HIGH COURT OF DELHI
Securities & Exchange Board of India
versus
A.P.L. Industries Ltd.
W.P.(C) NO. 1261 OF 2002
JANUARY 14, 2013
ORDER
1. This writ petition has been filed to assail the order of the Securities Appellate Tribunal (in short SAT) dated 18.10.2010.
2. It may be pertinent to note that by the said order, SAT has reversed the order dated 22.05.1998 passed by the Chairman, Security and Exchange Board of India (in short SEBI).
3. The challenge arises in the background of the following facts, most of which are not in dispute :-
3.1 Respondent no. 1/company had floated a prospectus for a public issue of 30 Lakhs equity shares of a face value of Rs. 10/- each, for cash at par aggregating to a total sum of Rs. 3 Crores. The public issue opened on 26.02.1996. The closing date for the issue was 08.03.1996.
3.2 Against the aforementioned public issue, respondent no. 1/company received 51,37,100 applications by the date of closure i.e., 08.03.1996.
3.3 Evidently, there were certain withdrawals as well as rejection of the share applications filed with the Registrar to the Share Issue (in short the Registrar). Undisputedly 23,13,800 share applications were withdrawn, while 3,25,700 share applications were rejected on one ground or the other by the Registrar. Two important facts emerged by virtue of the aforesaid events.
3.4 First, that on the date of closure i.e., 08.03.1996, the public issue of respondent no. 1/company was over-subscribed by almost 1.71 times. However, if the rejected share applications were taken into account which, as indicated above, numbered 3,25,700, on the date of closure i.e., 08.03.1996 the public issue was over-subscribed by 1.60 times as against 1.71 times, if all application forms were taken into account.
3.5 Second, if, however, the share applications in respect of which request for withdrawal had been received from the applicants were taken into account the subscription to the public issue of respondent no.1 fell to 94% of the total public issue. Similarly, if both the rejected share applications and the request for withdrawal of share applications was taken into account, the subscription to the public issue fell to 83% of the total public issue made by respondent no.1/company.
4. It is in the background of these undisputed facts that the issue which arises for consideration is whether the SEBI was right in directing refund of the entire share application amount since, according to SEBI, respondent no. 1/company had not been able to achieve the minimum subscription as provided in its prospectus.
4.1 It may be relevant, therefore to, extract the minimum subscription clause as contained in the prospectus :-
“..Minimum Subscription
If the company does not receive the minimum subscription amount of 100% of the issue as application money till the closure of the issue, the company shall forthwith refund the entire subscription amount received. If there is a delay in refund of the amount collected, the company and the directors of the company shall be jointly and severely liable to repay the amount by way of refund with interest at the rate of 15% per annum for the delayed period beyond 78 days from the opening of the issue…”
4.2 As would be evident respondent no. 1/company was thus required to achieve a minimum subscription of 100% of the issue as the application money till the closure of the issue, failing which it was required to refund the entire subscription amount received from the applicants for allotment of shares.
4.3 Continuing with the narrative, the request for withdrawal of share application had been received by the Registrar between 08.03.1996 to 14.05.1996. Since the subscription had dropped to 83% of the total share issue, the lead Manager to the public issue, issued a certificate stating therein, inter alia, that respondent no. 1/company had failed to achieve minimum subscription. It may be pertinent to note that the lead Manager to the Share issue was one, Allianz Capital and Management Services Limited.
4.4 Based on the aforesaid events, SEBI shot of a communication dated 07.06.1996, whereby it advised respondent no. 1/company to immediately refund the share application money to the concerned applicants, and file a status report with it, latest by 12.06.2012. Respondent no. 1/company was also put to notice that if it failed to do the needful, SEBI would be constrained to take action against it, in accordance with the provisions of the Securities & Exchange Board of India Act, 1992 and the Companies Act, 1956 (in short the Companies Act). It may also be pertinent to note that in this very communication of 07.06.1996, there was a discussion as to the applicability of the provisions of Section 72(5) of the Companies Act. SEBI seems to have indicated in the said communication that, the applicant(s) who were desirous of being allotted shares, could withdraw their application after the expiry of the 5th day from the opening of the subscription list. A reference was also given to a previous precedent wherein SEBI had come to the same conclusion. A copy of the said appellate decision, in the case of Vishwalaxmi Petro Products Limited, was also, evidently furnished to respondent no.1/company.
4.4.1 It appears that being aggrieved, respondent no.1/company filed an appeal with SAT which, by an order dated 20.11.1996, rejected the appeal on the ground that the order impugned was not appealable as it was not an order passed under the provisions of the SEBI Act. Respondent no.1/company was thus permitted to approach the Chairman of the SEBI for redressal of its grievance.
4.5 Accordingly, respondent no. 1/company approached the Chairman of the SEBI who by an order dated 22.05.1998 directed respondent no. 1/company to refund the monies received from the applicants against the public issue.
4.6 It is this order which was assailed by respondent no.1/company before SAT. As indicated above, SAT by virtue of the impugned order dated 18.10.2000 reversed the order of the Chairman of SEBI dated 22.05.1998. It may only be recorded as a matter of fact that prior to approaching SAT respondent no.1/company had approached the High Court of Punjab and Haryana which in effect directed it to SAT, vide its order dated 14.10.1999 passed in CWP 10811/1998.
4.7 This resulted in SEBI being aggrieved by the order of SAT and hence chose to take recourse to a writ petition. For this purpose, a writ petition was filed in the Bombay High Court, wherein respondent no.1/company raised a preliminary objection with regard to the territorial jurisdiction, whereupon SEBI withdrew its writ petition, with liberty to approach the appropriate court. This order was passed on 09.01.2002.
4.8 Importantly, in the interregnum, the Bombay High Court had passed an order on 11.05.2001, whereby the bankers to the issue were restrained from making over moneys to respondent no.1/company.
5. It is in this background that the captioned writ petition has been filed in this court, by SEBI. The captioned writ petition was moved on 20.02.2002, when this court while issuing notice issued a similar ad interim direction, which was passed by the Bombay High Court, in effect, restraining the bankers to the issue from releasing payment to respondent no. 1/company.
6. Pleadings in the writ petition are complete. There is no appearance on behalf of respondent no. 1/company today in court. However, in pursuance to the directions issued by this court, written synopsis have been filed on behalf of the parties including respondent no. 1/company.
6.1 The sum and substance of the respondent no.1/company’s defence is as follows :-
