TMI Blog2015 (11) TMI 1075X X X X Extracts X X X X X X X X Extracts X X X X ..... llotted once the plaintiffs either were not interested since the year 2011 and from September, 2013 when their names were not shown and still they did not take any steps. There is no force in the submissions. Learned Senior Counsel has argued that most of the issues/objections raised by the plaintiffs are of technical in nature which could have been taken by the plaintiffs before SEBI, if they had. The same cannot be determined after completion of entire process particularly in the interim application. The plaintiffs had enough time to raise the same before appropriate authority and not before this Court at this stage. The plaintiff was at least aware from September 2013 about its non inclusion as part of Promoter & Promoter Company of defendant No.1 in the shareholding pattern filed by Defendant No.1 with the stock exchange. The defendant No.1 then in every quarterly shareholding pattern filed the Plaintiff has not been shown as part of Promoter or Promoter Company of defendant No.1. The aforesaid shareholding pattern has been available on the website of Stock Exchanges since 2013 but no objection was raised. The Resolution approving the rights issue was passed on 31st March, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even then in view of the categorical jurisdiction clause, only the Courts in Madhya Pradesh would have jurisdiction to entertain the suit, assuming the same is maintainable. The present case does not fall in any of the exceptions carved out in the case of Whirlpool Corporation v. Registrar of Trade Marks, Mumbai & Ors., (1998 (10) TMI 510 - SUPREME COURT) namely enforcement of any fundamental rights or violation of principles of natural justice or where proceedings are without jurisdiction or vires of an act is challenged. No prima facie case is made out by the plaintiffs. The balance of convenience also lies in favour of the defendants. If any order is passed, the defendants would suffer irreparable loss and injury. Third parties right has already been created. The plaintiffs are not entitled to an injunction as prayed for. However, the plaintiffs are at liberty to take appropriate remedy by amending the plaint by seeking the declaration to become promoter or part of promoters group of the company and to seek damages as per law. The same would be decided as per its merit. - I.A. No.21503/2015 in CS(OS) 3082/2015, I.A. No.21723/2015 in CS(OS) 3105/2015 - - - Dated:- 16-11-2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 082/2015 as per the plaint are follows : i) The plaintiff is a part of the promoter promoter group of defendant No.4-M/s Universal Cables Limited and holds 59107 equity shares (being 0.26%) in the said defendant who is the Lead Manager to the Rights Issue proposed by defendant No.4. The said company is engaged in the business of manufacturing of Cables and Capacitors. The equity shares of the defendant No.4 Company are listed on BSE Limited and National Stock Exchange of India Limited. ii) The defendant No.5 is the Chairman of the defendant No.4 Company and engaged in day-to-day affairs of the defendant No.4 Company. Defendant No.6 is the Manager and the Chief Executive Officer of the defendant No.4 Company. The defendant No.7 is the Manager and Chief Operating Officer of the defendant No.4 Company. The defendant No.8 is the Chief Financial Officer of the Defendant No.4 Company. Defendant Nos. 9 to 14 are the Directors of the defendant No.4 Company. Defendant No.3 is the Compliance Officer and Company Secretary of the defendant No.4 Company. The defendant No.2 is the Registrar and the Share Transfer Agent to the Rights Issue. iii) In or about third week of September, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r other shareholders may not be able to affect the outcome of shareholders voting. After the completion of this Issue, our Promoters and Promoter Companies will collectively hold atleast 52.55% of the fully diluted post-Issue equity capital. Further, if our Promoter and Promoter Companies acquire the additional and renounced shares, their shareholding will further increase. Consequently, our Promoters may exercise substantial control over us and have the power to elect and remove a majority of our Directors and/or determine the outcome of proposals for corporate action requiring approval of our Board of Directors or shareholders, such as lending and investment policies, revenue budgets, capital expenditure, dividend policy and strategic acquisitions. Our Promoters will be able to influence our major policy decisions and any wrong decision on their part could adversely affect your investment in the Equity Shares.' The said Letter of Offer seeks to deprive the plaintiff of its special rights as promoter as recognized in law as well as the Letter of Offer. The plaintiff being part of promoter and promoter group of defendant No.4 should have been consulted with prior to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the said Rights Issue. The true depiction of the promoter of a Company is a vital relevant information for a shareholder in order to decide whether to subscribe to the Rights Issue. x) From paragraph 1 under the heading Risk Factor of the said Letter of Offer, the Rights issue has been issued mainly for the purpose of repaying the existing loans of the defendant No.4 to its promoter and promoter companies and not for creation of any assets of the defendant No.4. Using of proceeds of a Rights Issue for the purpose of repayment of loans of a promoter and promoter group of the Company and not for repayment of loans of third parties is not a justifiable reason for issuance of Rights Issue. The issue price of ₹ 51/- fixed in the said Letter of Offer is without any basis and in fact is a very high and unattractive price and will not lead to offset the losses being suffered by the defendant No.4. xi) The territorial jurisdiction is invoked by stating that the Letter of Offer and Rights Issue, both Abridged and Full, have been issued by the defendant No.4 within the territorial jurisdiction of this Court. Some of the defendants also reside/carry on their work within the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposely been reflected in the said letter of offer for the purpose of changing the Company from a public limited to company to a closely held company, which is illegal. It is done in well-planned manner in de facto control of the company. 6. Replies on behalf of the Company to the application under Order 39 Rule 1 and 2 CPC filed by the plaintiffs have been filed. Common pleas are raised on behalf of the defendants who have denied the case of the plaintiffs. It is alleged that the plaintiffs have approached this Court at the belated stage. The plaintiffs cannot plead the case of third parties. It is done by them in order to scuttle the process. The plaintiffs were aware about all the facts for the last many years. They just kept quiet. They did not assert their rights as claimed by them now. At least at this stage the plaintiffs are not entitled for interim injunction as prayed for. Various contentions are raised in the reply. They submit that the suit itself is not maintainable and once the suit is not maintainable, the question of passing of any interim order does not arise. 7. The first objection raised by them is about the lack of territorial jurisdiction to entertain the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shares Takeovers) Regulations to the stock exchange and to registered office of the company. The plaintiff Company was filing/authorised filing of the said disclosure under then prevailing regulations as a promoter of Company till the financial year ending on 31st March, 2011 but thereafter the plaintiff Company stopped filing the requisite disclosure. Thus, the plaintiff company itself chose to stop showing itself as a promoter of the Company. In the absence of the plaintiff submitting the mandatory disclosure and after waiting for a reasonable period, the company filed its shareholding pattern in September, 2013 and the Plaintiff was not shown as Promoter and Promoter Group Company. No objection was raised by the plaintiff nor any query/objection raised by the regulator or the stock exchange till date. From the said period, in every quarterly shareholding pattern filed by the Company, the plaintiff is not shown as part of Promoter or Promoter Group Company. The aforesaid shareholding patterns have been available on the website of the stock exchanges since 2013 but no objection was raised. Further, there is no prayer seeking any declaration that the plaintiff company is a part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter Group of Company in the shareholding pattern filed by the Company with the stock exchange. Since then, in every quarterly shareholding pattern filed by the Company the plaintiff was not shown as part of Promoter or Promoter Group Company of the Company. The said shareholding pattern has been available on the website of Stock Exchanges since 2013 but no objection was raised. With regard to the letter of offer, the plaintiff was aware as far back as June 2015 about the terms of the offer when the same was put on the website of SEBI. 13. Even as per plaintiffs own averment it was aware of the offer in the second or third week of September but despite the same chose to file the suit only on 8th October, 2015 knowing fully well that the closing date of the rights issue is 14th October, 2015 when the main process was to be completed by 15th October, 2015. The practice of approaching the court at the last minute in case of rights issues has been deprecated by the Supreme Court of India in Morgan Stanley Mutual Fund vs. Kartik Das, reported in (1994) 4 SCC 225. 14. The plaintiff in the first suit has not disclosed that an application had been filed on 5th October, 2015 before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt No. 1 in the impugned Letter of Offer. Similar holding of the estate of Late Priyamvada Devi Birla and the aforesaid companies, trusts and societies in other listed companies of the M P Birla Group (Birla Corporation Limited and Birla Ericsson Optical Limited) have been duly included in the holding of Promoter and Promoter Group and therefore, there is no reason to exclude these holding of shares by the defendant No. 1 from promoter and promoter group. Submissions on behalf of the Plaintiffs 16. It is argued on behalf of the plaintiffs that the exclusion of shareholders from the Promoter and Promoter Group of company has been made with the malafide intention and motive of denying them special rights which are attached to promoter shareholding as recognized in the Companies Act, 1956 / Companies Act, 2013 and various SEBI Regulations and such special rights have also been recognized in the said impugned letter of offer vide clause 28 under the head Internal Risks . The same is done in the impugned Letter of Offer with the scheme and design of allotting higher number of additional shares to the Promoter and Promoter Companies and thereby have the total holding of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said Letter of Offer of 1999 with regard to promoters , therefore, is sought to be completely changed in the impugned Letter of Offer without any basis. 20. The defendant No. 1 company has nowhere explained the reasons for excluding the plaintiff and other entities from the category of Promoter. It has violated its obligation under Regulation 57(2)(b) of the ICDR read with Schedule VIII, Part E (5)(VI)(C), to make true and accurate disclosures as to the details of shareholding of the promoters and the promoter group. 21. The contention of the defendants is that the plaintiff has been excluded from the Promoter and Promoter Group as the plaintiff had stopped making disclosure as a promoter of the defendant No. 1 under Regulation 30 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations after 31st March, 2011 and therefore, the defendant No. 1 has not shown the plaintiff as a Promoter or a Promoter Group company since September, 2013 does not have any merit. It is submitted that the plaintiff is a Promoter company by virtue of the definitions of Promoter as contained in the SEBI Regulations and the Companies Act. So long as the plaintiff meets the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and consulted its legal advisors in relation to the filing of the suit. Thereafter, the suits were filed during 2nd week of October 2015. It is submitted that there has been no undue delay in approaching this Court. It was only on 7th September, 2015 that SEBI noted compliances made by the defendant No.1 on the comments on the Letter of Offer by SEBI. 26. On behalf of plaintiffs it was denied that the plaintiffs have not been shown as part of Promoter and Promoter Group Companies since September 2013. The defendant No. 1 never informed the plaintiffs that it was being reclassified as public shareholder as the plaintiffs had failed to make disclosures as required under Regulation 30. 27. With regard to the objection of territorial jurisdiction, it is argued that the cause of action has arisen within the territorial jurisdiction of this Court in as much as the impugned Letter of Offer / Abridged Letter of Offer have been issued from New Delhi. The impugned Letter of Offer/ Abridged Letter of Offer has been signed on 14th September, 2015 in New Delhi. The meeting of Board of Directors of the Company in which the issue of shares was approved was held on 31st March, 2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of Right Issue in consultation with the designated Stock Exchange i.e BSE Limited . After taking into account allotment to be made under (a) to (d) as stated on basis of allotment if there is any unsubscribed portion, the same is deemed to be unsubscribed. 33. It is submitted that all the shares in respect of the rights issues were subscribed under clauses (a) to (c). Clauses (d) and (e) therefore became inoperative. All the shareholders of the company whether be promoters or public shareholders or the plaintiff were able to exercise their rights equally under clauses (a) to (c). Thus, the shareholders have suffered. The basis of allotment has been approved by the designated Stock Exchange of the Company for the purpose of Rights Issue i.e. BSE Limited by its letter dated 20th October, 2015. 34. It is submitted on behalf of the defendants that the case of the plaintiff is that they have been deprived of the special rights that would accrue to it as a Promoter Company in the rights issue. The said objection is without any basis as no prejudice has been caused to the plaintiffs on the reasons that assuming the plaintiff is a Promoter Company, even then no special rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the suit, plaintiff has no locus standi to espouse their alleged cause. Secondly, Note (b) at Page 38 clearly states that the said parties were removed from Promoters Promoter Companies as far back as 2006 and no objection to the same raised till date. Pertaining to 0.18% of Late Smt. Priyamvada Devi Birla it is submitted that firstly, the Administrator pendent lite of Late Smt. Priyamvada Devi Birla is not a party to the suit, plaintiff has no locus standi to espouse their alleged cause. Secondly, Late Smt. Priyamvada Devi Birla herself was not a promoter of defendant No.1 and thus no question of her administrator pendent lite being promoters and thirdly, the issue of Late Smt. Priyamvada Devi Birla s estate is pending before the High Court of Calcutta. An application has already been moved by one of the parties therein with regards to the impugned letter of offer and the same is listed on 27th November, 2015. With regards to the shareholding of the plaintiffs in the two suits, the same has rightly not been included in the shareholding of Promoter Promoter Companies of defendant No.1 as they are not Promoter Promoter Company as already stated herein above. 37. With re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preferential allotment it requires a special resolution, in reply it is submitted that there is no preferential allotment basis of allotment that has been adopted is the standard practice and it is mentioned in the letter of offer that the basis of allotment at Clause (b), (c), (d) will not be a preferential allotment. There is no challenge to the basis of allotment in the plaint. Even, there can be no challenge to the same in the absence of stock exchange as allotment is done under these clauses in consultation with the designated stock exchange. The rights issue was approved by a special resolution and thus the objection is without any merit. 42. In rejoinder arguments, learned Senior Advocate appearing on behalf of the Plaintiffs has also made additional submissions with regard to interpretation of clause c of basis of allotment at page 151. It was argued that a promoter could not apply under clause c of basis of allotment. 43. In reply learned Senior Counsel appearing on behalf of the defendants submitted that the said submissions are beyond pleadings and the same should not be considered and a decision cannot be based on grounds outside the pleadings of the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equity shareholders can apply for additional shares under category c of the basis of allotment, whether they are promoter or non-promoter. There is a force in the submissions of the defendants that the specific plea was not taken by the plaintiff in its plaint. 47. The following are the relevant dates and events which are necessary to be referred for the purpose of deciding the two interim applications filed by the plaintiff: Date Particulars 31.03.2015 The object of the letter of offer was set out in the Board Resolution dated 31.03.2015. The said Resolution was put up for voting by postal ballot to the shareholders. The postal ballot form was also sent to the plaintiff on 8th April 2015. 13.05.2015 The plaintiff chose not to vote. 99.97% of the valid votes cast on the resolution by the shareholders voted in favour of the said resolution. 29.05.2015 Draft Letter of Offer Submitted to SEBI, BSE and NSE. 30.05.2015 Notice issued to the shareholders of the company including the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be all by Promoter Group) 1831280 15.83% Additional shares applied by shareholders (Presumed to be all by Promoter Group) 4833825 Shares allotted proportionately to applicants. 2686257 23.23% Hence,100% issue is subscribed by the Promoters only. 11565127 100.00% 49. Summary of provisional basis of allotment (subject to disclaimer mentioned below) as on 15th October, 2015 are as under : Summary of provisional basis of allotment No. of Shares No. of Shares Shares offered (Issue Size) 1,15,65,127 Kept in Abeyance 0 Shares to be allotted 1,15,65,127 1. Shares applied by Shareholders out of Entitlement 70,47,590 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 974 Total Additional Shares Allotted to Renouncees 0 (d) Total Shares Allotted (a+b+c) 1,15,65,127 50. It is a matter of fact that the ex-parte order was not granted in the matter. Both parties made their submissions on 19th and 20th October, 2015. Learned Senior Counsel appearing on behalf of the plaintiff had made his rejoinder arguments on 20th October, 2015 in the morning session. After lunch counsel for the defendants had replied to the rejoinder argument wherein additional points were raised. The arguments in both the matters are common. Due to Dussehra holidays, the Courts were closed between 21st October, 2015 to 27th October, 2015. Thus, counsel for the plaintiff was pressing for interim order of status quo as he apprehends that the process of allotment of shares may likely to be completed, however, counsel for the defendant No.1 was opposing the said request. The suggestion was also made that let the matter be taken up after holidays for further hearing and for passing the orders in the application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2nd November, 2015, the plaintiff filed applications under Order XXXIX Rule 2A read with Section 151 CPC for violation of the status quo order. The plaintiff submitted that the defendants have acted in hurried manner as they were expecting status quo order from the Court. The act of the defendants was with the motive to negate the effect of the order passed by the Court. 54. As far as the contempt applications filed by the plaintiffs are concerned, the same would be considered as per merit. However, at present, this Court s main concern is whether the plaintiffs are entitled to the interim injunction in view of the averment made in the plaint and the documents placed on record. It appears that plaintiffs have also raised the grievance of the third party who is not before the Court. It is a commercial dispute between two set of parties, the right of third party cannot be decided. They are at liberty to initiate separate action if so derived. Let me now deal with the submissions of both the parties. 55. It is now to be considered whether on the date of filing of the suit, the plaintiffs were entitled for injunction or not. 56. The first objection of the defendants is that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Company as a part of promoter or Promoter Companies. Furthermore, in the Annual Report of 2014-2015 filed by the plaintiff, it has not shown defendant No.1 as a promoter company while showing M/s Jute Investment Company as a part of promoter or Promoter Companies. 60. The objection of the defendants is that the challenge to validity of the Letter of Offer about alleged non disclosures would lie before the Securities Exchange Board of India and the mechanism provided under the Securities Exchange Board of India Act, 1992. There is a force in the submissions of the defendants as in September, 2013 whey they were not shown as promoters of the company, the plaintiffs could have approached the SEBI by raising their grievances when there was discussion about the Letter of Offer or issue of rights issue. It came in the picture on 31st March, 2015. The plaintiffs at that point of time only had jurisdiction before SEBI but the same did not happen. There was no impediment at that time on the part of the plaintiffs to approach the SEBI. 61. As per regulation 6 of the SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2009 no issuer can make a rights issue unless it f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icating officer appointed under this Act or a Securities Appellate Tribunal constituted under this Act is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act. Further Section 20 A of Securities and Exchange Board Act 1992 reads as follows: No order passed by the board [or the Adjudicating officer] under this Act shall be appealable except as provided in [Section 15 T or] section 20 and no civil court shall have jurisdiction in respect of any matter which the Board [ or the adjudicating officer ] is empowered by, or under, this Act to pass any order and no injunction shall be granted by any court or other authority in respect of any action taken in pursuance of any order passed by the Board [or the Adjudicating Officer] by, or under this Act]. 66. In Kesha Appliances (P) Limited v. Royal Holdings Services Ltd., (2005) 65 SCL 293 (Bom), it was held by the High Court of Bombay that the jurisdiction of the civil court is barred by virtue of the provisions of Section 15Y and Section 20A of the SEBI Act. 67. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re for injunction restraining the defendant from issuing 21,79,000 equity shares of ₹ 10 each at a premium of ₹ 30 per share to the equity shareholders on rights basis as announced by them in the letter of offer. The learned single Judge has found that a prima facie case has not been made out to grant injunction as prayed for by the plaintiffs, particularly because the general body has passed the resolutions at the extraordinary general meeting. He has held that the plaintiffs have no right to dictate terms to the company to fix the value of the share at a particular rate and, therefore, they are not entitled to get any order for interim relief. In that view, the learned Judge has dismissed all the four applications before him. 70. There is no force in the submissions. Learned Senior Counsel has argued that most of the issues/objections raised by the plaintiffs are of technical in nature which could have been taken by the plaintiffs before SEBI, if they had. The same cannot be determined after completion of entire process particularly in the interim application. The plaintiffs had enough time to raise the same before appropriate authority and not before this Court a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iff comes to court well in time so that notice may be served on the defendant and he may have his say before any interim order is passed. The reasons set out in the preceding paragraphs of our judgment in relation to the fact which should weigh with the court in the grant of ex parte injunction and the rulings of this Court must be borne in mind. 74. With regard to objection raised on behalf of the plaintiff that the object for which the rights issue is being made is not justifiable i.e. repayment of loans of Promoter and Promoter Companies and it was argued that some of these loans are not even due till 2017, it was submitted that the object of the letter of offer was set out in the Board Resolution dated 31st March, 2015. The said Resolution was put up for voting by postal ballot to the shareholders. In the postal ballot form sent to shareholders the object of the letter of offer is clearly disclosed at page 175 of the documents filed with the reply. The postal ballot form was sent to the plaintiff at page 181 of documents filed with reply. The plaintiff chose not to vote. 99.97% of the valid votes cast on the resolution by the shareholders voted in favour of the said resolut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e communications with regards to the impugned letter of offer, were issued from registered office of defendant No. 1. No communication was ever issued with regard to the letter of offer from marketing office at Delhi and the same were issued only from the registered office of defendant No. 1 located at Satna, Madhya Pradesh. The plaintiff has alleged that the letter of offer has been issued by defendant No. 1 within the territorial jurisdiction of this Court. The said averment is not correct as the Letter of offer was issued and dispatched to the shareholders by defendant No.2 from Mumbai and submitted with SEBI by defendant No.4 in Mumbai and submitted by defendant No.1 to the stock exchanges from Satna, Madhya Pradesh. Thus, no part of cause of action to file the present suit arose within the territorial jurisdiction of this Court. Assuming though denying that any part of cause of action arose in Delhi, even then in view of the categorical jurisdiction clause, only the Courts in Madhya Pradesh would have jurisdiction to entertain the suit, assuming the same is maintainable. 79. It is settled law that even where courts in two places may have jurisdiction, an exclusive jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t suit where the remedy available with the plaintiff is to go before the SEBI which is the adjudicatory authority and the plaintiff is not barred by any lack of voting strength in this regard as was the case in the judgment cited by it. 82. For the aforesaid reasons, no prima facie case is made out by the plaintiffs. The balance of convenience also lies in favour of the defendants. If any order is passed, the defendants would suffer irreparable loss and injury. Third parties right has already been created. The plaintiffs are not entitled to an injunction as prayed for. However, the plaintiffs are at liberty to take appropriate remedy by amending the plaint by seeking the declaration to become promoter or part of promoters group of the company and to seek damages as per law. The same would be decided as per its merit. As far as two interim applications, being I.A. No.21723/2015 and I.A. No.21503/2015 are concerned, the same are dismissed. Status quo order passed on 20th October, 2015 is vacated. I.A. No.22910/2015 and I.A. No.22906/2015 are also disposed of in view of clarification already made in paras 50 and 52 of this order. It is clarified that the observation made in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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