securities appellate tribunal, mumbai

Securities Appellate Tribunal, Mumbai: An appeal was filed by the appellant challenging the order of Securities and Exchange Board of India (‘SEBI’) dated 15-12-2022 whereby the representation in the matter of scheme of amalgamation/ arrangement between Indiabulls Real Estate Limited and Embassy Group Companies was decided. Justice Tarun Agarwala (Presiding Officer) and Meera Swarup (Technical Member) held that the appellant has no locus to file the appeal as he is not an aggrieved person for having approached an appropriate forum before the NCLT, Chandigarh it was no longer open to the appellant to pursue the same grievance before another forum, namely, before SEBI.

Indiabulls Real Estate Limited (Respondent 2) issued a corporate announcement on 31-01-2020 intimating the merger of Indiabulls and Embassy One Commercial Property Developments Pvt. Ltd. Subsequently, on 18-08-2020, Indiabulls made a disclosure to Stock Exchange informing that the Board of Directors had approved a proposal of merger of NAM Estates Pvt. Ltd. (Respondent 3) and Embassy One Commercial Property Developments Pvt. Ltd. (Respondent 4) with Respondent 2. A draft scheme of arrangement was filed before the Bombay Stock Exchange and the National Stock Exchange of India Limited on 16-02-2021 for obtaining a no objection certificate which was later forwarded to SEBI.

The scheme of arrangement was approved by the shareholders and NCLT, Bengaluru however, NCLT Chandigarh rejected it one person purchased 20,100 equity shares of Indiabulls between March 2021 – March 2022, thus becoming a shareholder but did not participate in the meeting of the shareholders. This person filed an intervention application later before NCLT Chandigarh on the ground that he did not meet the threshold limit of 10% of the shareholding for raising objection as stipulated under the proviso to Section 230(4) of the Companies Act, 2013.

While an intervention application was filed and heard and representation was filed by the shareholder and heard by SEBI, DD sold his shareholding in Indiabulls to the appellant on 08-12-2022 by means of a share purchase agreement. The appellant has filed the present appeal challenging the order of SEBI by which DD’s representation was rejected contending that he has stepped into the shoes of the erstwhile complainant and has a right to continue with the litigation.

Issue: The issue under consideration is whether the appellant is an aggrieved person as provided under Section 15T of the SEBI Act.

The Court noted that by purchasing the shares from the shareholder, the appellant becomes a shareholder of the Company and derives such rights which a shareholder of a Company gets but such right does not include the right to litigate or to continue with the complaint. Thus, the transfer of shares from the shareholder to the appellant does not and cannot include the transfer of a cause of action. The complaint is personal and comes to an end when the shareholder transfers the shares.

The Court further noted that on perusal of Section 230 of the Companies Act, 2013 and Regulations 11, 37 and 94 of the LODR Regulations as well as the Circular of SEBI dated 10-03-2017, it does not contemplate the encroachment of NCLT’s exclusive authority to sanction or reject the given scheme of arrangement. SEBI’s/ Stock Exchange’s role is limited to issuing observation/ no objection letter to any proposed scheme of arrangement to the extent that the draft scheme of arrangement violates or does not violate any provisions of the securities laws.

The Court observed that it is not open to a shareholder to complain about the scheme of arrangement before the SEBI or to the Stock Exchange nor is it open to the shareholder to make a representation and /or file an appeal before this Tribunal under Section 15T of the SEBI Act. If a shareholder is aggrieved by the scheme of arrangement the remedy available is to object when the matter is placed for consideration before the shareholders of the Company and, thereafter, may object before NCLT under Section 230(4) of the Companies Act. Thus, the contention that the scheme of arrangement is regulated by SEBI under the LODR Regulations is patently erroneous and cannot be accepted.

On the aspect of doctrine of election, which means when two remedies are available for the same relief, the aggrieved party has the option to elect either of them but not both. The Court noted that when the shareholder had approached an appropriate forum before the NCLT, Chandigarh it was no longer open to the shareholder or to the appellant to pursue the same grievance before another forum, namely, before SEBI. Thus, the shareholder and or the appellant could not pursue the grievance before SEBI.

The Court held that that the appeal is not maintainable in as much as the appellant is not an aggrieved person. The preliminary objections raised by the respondents are allowed, as a result of which the appeal is dismissed as not maintainable.

[Tejo Ratna Kongara v. SEBI, 2023 SCC OnLine SAT 290, decided on 05-07-2023]

Advocates who appeared in this case :

Mr. Somasekhar Sundaresan, Advocate with Mr. Robin Shah and Mr. Udaysingh Kashid, Advocates i/b Bodhi Legal for the Appellant;

Mr. Gaurav Joshi, Senior Counsel with Mr. Ravishekhar Pandey, Ms. Shefali Shankar and Ms. Rasika Ghate, Advocates i/b. MDP & Partners for the Respondent 1;

Mr. Darius Khambata, Senior Advocate with Mr. Karan Rukhana, Mr. Deepak Dhane and Ms. Aneri Shah, Advocates i/b. Corporate Pleaders, Advocates for the Respondent 2;

Mr. Pesi Modi, Senior Advocate with Mr. Tomu Francis, Mr. Kunal Katariya, Ms. Zarnaab Aswad and Mr. Apoorva Upadhyay, Advocates i/b Khaitan & Co. for the Respondent 3 and 4.

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