TMI Blog2023 (5) TMI 985X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal (SAT) in case he is aggrieved in the matter of delisting of the security. Delisting regulations provide Provisions with respect to the rights of the share-holders and all kind of checks and balances are in place under the Regulations. It is pertinent to note that Section 23(2) of the SCRA gives a special power to SEBI to penalize any person who contravenes the Provisions inter alia Section 21 or Section 21A or Section 22, and a punishment upto 10 years or a fine which may extend up to Rs. 25 crores can be inflicted. Not only this, as stated in the written reply filed by the SEBI, for vanishing companies, the exercise was undertaken by the Registrars of companies and action has been initiated in the matter against them. Thus in short, the statutory provisions do provide a robust mechanism to safeguard the interest of investors and by no stretch of imagination, it can be said that the interest of investors is not at all protected. Appeal against any order/ decision for recognized stock exchange before the SAT and any person aggrieved in the matter by the order or decision of the recognized stock exchange or the adjudicating officer or any order made by the SEBI under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power to suspend the listed company is being arbitrarily used by Respondent No. 3 being the stock exchange, merely on the grounds of non-compliance of procedural disclosures under listing agreement, non-payment of the listing fees etc. and the shares/ stocks/ securities of the listed companies have been suspended from time to time. 3. It has been stated that large number of companies have been suspended from continued listing by Respondent No. 3 and subsequently many of them have been de-listed without ensuring any protection to investors and, therefore, appropriate mechanism should be in place to take action against those persons who are duping the investors. 4. It has been further stated that the Respondent No. 2 is the apex regulatory body and the Securities and Exchange Board of India Act, 1992 (SEBI Act) was enacted to protect the interest of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto. 5. It has been further stated that according to Section 11 of the SEBI Act, it shall be the duty of SEBI to protect the interest of public investors in securities and to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constitute an internal panel to monitor the conduct of the promoters of a listed company whose trading of shares / stocks / securities is proposed to be suspended; iv. Issue a writ of mandamus or any other appropriate writ(s) / order(s) / direction(s) to the Respondent No. 1 to institute a grievance redressal mechanism within Respondents No. 2 and 3 for the redressal of grievances of the public investors of the listed companies whose trading of shares already remains suspended and to trace out the promoters and management of such listed companies and make them settle the dues of innocent public shareholders / investors; v. Issue a writ of mandamus or any other appropriate writ(s) / order(s) / direction(s) to the Respondent No. 3 for not implementing the new norms for the revocation of suspension of trading to shares/ stocks / securities of suspended / delisted companies which will come into effect from 01.04.2012; vi. Issue a writ of mandamus or any other appropriate writ(s) / order(s) / direction(s) to the Respondent No. 2 and Respondent No. 3 to issue directions to the promoters and management of 1405 suspended companies to make all required compliances and to get ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he stock exchange to suspend or withdraw admission to the dealings in the securities of a company for breach of any condition of admission to dealings or any other reason, to be recorded in writing. 11. It has been further stated that the SCRA also provides that the stock exchange shall provide a reasonable opportunity to the concerned company to show cause against the proposed action and a remedy of appeal is provided to the aggrieved company or a body corporate before the Securities Appellate Tribunal. Thus, the stand of Respondent No. 2 is that there is a complete mechanism in place to deal with the companies who are playing fraud upon the investors. 12. In respect of the Petitioner s contention that the promoters and the management of the company s default in complying with the listing agreement is resulting in suspension of such companies and their subsequent de-listing (compulsory) is affecting the investors and in fact it is hurting the investor s interest rather than serving as a punitive measure against promoters and management of companies. The Respondent No. 2 has categorically stated that in case the Petitioner is aggrieved by such de-listing norms of stock exchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebarring them from activities connected with capital market, raising funds from capital markets and dealing in securities. 17. It has been further stated that the Indian regulatory framework is based on a disclosure based regime and the SEBI has taken large number of measures to enhance disclosures and tighten the regulatory framework. The measures taken by SEBI as detailed in the affidavit are reproduced as under: a) The issuer company is required to inter alia make disclosures of complete profile of the promoters and directors alongwith photograph, Voter ID Number, Driving License Number, DIN, age etc. in the offer document. Further, the Permanent Account Number, Bank Account Number and Passport Number of the promoters are required to be submitted to the Stock Exchanges on which securities are proposed to be listed, at the time of filing the draft offer document with them. b) In terms of the Equity Listing Agreement of the stock exchanges, when money is raised through an issue, issuer shall disclose to the Audit Committee, the uses / applications of funds on a quarterly basis as a part of their quarterly declaration of financial results. Further, on an annual basis, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and Exchange Board of India to supervise and to have a control over the stock exchanges. It has been further contended that Section 21 of the SCRA mandates that where securities are listed, on the application of any person in any recognized Stock Exchange, such person shall comply with the conditions of the listing agreement with that stock exchange. 20. It has been further stated that Rule 19 of the Securities Contracts (Regulation) Rules, 1957 provides various formalities and procedures required to be mandatorily complied with by a Public Limited Company, before its shares and securities can be traded on the floor of the recognized stock exchange. 21. The Respondent No. 3 has further stated that the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 provides adequate and sufficient protection for investors and the market. Rule 21 of the Securities Contracts (Regulation) Rules provides for delisting of any security listed on the following grounds: a) the company has incurred losses during the preceding three consecutive years and it has negative net-worth; b) trading in the securities of the company has remained suspended for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r an aggrieved investor may file an appeal before the Securities Appellate Tribunal against the decision of the recognized stock exchange delisting the securities. It has been further stated that Section 23 (2) of the SCRA provides that any person who fails to comply with the provisions of Section 21 and 21A of SCRA shall be liable for a punishment with an imprisonment for a term which may extend to ten years or with fine, which may extend to twenty five crores rupees, or with both. 25. It has been further stated that Rule 19 (5) of the SCRR states that a recognized stock exchange, may suspend or withdraw admission to dealings in the securities of a company or body corporate either for a breach of or noncompliance with, any of the conditions of admission to dealings or for any other reason, to be recorded in writing, which in the opinion of the stock exchange justifies such action. Provided, however, that no such action shall be taken by a stock exchange without affording to the company or body corporate concerned a reasonable opportunity by a notice in writing, stating the reasons, to show cause against the proposed action. Rule 19 (6) of the SCRR provides that a stock exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of delisting by any aggrieved investor. The Respondents have further stated that even in case of compulsory delisting which is a disciplinary mechanism an aggrieved investor may file an appeal before the Securities Appellate Tribunal against the decision of the recognized stock exchange delisting the securities under section 21A (2) of the SCRA. 30. The Respondent No. 3 has further stated that the Listing Agreement also explicitly mentions that the Company agrees and declares that all or any of its securities listed on the stock exchange shall remain on the list entirely at the discretion of the stock exchange and that stock exchange may, in its absolute discretion, suspend or remove the securities from the list at any time and for any reason whatsoever. 31. The Respondent has further submitted that the norms under challenge were reconsidered by Respondent No. 3 suo-moto in the interest of the investors and much prior to the filing of the present Writ Petition. It has been stated that the new norms for revocation of suspension have been approved by the Board of Directors of Respondent No. 3 in a Board meeting dated 27.04.2012 and the minutes of the said meeting are under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance with clauses of the listing agreement, filings under SEBI regulations/ circulars, SCRA and SCRR. 4. The shareholding of promoter and promoter group entities shall be under lock-in for a period of 3 months from the date of commencement of trading, post revocation of suspension. 5. Company should have its own website. 6. Payment of reinstatement fees as applicable. 32. It has been further stated that the aforesaid norms are approved in the interest of investors. The aforesaid norms are necessary and vital for enabling the investor to take an informed decision with regards to their investments and to deal safely in securities market. The contention of Respondent No. 3 is that the aforesaid norms are not extraneous, unreasonable and can be complied easily by the Listed Company thereby enabling the investor to deal in securities market prudently and safely. 33. It has been further stated that the Respondent No. 3 has always endeavoured to maintain fair, just and equitable norms for revocation of suspension after taking into consideration the interest of the investor, the company and the securities market. The Respondent No. 3 has further submitted that it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tering and regulating the working of 20[venture capital funds and] collective investment schemes, including mutual funds; (d) promoting and regulating self-regulatory organisations; (e) prohibiting fraudulent and unfair trade practices relating to securities markets; (f) promoting investors' education and training of intermediaries of securities markets; (g) prohibiting insider trading in securities; (h) regulating substantial acquisition of shares and takeover of companies; (i) calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges 21 [, mutual funds, other persons associated with the securities market,] intermediaries and self-regulatory organisations in the securities market; 22 [(ia) calling for information and records from any person including any bank or any other authority or board or corporation established or constituted by or under any Central or State Act which, in the opinion of the Board, shall be relevant to any investigation or inquiry by the Board in respect of any transaction in securities;] 23 [(ib) calling for information from, or furnishing information to, other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place;] [(iv) inspection of any book, or register, or other document or record of the company referred to in sub-section (2-A); (v) issuing commissions for the examination of witnesses or documents;] [(4) Without prejudice to the provisions contained in sub-section (1), (2), (2-A) and (3) and Section 11-B, the Board may, by an order, for reasons to be recorded in writing, in the interests of investors or securities market, take any of the following measures, either pending investigation or inquiry or on completion of such investigation or inquiry, namely: (a) suspend the trading of any security in a recognised stock exchange; (b) restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities; (c) suspend any office bearer of any stock exchange or self-regulatory organisation from holding such position; (d) impound and retain the proceeds or securities in respect of any transaction which is under investigation; [(e) attach, for a period not exceeding ninety days, bank accounts or other property of any intermediary or any person associated with the securities m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or Section 19-IA of the Depositories Act, 1996 (22 of 1996)], as the case may be, shall be credited to the Investor Protection and Education Fund established by the Board and such amount shall be utilised by the Board in accordance with the regulations made under this Act.] xxxxxxxx [11-B. Power to issue directions [and levy penalty]. [(1)] Save as otherwise provided in Section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary (i) in the interest of investors, or orderly development of securities market; or (ii) to prevent the affairs of any intermediary or other persons referred to in Section 12 being conducted in a manner detrimental to the interests of investors or securities market; or (iii) to secure the proper management of any such intermediary or person, it may issue such directions, (a) to any person or class of persons referred to in Section 12, or associated with the securities market; or (b) to any company in respect of matters specified in Section 11-A, as may be appropriate in the interests of investors in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... file an appeal before the Securities Appellate Tribunal against the decision of the recognised stock exchange delisting the securities within fifteen days from the date of the decision of the recognised stock exchange delisting the securities and the provisions of Sections 22-B to 22-E of this Act, shall apply, as far as may be, to such appeals: Provided that the Securities Appellate Tribunal may, if it is satisfied that the company was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding one month.] xxxxxx 23. Penalties. ( 1) Any person who (a) without reasonable excuse (the burden of proving which shall be on him) fails to comply with any requisition made under sub-section (4) of Section 6; or (b) enters into any contract in contravention of any of the provisions contained in Section 13 or Section 16; or (c) contravenes the provisions contained in [Section 17 or Section 17-A] or Section 19; or [(d) enters into any contract in derivative in contravention of Section 18-A or the rules made under Section 30.] (e) owns or keeps a place other than that of a reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le with imprisonment for a term which may extend to ten years or with fine, which may extend to twenty-five crore rupees, or with both]. xxxxxx 30. Power to make rules. ( 1) The Central Government may, by notification in the Official Gazette, make rules for the purpose of carrying into effect the objects of this Act. (2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for, (a) the manner in which applications may be made, the particulars which they should contain and the levy of a fee in respect of such applications; (b) the manner in which any inquiry for the purpose of recognizing any stock exchange may be made, the conditions which may be imposed for the grant of such recognition, including conditions as to the admission of members if the stock exchange concerned is to be the only recognised stock exchange in the area; and the form in which such recognition shall be granted; (c) the particulars which should be contained in the periodical returns and annual reports to be furnished to the Central Government; (d) the documents which should be maintained and preserved under Section 6 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.] 39. The aforesaid provisions of law provide for delisting of the securities and the mechanism to protect the interest of investors. The aggrieved investor can certainly prefer an Appeal before the Securities Appellate Tribunal (SAT) in case he is aggrieved in the matter of delisting of the security. 40. Section 30 of the SCRA empowers the Central Government to frame Rules for carrying on the objects the SCRA, and Rules have been framed which are known as Securities Contracts (Regulation) Rules, 1957. Rule 19 of the said Rules reads as under: 19. Requirements with respect to the listing of securities on a recognised stock exchange. (1) A public company as defined under the Companies Act, 1956, desirous of getting its securities listed on a recognised stock exchange, shall apply for the purpose to the stock exchange and forward along with its application the following documents and particulars: (a) Memorandum and articles of association and, in the case of a deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement containing particulars of any commission, brokerage, discount or other special terms including an option for the issue of any kind of the securities granted to any person. (m) Certified copies of 42 [(i) acknowledgement card or the receipt of filing offer document with the Securities and Exchange Board of India;] (ii) agreements, if any, with the Industrial Finance Corporation, Industrial Credit and Investment Corporation and similar bodies. (n) Particulars of shares forfeited. (o) A list of highest ten holders of each class or kind of securities of the company as on the date of application along with particulars as to the number of shares or debentures held by and the address of each such holder. (p) Particulars of shares or debentures for which permission to deal is applied for: Provided that a recognised stock exchange may either generally by its bye-laws or in any particular case call for such further particulars or documents as it deems proper. (2) Apart from complying with such other terms and conditions as may be laid down by a recognised stock exchange, an applicant company shall satisfy the stock exchange that: (a) Its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... class or kind of equity shares or debenture convertible into equity shares issued by the company, if the post issue capital of the company calculated at offer price is above one lakh crore rupees: Provided that the company referred to in this sub-clause (iv) shall increase its public shareholding to at least ten per cent within a period of two years and at least twenty-five per cent. within a period of five years, from the date of listing of the securities, in the manner specified by the Securities and Exchange Board of India:] Provided that the company referred to in sub-clause (ii) or sub-clause (iii), shall increase its public shareholding to at least twenty five per cent within a period of three years from the date of listing of the securities, in the manner specified by the Securities and Exchange Board of India: Provided further that this clause shall not apply to a company whose draft offer document is pending with the Securities and Exchange Board of India on or before the commencement of the Securities Contracts (Regulation) Third Amendment Rules, 2014, if it satisfies the conditions prescribed in clause (b) of sub-rule (2) of Rule 19 of the Securities Contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers of right, and transfer, renewal, consolidation and split receipts into smaller units, to split call notices, issue duplicates thereof and not require any discharge on call receipts and to accept the discharge of members of stock exchange on split, consolidation and renewal receipts as good and sufficient without insisting on the discharge of the registered holders; (c) when documents are lodged for sub-division or consolidation or renewal through the clearing house of the exchange: (i) to accept the discharge of an official of the stock exchange clearing house on the company's split receipts and consolidation receipts and renewal receipts as good and sufficient discharge without insisting on the discharge of the registered holders, and (ii) to verify when the company is unable to issue certificates or split receipt or consolidation receipts or renewal receipts immediately on lodgement whether the discharge of the registered holders, on the documents lodged for sub-division or consolidation or renewal and their signatures on the relative transfers are in order; (d) on production of the necessary documents by shareholders or by members of the exchange, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uture issue; (n) to notify the stock exchange of any other alteration of capital including calls; (o) to close the transfer books only for the purpose of declaration of dividend or issue of right or bonus shares or for such other purposes as the stock exchange may agree and to give notice to the stock exchange as many days in advance as the exchange may from time to time reasonably prescribe, stating the dates of closure of its transfer books (or, when the transfer books are not to be closed, the date fixed for taking a record of its shareholders or debenture holders) and specifying the purpose or purposes for which the transfer books are to be closed (or the record is to be taken); and in the case of a right or bonus issue to so close the transfer books or fix a record date only after the sanctions of the competent authority subject to which the issue is proposed to be made have been duly obtained, unless the exchange agrees otherwise; (p) to forward to the stock exchange an annual return immediately after each annual general meeting of at least ten principal holders of each class of security of the company along with particulars as to the number of shares or debent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock exchange without affording to the company or body corporate concerned a reasonable opportunity by a notice in writing, stating the reasons, to show cause against the proposed action: [Provided further that where a recognised stock exchange has withdrawn admission to dealings in any security, or where suspension of admission to dealings has continued for a period exceeding three months, the company or body corporate concerned may prefer an appeal to the Securities Appellate Tribunal constituted under Section 15K of the Securities and Exchange Board of India Act, 1992 (15 of 1992), and the procedure laid down under the Securities Contracts (Regulation) (Appeal to Securities Appellate Tribunal) Rules, 2000 shall apply to such appeal. The Securities Appellate Tribunal may, after giving the stock exchange an opportunity of being heard, vary or set aside the decision of the stock exchange and its orders shall be carried out by the stock exchange.] [(6) A recognised stock exchange may, either at its own discretion or shall in accordance with the orders of the Securities Appellate Tribunal under sub-rule (5) restore or re-admit to dealings any securities suspended or withdraw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g equity shares in the home jurisdiction after termination of the depository receipts program(s), within one year of such delisting. 32. Compulsory delisting by a stock exchange. ( 1) A recognised stock exchange may, by a reasoned order, delist equity shares of a company on any ground prescribed in the rules made under the Securities Contracts (Regulation) Act, 1956 (42 of 1956): Provided that no order shall be issued under this sub-regulation unless the company has been given a reasonable opportunity of being heard. (2) The decision regarding the compulsory delisting shall be taken by a panel to be constituted by the recognised stock exchange consisting of (a) two directors of the recognised stock exchange one of whom shall be a public representative; (b) one representative of an investor association recognised by the Board; (c) one representative of the Ministry of Corporate Affairs or Registrar of Companies; and (d) the Executive Director or Secretary of the recognised stock exchange. (3) Before passing an order under sub-regulation (1), the recognised stock exchange shall give a notice in at least one English national newspaper with wide c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) The value of the delisted equity shares shall be determined by the valuer(s) having regard to the factors mentioned in sub-regulation (2) of Regulation 20 of these regulations. (4) The promoter(s) of the company shall acquire the delisted equity shares from the public shareholders by paying them the value determined by the valuer, within three months of the date of delisting from the recognised stock exchange, subject to the option of the public shareholders to retain their shares. (5) The promoter shall be liable to pay interest at the rate of ten percent per annum to all the shareholders, who offer their shares under the compulsory delisting offer, if the price payable in terms of sub-regulation (3) is not paid to all the shareholders within the time specified under sub-regulation (4): Provided that in case the delay was not attributable to any act or omission of the acquirer or was caused due to the circumstances beyond the control of the acquirer, the Board may grant waiver from the payment of such interest. 34. Consequences of compulsory delisting. ( 1) Where a company has been compulsorily delisted under this Chapter, the company, its whole-time dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Securities Appellate Tribunal. 23L. (1) Any person aggrieved, by the order or decision of the recognised stock exchange or the adjudicating officer or any order made by the Securities and Exchange Board of India under section 4B, may prefer an appeal before the Securities Appellate Tribunal and the provisions of sections 22B, 22C, 22D and 22E of this Act, shall apply, as far as may be, to such appeals. (2) Every appeal under sub-section (1) shall be filed within a period of forty-five days from the date on which a copy of the order or decision is received by the appellant and it shall be in such form and be accompanied by such fee as may be prescribed: Provided that the Securities Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period. (3) On receipt of an appeal under sub-section (1), the Securities Appellate Tribunal may, after giving the parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against. (4) The Securities Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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