BEFORE THE SECURITIES APPELLATE TRIBUNALMUMBAIAppeal No.18/2004����������������������������������������������
In the matter of:
Coram: ����������� Justice
Shri Kumar Rajaratnam, Presiding Officer ����������� Dr.
B. Samal, Member ����������� N.L.
Lakhanpal, Member Per:� Justice
Kumar Rajaratnam, Presiding Officer ����������� The appeal is taken up for final disposal with the consent of parties.� 2.�������� In this appeal, the company challenges a circular issued to the members of the Bombay Stock Exchange dated 27th of January 2004 transferring the shares of the appellant-company from �B-1� category to �Z� category in the equity segment.� It is common ground that if shares are transferred in �Z� group, which is the last group, the shares are allowed to be traded in the market only on payment basis.� It is common ground that this is a method by which the public are cautioned not to trade in such shares.� 3.�������� It was also submitted that downgrading from �B-1� to �Z� category by the Listing Committee would affect the reputation of the company and the share prices will naturally come down. 4.�������� In this case, it was further submitted that the listing committee had issued show cause notice and after issuing the show cause notice, did not give an opportunity to the appellant to set out his case as to why downgrading should not be done.� The case of the appellant is briefly as follows: 5.�������� The appellant-company had an equity capital of 9.5 crores of rupees divided into one rupee per share.� The shares of the company have been listed in the Stock Exchange, Mumbai, the respondent herein.� There are many segments of listing of shares like �A�, �B-1�, �B-2� and �Z�.� The appellant-company was given high rating and was classified in segment �B-2�.� The company was further upgraded and was classified as �B-1� in February 2003. 6.�������� Exhibit-B
is a letter written by the respondent dated ����������������������������������� �Re:
Investors complaints We refer to your request to the Exchange for the status of pending investor complaints against your company. 2. Please note that as on date there are Nil complaints pending against your company on our records.� However, in case any investor reverts to us as the complaint having not been solved, then the same will be shown as pending for redressal against your company on our records. 3. We appreciate the initiative taken by you in resolving investors� complaints and look forward to your continued co-operation in the future.� 6.�������� Even
leading investors like Tata Investment Corporation, Atlas Equifin Pvt. Ltd.,
Sony Entertainment Television and Jammu & Kashmir Bank have invested in the
equity of the appellant.�� This is apart
from many other private corporate entities and individual investors.� The shares of the company are traded
regularly in the respondent-Stock Exchange.�
The average volume is about 1,00,000 shares per
day.� The appellant had declared the
quarterly unaudited financial results for the quarter ended 31st of
December 2003.� The company has small
marketing office at Mumbai.� The
Corporate Office is at ����������� ����� Last annual report of the Company � Prospectus of the last issue of the Company. � All results for the last four quarters. � All price sensitive information, disclosures, news, announcements made by the company from January 2003 till date. � Details of Share holding for the last four quarters. � All supporting documents, facts and figures which relate to the financials of your Company and which will enable your aforesaid Officials to answer any queries that may be put to them by the members of the Listing Committee.����� It is submitted that the letter was received by fax on
27th of January 2004 by the appellant.�
On that very day on 27th of January 2004, Mr. Akshay
Sanghavi, the Managing Director of the company, managed to reach the venue in
spite of the fact that his Mother was hospitalised at 8.�������� On the same day, 27th of January 2004, the listing committee issued a circular to the Stock Exchange downgrading the shares of the appellant from �B-1� to �Z� category.� This is impugned in this appeal.� The impugned order is placed before us at Annexure-A and reads as follows: ����������� �Notice no :������������� 20040127-23 ����������� Notice date :����������� ����������� Subject :�������������������� Transfer of companies to �Z� group ����������� Segment Name :���� Equity ����������������������������������������������������������������������� Contents : Members of
the Exchange are hereby informed that the following companies will be transferred
to �Z� group w.e.f. ����������� 1. Innovision eCommerce Ltd.��� � -scrip code : 512447 ����������� 2. India Polyspin Ltd.������������������� � -scrip code : 514490 K Gopalkrishnan Asst. General Manager Dept. of Corporate Services Date : 9.�������� No reasons were assigned for passing this order.� It was a circular.� This circular is under challenge.� 10.������ We feel that the appellant ought to have been heard before the circular was issued since a show cause notice was, in fact, issued asking the appellant to show cause. 11.������ The learned senior counsel for the respondent, Mr. Modi, vehemently submitted that the minutes clearly showed the reason for downgrading.� The minutes of the listing committee have been placed before us but no copy has been ever given to the appellant. 12.������ The main grievance of the listing committee in the minutes appears to be that - (1) no proper address of the company had been given; and (2) it is not safe for the company to raise money from the market. The copy of the minutes was never given to the appellant and the appellant came to know about his fate only when he read the circular.� Mr. Modi, the learned counsel for the respondent, also submitted that downgrading by the Stock Exchange cannot be a subject matter of appeal before the Tribunal even if it involves violation of the principles of natural justice.� It was curiously submitted that if the appellant is aggrieved, he can only file a writ petition under Article 226 or file a suit in a court of competent jurisdiction.� 13.������ The learned counsel for the appellant submitted that section 22A� of the Securities Contracts (Regulation) Act, 1956 gives a right of appeal against the refusal of the Stock Exchange to list securities of public company.� It was further submitted that rule 19 of the Securities Contracts (Regulation) Rules, 1957 also gives such a right to the appellant to file an appeal.� It was further submitted that rule 19(5) gives the power for stock exchange to suspend or withdraw admission to dealings in the securities of a company and for any of these alleged breach, show cause notice is necessary.� It was further submitted that rule 19(5) gives the right of appeal to the Tribunal.� Sub-rule(5) of rule 19 reads as follows: �(5) A recognised stock exchange may suspend or withdraw admission to dealings in the securities of a company or body corporate either for a breach of or non-compliance with, any of the conditions of admission to dealings or for any other reason, to be recorded in writing, which in the opinion of the stock exchange justifies such action : Provided, however, that no such action shall be taken by a stock exchange without affording to the company or body corporate concerned a reasonable opportunity by a notice in writing, stating the reasons, to show cause against the proposed action : 1[Provided further that where a recognised stock exchange has withdrawn admission to dealings in any security, or where suspension of admission to dealings has continued for a period exceeding three months, the company or body corporate concerned may prefer an appeal to the Securities Appellate Tribunal constituted under section 15K of the Securities and Exchange Board of India Act, 1992 (15 of 1992), and the procedure laid down under the Securities Contracts (Regulation) (Appeal to Securities Appellate Tribunal) Rules, 2000 shall apply to such appeal.� The Securities Appellate Tribunal may, after giving the stock exchange an opportunity of being heard, vary or set aside the decision of the stock exchange and its orders shall be carried out by the stock exchange.] 14.������ The learned counsel for the respondent relied on a judgment of the Bombay High Court reported in (2003) 57 CLA 233 (Bom) and submitted that the Bombay High Court has held that shifting of securities is purely administrative and cannot be interfered with under Article 226 of the Constitution. 15.
We have heard the counsel for the appellant and
the counsel for the respondent.� In this
case, admittedly, there has been a breach of the principles of� natural justice.� A show cause notice
was issued dated 16.������ We feel it appropriate to state that sub-rule(5) of rule 19 cannot be limited only to �suspension and withdrawal of admission� with respect to dealings in the recognised stock exchange.� When there is a violation of the principles of natural justice, this Tribunal has no alternative except to direct the respondent to pass appropriate orders only after hearing the aggrieved party.� The stigma of downgrading from �B-1� to �Z� category can cause severe damage to the company and to the investors.� There is a danger of the company coming under a cloud.� This, in turn, will affect the existing shareholders who wish to exit.� Of course, such downgrading is permissible in the facts and circumstances of a particular case if the health of the company is in poor shape but it cannot be done without hearing the aggrieved party.� In fact, in this case the respondent thought fit to issue show cause notice but did not give an opportunity to the appellant.� The appellant was served with the letter only on the day of the hearing and sought for some time, which was denied to him.� It is settled law that the principles of natural justice is a facet of every administrative action, which involves penal consequences. 17. ����� The
Supreme Court, in Rash Lal Yadav vs. State of �What emerges from the above discussion is that unless the law expressly or by necessary implication excludes the application of the rule of natural justice, courts will read the said requirement in enactments that are silent and insist on its application even in cases of administrative action having civil consequences.� 18.������ We,
accordingly, set aside the circular dated 19.������ As suggested by Mr. Modi, the learned counsel for respondent, there will be a direction that the appellant, during the pendency of enquiry, shall not raise any money from the market.� The appellant shall also fully co-operate with the respondent in expeditious disposal of the enquiry.� If the appellant fails to co-operate with the respondent, the circular shall stand revived. 20. �����The appeal is disposed of accordingly. 21. ������No order as to cost. (Pronounced in Court)
Place: Mumbai Date:� Avm ����������� After pronouncement of the judgment, the learned counsel for
the respondent sought oral leave to move the Supreme Court.� We do not think any substantial question of
law of general importance arises in this appeal.� Leave declined.
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