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 2008InS.B.Company Appl. No.69 of2007InS.B. Company Petition No. 23 of2005
IN THE MATTER OF THE COMPANIES ACT 1956ANDIN 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.1Shyam Telecom Manufacturing Limited....... Petitioner Company No.2Shyam 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. CINTERIM 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 of Intent from the Department of bank guarantees of huge amount with the Govt. of India.
C.6 That, as stated, to fulfill the above pre-condition for issue of final license for the telephone services in the 21 circles of India, the Company has taken term loan and bank guarantee facilities of an amount equivalent to Rs.2597 crores at an interest rate of 12% and other charges from the ICICI bank, for a short term and on the strength of the guarantees provided by a strategic investor. C.7 That after availing the said loan from ICICI, the Company’s future monthly financial obligation from February 2008 onwards were to be as under:Particulars Projected Additional Average Monthly Financial cost of the fresh borrowing from ICICI. Interest Payment Rs. 21.50 crores per month Cash losses Rs. 21.00 crores per month
C.8 That in order to survive even in near future, the Company was required to infuse immediately huge amount of funds in the form of Equity Shares to maintain debt equity ratio of the company and to finance the recurring losses arising out of operations. C.9 That faced with said scenario the company marked put a detailed business plan to restructure its financial arrangements in a way so as to make the Company debt free and this were to, as stated, entail induction of substantial amount of funds. In view of the low book value of the shares of STLL, the Company was not in a position to raise funds from the capital market and the only effective way of raising necessary funds was that of securing the same from the promoters by way of equity contribution through a preferential allotment. That the funding pattern of telecom companies world over reveals that major contribution to the funding is generally shouldered by the promoters and subsequently Banks and other financial institutions join hands with the promoters to fund the Telecom projects. To run only Rajasthan Circle, funds to the tune of almost Rs. 800-900 crores were immediately required. After becoming the operator for all the 22 circles, the futuristic funding requirements was projected in the following manner:
1st Year Rs 4000 crores 2nd Year Rs 2690 crores 3rd Year Rs 3652 crores 4th Year Rs 4279 crores 5th Year Rs 4937 crores Total Rs 19552 crores
C.10 The above total funding requirement of Rs.19, 552 crores was projected to be funded as under: Equity shares – Rs.4310 crores Debt finance - Rs.12, 932 crores Internal accruals – Rs.2, 310 crores C.11 That besides that the company had projected the following total operating cost in the next 5 years with the following breakup: Year Operating cost Amount in Rs. Crores 1st Year 9300 2nd Year 23962 3rd Year 36201 4th Year 47885 5th Year 57123
C.12 That in the dire necessity of fund and for the sustenance of the Company, funds were required to be generated on an urgent basis. For this the company approached the Hon’ble passed an interim order granting permission to the company for raising capital to the extent Rs. 2,500 Crores which was subject to final outcome of application u/s 392 of Companies Act.
D.1 The order of the Hon’ble High Court dated 28.05.2006 sanctioning the Scheme of Arrangement also recorded that the Scheme will inter-alia attain the objective of permitting: -“Strategic investors to invest directly in the businesses of STL and the Company.”
D.2 In consonance with what was anticipated under the Scheme, upon being provided with an opportunity for induction of strategic investor in the business of STLL, the management and promoters of STLL availed the same on suitable terms and conditions resulting in induction of Sistema Joint Stock Financial Corporation, a Company, incorporated under the laws of Russia, (“Sistema”), and listed on London Stock Exchange as a strategic investor. D.3 On 25th September 2007, as stated, 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 17th January 2008 additional 41% shareholding of STLL was transferred to SISTEMA and on May 29, 2008 further 21% shareholding of STLL was given to SISTEMA raising the total shareholding of SISTEMA to 72%. D.4 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. D.5 That the Registrar of Companies, Jaipur received complaint against the modification of ‘Scheme of Arrangement’ vide letter dated 27.01.2008 from the Jindal Securities Pvt. Ltd. The matter was taken up with the Company by the Registrar of Companies, in lieu of the following allegations made in the complaint:
(a)The waiver of listing requirement is detrimental to the interests of the small shareholder. Also application of waiver is being moved with the malafide intention of the promoters to acquire the shares of the minority shareholders at meagre prices.
(b)That it is clear from the SEBI’s letter dated 28.12.2008 that the STLL’s application for listing has not been considered as they failed to comply with the listing requirements.
(c)That SEBI and BSE must become parties in the ongoing case in the Rajasthan High Court.
(d)Company has not shared the details of the Share Purchase Agreement with Sistema and has kept the shareholders in total dark about the developments, which have taken place from the date of application made to the SEBI.
(e)The company must not be allowed to increase the paid-up capital before listing on NSE/BSE. The company intends to increase the paid-up capital from Rs. 450 crores to Rs. 6000 crores and for this Sistema would be subscribing to the equity shares at Rs. 10 only. In such a case the minority shareholders would be substantially diluted and the value completely eroded.
D.6 The company vide its letter dated 18.03.2008 had furnished its reply to the complaint made by M/s Jindal Securities Private Limited. D.7 On July 4, 2008 letter was issued by ROC arising out of complaints by minority shareholders against the affairs of STLL and asking STLL to furnish information under section 234 of the Companies Act, 1956, wherein it was states that, (a)The Company has not made reasonable efforts with SEBI to get the shares of the company listed. The company has failed to make due compliance for listing as per requirement of SEBI.
(b)That the company application under section 392 for waiver from listing requirement is detrimental to the interest to the interest of the small shareholders and also misleading and appears to be moved with the malafide intention of the promoters to acquire shares from the minority shareholders.
(c)Company has not shared the details of the Share Purchase Agreement with Sistema and has kept the shareholders in total dark about the developments, which have taken place from the date of application made to the SEBI.
(d)Promoters have sold their 51% shares in STLL, with an agreement to sell 74% to Sistema. Also STLL has been allotted telecom licence in 21 Indian Circles. Therefore the valuation of shares should be in the range of Rs. 100-125/- per share.
(e)The company vide its EGM dated 10.6.2008
is going to increase its present paid up
capital from Rs. 455 crores to 2455 crores
by allotting 200 crores shares of Rs. 10/-
each only to promoters with the intention to
erode the minority shareholders value in the
company.
D.8 On July 10, 2008 another letter was issued by Registrar of Companies to STLL in continuation of letter dated July 4, 2008 under Section 234 of Companies Act, 1956 asking STLL to furnish a copy of the agreement executed/entered into with Sistema for selling 74% of the shares. D.9 On 23.07.2008 a detailed reply was given by STLL to ROC’s letters dated July 4 & July 10, 2008 pointing out the scope of section 234
(7) of the Companies Act, 1956 and asking the Registrar of Companies to give the company an opportunity of being heard before making a written order for providing information. D.10 In the meanwhile since the matter was pending with this Hon’ble high Court, the Government of India sought to secure the consolidation of all the issues directly by this Hon’ble High Court. Accordingly on 1.08.2008 Additional Affidavit was filed by the Regional Director Northern Region, Ministry of Corporate Affairs, Noida under section 394A of the Companies Act, 1956 reiterating the communications exchanged between the Company and Registrar of Companies vide letters dated 4.07.2008 and 23.07.2008 and following additional points were raised therein by the Regional Director: (a)Price at which the promoters have sold their shares to Sistema should be made public to protect the interest of the minority shareholders.
(b)Views of SEBI should be called for with
regard to the present matter.
D.11 SEBI in its communication to BSE vide its letter dated 28.12.2007 noted that the company viz STLL is, prima facie, not eligible for relaxation. from Rule 19(2)(b) of Securities Contract Regulation Rules, 1957 on account of the following reasons: (a)The said application has not been recommended by Designated Stock Exchange
i.e. BSE for relaxation from Rule 19(2) (b) of SCRR, though it is one of the conditions specified in clause 8.3.5.2 of SEBl (DIP) Guidelines.(b)STLL is not complying with clause 8.3.5.1 (iii) of SEBI (DIP) Guidelines, 2000 which requires at least 25% of the paid up share capital, post scheme, of STLL shares to be issued in favour of public holders of Shyam Telecom Ltd. (transferor and listed company).
(c)There have been some changes in the
shareholding pattern of STLL recently.
D.12 Clause 8.3 of SEBI (DIP) Guidelines, 2000 directs the applicability of the Rule 19 (2)(b) of SC(R) Rules, 1957 for the companies whether unlisted or listed offering shares to the public via Public Issue. The said 8.3 clause is as under: -8.3 Rule 19(2(b) of SC(R) Rules, 1957 8.3.1 In case of a public issue by an unlisted company, the net offer to public shall be at least 10 per cent or 25 per cent as the case may be, of the post-issue capital. 8.3.2 In case of a public issue by a listed company, the net offer to public shall be at least 10 per cent or 25 per cent as the case may be, of the issue size. D.13 8.3.3 An infrastructure company, satisfying the requirements in clause 2.4.1 (iii) of Chapter II, inviting subscription from public shall not attract the provisions of clauses 8.3.1 and .8.3.2 above. D.14 However, as can be seen from the above, Clause 8.3.3 of SEBI (DIP) Guidelines itself exempts “Infrastructure Companies”, which satisfy the requirements of clause 2.4.1 (iii) of Chapter II of the SEBI (DIP) Guidelines from the requirement of minimum offer size to Public as contemplated in Rule 19(2)(b) of SC (R) Rules. D.15 Clause 2.4.1 of the said guidelines is as under: (iii) an infrastructure company: whose project has been appraised by a Public Financial Institution (PFI) or Infrastructure Development Finance Corporation (IDFC) or Infrastructure Leasing and Financing Services
Ltd (IL&FS) or a bank which was earlier a PFI; and]
not less than 5% of the project cost is financed by any of the institutions referred to in sub-clause (a), jointly or severally, irrespective of whether they appraise the project or not, by way of loan or subscription to equity combination of both,
D.16 The fact on record bear out that the Company satisfies the conditions of clause 2.4.1 (iii) of Chapter II of SEBI (DIP) Guidelines, 2000, for the following reasons: (a) M/s. Shyam Telelink Limited stands notified as infrastructure company for the purpose of section 10(23)(G) of Income Tax Act 1961 read with rule 2(e) of the Income Tax Rules, 1963 vide gazette notification no.56/2001(F.No.205/51/2000-ITA-II & 205.11.2001/ITA.II) dated 5th March, 2001 by Government of India, Ministry of Finance, Department of Revenue, Central Board of Direct Taxes. The Company provides the Basic Telephony Services in the State of Rajasthan under the licence agreement no.17-16/95BSIL/Rajasthan dated 4.3.1998 granted by President of India, acting through Deputy Director General (Basic Services), Department of Telecommunication. It is pertinent to note that as per SEBI (DIP) Guidelines 2000, Infrastructure company means a company wholly engaged in the business of development, maintaining and operating infrastructure facility and infrastructure facility and the expression has to be construed in terms of section 10(23)(G) of Income Tax Act 1961, which includes the provision of basic telephony services. (b) Further, that the Company’s projects have been appraised and Financed by the various Financial Institutions and Banks, the lead Financial Institutions being ICICI Bank and LIC which have provided the company a loan of Rs.100 crore (by way of Guarantee) and Rs.
24.75 Cr respectively. This amount constitutes 15% (approx) of the total amount invested in the first instance in all the projects undertaken by the company. The ICICI Bank and LIC are Public Financial Institutions. Therefore more than 5% of the project cost is financed by Financial Institutions. Hence, the company fulfills the condition of clause 2.4.1 (iii) of the SEBI (DIP) Guidelines. D.17 Thus in the light of the above it is clear that STLL exempted from the applicability of Rule 19(2)(b) of SC(R) Rules with reference to the minimum offer size of 10% or 25% as the case may be. E.1 The facts on record clearly bear out that more than two years have lapsed since the Scheme was sanctioned by this Hon’ble Court on 18th May, 2006. The transfer of shares to the shareholders of STL, in terms of the above Scheme was carried out within the period contemplated under the Scheme. The application for relaxation in terms of Regulation 19(2)(b) of Securities Contract (Regulation) Rules, 1957 was also again submitted more than two years back. Despite the series of meetings having been taken place between the officers of the company and the officials of the BSE, necessary sanction for listing of the shares under automatic route has not been granted till today. E.2 It is also on record that every advice that was issued by BSE was scrupulously carried out by the officials of STLL and in this regard certain undertakings were submitted therein in the matter of lock in period and also in respect of other procedural compliances. It is also matter of record that SEBI has now by its communication dated 28th of December 2007 addressed to BSE wrote that the Company is prima-facie not eligible for relaxation for the reasons set out thereunder including the fact that:
a) BSE has not recommended STLL’s case for relaxation;
b) STLL has not complied with the requirement of clause 8.3.5.1(iii) of SEBI (DIP) Guidelines, 2000 which requires that atleast 25% of the paid up share capital to be held by Public Share holders, and
c) Also there have been some changes in the share holding pattern of STLL.
E.3 Despite the terms of the Scheme, the company faced with grave financial crisis and eroded its networth. With a view to enable the company to service its monumental debts, the company, with the consent and cooperation of the promoters, induced a strategic investor so as to secure investment of substantial funds which would enable the company to afford the crisis that had arisen for the reasons set out. The induction of the strategic investor obviously brought about change in the share holding pattern of STLL.
E.4 The concerned investor “Sistema” was inducted in terms of the series of agreements that were arrived between the parties and in terms of the approval granted by Foreign Investment Promotion Board. The said induction not only brought a substantial change in the capital structure of the company but also enabled with the business development that followed, namely, as securing licence for 21 circles and the grant of Spectrum etc. This necessitated the infusion of Rs. 2500 crores of funds and subsequent induction of about Rs. 2000 crores of fresh capital by way of preferential allotment in terms of interim-order passed by this Hon’ble Court. E.5 Induction of strategic investor, the capital referred above and the issue as to the nature of the directions that are to be issued deserves to be examined in the light of the said developments. The facts on record demonstrate that STLL after the sanction of the scheme undertook the measures that were necessary for securing implementation of the Scheme including the measures that were required for listing of STLL’s existing capital. However, in view of BSE having failed to make recommendations even after a lapse of 24 months and in view of SEBI having taken steps that STLL is not eligible for listing vide its letter dated 28th December, 2007, and in view of the developments that have taken place subsequent to the sanction of the Scheme, attempts for securing listing through automatic route has to be fraught with a fair amount of uncertainty both in respect of time frame and also in respect of its eventual outcome.
E.6 Since the commercial realities render timely implementation, the essence of the matter and the number of share holders involved being large, the proposal which merits favour of the Hon’ble Court, is the one, which is, commercially most viable and in larger interest of public share holders. E.7 Before examining that aspect of the matter, the applicant, most humbly, submits that the facts on record clearly show that failure of the listing in terms of clause 3.7 of the Scheme is not on account of reasons attributable to the company. But for the reasons referred above, and the stand taken by BSE and SEBI, developments that have happened subsequent to the scheme under the compulsion of time and opportunities and at the instance of the promoter. F. It would thus be clear to conclude that non-implementation of clause 3.7 of the Scheme was for reasons totally beyond the control of STLL and STL and the said non-implementation, despite all efforts made by the said company and under the force of events set out above and due to earlier judgment on the part of BSE as to the interpretation that made eventually find favour with SEBI, which is a body statutorily empowered to grant approval for relaxation under Regulation 19(2)(b) and the said relaxation being condition precedent for including listing through automatic listing route. The applicant therefore submits that the impossibility attaining the issue of implementation under clause 3.7 being evident and absolute, the said clause deserves to be deleted in exercise of this Hon’ble Court’s power to implement the Scheme on such terms and in such manner as may be necessary for making the Scheme workable. The applicant also respectfully submits that the only issue survives after this issue as to the manner in which the grievance ought to be redressed.
G.1 Three options that have been advanced to this Hon’ble Court for its kind consideration by different parties involved in the matter are:a) Issuance of directions to the promoters for an exit option to the willing share holders by way of offer to purchase their shares at a reasonable price determined in a manner approved by the Court, or
b) Issuance of direction to BSE and SEBI to grant relaxation in terms of Regulation 19(2)
(b) on the premise that requirement of clause 8.3.5.1 of SEBI and BSE Guidelines is fully complied and on the premise that relaxation that have been sought for by the company in the matter of lock in period etc. deserved to be granted, or c) Issuance of suitable direction to the company to secure the listing of the shares of the company within a reasonable time frame in the manner provided for under the Statute, SEBI guidelines through a suitable process.
G.2 The first option, namely, that of promoters offering exit option to the share holders at a price that is considered by them to be the reasonable price, has already been exercised and acted upon. However, the said offer has not fully met with the expectation of the share holders and despite the said offer having been made, some of the share holders have persisted with the grievance, contending that the price offered to the share holders, is not in consonance with their assessment of the correct price. Since neither a person can be compelled to offer a higher price nor a seller can be compelled to offer shares for purchase at a certain price, thus the mechanism of offering exit, based on consent, has its inherent limitations. That option having failed to satisfy the shareholders the desirability of adopting other options may have to be explored.
G.3 The second option, suggested by some of the share holders, namely, that of issuing a mandamus to SEBI and BSE, to respectably, grant approval and list the share, is again an option, that has inherent limitations. Firstly, it would be highly debatable as to whether a direct mandamus can be issued to a statutory authority in the matter of exercise of its statutory power. It is highly probable that both the BSE and SEBI may oppose implementation of such direction on the ground that they can only be directed into reexamining the matter and not directed into granting of relaxation in respect of shares. In any case, the possibility of such direction being challenged by BSE and the resultant litigation delaying implementation of such direction and resultant listing, cannot be ruled out. Since time is the essence of the matter and uncertainty about the implementation of whatever directions issued is equally binding. Thus this option may also not be feasible before this Hon’ble Court.
G.4 This Hon’ble Court may, therefore, examine the desirability of adopting the third option. It is submitted, with respect, that initiation of any exercise for securing listing of the company’s capital through the book building process has to be preceded by decision making at several levels and evaluating the implementation of such decision. In view of the involvement of the large number of corporate entities amongst the list of promoters of the company (STLL), and the principles that govern their functioning including the requirement of corporate governance, the listing agreements applicable to them and the different laws that govern them by virtue of their location in different jurisdictions the decision making process is bound to be time consuming and the eventual outcome cannot be committed before hand. It is submitted, that in law also, such a binding direction ought not be issued as there is no provision for issuance of such directions.
The company would however in due course of time examine this option in detail and in consonance with the commercial principles and having regard to its obligations towards the share holders, the company would, in due course of time, take a suitable decision and initiate necessary steps for redressal of the share holders grievances in the best possible manner.
16. Having pondered over the submissions I do not see any good reason to delete clause 3.7 of the Scheme. It is however ordered that
(i) the company, STLL, shall, within a maximum period of 18 months from the date of this order initiate the process of listing the shares
representing the Issued Capital of the company by
adopting such route as may be permissible in law
and shall carry out such compliances as may be
required in law including that of offering a
specified percentage of the shares to the Public, for subscribing thereto, through the book building process, in the manner provided for under SEBI (DIP) Guidelines 2000, and upon such steps being taken, BSE may issue such orders that may be required in law and as may be necessary for securing the said listing.
(ii) The share holders in the event of STLL not being listed, shall not be at the mercy of the promoters and they shall continue to have an 'exit option'. 17. With these observations the applications stand disposed of . (SHIV KUMAR SHARMA )J. Pareek/
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