Brijesh Singh Bhadauriya vs NSE and Ors.
Appeal No. 671 of 2022
Facts:
1.Appellant is a shareholder of Sintex which company became insolvent and was admitted to CIRP vide order dated 06.04.2021. A resolution plan was submitted by Reliance Industries Ltd. jointly with Asset Care and Reconstruction Enterprises Ltd. which was duly approved by the Committee of Creditor members (hereinafter referred to as ‘CoC’) in accordance with Section 30(4) of the IBC read with Regulation 39(3) of the Corporate Insolvency Resolution Process Regulations, 2016.
2.Approval of plan was subject to further approval of NCLT. CoC’s approval was communicated by the Company Secretary of the company under the provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 March 20, 2022 to the two stock exchanges, namely, NSE and BSE for information. The Company Secretary also informed that the resolution plan proposed that the existing shares capital of the company would be reduced to zero and the company would be delisted from the stock exchanges.
3.A circular dated 21.03.2022 was issued by the NSE and BSE whereby trading in the securities of Sintex Industries Ltd was suspended wef 22.03.2022. Appellant is challenging the order.
Issue: Whether order passed by the stock exchanges is in accordance with SCRA?
Arguments:
For appellants: It was submitted that appellant being a shareholder and being aggrieved by the suspension of the trading of the shares of the company, wrote various emails to the two stock exchanges and when no action was taken a complaint was made before Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) on the SEBI Complaints Redress System (hereinafter referred to as ‘SCORES’) platform. The said complaint was disposed of on July 14, 2022 and thereafter the present appeal was filed
For respondents: Counsel for NSE submitted that the present appeal may not be treated an adversary litigation and that the respondents are only assisting the Tribunal so that a clear picture emerges in the peculiar facts and circumstances of the present appeal.
Decision: Order passed by the Stock exchanges is not in accordance with law.
Rationale:
1.SAT relying on section 9 of the Securities Contract (Regulation) Act and Rule 19(5) of the Securities Contracts (Regulation) Rules, 1957 noted that recognized stock exchanges may suspend dealings in the securities of a company but such action can only be taken after offering a reasonable opportunity of notice in writing and stating the reasons to show cause against the proposed action.
2. It relied on the amendment made in the LODR Regulations especially in Part A of Schedule III was mandated to a listed company to make disclosures at various stages where companies were undergoing CIRP. The amendment in 2021, further enhanced the disclosure requirements. These amendments were done, as in the past it was found that when the resolution plan was approved and it provided for delisting of the company or cancellation of its existing shares without any payout consideration to the existing shareholders, it was noticed that there was a considerable time lag between the pronouncement of the oral order of the NCLT and final order by the NCLT and that companies were found to hold on to the information and were not making timely disclosures to the stock exchanges.
3.It noted that before suspending the trading of the securities of the company, the stock exchange is first required to issue a notice and give an opportunity to comply with the provisions and only upon failure the stock exchanges could proceed to suspend the trading of the securities after due publication of the notice to suspend the trading of the securities of the company.
4.Prior to the passing of the resolution plan by the Tribunal, the stock exchange has no power to suspend the trading on the sole basis that the resolution plan has been approved by the CoC. It noted that provision under which trading is being suspended is is not applicable in as much as the discretion to suspend trading in securities is only upon noncompliance of the requirements contained in relevant listing agreement or Regulations prescribed by SEBI and such other conditions issued from time to time.
5.Further, the suspension of trading can be done only in accordance with Section 9 of the SCRA read with the Bye-laws of the stock exchange, the SOPs issued by SEBI and the conditions imposed under the LODR Regulations. It held that merely because resolution plan if approved may provide for delisting of the company or the existing equity shares could be cancelled does not debar the existing shareholders from offloading their shares in the market.
6.Even if after knowing that the company is under an insolvency process and there is a likelihood of cancellation of the shares of the company, it is a risk, which the investors would take while trading in the shares of the company. The principles of “caveat emptor” becomes fully applicable.
Order:
