TMI Blog2014 (4) TMI 1213X X X X Extracts X X X X X X X X Extracts X X X X ..... B. The order dated 25.04.2012 passed by SAT seems to imply that respondent no.1 is at liberty to agitate all his grievances before the CLB. Even if it is assumed that any question raised before the CLB is concluded between the parties in proceedings before SEBI, the same would not prevent respondent no.1 from pursuing its petition before the CLB. It is not necessary for this Court to decide whether any grievance raised by respondent no.1 before the CLB is barred by the principles of issue estoppel and it will be open for the parties to place their contentions with respect to this aspect before the CLB. And, the CLB shall consider the same in accordance with law. The present appeal is dismissed as being devoid of any merit - CO.A(SB) 7/2014 & CA No.275/2014 - - - Dated:- 28-4-2014 - Mr. Vibhu Bakhru, J. For the Appellant : Mr Ramesh Singh and Mr A.T. Patra. For the Respondent : Mr H.S. Chandhoke and Mr Anant Garg. JUDGMENT Vibhu Bakhru, 1. The present appeal has been filed by the appellant company under Section 10F of the Companies Act, 1956 challenging the order dated 10.12.2013 passed by the Company Law Board in CP No.192/2007 (hereinafter referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant company as on 16.11.2007, filed various complaints, dated 01.02.2007, 13.12.2007 and 20.12.2007, before SEBI in relation to the allotment of warrants being made to the promoters of the company in violation of the provisions of the statutory guidelines and regulations framed by virtue of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the 'SEBI Act'). The said complaints were dismissed by SEBI, on 20.06.2008. Aggrieved by the order dated 20.06.2008, respondent no.1 challenged the same before the Securities Appellate Tribunal (hereinafter referred to as the 'SAT') in Appeal No.96/2008. By an order dated 01.07.2009, SAT remanded the matter back to SEBI for reconsideration and for passing a reasoned order. 3.3 Thereafter, SEBI considered the matter afresh and passed a reasoned order dated 31.03.2011 whereby the complaint filed by respondent no.1, was dismissed. Being aggrieved by the order dated 31.03.2011, respondent no.1 filed an appeal before SAT (Appeal No.86/2011) impugning the order dated 31.03.2011 passed by SEBI. SAT dismissed the said appeal, by an order dated 25.04.2012. Respondent no.1 filed an appeal (Civi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s raised by respondent no.1 before the CLB are similar to the grievances raised by respondent no.1 in the proceedings initiated before SEBI. It is contended that respondent no.1 had challenged before SEBI the decision of the appellant company to allot preferential warrants on grounds that were similar to those raised before the CLB. The grievance of respondent no.1 had been addressed and adjudicated by SEBI. The appeal filed before SAT had also been disposed of. Respondent no. 1 then pursued an appeal before the Supreme Court against the order passed by SAT. It was, therefore, submitted that the respondents were pursuing parallel proceedings which was not permissible. The appellant contends that the petition before the CLB and the proceedings before SEBI (and now the appeal pending before the Supreme Court) were parallel proceedings and, therefore, the petition before the CLB was not maintainable. 5. The learned counsel for the appellant has contended that the complaints filed by the respondent before SEBI were not only with respect to the allegations that the appellant had contravened provisions of various statutory guidelines, regulations and provisions of the SEBI Act but als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is contended by the learned counsel for the answering respondent that the proceedings before the CLB and before SEBI are independent of each other. It was submitted that although the facts stated in both the proceedings are common, however, the grounds raised and the relief claimed before both the fora are independent, separate and distinct. The parties before both the fora are also different. It is contended that the jurisdiction of the CLB is confined to adjudicate whether the affairs of a company are being mismanaged or being conducted in a manner oppressive to any shareholder(s) of the company. While SEBI has the exclusive jurisdiction to adjudicate any complaint with regard to the violations of the statutory guidelines, regulations and provisions of the SEBI Act, the jurisdiction of the CLB extends to the manner in which affairs of a company are conducted. The respondent has relied upon the decision of the Bombay High Court in the case of Kesha Appliances P. Ltd. And Ors. v. Royal Holdings Services Ltd. and Ors.: (2006) 130 Comp Cas 227 (Bom) in support of its contention that SEBI would have the exclusive jurisdiction in relation to violation of the provisions of the SEBI Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd the learned counsel for the parties. The principal controversy that arises in the present case is whether the respondent is disentitled to pursue the petition before the CLB on account of the respondent having preferred complaints before SEBI in relation to the allotment of preferential warrants by the appellant company. In order to address the controversy raised in the present appeal, it is necessary to examine the scope of inquiry before SEBI and the scope of proceedings before the CLB. It is also necessary to examine the complaints made by respondent no.1 before SEBI and the appellate proceedings emanating from the decision rendered by SEBI. 13. The respondent made various complaints to SEBI alleging that 7,00,000 warrants issued by the appellant company to its promoters were in violation of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, (hereinafter referred to as the 'Takeover Regulations'), Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 (hereinafter referred to as the 'DIP Guidelines'), Securities and Exchange Board of India (Prohibition of Fraudule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Group/PAC have in the instant case not made the public announcement. It is pertinent to note that under the definition of shares in the SEBI Takeover Code, the same would include warrants which have underlying shares. 5. Moreover, it is brought to your notice that the issuance of warrants on 30.11.2007 is also in violation of Regulation 23 of the Takeover Code. On 19.11.2007 Our Client had made a Public Announcement in terms of Regulations 10 and 14(1) of the SEBI Takeover Code. The Offer Price as it stands today is ₹ 120/- per share as notified on 29.11.2007. Regulation 23(1)(b) clearly states that the board of directors of the target company shall not, during the offer period issue or allot any authorized but unissued securities carrying voting rights. The date of closure of the Offer made by Our Client is 24.01.2007. However, as stated above, the Company has proceed to allot 7 lakh share warrants, the warrant holders have paid for and exercised their option to receive the underlying equity shares, the Company has further approached the Bombay Stock Exchange for approval to issue and list the first batch of underlying shares. The issuance of warrants as well as the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t amounting to more than `100 crores due and payable by both the companies to the appellant company. In the year 2007, the appellant company allotted 6.9 lakh warrants amounting to `18.63 crores to VTL. It was pointed out that in this manner, the appellant company had transferred funds to VTL and DCM Hyundai Ltd. and subsequently those companies were used by the promoters to subscribe warrants issued by the appellant company. Therefore, it was alleged that the allotment of warrants was a sham transaction and was in violation to various regulations, guidelines and the SEBI Act. 17. SEBI examined the complaints of the respondent no.1 with regard to the allegations of the violations of the guidelines, regulations and SEBI Act. The same is evident from Para 6 of the order dated 31.03.2011 and the same is extracted hereinbelow:- 6. ......While the company replied and made its submissions, the complainant informed that it had no further documents to submit. I have perused the allegations in the appeal memorandum, the responses received from the company and other entities, the findings of the aforesaid investigation and other material available on record. According to the complaina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been sought in the CLB... . It was also informed that the petition filed by HB before the CLB is pending. On appeal, the Division Bench of the Delhi High Court had declined to interfere in the matter. As it has been informed that the matter is pending before the Hon'ble CLB, the issue is sub-judice. SEBI would as a regulator, intervene only when the interests of the shareholders are in any manner adversely affected because of the acts of the company. As in the present matter, the shareholders have voted in majority for the allotment of warrants to the promoter group on preferential basis, SEBI would have no adverse remarks on the mode adopted by the company for mobilising capital for its working needs. As regards the offer of the complainant to subscribe to the warrants at a price of `120/- per share as against the price of `90/-, I would refrain from recording my observations here, as according to the company, the same is pending adjudication by the Hon'ble CLB. 19. SEBI examined and adjudicated the allegations with regard to the violations of the DIP Guidelines, Takeover Regulations, PFUTP Regulations and the provisions of the SEBI Act and dismissed the complaints ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leged violation of Regulation 23 of the Takeover Regulations is not found as the company has issued equity shares underlying the warrants which are in line with the terms of the explanation to the said provision. As regards the allegation that the company has entered into material contracts and encumbered its assets, the same is rejected on the basis of the submissions of the company, as mentioned above and also for want of material to support such a charge. vi. There is no contravention of clause 13.3.1(f) of the DIP Guidelines as the allottees of warrants were holding shares of the company in dematerialised form. Further, the violation of other provisions of the DIP Guidelines as alleged by the complainant is also not substantiated for the reasons stated in this Order. vii. BSE has granted in-principle approval for the issue of equity shares (underlying the impugned warrants). The shareholders of the company have approved the preferential allotment to six of the persons/entities of the promoter group. No violation of the provisions of the Listing Agreement as alleged in the appeal memorandum and also Section 21 of the SCRA could be inferred. 43. In view of the foregoing, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n filed by respondent no.1 before the CLB (CP No.192/2007) is under Section 397/398 of the Act inter alia seeking that the notice dated 18.10.2007 calling for the postal ballot and the issuance of 7,00,000 preferential warrants be declared as null and void. It has been alleged by respondent no. 1 that the issuance of 7,00,000 preferential warrants was not with intent to augment the long term working capital of the company but to increase the holding of the promoters in the appellant company. It was contended that the company could have issued shares/warrants on rights basis which would allow the participation of all the shareholders in the increase of the capital of the company, however, the warrants were allotted to the promoters to the exclusion of other shareholders and at a price below the price offered by respondent no.1. It was further contended that the affairs of the company were being conducted in a manner oppressive to the minority shareholders and prejudicial to the interest of the company. The relevant extracts of the said company petition which indicate the nature of allegations made by respondent no. 1 are quoted hereinbelow:- 28. The conduct of the Respondents is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an opportunity to discuss and deliberate upon the proposed issue and deliberate failure to provide the Petitioner with a complete inspection of the members' Register, are sufficient to establish that in the instant case the Respondents 2 to 9 are driven with ulterior motives directed at furthering their own interests to the prejudice of the interests of the Respondent No. 1 company and its shareholders. xxxx xxxx xxxx xxxx xxxx 40. As will be shown below, the Promoters/Promoter Group of the Respondent No. 1 Company had conceived and executed a scheme whereby they would subvert the provisions of law while increasing their shareholding in the Company amounting to a fraud on the members of the Company. They have perversely mismanaged the affairs of the Respondent No. 1 Company and oppressed the minority shareholders....... xxxx xxxx xxxx xxxx xxxx 86. The extent of the oppressive acts and the mismanagement of affairs can be seen from the reply filed by the Respondents and the facts before this Hon'ble CLB, which are again summarized hereinbelow: (i) The Respondents propose to issue warrants on a preferential basis to promoters to raise approximately ₹ 9-10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd tranches of equity shares. (xi) The Company deviated in terms of the number of shares to be allotted in each financial year, viz. from 7 lakh shares each per financial year over three years, to 11.55 lakh and 9.45 lakh shares over two financial years only. (xii) No individual notices were sent to the shareholders regarding these changes. (xiii) The Respondents accepted a Letter of Intent from Versa Trading Ltd. on 16.10.2007 when the necessary statutory approval of shareholders of Versa Trading Ltd. was not obtained under S. 372A until 15.11.2007. (xiv) The Respondents issued and allotted warrants to Versa Trading Ltd. despite being aware that Versa was not authorized by its MOA to do so. Similarly, DCM Hyundai Ltd. is also not authorized by its MOA to make the investments and thus could not have made the alleged investment of ₹ 20 crores in Versa Trading Ltd. Further, DCM Hyundai has not obtained the shareholders approval under S. 372A as required by the Companies Act for investing in versa. (xv) The Respondents issued and allotted warrants to Versa Trading Ltd. despite being aware that Versa was barred from doing so due to a direction issued by the RBI whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Respondents. Moreover, the facts show that moneys had not been received by the Company at the time of allotment whereas the Company filed false affidavits before the Hon'ble High Court as well as this Hon'ble CLB. (xxi) The Respondent No.1 Company has violated statutory norms of S. 192A and the Postal Ballot Rules 2001 in the conduct of the ballot. (xxii) The Directors have grossly violated their fiduciary duties towards the Company and the shareholders. 24. It is clear from above that the allegations made by respondent no.1 in the company petition filed before the CLB not only alleged violation of statutory guidelines and regulations framed under the SEBI Act but also alleged lack of probity in the conduct of the affairs of the company. 25. SEBI exercises its statutory jurisdiction to protect the interests of investors in securities and to deal with the violations of the Takeover Regulations, DIP Guidelines, Listing Agreements, PFUTP Regulations and other statutory guidelines and regulations. The SEBI Act provides complete mechanism for redressal of grievances to protect the interests of investors in securities. It is indisputable that any complaint wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or manager or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company, may apply to the Tribunal for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the Tribunal is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Tribunal may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit. 27. The powers conferred upon the CLB under the aforesaid Sections are very wide. In matters where the CLB is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to its m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sections 397-398 of the Act are intended to provide a remedy to the shareholders of the company in cases where the affairs of the company are being conducted in a manner which is burdensome or harsh to the shareholders or where the affairs of the company are conducted in a manner which is prejudicial to public interest, interest of the company or interest of certain shareholders. It is settled law that mere illegal or invalid acts would not constitute 'Oppression'. Any act which is in violation of any provisions of law by itself will not necessarily be oppressive or prejudicial to the interest of any member of members of the company. It is well settled that an act may be illegal or unlawful and yet may not be construed as oppressive. On the other hand, the affairs of the company may be conducted strictly in accordance with law, yet the same may still be oppressive. This has been explained by the Supreme Court in the case of Needle Industries (India) Ltd. (supra). There are several cases where majority shareholders of a company have used their voting power to carry through decisions which may be prejudicial to the minority shareholders and in some cases prejudicial to the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets of proceedings are required to be looked into and, thereafter, a conclusion drawn as to whether a decision on the one would render meaningless the continuation of the other 33. I wholly concur with the above view of the Calcutta High Court. There is another set of circumstances where parallel proceedings are not permissible and those are cases where the remedies sought under a set of proceedings are inconsistent. In such circumstances, the party pursuing the remedies must elect a remedy that it seeks to pursue to the exclusion of the other. Parallel proceedings in separate fora for the same relief would not be permissible if the same are inconsistent with each other. However, in cases where the nature of challenge is materially different, there would be no bar for a litigant to pursue concurrent remedies. The doctrine of election pre- supposes that there is choice of remedies which are inconsistent in character and therefore, a party has to elect one to the exclusion of the other. The Supreme Court in the case of Transcore v. Union of India: (2008) 1 SCC 125 has explained the Doctrine of Election as under:- 64. In the light of the above discussion, we now examine the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Pursuing remedies for enforcement of distinct rights and redressing different wrongs, concurrently or in whichever sequence, are not impermissible. Remedies will not be inconsistent merely because the same set of facts and averments are relied upon. The doctrine of election of remedies will have no application in such cases. 36. In the present case, the respondent has approached SEBI in relation to a set of facts which is contended to indicate violation of the SEBI Act, Take Over Regulations, PFUTP and DIP Guidelines. It is also contended by the respondent that the affairs of the company are conducted in a manner which are oppressive to its shareholders and prejudicial to the interest of the company. The fact that some of the acts complained of may also violate the SEBI Act or Regulations made thereunder would not prevent the respondent from pursuing the remedies under Sections 397 and 398 of the Act. To hold otherwise would mean that the respondent has to elect whether he can complain against statutory violations under the SEBI Act or initiate proceedings under Sections 397-398 of the Act. The two proceedings as discussed are completely different in their nature and occupy a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disputes raised by respondent no.1. As discussed above, the remedy before SEBI and the CLB are not mutually exclusive but are cumulative. Thus, no fault can be found with respondent no.1 in pursuing the said proceedings. 38. The reliance placed by the appellant on the decision in the case of K.K. Modi v. K.N. Modi (supra) is also misplaced. In the said case, the plaintiffs therein had filed an arbitration petition under Section 33 of the Arbitration Act, 1940 challenging the decision of the Chairman and Managing Director of IFCI on the basis that the said decision was an arbitration award. The plaintiffs simultaneously also filed a suit challenging the very same decision which was impugned in the arbitration petition. The suit was filed on the basis that impugned decision was not an arbitration award. This was a clear case of inconsistent remedies. If the decision of the Chairman and Managing Director of IFCI Ltd. was considered as an arbitration award, the suit filed by the plaintiff was barred. However, if the said decision was not considered as an award, then the arbitration petition was not maintainable. The plaintiffs had attempted to thus pursue parallel proceedings. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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