BEFORE THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

Appeal No. 145 of 2006

Date of decision : 17.1.2008

Ramniranjan Kedia Tourism Services Pvt. Ltd.

…… Appellant

Versus

1. Aditya Birla Nuvo Ltd

2. DSP Merrill Lynch Limited

3. Enam Financial Consultant Pvt. Ltd.

4. National Stock Exchange of India Limited

5. Bombay Stock Exchange Limited

6. Securities and Exchange Board of India

…… Respondents

Mr. Pradeep Sancheti Advocate for the Appellant.

Mr. Janak Dwarkadas Senior Counsel with Mr. Zal Andhyarujina Advocate for the Respondent No.1

Mr. Devansho Desai Advocate with Miss. Dhwani Mehta Advocate for the Respondent No.6.

None for the Respondents No.2 to 5.

Coram : Justice N.K. Sodhi, Presiding Officer

Arun Bhargava, Member

Utpal Bhattacharya, Member

Per : Justice N.K. Sodhi, Presiding Officer

This order will dispose of two Appeals no.145 of 2006 and 18 of 2007 both of which are directed against the letter dated November 20, 2006 issued by the Securities and Exchange Board of India (for short the Board) giving its comments on the draft letter of offer in regard to the rights issue by Aditya Birla Nuvo Limited (hereinafter called the company). It is not necessary to state the facts in detail because we are dismissing the appeals on the ground that the prayers made therein which are identical cannot be granted in view of the subsequent intervening events.

The company came out with a rights issue in the year 2006 under sub-section (1) of section 81 of the Companies Act, 1956 and as per the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 the merchant banker on behalf of the company prepared a draft letter of offer which was to be sent to the shareholders and submitted the same to the Board for its comments/observations. By the impugned communication dated 20.11.2006 the Board issued the observation card making its comments on the draft letter of offer. The appellant which is not a shareholder of the company claims that the disclosures made in the draft letter of offer were not adequate and were misleading and that the shareholders could not take an informed decision on that basis. Even though the merchant banker on receipt of this complaint had sent the same alongwith the draft letter of offer to the Board, the grievance of the appellant is that it (Board) did not take any action on the complaint and approved the draft letter of offer by giving its comments. It was then that Appeal no.145 of 2006 was filed on 1.12.2006 before this Tribunal under section 15T of the Securities and Exchange Board of India Act, 1992 (for short the Act) challenging the action of the Board in approving the draft letter of offer. The appellant made the following prayers in this appeal :

“A)	Be pleased to set aside the impugned order issued by the Board and disallow ABNL to proceed with its Proposed Rights Issue.
B)	In the alternative, be pleased to stay the impugned order and disallow ABNL to proceed with its Proposed Rights Issue till the hearing and final disposal of RNK’s Company Application No. 525 of 2006 in BGFL’s Company Petition No.830 of 2005.
B)	Be pleased to direct ABNL and their Merchant Bankers for the Proposed Rights Issue i.e. ENAM and DSP to desist from making false, misleading and inadequate disclosures and make fair, proper and adequate disclosures.
D)	Be pleased to direct the Board to take appropriate action against ABNL and others in accordance with law.
E)	Be pleased to direct NSE and BSE to take appropriate action against ABNL and others for violations of SEBI Regulation and Listing Agreement by BGFL and ABNL in accordance with law.
F)	Cost of the instant proceedings be awarded to RNK and
G)	Such other and further order(s) may be passed in favour of RNK and/or for the protection of interest of investors in security as this Hon’ble Tribunal deems just and proper in the facts and circumstances of the instant case and in the interest of justice and equity.”

A prayer for an interim order had also been made to the effect that pending final decision in the appeal the proposed rights issue by the company be stayed. This appeal came up for preliminary hearing on 21.12.2006 when the learned senior counsel appearing for the company raised a preliminary objection challenging the locus standi of the appellant to prefer the appeal. While keeping the issue of maintainability open, the appeal was admitted and the prayer for interim stay was declined. Thereafter on 4.1.2007 Appeal no. 18 of 2007 was filed which came up for hearing on 24.1.2007 before the Presiding Officer. It was admitted and was ordered to be heard alongwith Appeal no. 145 of 2006. The prayer for interim stay was declined in this case as well and the preliminary objections raised by the respondents were left open to be decided at the time of final hearing.

Since the prayer for interim stay was declined and the proposed rights issue by the company was allowed to go on and the Board having approved the draft letter of offer, the company dispatched a composite application form and abridged letter of offer to its existing shareholders on December 18, 2006. The statutory advertisement for completion of dispatch appeared in the Economic Times (English), Nav Bharat Times (Hindi) and Akela (Gujrati) on December 19, 2006. The rights issue opened on December 26, 2006 and the same closed on January 25, 2007. It is not in dispute that the allotment under the rights issue was made on February 13, 2007 to the shareholders and others and that permission to trade the allotted shares was received from the Bombay Stock Exchange and National Stock Exchange on 19.2.2007 and since then the shares are being traded in the market. The return of allotment was filed with the Registrar of Companies on 9.3.2007.

It is pertinent to mention here that when the prayer for interim stay was declined by this Tribunal on 21.12.2006, the appellant in Appeal no. 145 of 2006 filed Writ Petition no.25 of 2007 in the High Court at Bombay challenging the order of the Tribunal refusing stay. This is what the appellant stated in para 12 of the writ petition which is reproduced hereunder :

“On 21^st December 2006, after hearing the Counsels appearing for Petitioner No.1 as well as Respondent No.2 & 3, the Hon’ble Tribunal was pleased to admit the Appeal no.145 of 2006 filed by the Petitioner no.1 though the question of its maintainability was kept open. However, despite the fact that the Rights Issue was due to open on 26^th December 2006 for subscription on the basis of the LOF which also contained false and inadequate disclosures, the Hon’ble Tribunal refused to grant stay to the impugned observation card/letter dated 20^th November 2006 issued by Respondent No.2 and in effect allowed Respondent No.3 to proceed with the Proposed Rights Issue on the basis of false and inadequate disclosures in the LOF thereby in effect rendering the Petitioners’ Appeal infructuous. A copy of the interim order dated 21^st December 2006 passed by the Tribunal in Petitioners’ Appeal No.145 of 2006 is hereto annexed and marked Exhibit “H”.”

The writ petition came up for hearing before a Division Bench on January 12, 2007 when the following order was passed dismissing the same :

“ Heard learned counsel for the petitioners and the respondents. By this petition, the petitioners are seeking to challenge an order dated 23^rd December, 2006 whereby the Tribunal though admitted the appeal, has granted no stay. The learned counsel for the respondents brought to our notice the provisions of section 12Z of the Securities & Exchange Board of India Act, 1992 which specifically provides a statutory appeal. We are, therefore, not inclined to entertain this petition. Hence petition stands dismissed.”

We are informed during the course of the hearing that the appellant did not take the matter in appeal to the Supreme Court under section 15Z of the Act.

Now when the allotment under the rights issue has been made and the shares have traded in the market for almost a year and the rights of other parties have intervened, can the prayers made in the appeal be granted even if one were to assume that there were inadequate disclosures in the letter of offer. We do not think so.

The main prayer made in the two appeals is that the communication sent by the Board conveying its comments (observation card) be set aside and the company be not allowed to proceed with its proposed rights issue. The rights issue is now over and, therefore, the learned senior counsel appearing for the company was right in contending that this prayer cannot be granted. Another prayer made in the appeals is that the company and its merchant bankers be directed to desist from making false, misleading and inadequate disclosures in the letter of offer. The letter of offer has already been approved by the Board on the basis of which the rights issue was allowed to proceed. This prayer, too, has become infructuous. The appellant was aware that its appeal would become infructuous since its prayer for an interim stay had been declined and this is what it stated in paragraph 12 of its writ petition when it challenged the order of the Tribunal refusing stay. The remedy of the appellant was to challenge the order of the Tribunal before the Supreme Court which it did not. It has now missed the bus and much water has since flown under the bridge. As already observed, the shares allotted in pursuance to the rights issue have been traded in the market for almost a year and most of them would have changed hands several times. It is difficult to chase those shares and the shareholders because in the demat era the shares are fungible like currency notes. In the circumstances, even if there was any defect in the letter of offer, it is difficult to put the clock back and undo the transactions that have already taken place. Moreover, when Appeal no.145 of 2006 came up for preliminary hearing we were not satisfied that the appellant had a locus standi to file the same. However, while keeping this issue open the appeal was admitted. In such cases stay could be granted only if a strong prima facie case was made out by the appellant which was not the case here. It was thereafter that Appeal no.18 of 2007 came to be filed which appears to be motivated as is clear from the fact that Appellant no.2 therein has infact been allotted shares in the rights issue and thereafter he applied for further allotment. Can it be said that he was misled by any non disclosure or wrong disclosure in the letter of offer approved by the Board or that he could not take an informed decision. The answer has to be in the negative.

The learned counsel for the appellant however contended that since adequate disclosures were not made in the letter of offer, the Tribunal should set aside the observation card and leave the necessary consequences to follow. In the alternative, he urged that we should mould the relief and balance the equities. Elaborating his contention, the learned counsel submitted that in case the observation card is set aside, notice could be given to the public about the true facts which had been suppressed in the letter of offer and the allottees could be given an option to cancel the contract of allotment and take the money back from the company. It is not practical to implement any of these suggestions, even if we were to agree with the appellant that there were wrong disclosures in the letter of offer. We have not been able to appreciate as to what consequences would flow if the observation card issued by the Board were to be set aside. That would not mean that the shares allotted to the shareholders which have thereafter been traded and have changed hands several times would automatically be set at naught. That cannot be the consequence. Again, the allottees cannot be given an option to cancel the letter of allotment and take the price back because the shares were allotted to them at the rate of Rs.793/- per share which is now being traded in the market above Rs.2300. In view of all these intervening circumstances, we cannot grant any of the prayers made in the appeals.

For the reasons recorded above, the appeals are dismissed as having become infructuous. No costs.

Sd/-

Justice N.K. Sodhi

Presiding Officer

Sd/-

Arun Bhargava
Member

Sd/-

Utpal Bhattacharya

Member

17.1.2008