IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH JAIPUR. ORDER (1)S.B.Company Application No.69 of 2007 In S.B.Company Petition No. 23 of2005 (2)S.B. Company Appl. No.25 of 2008 In S.B.Company Appl. No.69 of2007 In S.B. Company Petition No. 23 of2005 IN THE MATTER OF THE COMPANIES ACT 1956 AND IN THE MATTER OF SECTION 391 AND SECTION 394 OF THE COMPANIES ACT 1956 AND IN THE MATTER OF SCHEME OF ARRANGEMENT BETWEEN Shyam Telecom Limited ....... Petitioner Company No.1 Shyam Telecom Manufacturing Limited ....... Petitioner Company No.2 Shyam Telelink Limited ....... Petitioner Company No.3 Shyam Basic Infrastructure Projects Private Limited. ....... Petitioner Company No.4 Date of Order : August 7, 2008 P R E S E N T HON'BLE MR. JUSTICE SHIV KUMAR SHARMA Mr. Paras Kuhad )for the applicant Mr. Manish Priyadarshi) Mr.Bajrang Lal Sharma, Sr. Advocate with Mr. Lokesh Atrey for objector respondent. Mr. A. Sibbal,Mr R.K.Slecha for Mr. Ricky Mathur, objector. Mr.Suresh Sahani, Mr. S. Joshi for Mr. Rajesh Kumar objector Mr. Anil Mehta for Mr. Vijay Singhvi, objector Mr. Guru Krishna Kumar for Gautam Sharma objector Mr. Manish Sharma and Mr. Amod Kasliwal for Regional Director Northern Region. BY THE COURT The applicant company seeks to delete clause 3.7 of Part III of the approved Scheme of Arrangement between Shyam Telecom Limited, Shyam Telecom Manufacturing Limited, Shyam Telelink Limited, and Shyam Basic Infrastructure Projects Private Limited, and for consequential modifications therein so as to get the waiver from the requirement of listing of the shares of the Company and further to allow the promoters to come out with the open offer to the public shareholders of the company to purchase their shares. The applicant companies earlier filed S.B. Company Petition No.23 of 2005 before this Court and this Court allowed the petition and sanctioned the scheme of arrangement in terms of prayer clauses (a) to (c) of the petition. 2. Clause 3.7 of Part III of scheme reads as under : 3.7 All the equity shares of the STLL as on the Transfer date, including any further shares issued by STLL, shall be listed and/ or admitted to trading on National Stock Exchange (NSE) and/ or Bombay Stock Exchange (BSE). NSE and BSE shall list the shares of STLL and listing of said shares on NSE and BSE shall be considered as due compliance of the provisions of the SEBI (Disclosure and Investor Protection ) Guidelines, 2000 and other applicable provisions of law. 3. The directions issued by this Court in so far as they related to clause 3.7 of the Scheme have not been carried out by either of the two Stock Exchanges. As a result thereof the Equity shares of STLL have neither been listed nor been admitted to trading on Bombay Stock Exchange (BSE) and/ or National Stock Exchange (NSE). 4. In accordance with the terms of the Scheme read with 'no objection' communication issued by BSE and NSE, the company took following steps : (a) Filed the necessary listing application to the Stock Exchanges on 10.8.2006. (b) Filed application to the SEBI through BSE for relaxation from Rule 19(2)(b) of Securities a Contract (Regulation) Rules, 1957. (c ) On 21.9.2006 filed a revised application to SEBI for relaxation of Rule 19 (2)(b). (d) On 27.10.2006 submitted application to the BSE seeking relaxation of lock in period of promoters shareholding. This application was made in response to the letter dated 18.10.2006 wherein the BSE observed that the company had not provided confirmation for lock in shares as required under clause 8.3.5.1 ( viii) (b) of SEBI (DIP) Guidelines, 2000. (e) Again on 6.3.2007 filed application for relaxation from Rule 19(2)(b). (f) On 7.3.2007 the Company filed an undertaking with BSE in relation to lock in requirements of shares. (g) Again on 8.3.2007 the company submitted grounds for relaxation from Rule 19(20(b). (h) Finally on 19.9.2007 the company addressed a communication to BSE requesting it to clarify the listing status of the shares. The applicant company in the application submitted that the grant of Listing under the Scheme was contingent upon following principle factors : (i) Grant of relaxation by SEBI from Regulation 19(2)(b) of Securities Contract ( Regulations ) Rules, 1957. (ii) Final exercise of the discretion by Stock Exchanges in favour of grant of listing through automatic Listing route, which was to be inter alia contingent upon the final determination on the part of BSE, NSE and SEBI about : (a) Applicability of clause 8.3.5.1 of SEBI (DIP) Guidelines 2000 to the facts of the present case. (b) Fulfillment of conditions of 8.3.5.1 of SEBI (DIP) Guidelines 2000. (c) Fulfillment of the conditions that were set out under the 'No objection' communications issued by NSE and BSE. (d) Carrying out of necessary procedural formalities on the part of the Company and the promoters. 5. The applicant company submitted that despite company and promoters having already carried out all the obligations, BSE and NSE neither carried out the Listing of the shares of STLL nor admitted the same to trading, principally for the reason that neither the Stock Exchanges nor SEBI have so far found a final opinion that the Scheme is covered under the Scope of the Arrangements envisaged under clause 8.3.5.1 of the SEBI (DIP) Guidelines 2000 and thus they are entitled to the benefit of automatic listing. The further case of the applicant is that despite application in terms of Regulation 19(2)(b) of the Regulations having been submitted on 10.8.2006 to SEBI through BSE and despite repeated reminders to the BSE to pursue the matter with SEBI to grant necessary relaxation in terms of Regulation 19(2) (b), the BSE neither secured the necessary relaxation from SEBI nor has issued any communication indicating the reasons for its failure to grant such relaxation. 6. The applicant company keeping in view the concerns expressed by the share holders through their representations an agenda item was placed before the share holders to discuss and consider the waiver of the listing requirements as provided under the approved scheme in the Annual General Meeting (AGM) of the Company held on December 12, 2007. In the said AGM, it was resolved by the shareholders that instead of taking recourse to the litigation for getting the company's share listed on automatic option, the company should apply to the High Court for waiver of listing under automatic option and that the promoters should make an open offer to public shareholders for purchase of their holding as a purchase value that is determined by the Experts. Listing of shares of STLL was contemplated under the Scheme with a view to provide liquidity to the shareholders. On account of SEBI's taking different view with respect to applicability of clause 8.3.5.1. of SEBI (DIP) Guidelines, 2000, the liquidity through listing route has become a distinct possibility. To that extent the Scheme has become unworkable. The applicant company submitted that the promoters decided to purchase shares from the public shareholders and further they would make suitable offer to purchase the shares from the public shareholders at any stage after filing of this application. The applicant in these circumstances pray for deletion of clause 3.7 of part III of the approved scheme of arrangements and consequential modifications therein so as to get the waiver from the requirement of listing of the shares of the company. During the pendency of this application a further application was moved for granting permission to the company to raise capital up to the extent of Rs. 2,500.00 crores (rupees two thousand five hundred crores) by way of allotment of equity. This Court vide order dated January 25, 2008 subject to final outcome of application under section 392 of the Companies Act allowed the company to raise capital in accordance with law. 7. Earlier to it on September 25, 2007 the promoters of the Company transferred their 10% stake in the Company to SISTEMA for a total consideration of USD 11.4 million and on January 17, 2008 additional 41% shareholding of STLL was transferred to SISTEMA and on May 29, 2008 further 21 % of shareholding of STLL was given to SISTEMA raising the total shareholding of SISTEMA to 72 %. 8. This application was filed on December 14, 2007. On December 17, 2007 Mr. Rohoit Mathur and Mr. Ricky Mathur, two shareholders of STLL, entered into caveat. This Court issued notice of this application to Regional Director (Northern Region) and also supplied copy of this application to caveators on January 11, 2008. REGIONAL DIRECTOR NORTHERN REGION'S SUBMISSIONS : 9. The Regional Director in response to the notice of this application filed detailed affidavit. In the affidavit it was pointed out that several complaints were received by Ministry of Corporate Affairs New Delhi from M/s. Jindal Securities Pvt. Ltd., M/s Citizen Welfare Association and Shri S.C. Gupta regarding non- listing of shares. The Registrar of Companies called for explanation of STLL on account of several complaints received by it. It was pointed out that the SEBI sent letter to NSE and BSE that the company prima facie was not eligible for relaxation from rule 19(2) (b). In relation to resolution to modify the scheme the company stated that the allegations made by the minority are not correct. In pursuance to the order of this Court the company was required to get its share listed by keeping 25% of shares for the public in compliance with the listing requirements. The company had failed to do so and thereby the shareholders have been forced to remain shareholders of this unlisted company affecting the liquidity. The company has not disclosed the agreement entered into with the SISTEMA and the price at which promoters have sold their shares to SISTEMA should be made public to protect the interest of minority shareholders. The views of SEBI may be called, if deemed fit by this Court. 10. Mr. Ricky Mathur and Mr. Rohit Mathur, shareholders also filed objections. Mr. Yogesh Sanghvi, HUF, one of the share holders filed application seeking impleadment as a party. OBJECTION BY RICKY MATHUR 11. Mr. Ricky Mathur a Minority shareholder averred that the STL shares were traded at Rs.10. That the shareholders of STL only got Rs.3.5 and while that part is listed, the remaining balance of Rs.6.5 covered by the transfer of shares is not listed and hence cannot be traded in the equity market. Listing was a pre-requirement for their assent. It was the ‘linchpin’ of the scheme. Also it would enable the shareholders to sell their shares. The investors would be at the mercy of the promoters in the event of STLL not being listed. The shareholders should continue to have an ‘exit option’. Technical objection as to the fact that the post scheme public shareholding was initially 19.93% is and much less, after the infusion of new capital, cannot be the basis for non-listing of shares. The company be directed to adopt any alternative route so as to get the shares listed eventually in a reasonable period. The pre-scheme burden of the company is Rs.500 crores but the company will be debt free after the scheme and thus the induction of the investor and the subsequent steps taken including the fund infusion in the interest of the shareholder. STLL has not challenged SEBI’s direction before this Hon’ble Court. They want to maintain the exit option and have no intention of questioning the scheme or standing in the way implementati9on of the Company’s business plan. OBJECTIONS BY GAUTAM SHARMA : 12. Mr. Gautam Sharma averred that the scheme envisaged growth of both the Company and its shareholders. The shareholders should not be deprived of the benefit of growth. Listing gives the shareholder ready access to market and increased liquidity and also to the fair value of their share after listing and thus a practical solution to the problem such as directing the company to adopt the Book-Building option of listing, be explored. OBJECTIONS BY ROHIT MATHUR : 13. Mr. Rohit Mathur averred that the clause of listing should not be deleted and instead, BSE and SEBI be directed to list the entire capital under the automatic listing option. The order approving the scheme records due compliance of all the requirements contained under the various provisions of SEBI (DIP) Guidelines of 2000 and that the order of the Court is in the nature of a direction, and since the order records a deemed compliance, BSE or SEBI cannot refuse the listing in terms of the Scheme. Other similar companies are offering Rs. 50-60 and STLL is offering only Rs.10 which is below par and the shareholder is deprived of the true value and thus a direction for listing be issued to BSE. OBJECTIONS BY YOGESH SANGHVI 14. Mr. Yogesh Sanghvi averred that the move of the petitioner company is to prevent the shareholder to know the true market value of the shares. An agreement was executed on 23rd May 2008 with SISTEMA (as per LSE-Regulatory news) where the value of shares was Rs.156 per share, whereas the offer made to shareholders was Rs.10. The shareholders can retain their shares. 15. The crux of the objections raised by the minority shareholders was that the shareholders wanted an Exit option. The shareholders only contented to the extent that they should have the option of selling their shares at a fair and marketable price for which listing was essential. The suggestions made by the counsel of the objecting shareholders for the implementation of Exit option were as follows: (i)Issuance of the Writ of Mandamus to SEBI and Stock Exchanges for listing of the shares, or (ii)The promoters should explore some other ways of listing such as an IPO through a book building process etc. WRITTEN SUBMISSIONS OF APPLICANT COMPANY 15. The learned counsel for the applicant company filed written submissions as under - A) A Scheme of Arrangement was entered into between Shyam Telecom Ltd., (STL) Shyam Telecom Manufacturing Ltd.(STML), Shyam Telelink Ltd. (STLL) and Shyam Basic Infrastructure Projects Pvt. Ltd. (SBIPL) The Scheme had provided the following: a. Amalgamation of STML with STL; b. Transfer of liabilities of the Amalgamated Company to SBIPL to the tune of Rs. 200 crores out of the outstanding liabilities as on Transfer Date and in lieu thereof transfer of investment of STL in the equity shares of STLL to SBIPL at par value of Rs. 200 crores consisting of 20,00,00,000 (Twenty Crores) equity shares of Rs. 10/ each; c. Distribution of residual investment of the Amalgamated Company in the equity shares of STLL to the shareholders of STL in terms of the Scheme; d. Consequential reduction of share capital and reserves of STL and reorganization thereof; Listing of shares of STLL, subject to the stipulation made there under. A.1 The Board of Directors of STLL in its Board Meeting held on 15.6.2005 approved the said Scheme. After the approval by the Board of Directors of STLL and before filing the Scheme in the Rajasthan High Court, Jaipur Bench, Jaipur, pursuant to clause 24(f) of the Listing Agreement, applicable to STL, a copy of draft Scheme was filed by STL with the Bombay Stock Exchange and National Stock Exchange on 7th of July, 2005 for their ‘No Objection’. The above-mentioned Stock Exchanges granted ‘No Objection’ to the draft Scheme on 2nd of August, 2005 and on 12th of August, 2005, respectively. A.2 After grant of ‘No Objection’ by the Stock Exchanges, the above mentioned companies filed an application bearing SB Company Application No. 50/2005 under Section 391 of the Companies Act, 1956 before the Hon’ble Rajasthan High Court, Jaipur Bench, Jaipur for seeking direction for holding the meeting of the share holders and the creditors for considering and approving proposed Scheme of Arrangement. The Hon’ble Court on 22.8.2005 disposed of the said application. A.3 By the said order the Hon’ble Court issued direction to hold the meeting of share holders of STL, unsecured creditors of STL, secured creditors of STML and unsecured creditors of STML. However, the Hon’ble Court was pleased to dispense with the requirement of holding of meetings of the share holders of STML and STLL on the ground that these companies were wholly owned subsidiaries of STL and STL was already a party to the Scheme. A.4 The Court was further pleased to dispense with the requirement of holding meeting of the creditors of STLL holding that as STLL was only a confirming and endorsing party and thus, the creditors of STLL were not affected by the Scheme. A.5 In compliance of the directions of the Hon’ble Court, the meeting of the share holders of STL, unsecured creditors of STL, secured creditors of STML and unsecured creditors of STML were held on 30.9.2005 under the Chairmanship of Shri Manoj Pareek, Advocate, the Chairman appointed by the Hon’ble Court. The shareholders of STL, unsecured creditors of STL, secured creditors of STML and unsecured creditors of STML approved the scheme unanimously in their respective meetings. A.6 Subsequent to the approval by the shareholders and the creditors, above mentioned companies filed a petition under Section 391 read with Section 394 of the Companies Act, 1956 seeking sanction of the Court to Scheme of Arrangement so as to be binding on all the share holders, secured creditors and unsecured creditors of the said companies. The Hon’ble High Court by order dated 18th May, 2006 approved the Scheme of Arrangement. Certified copy of the order was filed on 19th May 2006 with Registrar of Companies, Jaipur for its registration causing the Scheme to become effective as provided for under the Scheme. B DEVELOPMENTS SUBSEQUENT TO APPROVAL OF THE SCHEME. B.1 As the Scheme provided for distribution of shares by STL held by it in STLL as investment to its share holders, the Board of Directors of STL fixed the record date for ascertaining the entitlement of the share holders for getting the shares of STL and STLL. STL in its Board Meeting held on 8th August 2006 made allotment of fresh shares and approved distribution of shares held by it in STLL. Consequently, the Share capital of STL was reduced from Rs. 32.20 crores to Rs. 11.27 crores. B.2 On August 10, 2006, STLL submitted the necessary application to BSE and NSE for initial listing of its equity shares. B.3 On August 10, 2006, STLL made an application to SEBI through BSE for relaxation from Rule 19(2)(b) of the Securities Contract (Regulation) Rules, 1957. B.4 On September 21, 2006, STLL filed a revised application to SEBI through BSE for relaxation from Rule 19(2)(b) of the Securities Contract (Regulation) Rules, 1957. B.5 On October 18, 2006, BSE communicated to STLL that it had not provided confirmation of lock-in shares as required under Clause 8.3.5.1 (viii) (b) of SEBI (DIP) Guidelines, 2000. B.6 On October 27, 2006, STLL submitted an application to BSE seeking relaxation of lock- in period on Promoter’s shareholding. This application was made in response to the letter dated October 18, 2006 by BSE. B.7 On November 11, 2006, the corporate process for the distribution of 25,59,57,500/- shares to the shareholders of respondent herein was concluded. B.8 On March 6, 2007, STLL made a revised application for relaxation from Rule 19(2)(b) of the Securities Contract (Regulation) Rules, 1957. B.9 On March 7, 2007, STLL filed an undertaking with BSE in relation to lock-in requirement of shares, in terms sought by BSE. B.10 On March 8, 2007, STLL submitted grounds for relaxation under Rule 19(2) (b) of the Securities Contract (Regulation) Rules, 1957, as sought by BSE. B.11 On March 31, 2007, Net worth of STLL was calculated as Rs 15.5 Crores, only as per the finalized under the Annual Report as on the aforesaid date. B.12 On September 19, 2007, STLL addressed a communication to BSE requesting them to clarify the listing status of the Shares. B.13 On September 25, 2007, 10% shareholding of STLL was transferred to Sistema- a strategic investor in consonance with and in the furtherance of the objects of the scheme. B.14 On September 25, 2007, STLL applied for UASL Licence for the remaining 21 telecom circles in India which was to enhance the company’s value in a most significant manner. B.15 On December 31, 2007, Net worth of STLL became negative. The accumulated losses of the same period stood Rs. 490.8 Crores. B.16 On May 5, 2007, August 11, 2007, October 11, 2007 and December 3, 2007 representations were made by public shareholders seeking an exit option from STLL. B.17 On October 31, 2007, Notice was circulated for 12th AGM of STLL to discuss and consider the waiver of listing requirements under the Scheme. The notice was circulated alongwith an Explanatory Statement. B.18 On November 8, 2007, Credit Arrangement Letter by ICICI bank was given STLL for giving a facility up to Rs. 2597 Crores. B.19 On December 3, 2007, Certificate from Charted Accountants was obtained certifying that the Book Value of STLL’s shares was Rs. 0.34 per share. B.20 On December 12, 2007, 12th AGM was convened. A resolution was passed by an overwhelming majority of the shareholders that instead of taking recourse to the litigation for getting STLL’s shares listed under the automatic listing route, STLL should apply to Rajasthan High Court for waiver of listing under the automatic option and that the promoters should make an open offer to public shareholder for purchase of their holding at a purchase value determined by experts. B.21 On December 12, 2007, a resolution was also passed by the AGM for increase of authorised share capital to Rs. 6000 crores from the existing level of Rs. 800 crores. B.22 On December 12, 2007 Letter no. CFD/DIL/ NB/ JAK/ 111971/2007 addressed to BSE from SEBI was issued stating that STLL was prima facie, not eligible for relaxation from rule 19(2)(b) of Securities Contract (Regulations) Rules, 1957 and the issue stood closed at their end. C INTERIM ORDER- RAISING OF CAPITAL: C.1 It appears that on account of SEBI taking a different view with respect to the applicability of clause 8.3.5.1 of SEBI (DIP) Guidelines, 2000, the option of seeming liquidity for shareholders through Automatic listing route became a distant possibility. Thus to that extent the Scheme became unworkable. C.2 In the light of this, the promoters of the Company proposed to come out with an open offer to purchase the shares with the sole objective of providing liquidity to share holders and thereby making the Scheme workable subject to the modification. Thus the company filed a Company Application under section 392 of the Companies Act, 1956 seeking modification of Scheme of Arrangement specifically praying for deletion of clause 3.7 of Part III of the approved Scheme of Arrangement; and consequential modifications therein so as to get the waiver from the requirement of listing of the shares of the Company, due to the failure of the Automatic Listing Option in the commercial sense of the term. The Company also prayed therein to allow the Promoters to come out with the open offer to the public shareholders of the Company to purchase their shares. C.3 That as the Company is a public limited company and its existing paid up capital is Rs.4, 55,95,75,000. It’s key financial figures for the six months ended 30.9.2007 and 9 months ended 31.12.2007 are as under: Accumulated Losses (As on 31.12.2007) (Amount in Rs.) 516 crores Negative Net worth (As on 31.12.2007) (Amount in Rs.) 60 crores Interest Payment (Due for the period of June, September and December, 2007 Quarters) 12,79,69,288 11,86,43,404 11,80,45,543 Cash loss (For the period of June, September and December, 2007 Quarters) 4,52,08,276 10,00,89,249 10,16,56,656 C.4 From the above figures it is quite apparent that Company was unlikely to financially survive for long unless it were raises funds and infuse the same in the business immediately. C.5 It may noted that the Company had already taken steps in the furtherance of its survival issue by applying for license to provide telephone services in the remaining 21 circles of India. The Company, in this regard, obtained Letter