TMI Blog1997 (11) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... (BSE) and Ahmedabad Stock Exchange (ASE). The public issue opened on 8-4-1996, earliest closing was to be on 11-4-1996 and it was to close not later than 18-4-1996. Accordingly, it was closed on 18-4-1996. According to the petitioner-company, the issue was subscribed to the extent of 96 per cent which is more than the minimum subscription prescribed at 90 per cent of the size of the issue under the provisions of section 69 of the Companies Act, 1956. On 27-5-1997, the Vadodara Stock Exchange granted the listing permission and being the Regional Stock Exchange, it also approved the basis of allotment on 27-5-1996 itself, since the subscription was to the extent of 96 per cent. On that day, the Ahmedabad Stock Exchange also granted approval for listing of the company's shares on the Ahmedabad Stock Exchange. The petitioner's application was pending before the Bombay Stock Exchange, but in the meantime on 27-5-1996 the Governing Board of the Bombay Stock Exchange changed the conditions of listing agreement requiring that "there should be at least five public shareholders for every one lakh net capital offered to the public". In view of the aforesaid requirement, the petitioner-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o proceed with this petition. Notice discharged. The parties are free to make their respective representations before the appellate authority, if they have any grievance about listing of the shares by the Bombay Stock Exchange. No costs." 4. Thereafter, the appellate authority of the SEBI heard the petitioner- company through its Chairman and also considered the representations made by investor Shri Kamlesh S. Jain (respondent No. 4) regarding certain aspects in respect of the public issue of the petitioner-company. The appellate authority ultimately passed the impugned order dated 10-9-1996 holding that since the petitioner-company's public issue opened prior to the date the amendment amending the listing requirement regarding minimum number of shareholders in its meeting held on 27-5-1996, the said requirement cannot be made applicable to the petitioner-company. However, the appellate authority dismissed the appeal on the ground that there was substance in the complaint lodged by some of the shareholders to the effect that in order of bring the subscription at the public issue upto 90 per cent of the share capital offered, the company had accepted six disputed applications fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r-company on the ground that the amount was not really received but merely technically received for a few moments and, therefore, the allotment was not proper. Submissions on behalf of the respondents 6. On the other hand, Mr. S.N. Shelat with Mr. B.H. Chhatrapati appearing for respondent No. 3 - Appellate authority of SEBI submitted as under: (i ) When persons who had applied in response to the public issue of the petitioner-company had filed Special Civil Application No. 4515 of 1996, this Court specifically observed in its order that the parties are free to make their respective representations before the appellate authority, if they have any grievance about listing of the shares by the Bombay Stock Exchange. This Court did not entertain the petition filed by some of the applicants to the public issue raising certain disputes including non-compliance with minimum subscription re-quirement, in view of the plea of the petitioner-company (respondent No. 1 in that petition) that the matter was being examined by the appellate authority. Therefore, the SEBI was entitled to examine the grievance of the investors against the petitioner-company. ( ii ) As far as letter dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be raised to meet the following needs, namely, purchase price of any property to be defrayed partly or wholly out of the proceeds of the issue, preliminary expenses and working capital. No shares can be allotted unless at least so much amount has been subscribed. Prof. Gower has lucidly explained the object of these provisions in the following words: "The object of these provisions (relating to minimum subscription) is to prevent the company getting under way until it has raised the capital needed to carry out the objects in which it has invited the public to participate; it would obviously be iniquitous to force an applicant, who has accepted an invitation to participate in a one million pound issue for the purpose of buying Wembley Stadium, to sink his capital in a company which has only raised enough money to buy a suburban villa. They also afford protection to the creditors by ensuring that a limited company is not able to incur commitments if it is grossly under-capitalised." ( Gower's Principles of Modern Company Law - 4th edn., pages 355-56) There is no dispute about the fact that the minimum subscription required in the instant case as mentioned in the prospectus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade, be void if the listing permission has not been granted by each of the stock exchanges whose permission is sought, before the expiry of ten weeks from the date of the closing of the subscription lists, but if an appeal against the decision of any recognized stock exchange refusing listing permission has been preferred under section 22 of the Securities Contracts (Regulation) Act, such allotment shall not be void until the dismissal of the appeal. Sub-section (2) provides that where the permission has not been granted, the company is required to repay all monies received from the applicants, with or without interest, depending on the length of the period of delay in making such repayment. Sub-section (3) specifically provides that all monies received from the applicants for shares shall be kept in a separate bank account maintained with a Scheduled Bank, until the listing permission has been granted or until disposal of the appeal, with liability to repay the amounts if the permission has not been granted. Sub-section (3A) specifically contains a prohibition to the effect that moneys standing to the credit of the separate bank account as aforesaid shall not be utilized for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the appeals. He further submitted that if the appellate authority had no jurisdiction to go into the grievances raised by the investors while considering the petitioner's appeal under section 22, even the alleged consent or deemed consent on account of any statement made at the hearing of Special Civil Application No. 4515 of 1996 cannot confer jurisdiction on the appellate authority. It was further submitted that Kamlesh S. Jain whose complaint was examined by the appellate authority was not a party to Special Civil Application No. 4515 of 1996. 11. Although the contention urged on behalf of the petitioner appears to be prima facie attractive, it cannot be accepted. As per sections 69 and 73 for valid allotment of shares, there are, inter alia, two conditions precedent ( i ) minimum subscription, and ( ii ) listing permission by each of the recognized stock exchanges specified in the prospectus. In point of time minimum subscription precedes listing permission. Hence, compliance with the mandatory statutory requirement of minimum subscription is a condition precedent for listing permission as well. It, therefore, stands to reason that the appellate authority hearing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the explanation offered by the petitioner-company or absence thereof and, thereafter, found that there were six disputed applications coming from six applicants having similar addresses with no income-tax numbers except one. Each application was for one lakh shares each and the stockinvests accompanying the said applications were also consecutively numbered and issued by the Punjab National Bank. Though bankers to the issue were Karur Vysya Bank Ltd. and Vijaya Bank, all these stockinvests were encashed in a particular account with the Punjab National Bank which was opened on 25-4-1996 with a token amount of Rs. 500 and between that date and 11 -5-1996, the only entries therein were regarding encashment of the stockinvests amounting to Rs. 30 lakhs and withdrawal of the entire amount on the same day. Thus, the stockinvests were not encashed with the bankers to the issue but they were encashed with the Punjab National Bank immediately after the basis of the allot- ment was finalised and the entire amount so encashed was withdrawn in cash through cheques in favour of K. Machi, an employee of the petitioner- company. The Chairman of the company informed the appellate authority th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of India [1993] l SCC 78/[1992] 65 Taxman 440: "... it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing; be it a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning...." (p. 460) Bearing in mind the object of minimum subscription requirement as well as the mandatory nature of the provisions of sections 69 and 73 laying down the minimum subscription requirement and the other conditions for valid allotment which are stipulated by the Legislature for the protection of investors, it is clear that it is a condition precedent to valid allotment that the whole of the application money should have been paid to and actually received by the company. Any means such as cash, cheques, drafts and/or stockinvests may be used, but instruments must be received and encashed and remittances must be lying with the bankers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all moneys received from applicants for shares offered to the public for subscription shall be deposited and kept deposited in the Scheduled Bank/s which are bankers to the issue until the company has complied with all the requirements of section 69 and section 73. It has been held that bankers to the issue hold the application moneys in the nature of a trust fund, i.e., the statute has erected a kind of trust for the protection of persons who pay the money on the faith of a promise to refund the money, in case certain conditions are not fulfilled - 1955 (3) All ER 219, Reserve Bank of India v. Bank of Credit Commerce International ( Overseas ) Ltd. ( No. 1 ) [1993] 78 Comp. Cas. 207 (Bom.) and Reserve Bank of India v. Bank of Credit Commerce International ( Overseas ) Ltd. ( No. 2) [1993] 78 Comp. Cas. 230 (Bom.). It is only the bankers to the issue who can be expected to make sure that before withdrawal the company has got the listing permission from each stock exchange specified in the prospectus. It is only the bankers to the issue who are subject to the statutory control of SEBI through the SEBI (Bankers to an Issue) Rules, 1994 and the SEBI (Bankers to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived application moneys for the minimum subscription. It is thus clear that non-deposit of the stockinvests of Rs. 30 lakhs with the bankers to the issue was clearly a part of the well thought out design on the part of those in charge of the company in order to play a fraud on the investors and to circumvent of the mandatory provisions of sections 69 and 73. Mere encashment of stockinvests of Rs. 30 lakhs with the Punjab National Bank (not bankers to the issue) without withdrawal thereof would have been an irregularity or illegality which would have gone unnoticed. It is the withdrawal thereof in hot haste in a dubious manner and for unexplained purpose which not only lends it the character of fund, but also justifies 'the sympathetic and imaginative discovery' of the meaning of the words 'a Scheduled Bank' in sub-section (4) of section 69 and sub-sections (3) and (3A) of section 73 as 'the Scheduled Bank/s which are the bankers to the issue'. 16. Once the above meaning of the term 'a Scheduled Bank' is appreciated, the meaning of the words "the sum payable on application for the amount so stated (minimum subscription) has been paid to and received by the company" in sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abundant caution, this Court would like to add that even otherwise, in view of the fraudulent conduct on the part of those in charge of manage-ment of the petitioner-company, this Court would have declined to exercise its prerogative discretionary jurisdiction under article 226 of the Constitution in favour of the petitioner-company. 18. Mr. Puj for the investors submitted that the money was not even otherwise received inasmuch as the Stockinvests were purchased after 18-4-1996 and were antedated, as it was found that the company had received subscription for approximately only about 80 per cent of the equity capital. Mr. Puj further wanted to refer to other allegations of irregularities pointed by respondent No. 4 Kamlesh S. Jain as mentioned in his letter dated 10-7-1996 which are annexed to the petition. It is, however, not necessary to go into any such allegations made by respondent No. 4, as the appellate authority has not given any specific finding on any such alleged irregularities and the order of the appellate authority is even otherwise being upheld. 19. 1n the result, the petition is hereby dismissed. Notice is discharged with costs. The amounts of costs are qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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