TMI Blog2015 (4) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares of the respondent company for the obvious reason that the jurisdiction of a company Court is limited under section 391(2) read with section 394 of the Act of 1956 to ensuring statutory compliance in the decision making process relating to a scheme ensuring that the scheme is not contrary to public interest. It does not extend to directing autonomous authorities such as SEBI and the Stock Exchanges to exercise their discretion in a particular way / manner. It has been held in the case of the Bombay Stock Exchange [2006 (10) TMI 244 - HIGH COURT OF MADRAS],that both SEBI and Stock Exchanges have the exclusive jurisdiction to allow or disallow listing of a company’s shares based on their lawful conclusions as to whether the statutory requisites mandated for listing have been satisfied/ fulfilled or not. A direction as to listing in the exercise of powers under section 391(2) and section 394 of the Act of 1956 or otherwise under Rule 9 of the Rules of 1959 as sought would be excess of the jurisdiction of the Company Court. Aside of the above, listing of the respondent company's shares on the Stock Exchange/s within a specified time cannot be to my mind held to the raison ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n No. 23/2005 - - - Dated:- 9-1-2015 - MR. ALOK SHARMA, J. For The Appellant : Mr.Anant Kasliwal with Mr. Vaibhav Kasliwal For The Respondent : Mr.Sooli Copper, Sr.Advocate with Mr. Rohan Batra Mr. Nitin Jain, Mr. R.D Rastogi, Add. Sollicitor Genral with Mr. Ashish Kumar, Mr. R.N Mathur, Sr. Advocate with Mr. Sanjay Manchada, Mr. Gunjan Pathak, Mr. Sandeep Pathak Mr. Vinay Kothari, Ms. Anita Agarwal and Mr.S.B Katewa on behalf of Mr. Govind Singh JUDGMENT : This order disposes of the application under Rule 9 of the l.Companies (Court) Rules, 1959 (hereinafter the Rules of 1959 ) filed by M/s. Jindal Securities Pvt. Ltd and 3 others (hereinafter 'the applicants') inter-alia with the prayer that the respondent company Sistema Shyam Teleservices Limited (formerly known as Shyam Telelink Limited) (hereinafter the SSTL/ Company ) be directed to get its shares listed in the stock exchange/s within a reasonable time frame. And further that the company aforesaid be directed to give a continuous open exit option to the minority share-holders at a value deemed fit by this Court from amongst the value of ₹ 220/- as per the valuation of Uninor, ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... native requested the respondent company in the absence of listing of the Company's shares to buy back its shares and allow them to exit the company. The respondent company in the context of listing difficulties, however in the Annual General Meeting (hereinafter the AGM ) of the shareholders held on 12.12.2007 placed the issue relating to deletion of Clause 3.7 of Part-III of the sanctioned scheme relating to listing of shares of the respondent company for reconsideration. In the AGM, an open offer is alleged to have been made for purchase of the shareholding of the minority shareholders at a meager ₹ 10/- per share in view of the fact that Company's listing at the BSE as earlier envisaged premised on in principle approval of BSE and relaxation of regulation 19(2) (h) of the Regulations of 1957 was not readily forthcoming. Simultaneously deletion of clause 3.7 of the sanctioned scheme under the Company Court order dated 8.5.2006 was sought in view of the uncertainty of listing of respondent company s shares on the BSE and NSE. The applicants allege that in view of the promoters holding about 82% of the equity of the respondent company the shareholders with the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the applicants was wholly inadequate. It has been submitted that the promoters of the respondent company have been utilizing their dominant position by transferring their shares to third parties at a very high premium but had offered the minority shareholders only a meager exit option at ₹ 10/- per share when the actual price of the shares of the respondent company should reasonably have been around to ₹ 220/- per share with reference to the average of industry valuations at the relevant time where-under the price of a competitor company, one Uninor, was at ₹ 220/- per share or ₹ 156/- per share and at-least ₹ 49.31 per share. Malafides have been attributed to the respondent company in denying the rights of the minority shareholders and causing them loss by not having the shares of STLL listed in terms of Clause 3.7 of the sanctioned scheme dated 8.5.2006. It has been submitted that in the event of compliance with clause 3.7 of the sanctioned scheme dated 8.5.2006 and listing of shares of the respondent company, the market price of the shares would have been discovered to be much higher and minority shareholders would had then exercised their ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir controlling stocks to a Russian Company i.e. SISTEMA, altered the shareholding pattern and made the company ineligible for relaxation of the Rule 19(2)(b) of the Rules of 1957. In the circumstances, reliefs as detailed earlier in the introductory part of this order have been sought. Reply to the application has been filed by the respondent company and submissions also made in reiteration thereof. A preliminary objection to the very maintainability of the application under consideration has been raised. It has been submitted that the application and the reliefs claimed are predicated on a purported non-compliance with Clause 3.7 of the Scheme of Arrangement sanctioned vide order dated 8.5.2006 on proceedings under section 391(2) and 394 of the Act of 1956 which even though envisaged listing of equity shares of the respondent company on the Stock Exchange/s, was conditioned on the in -principle approval received from the BSE and NSE vide letters dated 2.8.2005 and 12.8.2005 under clause 24(f) of Equity Listing Agreement with the stock exchanges. The said in-principle approval was granted subject to SEBI granting relaxation under Rule 19(2)(b) of the Rules of 1957 and comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny Court while passing the order dated 7.8.2008 was thus conscious of the fact that listing of the shares of the respondent company could be derailed or delayed interminably and therefore visualized the possibility of non-listing. Minority shareholders if aggrieved of such non-listing for reason of unforeseen circumstances were free to exercise their exit option . The respondent company in its annual reports for the year 2008-09, 2009- 2010, 2010-11, 2011-12 and 2012-13 continually updated its shareholders on the status, prospect and feasibility of the initial listing of its equity shares and made known to all shareholders- majority / minority- that subsequent to the order dated 7.8.2008 passed by the Company Court, there has been a radical and complete change in market conditions in the telecom sector. The respondent company was initially allotted start up spectrum for 19 circles after having been issued licenses. Pursuant to the grant of pan India licenses, the respondent company expanded rapidly and grew considerably. However grant of licenses by the Department of Telecommunication in 2008 came under severe judicial and regulatory scrutiny, the most prominent being the Public I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been submitted that in the circumstances as obtaining, the applicants constituting a mere 0.066% of the total issued, subscribed and paid up share capital of the respondent company have no legal, contractual or even a common law right to press for compulsory listing to the detriment of the other over 99.33% shareholders. Such a listing would be counter-productive for all shareholders and fatal for the respondent company itself. It has been alleged that the overall facts of the case are conclusively indicative of the applicants only seeking by way of this Rule 9 application to derive illegitimate gains by browbeating the respondent company/ promoters. The applicants are evidently not so much aggrieved of the non-listing of the shares of the respondent company visualized in terms of clause 3.7 of the sanctioned scheme dated 8.5.2006 (as that would reflect over 90% dilution of the subscription price) but are desirous of extracting unjust profits by a direction from this Court as sought apparently in the alternative but in fact the main relief that they be allowed an exit at a share price hundreds of times higher than the current value of their shares. Aside of the above, it has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warrant. With regard to the exit option and pricing thereof it has been submitted that subsequent to the passing of the order dated 8.5.2006 and 7.8.2008 the applicants No.1 to 3 had themselves quite clearly negated the exit option by having subscribed to and allotted additional equity shares of the respondent company in pursuance of a rights issue in March 2011 at ₹ 10/- per share. The applicant No.1 was allotted 374282 shares, the applicant No.2, 3300 and the applicant No.19056, aggregating to 396638 shares. It has been submitted that by their own conduct the applicants had de jure rendered themselves ineligible to press for an exit option as on date. The applicants thus in-fact have no cause of action for any alleged breach of the order dated 7.8.2008 passed by this Court with regard to the provision of an exit option. It has been further submitted that at any rate an exit mechanism cannot be resorted to for desubscribing the additional equity acquired by the applicants in the rights issue. The motives and reason of the applicants for seeking an exit option at violently varying price of ₹ 220/-, 156/- and 49.31/- per equity share when the right issues were avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lotted to non-resident investors namely; SISTEMA and Rosimushchestvo, it has been submitted that a substantial acquisition by strategic or a financial investor bears no one to one co-relation to the actual market price of the security at a relevant point of time. The price in such situations is an amalgam of varied factors such as the business of the company, its future prospects, market conditions, control of the company, etc. The strategic/ financial investors also get special management and shareholders rights, and accordingly purchase their shares at a premium (when compared to actual market value of the company s shares). This consideration does not apply in case of valuation of the company s shares at subsequent contextually different point of time. Even otherwise differential statutory regimes apply to the two sets of investors. Further the acquisition by SISTEMA and Rosimushchestvo had taken place on the basis of the valuation of the equity shares of the respondent company much before the quashing of its UAS licenses by the Hon ble Apex Court, post which the respondent company s financial condition has deteriorated substantially. It has been submitted in the alternative tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the withdrawal of the appeal without any caveat. It has been further submitted that the relief sought for appointment of a representative of the minority shareholders on the Board of Directors of the respondent company cannot be granted as it is completely outside the scope of Rule 9 of the Company (Court) Rules, 1959. And similarly the prayer for grant of compensation for the purported delay in the listing of the shares of the respondent company is also completely untenable as no provision exists therefor either under the Companies Act or any other operative legislation or can even be deducted on logic. It has been empathetically denied that the applicants have suffered any loss as they had not been offered a fair exit option . Further such a claim for compensation is inconsistent with the further acquisition of the respondent company s shares by the applicants in the March 2011 rights issue. It has also been emphasized that neither the sale of the shares of the promoters to SISTEMA nor the question with regard to the induction of financial / strategic long term investors in the respondent company can be the subject matter of a Rule 9 of the Rules of 1959 application purported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itable management of the Company/ Companies involved. The commercial wisdom exercised by the members of the company/ies involved in the scheme who had ratified the scheme by requisite majority is to be well-regarded by the Company Court acting in a purely supervisory capacity but ensuring that the scheme is not violative of any provision of law, unconscionable or contrary to public policy. When the Court sanctions the scheme it is binding on all the parties concerned and the Court is to ensure that it works satisfactorily. Any scheme sanctioned by the Court has a basic structure, its object and purpose and may include incidental or peripheral matters. The Company Court has been empowered to supervise the carrying out of the compromise or arrangement and also has been conferred the power to issue directions as may be necessary for the working of the scheme. And for the purpose may even modify the scheme where necessary for its proper working. Under sub-section 2 of section 392 of the Act of 1956 where the Court is satisfied that the sanctioned scheme cannot work satisfactorily with or without modification thereof it can on an application made or suo moto order winding up of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is however, well settled that the inherent powers of the Company Court under Rule 9 of the Rules of 1959 a la section 151 CPC (pari materia) is a power relating to the practice and procedure of the Court and does not confer any power on the Court to determine substantive rights. Further inherent powers of the Court cannot be resorted to where there is an alternative remedy to the applicants. The Hon ble Apex Court in the case of K.K Veluswami and Pallanisony, 2011 (11) SCC 275 held that the inherent power which inheres in every Court by way of a statutory provision or otherwise is to do right and undo a wrong. Such powers only deal with procedural situations and are to be exercised in the Court s discretion with circumspection and care only when absolutely necessary. It has been further held that inherent powers of the Court are not a carte blanche for grant of relief and where the application invoking such inherent powers is mischievous, frivolous or to cover up negligence or lacunae, such application should be rejected with heavy costs. In the case of State of Haryana v. Babu Singh, 2008(2) SCC 85 the Hon ble Apex Court has observed that even though the inherent powers of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essal of grievance/s of a share holder of a company, the Civil Courts would have the jurisdiction to address such an issue. Referring to the Judgment of the Hon'ble Apex Court in the case of Dwarka Prasad Aggarwal v. Ramesh Chandra Agarwal, AIR 2003 SC 2696 it has been held that the Civil Court's jurisdiction is not generally ousted under the Act of 1956 but only in cases where the Act of 1956 specifies the Company Court as the Forum for complaint in respect of a particular matter then alone the jurisdiction of the Civil Court would stand ousted to that extent as unlike some of the statutes, the Act of 1956 does not contain any express provision barring the jurisdiction of ordinary Civil Courts in matters covered by the Act of 1956. Consequently where there is no provision which bars the jurisdiction of the Civil Court either expressly or by implication, a dispute based on contractual or common law rights between a share-holder and a company would be triable in a suit. In the instant case the issue in the application under consideration is with regard to the applicants being allowed exit option with the price of the shares to be sold in the exercise of such exit optio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llary / peripheral matters on the other in respect of which delayed implementation or even non-implementation would not make the sanctioned scheme incapable of working satisfactorily . The respondent company is however on record with the averment that the shares would be listed on the Stock Exchanges no sooner it would be appropriate and in the interest of all its shareholders with better business, profits, improved market condition and favourable macro-economic environment. The Hon ble Madras High Court in Pentamedia Graphics Limited (supra) has held that merely because the shares of the company are not listed as provided for in the sanctioned scheme, it would not render it bad or entail the violation of the Court s order. The enunciation of the Madras High Court is premised on the unquestionable legal position that sanctioning of a scheme under section 391(2) read with 394 of the Act of 1956 is a jurisdiction wholly distinct, separate and unrelated to the powers of the Stock Exchanges /SEBI to demand statutory compliances before granting listing permission. In my considered opinion no direction for listing of shares of the Company with reference to Clause 3.7 of the sanctione ..... X X X X Extracts X X X X X X X X Extracts X X X X
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