While SEBI has sought to encroach upon the scheme territory through amendments to the listing agreement introduced in 2003 and through two circulars issued in 2013, the position remains unclear. Its attempt to establish jurisdiction over a scheme of arrangement more recently resulted in a lack of success before the Bombay High Court this month.
Before dealing with the recent ruling, a discussion of the previous position would be in order. The question of SEBI’s jurisdiction over a scheme of arrangement came up for the first time in Securities and Exchange Board of India v. Sterlite Industries Ltd., (MANU/MH/0339/2002). When SEBI appealed against a scheme of arrangement and reduction of capital, a division bench of the Bombay High Court refused to recognise any power of SEBI in representing itself before the court (a power that it sought to undertake with a view to safeguarding the interest of the investors).
For the major part, the Bombay High Court relied on its previous division bench judgment in Sterlite Industries (discussed above). As decided in that case, SEBI did not have the locus standi to challenge a scheme under the Companies Act. Although the Sterlite Industries decision went on appeal to the Supreme Court, it refused to interfere in the matter and left the substantive issues open. Accordingly, in this case the court found no reason to doubt the binding nature of Sterlite Industries. Although SEBI sought to exercise its wide scope of powers that were recognised by the Supreme Court in Sahara India Real Estate Corporation Ltd. v. SEBI ((2013) 1 SCC 1), it was not found to have overruled the decision in Sterlite Industries.
Going forward, the situation is clearer. Under the Companies Act, 2013, the notice of the scheme is required to be sent by the company to various authorities, including SEBI (section 230(5)), who are entitled to make representations before the court. Hence, SEBI’s right of audience before the court is explicit. Of course, this provision is yet to come into force, due to which SEBI will be compelled to navigate through the current system in the near future. The bottom-line from SEBI’s perspective appears to be: raise objections to the scheme before the court sanctions it, or never.
Posted: 25 Sep 2015 07:01 PM PDT
[The following guest post is contributed by Shashank Prabhakar, a Senior Associate with Finsec Law Advisors. These are the author’s personal views]
The Whole Time Member of SEBI (‘WTM’) recently passed an orderagainst certain relatives of Mr. Ramalinga Raju and entities belonging to the promoter group of Satyam Computers for violation of Section 12A of the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’), Regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (‘PFUTP Regulations’) and Regulation 3 of the SEBI (Prevention of Insider Trading) Regulations, 1992 (‘PIT Regulations’). The order was passed under Section 11(1), 11(4) and 11(B) of the SEBI Act.