Calcutta High Court

India Power Corporation Ltd & Dpsc ... vs Unknown on 7 February, 2023

                          IN THE HIGH COURT AT CALCUTTA
                              ORIGINAL JURISDICTION
                                  ORIGINAL SIDE

BEFORE:
The Hon'ble Justice Ravi Krishan Kapur


                                    IA NO. CA/5/2022
                                     In CP/206/2012

                               IN THE MATTER OF :
                     INDIA POWER CORPORATION LTD & DPSC LTD

                                    IA NO. CA/4/2021
                                     In CP/206/2012

                               IN THE MATTER OF :
                     INDIA POWER CORPORATION LTD & DPSC LTD

For the petitioner              : Mr. Ratnanko Banerjee, Senior Advocate
                                  Mr. D. N. Sharma, Advocate
                                  Mr. S. Mandal, Advocate

For the respondent              : Mr. Sourojit Dasgupta, Advocate

For SEBI                        : Mr. Tilok Bose, Senior Advocate
                                  Mr. Prasanta Kr. Dutta, Advocate
                                  Mr. Rupak Ghosh, Advocate
                                  Mr. S.K. Dutt, Advocate
                                  Mr. Syamantak Banerjee, Advocate

Reserved on                     : 04.11.2022

Judgment on                     : 07.02.2023

Ravi Krishan Kapur, J.

By consent of the parties both these applications were heard analogously.

CA/4/2021

1. This is an application filed by the Securities and Exchange Board of India

(SEBI) seeking the following reliefs:-

(a) Leave of the Court may be granted that apart from the divestment process being adopted by the Trust and in case the

Trust is unable to meet the MPS compliance, the Company/its Promoter(s) /Promoters Group/Directors may also be directed to meet the MPS requirements.

(b) To allow SEBI to take necessary action against the Company/its Promoter(s) /Promoters Group/Directors as per the provisions /methods available under Securities Laws in order to meet the MPS requirements.

(c) Ad-interim order in terms of prayers above.

(d) Pass such other order or orders and/or direction/directions as Your Lordship may deem fit and proper.

2. Briefly, by an order dated 17 April, 2013 a scheme of amalgamation was

sanctioned by this Court whereby the demerged company Indian Power

Corporation Limited (IPCL) was transferred to Power Trust (the Trust), an

irrevocable investment Trust and the residual undertaking of the

demerged company was merged with Dishergarh Power Supply

Corporation Limited (DPSC), the resulting company. Prior to

amalgamation, IPCL owned approximately 93% shares in DPSC which

had subsequently been transferred to the Trust. Thereafter, under the

scheme, the investment division of IPCL was transferred to DPSC.

3. It is alleged that, the scheme sanctioned by this Court (in particular

clause 3.3.3 of the scheme), violates the mandatory stipulations that all

listed companies must have at least 25% of its shares held by the public.

This is also in violation of inter alia the Securities Contract Regulation

Act, 1956 and the Securities Contract Regulation Rules, 1957. For

convenience, clause 3.3.3 of the scheme provides as follows:

"As the Trustees will hold the Investment Division in an irrevocable trust and shall be managing the Investment Trust in an independent manner, the Trustees shall constitute members of 'public' as defined under the Securities Contracts (Regulation) Rules, 1957, in relation to any and all investments held by the Investment Trust."

4. By an order dated 27 January, 2017, the Court had directed the Trust to

cause a public auction for sale of 32,63,16,563 shares. Thus, the Trust

was directed to offload part of its shareholding in the market so that

there be compliance with the mandatory requirement of having 25% of

its shareholding with the public. Thereafter, in a proceeding filed by the

independent directors of DPSC before the Securities Appellate Tribunal

being Appeal No. 275 of 2017, the Tribunal had directed the applicants

to approach this Court for appropriate reliefs.

5. This application has been filed seeking modification of the order dated 27

January, 2013. It is alleged that the modification is required in view of

the fact that, notwithstanding the order dated 27 January, 2017, the

Trust has failed to offload the entire shares.

6. On behalf of the Trust it is contended that, despite efforts, the Trust has

been unable to sell the shares for reasons beyond their control. Hence,

the time to comply with the order dated 27 January 2017 be extended.

7. The amended Rule 19(2)(b) and the newly introduced 19(A) of the

Securities Contracts (Regulations) Rules 1957 (SCRR) provide as follows:

Requirements with respect to the listing of securities on a recognized stock exchange.

19(2) .............

(b) (i) At least twenty find per cent of each class or kind of equity shares or debentures convertible into equity shares issued by the company was offered and allotted to public in terms of an offer documents; or

(ii) At least ten per cent of each class or kind of equity shares or debentures convertible into equity shares issued by the company was offered and allotted to public in terms of an offer document if the post issue capital of the company calculated at offer price is more than four thousand crore rupees:

Provided that the requirement of post issue capital being more than four thousand crore rupees shall not apply to a company whose draft offer document is pending with the Securities and Exchange Board of India or

before the commencement of the Securities Contracts (Regulation) (Amendment) Rules, 2010, if it satisfies the condition as prescribed in clause (b) of sub-rule 2 of rule 19 of the Securities Contracts (Regulation) Rules, 1956 as existed prior o the date of such commencement:

Provided further that the company, referred to in sub clause (ii), 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.

Continuous Listing Requirement.

19A. (1) Every listed company [other than public sector company] shall maintain public shareholding of at least twenty five per cent:

Provided that any listed company which has public shareholding below twenty five per cent, on the commencement of the Securities Contracts (Regulation) (Amendment) Rules, 2010, shall increase its public shareholding to at least twenty five per cent, within a period of three years from the date of such commencement, in the manner specified by the Securities and Exchange Board of India.

Explanation: For the purposes of this sub-rule, a company whose securities has been listed pursuant to an offer and allotment made to public in terms of sub-clause (ii) of clause (b) of sub-rule (2) of rule 19, shall maintain minimum twenty five per cent public shareholding from the date on which the public shareholding in the company reaches the level of twenty five per cent in terms of said sub-clause.

(2) Where the public shareholding in a listed company falls below twenty five per cent at any time, such company shall bring the public shareholding to twenty five per cent within a maximum period of twelve months from the date of such fall in the manner specified by the Securities and Exchange Board of India.

(3) Notwithstanding anything contained in this rule, every listed public sector company shall maintain public shareholding of at least ten per cent.:

Provided that a listed public sector company-

(a) Which has public shareholding below ten per cent, on the date of commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2010 shall increase its public shareholding to at least ten per cent, in the manner specified by the Securities and Exchange Board of India, within a period of three years from the date of such commencement;

(b) Whose public shareholding reduces below ten per cent, after the date of commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2010 shall increase its public shareholding to at least ten per cent, in the manner specified by the Securities and Exchange Board of India, within a period of twelve months from the date of such commencement,.

8. The scheme which has been sanctioned is in violation of inter alia the

provisions of The Securities Contract Regulation Act, 1956 and The

Securities Contract Regulation Rules, 1957. By virtue of the scheme, the

Trust has been made to constitute members of the public. The public

shareholding excluding the shares of held by the Trust was only 7%. The

classification of the Trust as a public shareholder is ex facie perverse and

contrary to law. This is a blatant attempt to circumvent the mandatory

compliance. By an order dated 27 January, 2017, the Trust had been

directed to offload 32,63,16,563 shares. Thereafter, by an order dated

August 25, 2017 the time to complete the sale was further extended by

31 December 2017. Admittedly, the sale of the shares has not yet been

completed. This position has been continuing since 27 January, 2017. It

is submitted on behalf of the Trust that though some shares aggregating

to 25,71,398 shares have been sold in terms of the order dated 27

January 2017, the Trust has been unable to sell the remaining shares.

The grounds for being unable to sell the shares are immaterial. The

responsibility for ensuring minimum public shareholding in terms of

Rules 19(2)(b) and 19(A) of the SCRR is on the "listed entity". In order to

ensure equitable participation in the affairs of a listed company, and a

level playing field it is mandatory that the promoter/promoter group of

such companies ensure compliance with the public shareholding

requirement.

9. As a last chance, the time to sell the shares in terms of the order dated

27 January, 2017 stands peremptorily extended by a period of 3 (three)

months from date. In default of effecting the aforesaid sale, there shall be

an order in terms of prayers (a) and (b) of the Judge's Summons.

10. With the aforesaid directions, CA/4/2021 stands disposed of.

CA/5/2022

1. CA 5 of 2022 had been filed by the Trust praying for the following reliefs:

a) Leave be granted to file this application with short cause title;

b) Leave be granted to serve the instant application on Ashika Stock Broking Limited, having its registered office at Trinity, 226/1, A.J.C. Bose Road, 7th Floor, Kolkata-700020;

c) An order be passed directing Ashika Stock Broking Limited, having its registered office at Trinity, 226/1, A.J.C. Bose Road, 7th Floor, Kolkata- 700020 to immediately change the signatories of the Dematerialized Account of the Trust having client ID 10029842 and DP ID IN303591 pursuant to the change in the Trustees.

2. The applicant seeks directions on the Depository Participant engaged by

the Trust, namely Ashika Stock Broking Limited to change the names of

the Dematerialized Account maintained by the Trust.

3. It is submitted by the depository participant that they have no objection

in changing the signatories to the dematerialized account of the Trust.

4. On behalf of SEBI, it is submitted that this application is misconceived

and not maintainable. It is also contended that there is collusion by and

between the applicant and Ashika.

5. I find that the reliefs sought for in this application are beyond the scope

of these proceedings. The arrangement between the applicant and the

Trust is a private arrangement and outside the scope of this proceeding.

There is also a pending Civil Suit being Money Suit No.23 of 2022