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CO/132/CRD/01/2005 SECURITIES
AND EXCHANGE BOARD OF ORDER IN THE MATTER OF STERLITE INDUSTRIES
LIMITED AS PER HON’BLE DELHI HIGH COURT’S ORDER DATED OCTOBER 29, 2003 IN CWP
No. 6884/2003 – SANJAY KUMAR SONI & Anr. Vs
1.0
BACKGROUND
1.1 In respect
of the open offer made by Sterlite Industries (India)
Pvt. Ltd. ( SIIL ) and Eastern Galvanising Pvt. Ltd.
(hereinafter collectively referred to as Acquirers) to the shareholders of
Indian Aluminum Co. Ltd. ( Indal ) in terms of the provisions of SEBI ( Substantial
Acquisition of Shares and Takeovers ) Regulations, 1997 ( hereinafter referred
to as the Regulations), Chairman, Securities and Exchange Board of India
(hereinafter referred to as SEBI ) vide his order dated October 28, 1998
directed the acquirers to make payment to the shareholders of Indal who had tendered the shares in the offer at the offer
price of Rs. 221/- in cash along with the interest
@ 15% from July 02, 1998 .i.e., the
date by which payment ought to have been made. Pursuant to the passing of the
order of SEBI, SIIL went in appeal against the said order before the Appellate
Authority in the Government of India wherein the Appellate Authority rejected
the appeal and upheld SEBI’s
order. 1.2 SIIL
thereafter filed a civil writ petition, No. 1598/1999 before the Hon’ble High Court of Delhi, wherein also SEBI’s order was upheld, subject to the modification that
the benefit of the direction will only go to those shareholders of Indal whose shares were still with SIIL, either on their own
or through their Merchant Banker or anyone else on their behalf. Thereafter,
SIIL on 26.07.02 moved an application, being C M No. 7487 of 2002 in C W
P No 1598 of 1999 seeking amongst others, the
permission to deduct the past dividends declared on the shares comprised in the
open offer by Indal during the period the shares of
Indal were with SIIL. The said application was,
however, dismissed by the Hon,ble High court for
non-prosecution. Thereafter, another application was preferred by SIIL, being
no. 8188 of 2002 in C W P no. 1598 of 1999 seeking amongst others, the
permission to adjust dividend declared. The said application was dismissed as
withdrawn vide court’s order dated 09.08.2002. 1.3
SIIL also filed an SLP in Supreme Court which
was dismissed on 23.09.02
and SEBI’s order dated 28.10.1998 became final
and binding. After the said sequence of events, SIIL on 24.09.02 made the final
payment to the eligible shareholders of Indal in terms
of SEBI’s order and subsequent directions by the
courts. However, while making the said payment, dividends declared
(Rs19.50 per share) by Indal on or after
02.07.98 were deducted. Further, the shareholders were advised by Karvy Consultants Ltd., the registrar to the open offer, to
approach Indal in case they have not received any of
the said dividends.
2.0
Complaint Received by SEBI 2.1 SEBI
received a complaint dated 27.08.2003 from Shri Sanjay
Soni and
Shri Sumeet Soni stating, inter alia, as
under: a. SIIL
is liable to pay the said sum of Rs.19.50 per share illegally retained by it
with interest on the said sum @ 15% p.a from 26.9.2002
till payment to all the shareholders of Indal to whom
the said sum of Rs.221/- per share was payable in terms of SEBI’s Order dated 28.10.98. b. In the case of Shri
Sanjay Soni the sum amounts to Rs.5850/- on 300 shares
and in the case of Shri Sumit Soni the sum amounts to
Rs.3000.50 on 159 shares. In addition they are also entitled to receive interest
@15% p.a. on the said sums from 26.09.2002 till the date of
payment. c.
A notice dated 09.10.2002 was sent to SIIL in this regard and
subsequently, a civil contempt
petition No.571 of 2002 was filed in the Delhi High Court. d.
In their reply to the Contempt Notice issued by the
e.
SEBI officer has no authority to authorize such deduction, when SEBI
Order dated 28.10.98 as modified by the Hon’ble Delhi
High Court, had become final and all issues relating to the controversy became
res judicata. Authorizing
such deduction is even more regrettable in view of the fact that SIIL’s two applications for the same had earlier been
dismissed by Hon’ble Delhi High Court and that Section
27 of SC(R) A relating to the issue is against SIIL. f.
By such illegal deduction SIIL would be denying to small shareholders of
Indal Rs.19.50 per share thereby enriching itself by a
whopping sum of more than 55 lacs. 3.0
Direction by High Court of
3.1
A
PIL writ petition was filed in the Hon’ble Delhi High
Court by Sanjay Kumar Soni (CWP No 6884/2003 - Sanjay
Kumar Soni and Ors Vs UOI). While disposing the PIL,
holding that it had no jurisdiction and public interest did not lie, the Delhi
High Court vide its Order dated 29.10.2003 observed that, “Therefore, it would
be just and proper to direct the Chairman, SEBI to examine the letter dated
27.8.03 and to record a finding and if the offence is committed by not following
the directions, obviously it would be incumbent upon the Chairman to place the
matter before the Board to take appropriate proceedings against the
defaulters”. 4.0
Correspondence and Hearing Before the Chairman 4.1
The letter dated 27.08.03 of Sanjay
Soni was forwarded to Enam
Financial Consultants Pvt. Ltd. (Enam), Merchant
banker to the offer made by SIIL, for its comments. Enam vide their letter dated a. In terms of explanation (ii) of Section 27 of SCRA,
the period of 15 days
available for transfer of shares
for claiming dividend shall be extended in case of, inter-alia, cause beyond the control of transferee.
b. Since the open offer
was being litigated it was beyond the control of SIIL as a transferee to lodge
the necessary documents with the company for transfer of the shares in its name
and thereby claim the dividend. c. Immediately upon
settlement of the above litigation, SIIL took the necessary steps dispatching
the open offer consideration thereby complying with their obligations as an
acquirer under SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 and after which they proceeded to do the needful to transfer
the shares in their name. 4.2 A letter
was also sent to Indal on
a.
Sanjay Kumar
Soni who did not register the shares in his name and
tendered the same in the open offer has not received the dividend since 1998.
The dividend has been paid by Indal to the registered
shareholders. b.
However, Sumeet Soni who was a registered
shareholder received all the
dividends declared on or after 4.3 Comments were also
sought from SIIL. SIIL vide its
letter dated 19.06.2004
gave a para wise comment to the letter dated
27.08.03 written by Mr. Soni
stating, inter alia,
that: a.
Filing of the two applications before
High Court regarding clarification on dividend deduction clearly demonstrates
that there was no malafide intentions for deducting
past dividends from the payment made to the shareholders of Indal. The intention of the company was to simply take an
endorsement from High Court by way of a clarificatory
order to the effect that past dividends can be deducted from the payments which
were to be made to the shareholders of Indal.
b.
The dividend deduction is not illegal.
The said deduction of past dividends @19.50 per share has been done by the
company as per normal practice and norms provide under the company rules and
other relevant statutes. Moreover it has been held in numerous court decisions that where
transferor by reason of shares standing in his name has received any dividend,
bonus and other benefit, the transferee being the person lawfully entitled, can recover the same
from the transferor. The transferor holds all benefits received on these shares
in trust on behalf of the transferee. Since SIIL had become the owner of the
shares w.e.f. 2.7.1998, it was legally entitled to
recover the said dividend amount @19.50 per share from the shareholders of Indal which were declared and paid subsequent to the
aforesaid date i.e. 2.7.1998. 4.4 After the
aforesaid correspondences and seeking necessary clarification from the concerned
parties, it was decided to give an opportunity of personal hearing to the
parties before me. SEBI received a reply dated 12.08.04 from Shri M G Kapoor, Advocates for
Shri Soni stating that his
clients have received the sum owing to them. He has proposed that he
would prefer to be present in person for small investors’ case if the hearing is
held in 4.5
Hearing before me took place
on
attended by Shri Somasekhar Sundaresan and Ms.
Madhuri Joshi of J.Sagar
Associates and Shri A S Khandwala, Company Secretary of SIIL. Submissions made by
SIIL earlier were reiterated at the hearing and the judgment of Hon’ble Supreme Court in Civil Appeal No. 3183 of 2003 was
also quoted in support of their submissions. Parties were further given 7 days
time to file written submissions in the said matter. 5.0
Consideration of
Issues 5.1 I have
thoroughly gone through the written and oral submissions made and
the directions passed by the Hon’ble court
during the series of appeals /
petitions filed by SIIL and Shri Soni. 5.2
While examining the complaint filed by
Shri Soni before SEBI, I
note that a contempt proceedings, CCP No. 572 of 2002, against CMD, SIIL was
launched before the Hon’ble High Court, New Delhi for
non-compliance of the order dated 31.05.02. The Delhi High Court while passing
the order on 12.03.2004 stated that it is not inclined to interfere in the
proceedings and no contempt has been committed by the respondent. The statement
made by the senior counsel of the respondent, Mr. Sundaram, was taken on record that a total sum of Rs. 11,500/- shall be paid to the petitioner within a week
to put an end to the petition. I note that the payment of the said amount has
been accepted by the advocate of Shri Soni and the same has been intimated to SEBI vide letter
dated 09.08.04. I observe and find that Shri Soni has no individual grievance against SIIL or SEBI, but
is claiming to represent the interest of other shareholders. To this effect
Shri Soni’s PIL before the
Hon’ble High court of Delhi was disposed off on
29.10.03. The hon’ble court while disposing the appeal
held that it had no jurisdiction and public interest did not lie. The Hon’ble court directed me to examine the letter dated
27.08.03 and to record the findings and to place the matter before the Board to
take the appropriate proceedings against the defaulters, in case any offence is
committed by not following SEBI’s order dated
28.10.98. 5.3
SEBI had directed SIIL to pay Rs. 221/- cash to shareholders of Indal along with interest @15% per annum from 2.7.1998 till
payment. However, the said order was silent about any deductions with respect to
the amount of dividends paid by Indal. As such the
payment was to be made as per the normal practice and also as per the provisions
of law. Moreover, order of SEBI and the subsequent directions of the Hon’ble court were silent on the aspect of the
deduction/adjustment of the past dividends. While making the payment SIIL
deducted the amount of dividend already paid by Indal
on the shares held by the shareholders, since the shares had continued to remain
in the name of the shareholders and could not be transferred to the acquirers
for the interim period from 02.07.98 to 24.09.02 due to protracted litigation.
SIIL paid interest to eligible Indal shareholders for
the said period thereby complying with SEBI’s
direction and Hon’ble High Court’s order. This also
resulted in SIIL being entitled to ownership of the said shares during the
interim period for which shareholders were compensated for loss of interest,
entitling SIIL to the receipt of the benefits accrued on the said shares during
the said period. 5.4
I
further refer and rely on the recent judgment of the Hon’ble Supreme Court of India in Civil Appeal No. 3183 of
2003 in the matter of Clariant International Ltd.
& Anr. Vs SEBI, which was delivered on
“Dividend : Effect of In view of our findings aforementioned, we are of the
opinion that while calculating the amount of interest, the amount of dividend
paid to the shareholders should be excluded. The shareholders who by reason of
default on the part of acquirer have been deprived of interest payable on the
difference of the offer price and market price would be entitled to interest as
direction to pay interest being not penal in nature, they cannot make double
gains. The Tribunal, in our opinion, has committed an error in holding that the
dividend being a participatory benefit available to a shareholder and being
distinct from interest, the same should not be taken into consideration. The
regulation fixes a benchmark as regard rate of interest. If any amount has been
received by the shareholders by keeping the shares till a public offer was made,
the amounts so received by him by way of dividend should be set off. We would
reiterate that the shareholders did not have any right to get interest and in
effect and substance they were only to be compensated for the loss of interest
and nothing more. On the same analogy, if they had received some gains by
holding the shares fairly for a long period of five years, the amount of
dividend cannot be permitted to be retained by them. The amount of dividend
should thus be adjusted towards the interest payable to
them.” In the light of the aforesaid judgment of the Supreme
Court, there is no ambiguity in the current position of law. The above stated
observation of the Supreme Court endorses and vindicates the stand taken by SIIL
regarding the adjustment of dividend. 6.0
ORDER 6.1 In the
light of the foregoing discussion and Supreme Court’s decision in Clariant International Ltd. case, I, after through
deliberation and examining the letter dated 27.08.03, come to the conclusion
that there is no non-compliance of any direction by SIIL. I, therefore, hold
that SIIL has complied with the order dated 28.10.98 and the subsequent
modification of the same vide order dated 31.05.02 by the Hon’ble High Court of Delhi in Civil Petition No.
1598/99. 6.2
Pursuant to the
Hon’ble High Court of Delhi’s direction in C W P 6884
of 2003, I come to the conclusion that there has been no violation of SEBI’s order dated 28.10.98 and hence no further proceedings
are warranted in this case. I, in exercise of the powers conferred upon me by
virtue of the provisions of Section 4(3) of the SEBI Act, 1992 dispose of the
said complaint dated 27.08.03 lodged by Shri Sanjay
Soni and Shri Sumeet Soni with
SEBI. Place :
Mumbai
G
CHAIRMAN Date :
January 27, 2005
Securities and Exchange
Board of India
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