal but did not grant any interim stay and preliminary objection raised by the respondents regarding locus standi of the appellant was also left open to be decided at the time of final hearing. The appellant thereafter filed a writ petition challenging refusal of the Tribunal to grant the interim stay. The High Court however dismissed the petition observing that the appellant should have filed appeal to the Supreme Court under section 15Z.
The main prayer made in
the appeals was that the communication sent by the Board conveying its comments
(observation card) be set aside and the company be not allowed to proceed with
its proposed rights issue. The rights
issue was over and, therefore, the prayer of the appellant could not be
granted. Another prayer made in the
appeals was that the company and its
merchant bankers be directed to desist from making false, misleading and
inadequate disclosures in the letter of offer.
The letter of offer had already been approved by the Board on the basis
of which the rights issue was allowed to proceed. That prayer, too, had become
infructuous. The appellant was aware
that its appeal would become infructuous since its prayer for an interim stay
had been declined. The remedy of the appellant was to challenge the order of
the Tribunal before the Supreme Court which it did not. It had missed the bus and much water had
since flown under the bridge. The shares
allotted in pursuance to the rights issue had been traded in the market for
almost a year and most of them would have changed hands several times. It was difficult to chase those shares and
the shareholders because in the demat era, the shares are fungible like
currency notes. In the circumstances,
even if there was any defect in the letter of offer, it was difficult to put
the clock back and undo the transactions, that had already taken place. Moreover, when appeal came up for preliminary
hearing, the Tribunal was not satisfied that the appellant had a locus standi
to file the same. However, while keeping
that issue open the appeal was admitted.
In such cases, stay could be granted only if a strong prima facie case
was made out by the appellant which was not the case here. It was thereafter that another appeal came to
be filled which appeared to be motivated as was clear from the fact that
appellant no. 2 had infact been allotted shares in the rights issue and
thereafter, he applied for further allotment.
Thus, it could not it be said that he was misled by any non disclosure
or wrong disclosure in the letter of offer approved by the Board or that he
could not take an informed decision. [
The appellant, however, contended that since adequate disclosures were not made in the letter of offer, the Tribunal should set aside the observation card and leave the necessary consequences to follow. In the alternative, it urged that the Tribunal should mould the relief and balance the equities. Elaborating that contention, it was submitted that in case the observation card was set aside, notice could be given to the public about the true facts which had been suppressed in the letter of offer and the allottees could be given an option to cancel the contract of allotment and take the money back from the company. It was not practical to implement any of those suggestions, even if agreed with the appellant that there were wrong disclosures in the letter of offer. It was not clear as to what consequences would flow if the observation card issued by the Board were to be set aside. That would not mean that the shares allotted to the shareholders, which had thereafter been traded and had changed hands several times, would automatically be set at naught. That could not be the consequence. Again, the allottees could not be given an option to cancel the letter of allotment and take the price back because the shares were allotted to them at the rate of Rs. 793 per share which was being traded in the market above Rs. 2300. In view of all these intervening circumstances, none of the prayers made in the appeals could be granted.
For the reasons recorded above, the appeals were dismissed as having become infructuous.