Case: Kalpana Bhandari &amp; Others Vs. Securities &amp; Exchange Board of India &amp; Others

2.The controversy arises in the following circumstancespetitioners are shareholders of the 2nd respondent company viz, Sesa Goa Limited (for short Sesa Goa). Sesa Goa is the listed company. Its shares are listed on the Bombay Stock Exchange and National Stock Exchange amongst other Exchanges. The third respondent viz. Sesa Industries Limited (for short Sesa Industries) is a subsidiary of Sesa Goa. It is petitioners case that Sesa Goa represented to its shareholders that for future expansion and diversification projects in the steel related areas, subsidiary company be set up and that is how Sesa Industries was incorporated. In or around 1993, Sesa Industries made preferential offer to the shareholders of Sesa Goa. This offer was in respect of 43,83,540 equity shares of Rs.10/each for cash at a premium of Rs.12.50 per share. The petitioners claim to have invested in the shares of Sesa Industries under the aforesaid preferential offer. It is averred that approximately 31000 small investors such as the petitioners invested in the shares of Sesa Industries. Sesa Industries collected an amount of Rs.110 million from the investors. According to the petitioners, all along Sesa Industries represented that they had intention to have their securities listed at the Stock Exchanges. However, the said representations were false and fraudulent. Petitioners have alleged that Sesa Goa as well as Sesa Industries acted in a fraudulent manner, deceived the small investors and induced them to invest their hard earned monies on the basis of material misrepresentations/ assurances without any intention of performing such assurances/ representations and their actions and omissions are in gross violation of the Companies Act. The petitioners made representation to the first respondent viz. SecuritiesExchange Board of India (SEBI) and requested them to: (i) conduct a full inquiry into the affairs of Sesa Goa and Sesa Industries and in particular with regard to the fraudulent manner in which the public monies were collected and thereafter siphoned out; (ii) pass urgent interim directions and restrain Sesa Goa from making the proposed mala fide offer of purchasing shares of Sesa Industries from small investors at Rs.30/per share and pass further interim directions appointing an investigating authority; (iii) ensure that if at all the Sesa Goa is allowed to make a voluntary offer for purchasing the shares of the minority investors, the same should be at a price not less than the base price which is presently Rs.57/per share (Rs.22.5 being the application money plus 15% interest from November, 1993 till date). The petitioners have set up the case that Sesa Goa and Sesa Industries are one entity and corporate veil ought to be lifted. In this connection, the details of the Board of Directors, Registered Officer, auditors, solicitors and bankers of both the companies viz. Sesa Goa and Sesa Industries have been set up.

Court's reasoning:
Though the learned counsel for petitioner worked very hard, to an extent unnecessary, to persuade us to entertain the writ petition, however, we hardly found the case fit for invocation of extra ordinary jurisdiction for the reasons which we indicate hereinafter. First, there is substance in the submission of SEBI that as Sesa Industries is not listed company nor have they made any application to any recognised Stock Exchange manifesting intention of getting their securities listed and, therefore, they have no jurisdiction in thewould be, thus, seen that the provisions contained in various sections as noted in Sectionso far as they relate to issue and transfer of securities andof dividend SEBI has powers (i) in case of listed public companies and (ii) in case of those public companies which intend to get their securities listed on any recognized stock exchange in India. In other words SEBI does not have power in relation to the issue and transfer of securities andof dividend under the various provisions referred to in sectionfor the companies other than listed public companies and the public companies which intend to get their securities listed on any recognised stock exchange in India. Such power is vested in the Central Government. Sesa Industries is admittedly not a listed company on any recognised Stock Exchange. The question is whether SEBI erred in its opinion that Sesa Industries is not even covered under Section 55A(b) of Companies Act. It is the case of SEBI that Sesa Industries intention to get its securities listed is not manifested as it has not made any application to recognised stock exchange under Rule 19 of Contract (Regulation) Rules, 1957. The approach of SEBI cannot be faulted. Even the learned counsel for the petitioners did not dispute that the criteria applied by SEBI is not irrelevant. However, the learned counsel for the petitioners submitted that every year the Chairman in his speech in the annual general meeting, expressed companys intention to have their shares listed at the recognised stock exchanges. The intention is always a question of fact and unless the opinion of regulatory body on this aspect is palpably perverse and grossly erroneous, it would not be proper for this court in extraordinary jurisdiction to interfere with such opinion of regulatory body. Moreover not a single resolution of the Board of Directors has been placed on record by the petitioners to indicate that the Board of Sesa Industries took decision to have their securities listed at the recognised stock exchange/s. Besides that the yardstick applied by SEBI that by making an application to recognised Stock Exchange, the intention of the company to have its securities listed at recognised stock exchange is manifested cannot be said to be unreasonable. In the circumstances SEBIs stand that it has no jurisdiction in the matter cannot be said to be withoutif Sesa Industries is not a listed public company nor is held to have intended to get their securities listed on any recognised stock exchange in India, the various provisions referred to in section 55A relating to issue of transfer of securities andof dividend in relation to the said company is clearly administered by the Central Government and the petitioners can always apply to the Central Government for the various grievances raised before us. Not only that, section 237 of the Companies Act provides for investigation in the companys affairs by the Central Government in the manner provideda matter of fact, the petitioners themselves, have, made an application to the Central Government requesting them to invoke their powers under the Companies Act for carrying out special audit and investigation into the affairs of Sesa Goa and Sesa Industries. Surprisingly and for the reasons best known, the petitioners have not impleaded Central Government as party respondent in the present writ petition, presumably because the petitioners feel that the Central Government would act on the application made by them in the near future. Be that as it may, it appears to us that the grievances raised by the petitioners in the writ petition though are not within the powers of SEBI can be adequately looked into by the Centralis true that at the time the Writ Petition No.1280 of 1999 was filed the letter of offer dated 5th June, 2003 issued by Sesa Goa and now under challenge before us had not seen the light of the day and obviously, the said letter was not under challenge but the effective prayer for buy back of shares of Sesa Industries by Sesa Goa at a reasonable rate is identical in both matters. For the reasons on which the earlier Writ Petitions No.1280 of 1990 came to be rejected, justify rejection of the present writ petition asthe light of the aforesaid discussion, we do not deem it necessary to go into the diverse aspects raised by the learned counsel for the petitioners regarding the lifting of the corporate veil, the allegations of insider trade practices, fraudulent and unfair action of Sesa Goa and Sesa Industries. Suffice it to say, however, that letter dated 5th June, 2003 is voluntary letter of offer made by Sesa Goa. It is for the petitioners to accept the same or reject outright. There is no compulsion on the part of the offerer upon the petitioners to accept the said offer. The offer has been made inter alia for theThe Company has been unable to list its shares by reasons of the difficulties mentioned above and also due to the weak state of the capital market and also world wide industrial recession, particularly in the steel industry. The company had also taken the opinion of a leading merchant banker on the disability of listing its shares after taking into consideration various relevant factors in the context of the original proposal. Furthermore it was advised that it would not be practical to successfully make a new issue or divest part of the promoter holding to facilitate listing of the Companys shares in the larger interest of existing shareholders. Hence the shares remain unlisted tillThe Company is of the view that the recovery of the capital market on a large scale basis may take some more time. Listing of the Shares of the Company would have provided an exit route to the shareholders, but unfortunately it has not been possible so far to do so. Therefore, with a view to provide an exit opportunity to the shareholders, SIL has requested the Acquirer to make this offer and the Acquirer has agreed to thethe petitioners feel that the said offer is not for their benefit, they may not accept the same and not follow the exit route suggested by the offerer. Ultimately it is pure commercial dealing.