Kusum Lata Singhal v. Securities and Exchange Board of India & Ors.

14. Learned counsel for the petitioner further submitted that there was no application of mind on the part of BSE while issuing the impugned order dated 30.04.2018, and the same is evidenced by the order/action having also been taken against a dead person i.e., Mr. Niranjan Das Jain, the father of the petitioner, who had expired in the year 2017.

15. To buttress their arguments, learned counsel for the petitioner have relied upon a judgment passed by the Hon‟ble Supreme Court in the case of Daffodills Pharmaceuticals Ltd. v. State Of U.P and Anr.1, wherein the Hon‟ble Supreme Court has observed as under:

16. Mr. Neeraj Malhotra, Senior Advocate, assisted by Mr. Abhishek Baid, Mr. Anup Jain, Mr. Praneet Das, Mr. Ashok Kumar Jain, and Mr. Nimish Kumar, advocates for SEBI and Ms. Surekha Raman, advocate for BSE, conjointly opposed the submissions of the petitioner.

17. Learned counsel for the respondents carefully took this court through the circulars dated 10.10.2016, and 01.08.2017 issued by 2020(18) SCC 550. - 7 - SEBI. Learned senior counsel submitted that the actions envisaged under these circulars are for the protection of the investors, which, SEBI, by virtue of its statutory mandate, ought to protect.

18. Learned senior counsel submitted that through the circular dated 30.05.2012, SEBI provided for an exit policy that needs to be followed by ELCs on stock exchanges seeking de-recognition. According to him, DSE in the present case, sought a voluntary exit, and vide letter dated 25.05.2015, submitted the list of its ELCs that were to be moved to the Dissemination Board of BSE which included Rishabh Ispat Ltd. Further information related to the names of the directors and promoters was also supplied by DSE, with the same being published vide BSE‟s notice dated 09.07.2015.

19. It was further submitted by the learned senior counsel that through the circular dated 10.10.2016, SEBI prescribed two options to the ELCs, either to raise the requisite capital in order to get listed on a nationwide stock exchange or to give an exit option to its investors. Furthermore, BSE vide letter dated 20.10.2016 advised Rishabh Ispat Ltd to submit a plan of action, and upon it not being submitted, BSE, in compliance with SEBI‟s circular dated 01.08.2017, which provided for the actions that are to be taken against non-compliant ELCs, proceeded against the petitioner and took the order/action dated 30.04.2018.

20. It was submitted by the learned senior counsel that the circulars issued by SEBI are structured as a cogent scheme in which a transitional arrangement in the form of a Dissemination Board is provided for the companies that were ELCs. This arrangement is made till the requisite action is taken on the part of the management of the ELCs that ultimately ensures that the shareholders are protected. - 8 -

21. Learned senior counsel also laid stress on the notice dated 09.07.2015 issued by BSE stating that Rishabh Ispat Ltd is placed on the Dissemination Board of BSE w.e.f. 13.07.2015, and is required to provide a plan of action. It was further submitted that the notice dated 09.07.2015 issued by BSE along with the letter dated 20.10.2016 addressed to Rishabh Ispat Ltd., are sufficient in order to constitute an opportunity of being heard. Since the petitioner, as well as Rishabh Ispat Ltd., had not been able to provide any evidence of the exit opportunity being provided to the shareholders, BSE was constrained to take the action/issue the order dated 30.04.2018.

22. It was further contended by the learned senior counsel that the fact of an exit opportunity being provided in the year 2004 has no bearing in the present case, as the same was unrelated to BSE‟s notice dated 09.07.2015, letter dated 20.10.2016 as also the circular of SEBI dated 10.10.2016.

23. It is the case of the respondents that BSE is duty bound to rely upon the information provided by DSE and based on the same, had issued the notice dated 09.07.2015. It was submitted by the learned senior counsel that as per the website of erstwhile DSE, as on 04.01.2013, Rishabh Ispat Ltd. was shown as a listed company, and furthermore vide letter dated 25.05.2015, DSE informed about the transfer of ELCs to the Dissemination Board of BSE in light of the application for voluntary exit submitted by DSE, which included the name of Rishabh Ispat Ltd., as also the name of its directors and promoters. The learned senior counsel concluded this leg of the respondents‟ argument by submitting that BSE had relied upon the information supplied to it by DSE. - 9 -

24. Learned senior counsel also submitted, that if at all the petitioner intends to refute the information supplied by DSE, the same should have been made a party to the present writ petition, and in its absence, the instant petition suffers from non-joinder of necessary parties.

25. I have heard the learned counsel for the parties and perused the record.

26. SEBI through its circular dated 29.12.2008 bearing the subject „Guidelines in respect of exit option to Regional Stock Exchanges‟ provided a scheme to provide an exit option to RSEs whose recognition is withdrawn and/or renewal of recognition is refused by SEBI and for RSEs who may want to surrender their recognition. Paragraph 8 of the circular creates a categorization between companies that are listed on a stock exchange in addition to the stock exchange that has been de-recognized; and companies that are listed exclusively on the de-recognized stock exchange i.e., ELCs.

27. Subsequently, the said circular provides that it shall be mandatory for ELCs to either seek listing at other exchanges or provide for exit option to the shareholders. Paragraph 8 of the said circular is reproduced as under:

- 10 -

28. The policy under the circular dated 29.12.2008 was further revised/updated by SEBI through its circular dated 30.05.2012 bearing the subject „Exit Policy for De-recognized/non-operational Stock Exchanges‟. The said circular provided for a voluntary surrender of recognition by stock exchanges where the annual trading turnover on its platform is less than Rs.1000 crores.

29. The circular further provided that in cases where an ELC has not been able to get itself listed on another stock exchange, the ELC shall cease to be a listed company and will be moved to the Dissemination Board by the exiting stock exchange, in this case DSE. The said circular further provided detailed features of the Dissemination Board and the manner in which it is to function. The material part of the circular dated 30.05.2012 reads as under:

30. SEBI in furtherance of its circular dated 30.05.2012 issued a circular dated 22.05.2014 bearing the subject „Companies exclusively listed on de-recognized/Non-operational Stock Exchanges‟. The said circular provided directions to stock exchanges to deal with companies exclusively listed on non-operational stock exchanges. The circular - 12 aimed at providing the requisite details relating to the transfer of an ELC from the de-recognized stock exchange to the Dissemination Board, as also for the voluntary delisting before the de-recognition of the stock exchanges by following the existing delisting norms of SEBI in terms of the SEBI (Delisting of Equity Shares) Regulations, 2009. The material part of the circular dated 22.05.2014 is reproduced as under: “Directions to Stock Exchanges to deal with companies exclusively listed on non-operational stock exchanges

3. In line with the above provisions, the following shall be applicable:i. The exclusively listed companies of such non-compliant stock exchanges may opt for listing in nation-wide exchanges after complying with listing norms ofmain board or the diluted listing norms, if any, on or before the exit of the exchange, either on voluntary or compulsory basis. Nation-wide stockexchanges shall facilitate the listing of these companies on priority basis in a time bound manner. For this purpose, these nation-wide stock exchanges shall immediately create a separate dedicated cell to expedite processing the listing requests from such companies. ii. Such exclusively listed companies may also opt for voluntary delisting before the de-recognition of the stock exchanges by following the existing delistingnorms of SEBl in terms of SEBI (Delisting of Equity Shares) Regulations, 2009.Nation-wide stock exchanges shall provide a platform to these companies to facilitate reverse book building for voluntary delisting using their platform. iii. With a view to facilitate voluntary delisting, if they so desire, it is clarified that forsuch companies as referred to at Para 2(¡) above, the requirements of'Minimum Public Shareholding' prescribed in Rules 19(2)(b) and 19A of theSecurities Contracts (Regulation) Rules, 1957 and Clause 40A of the Listing Agreement, shall not be applicable. iv. In case of companies exclusivelv listed in the non-operational stock exchangesthat are not traceable or where the data available is more than three years old,the process of inclusion in list of companies identified as 'Vanishing'(maintained by Ministry of Corporate Affairs) may be initiated by the respective stock exchanges. v. As per the 'Exit Circular' the exclusively listed companies, which fail to obtain listing on any other stock exchange, which do not voluntary delist or which are not considered as 'Vanishing - 13 companies', will cease to be listed company and will be moved to the dissemination board by the existing stock exchange. It shall be the responsibility of the exchanges which are being derecognized either on voluntary or compulsory basis, to place their exclusively listed companies on the dissemination board. These exchanges shall ensure that the database of the exclusively listed company is transferred to SEBl and to those stock exchanges on whose dissemination board, the shares of these companies are available.”

31. After the issuance of the circular dated 22.05.2014, there were certain issues that ELCs were facing in relation to their migration to nationwide stock exchanges. SEBI through its circular dated 17.04.2015, after having considered the representations of the ELCs and also the interests of the investors, provided a timeline of 18 months within which the ELCs were to obtain listing upon compliance with the listing requirements of the nationwide stock exchanges or provide an exit option to the shareholders.

32. Importantly, in paragraph 3(d) of the circular dated 17.04.2015, SEBI has provided that promoters and directors of ELCs that have failed to exercise any of the exit options will have to undergo stricter scrutiny for their future association with the securities market. The material part of the circular dated 17.04.2015 is reproduced as under:

33. Subsequent to the circular dated 17.04.2015, SEBI issued another circular dated 10.10.2016. The purpose of the circular was, inter alia, to provide clarifications on raising of further capital and the process of exit of ELCs from the Dissemination Board; and to further detail out the consequences that may befall upon the promoters and directors of ELCs who have failed to demonstrate adequacy of efforts for providing an exit to the shareholders in conformity with the exit mechanisms.

34. Pertinently, the said circular contained a detailed exit mechanism as „Annexure A‟, that may be provided to the shareholders of an ELC. Paragraph 5(a) also provided that ELCs on the Dissemination Board which have not expressed their intention to exercise either of the two exit options, shall submit their plan of action to the designated stock exchanges, latest within three months from the date of issuance of the circular to the satisfaction of the designated stock exchange, failing which the designated stock exchange shall have to recommend action as specified under paragraph 6 of the said circular. The material portion of the circular dated 10.10.2016 reads as under:

36. A conjoint and holistic reading of the aforementioned circulars would reveal that they are, in substance, a framework formulated by SEBI in order to effectively deal with the difficult situation of ELCs. - 18 - It must be considered that the retail and small shareholders, who had invested in the stocks of companies that had been exclusively listed on a stock exchange that was ultimately de-recognized find themselves in a position where their investments, which often contain their savings, are at risk.

37. In such a situation, it befalls upon SEBI, which, through the SEBI Act, has been statutorily empowered to protect the small and retail investors, to develop and provide for a scheme that shields them from actions which were beyond their control.

38. SEBI through the aforementioned circulars, and the comprehensive framework contained within them, has chosen to take the route of providing a two-fold exit policy to ELCs. They can, in such a scenario, either by raising the requisite capital, get themselves listed on a nationwide stock exchange; or the management of the ELCs is required to provide an exit option to the shareholders, and until either of the options is exercised by the ELCs, they are to remain on the Dissemination Board.

39. SEBI, also, while envisaging such a framework, must provide for the contingency of the management of the ELCs not wanting to exercise either of the exit options. In such a case, the shareholders of the ELC find themselves to be in a state of limbo—beholden to the will and mercy of the management of the ELC—whose actions, or the lack thereof, shall determine the fate of their investments.

40. In such a case, SEBI, initially through its circular dated 17.04.2015, which was further detailed out in its circular dated 10.10.2016, has provided the coercive steps that are to take place against the promoters/directors of the ELCs who have not attempted to exercise either of the two exit options, and remain on the - 19 - Dissemination Board. It must also be considered that the circular dated 01.08.2017 issued by SEBI, provides for some, out of the many coercive steps that were listed under paragraph 6(a) of the circular dated 10.10.2016, that shall be taken against the promoters/directors of the ELCs.

41. It is thus seen that the circular dated 01.08.2017 is part of a stage-wise effort on the part of SEBI to ensure that either the ELCs get listed on a nationwide stock exchange or an exit option gets provided to the shareholders, ultimately leading to the investments of the retail investors becoming secure.

42. It must further be considered as to whether there is a specific trigger that initiates coercive action against the promoters/directors of the ELCs. It can be seen that paragraph 5 of the circular dated 10.10.2016 casts a mandatory obligation upon the ELCs on the Dissemination Board, that have not indicated their intention to comply with the listing option or the option of providing an exit to the shareholders. Such ELCs are to submit their plan of action to the designated stock exchanges latest within three months from the date of issuance of the circular, failing which coercive actions, as specified under paragraph 6 of the said circular, can be taken.

43. Similarly, the condition requirement for taking the coercive steps against the promoters/directors under the circular dated 01.08.2017 is provided in paragraph 3 of the said circular. It being that the ELCs must have not complied with the circular dated 10.10.2016 and not submitted the plan of action to the designated stock exchanges.

44. It is thus seen that the coercive actions outlined in the aforementioned circulars are to be implemented when the specific - 20 triggers for their initiation are met, and further operate as a temporary measure till the exit option is exercised by the ELC and it is subsequently removed from the Dissemination Board. The coercive actions that are taken against the promoters/directors are then for the purpose of moving the concerned ELC and its management to exercise the exit options provided under the circulars and thereby secure the investments of the shareholders.

45. This court is, therefore, of the opinion that the circulars dated 10.10.2016 and 01.08.2017 cannot possibly be termed as being arbitrary. The submission of the petitioner that the said circulars are arbitrary and lack majorly in various aspects, are found to be nothing more than bald assertions. The scheme of the circulars evinces a well thought out planned procedure for dealing with ELCs, as also with the management of ELCs that have failed to follow the mandatory provisions of the circulars of SEBI. The provisions for coercive steps are found by this court to have been sufficiently detailed, reasonable and proportionate with the transgressions of the promoters/directors.

46. The submission of the petitioner that the said circulars are in the form of a blanket ruling being aggressively applied on individual directors with no provisions of proper representations on behalf of the aggrieved directors is equally fallacious. As has been observed above, the coercive steps against the promoters/directors are temporary measures, taken to move the ELCs into complying with the terms of the circular dated 10.10.2016, and thereby providing an exit option to the shareholders.

47. The opportunity of being represented is provided for under the terms of the said circulars themselves. Indeed, the manner in which the circulars are worded clearly shows that it is the non-representation - 21 of an ELC and in turn, the non-representation of the promoters/directors, and further their neglect in submitting a plan of action, that leads to coercive action against the promoters/directors. It can thus be seen, that the opportunity of being heard has been provided under the scheme of the circulars themselves. This being the case, the argument of the learned counsel of the petitioner is found to be totally unfounded.

48. This court, thus, finds the circulars dated 10.10.2016 and 01.08.2017 issued by SEBI to be valid in the eyes of law and not deserving any interference.

49. Having decided upon the issues relating to the validity of the aforementioned circulars, this court must now decide the issues relating to the legality of the action/order dated 30.04.2018 passed by BSE.

50. Through the action/order of BSE dated 30.04.2018, noncompliant ELCs, their directors, promoters and the companies, which are promoted by any of them, were deemed ineligible to access the securities market for the purposes of raising capital; and were also deemed ineligible to remain or become directors of any listed company till the promoters of such non-compliant ELCs provide an exit option to public shareholders, in compliance with SEBI circular dated 10.10.2016. This action/order of BSE contained a table that noted the name of the petitioner and indicated that the action is taken for a period of 10 years. The material part of the action/order dated 30.04.2018 reads as under: “It is informed that as per SEBI Circular No. SEBI/HO/MRD/DSA/ClR/P/2017/92 dated August 01, 2017 regarding action against Exclusively Listed Companies and its Promoters/Directors. - 22 - The Exchange has shared the details of the non-compliant Exclusively Listed Companies and its Promoters/Directors with the Depositories for initiating the action against following Exclusively Listed Companies and its Promoters/Directors in accordance with the above referred circular. The particulars shared with the Depositories are based on the extent of the data made available by De-recognized/non-operational/exited Stock Exchanges/ROC, to BSE: *** Further the consequences of non-compliant, includes the following:-

1. The non-compliant ELCs, its directors, its promoters and the companies which are promoted by any of them shall not be eligible to access the securities market for the purposes of raising capital till the promoters of such ELCs provide an exit option to the public shareholders in compliance with SEBI circular dated October 10, 2016

2. The promoters and directors of non-compliant ELCs shall not be eligible to remain or become directors of any listed company till the promoters of such non-compliant ELCs. provide an exit option to public shareholders, in compliance with the SEBI circular dated October 10, 2016”

51. The contention of the learned counsel for the petitioner that requires examination at this stage, is that according to him, in the instant case, Rishabh Ispat Ltd. is not an ELC. The circulars dated 10.10.2016 and 01.08.2017 issued by SEBI which provide force and ratification to the order/action of BSE, therefore, do not apply to Rishabh Ispat Ltd. The petitioner is then, not a promoter/director of a non-compliant ELC, and thus the BSE could not have proceeded against the petitioner.

52. The distinction between a company exclusively listed on a stock exchange that was de-recognized, and a company that is additionally found to be listed on a stock exchange other than the stock exchange that was de-recognized, was initially provided by SEBI under its circular dated 29.12.2008. The circular dated 01.08.2017 issued by - 23 - SEBI provides a more explicit elaboration on the meaning of ELCs. Paragraph 4 of the said circular reads as under:

53. It is not disputed that DSE was the only stock exchange on which the Rishabh Ispat Ltd. was listed. The proposition intended to be advanced by the petitioner is that Rishabh Ispat Ltd. had been delisted prior to the de-recognition of DSE, which took place through an order of SEBI dated 19.11.2014.

54. It is the case of the petitioner that Rishabh Ispat Ltd. was delisted 6 months after it got suspended by DSE on 04.03.2002 according to the provisions of the Delisting Guidelines, specifically Clause 15.

55. As pointed out by the learned counsel for BSE, with which this court is in agreement, there is nothing brought on record by the petitioner that factually suggests that Rishabh Ispat Ltd was delisted on a date prior to the de-recognition of DSE.

56. This court must now examine the legal contention of the petitioner that given that Rishabh Ispat Ltd. was suspended by DSE, a logical supposition could be made that Rishabh Ispat Ltd. after 6 months, was de-listed

57. Clause 15 of the Delisting Guidelines reads as under: “15.

COMPULSORY DELISTING OF COMPANIES BY STOCK - 24 - 15.[1] The Stock Exchanges may delist companies which have been suspended for a minimum period of six months for noncompliance with the Listing Agreement. 15.[2] The Stock Exchanges may also delist companies as per the norms provided in Schedule III. 15.[3] The Stock Exchange shall give adequate and wide public notice through newspapers (including one English national daily of wide circulation) and through display of the notice on the notice board/ website/ trading systems of the Exchange. 15.[4] The stock exchange shall give a show cause notice to a company or adopt procedure provided under Part B of Schedule III for delisting under sub-clause15.[1] and 15.2. 15.[5] The exchange shall provide a time period of 15 days within which representation may be made to the exchange by any person who may be aggrieved by the proposed delisting. 15.[6] The stock exchange may, after consideration of the representations received from aggrieved persons, delist the securities of such companies. 15.[6] A Where the stock exchange delists the securities of a company, it shall ensure that adequate and wide public notice of the fact of delisting is given through newspapers and on the notice boards/trading systems of the stock exchange and shall ensure disclosure in all such notices of the fair value of such securities determined in accordance with the Explanation to clause 16.1”

58. A bare perusal of Clause 15 of the Delisting Guidelines would reveal that under Clause 15.1, discretion is being given to the concerned stock exchange, as to whether it wishes to delist the suspended company.

59. Great stress is laid by the learned counsel for the petitioner on the words “compulsory delisting” as they appear in the heading of Clause 15, to argue that delisting must necessarily take place after a suspension. However, the definition of „compulsory delisting‟, as provided under clause 3.1(d) would indicate otherwise. For clarity, clauses 3.1(d) and (j) are reproduced as under: “3.1…. - 25 - *** (d) „compulsory delisting‟ means delisting of the securities of a company by an exchange.” *** (j) „voluntary delisting‟ means delisting of securities of a body corporate voluntarily by a promoter or an acquirer or any other person other than the stock exchange(s).”

60. A bare perusal of the definitions would reveal that the word „compulsory‟ as used in the heading of Clause 15 of the Delisting Guidelines is aimed at emphasizing that the procedure contained therein allows delisting at the behest of the stock exchange, as opposed to a „voluntary delisting‟ which provides for delisting by a promoter or acquirer of a body corporate. The use of the word „compulsory‟ thus cannot possibly indicate a system of automatic delisting once suspension has taken place and 6 months have passed.

61. The Report of the Delisting Committee on Delisting of Shares dated 13.08.2002 set up under the convenorship of Shri. Pratip Kar, former Executive Director of SEBI, later accepted by SEBI, had made certain recommendations relating to the delisting of securities under the Indian regime. Based on the recommendations of the Committee, the Delisting Guidelines had been issued. In paragraph 4.34 of the said report, the following recommendations were made in relation to “Compulsory Delisting of Companies by the Stock Exchanges”: “ *** The Committee therefore recommends that a) stock exchanges should be empowered to delist those companies which have been suspended for a minimum period of six months for non-compliance with the Listing Agreement. b) as an alternative to the norms and procedure laid down in Annexure II of the existing SEBI Circular SMDRP/CIR– 14/98 dated April 29, 1998 the stock exchange should give a show cause notice to these companies besides adequate - 26 and wide public notice through newspapers and on the notice boards of the stock exchanges; c) these companies should be brought into the framework of arbitration mechanism of the stock exchanges so that the investors could have the opportunity of receiving monetary compensation; d) the Department of Company Affairs may be requested to amend the Companies Act for allowing the stock exchanges to make an application for winding up of the company. However, such petitions against companies should be filed by the stock exchanges only on the basis of investor complaints.”

62. It can, thus, be seen that the Committee report recommended that the stock exchanges are to be empowered i.e., given the power to, delist companies. There was, therefore, no such provision that allowed for an automatic delisting to take place simpliciter.

63. This court, thus, finds the argument of the learned counsel for the petitioner that there exists a logical supposition of Rishabh Ispat Ltd. being delisted under Clause 15 of the Delisting Guidelines since it had previously been suspended, to be fallacious and completely without merit.

64. It must also be considered that if at all Rishabh Ispat Ltd., was delisted under Clause 15 of the Delisting Guidelines, as per the provisions of Clauses 15.[3] and 15.4, DSE would have issued a public notice through newspapers and also provided a show cause notice to Rishabh Ispat Ltd.

65. Learned counsel for the petitioner has brought nothing on record to suggest that Rishabh Ispat Ltd., had been delisted by DSE under the provisions of Clause 15 of the Delisting Guidelines, prior to the de-recognition of DSE. On the other hand, learned counsel for the respondent no. 2 has brought on record a letter dated 25.05.2015 from DSE addressed to BSE bearing the subject „List of DSE Listed - 27 - Companies to be placed on BSE Limited Dissemination Board‟, which contains a list of companies listed on DSE and contains the name of Rishabh Ispat Ltd., at Sl. No. 980.

66. This court, is thus, of the opinion that the petitioner has not been successful in convincing this court that Rishabh Ispat Ltd. had been delisted prior to the de-recognition of DSE. It is, thus, the case that Rishabh Ispat Ltd. fell within the definition of an „ELC‟ as defined inter alia under paragraph 4 of the circular dated 01.08.2017 issued by SEBI. BSE is, thus, found to be vested with the requisite legal jurisdiction to have issued the order/taken the action dated 30.04.2018 against the petitioner.

67. This court must now consider the submission of the learned counsel for the petitioner relating to the violation of the principles of natural justice.

68. The first claim relates to the petitioner not having been provided an opportunity of being heard before BSE took the action/order dated 30.04.2018.

69. The order/action of BSE dated 30.04.2018 was taken in order to comply with the circular issued by SEBI dated 01.08.2017. The said circular provided initial steps that are to be taken in order to ensure that the exit option is provided to the shareholders of ELCs that have not complied with the provisions of the circular issued by SEBI dated 10.10.2016 and have not submitted a plan of action to DSEs as is mandated by paragraph 5(a) of the circular dated 10.10.2016. For the sake of clarity, the material part of the circular dated 01.08.2017 is reproduced as under: “3. In order to ensure that exit option is provided to the public shareholders of ELCs that are non-compliant with the - 28 provisions of the said circular dated October 10, 2016 and have not submitted plan of action to the DSEs and in order to protect the interest of investors in ELCs on DB it is hereby directed that, to, begin with: ***”

70. It can, thus, be seen that in order to proceed under the circular dated 01.08.2017, it must be the case that an ELC has not complied with the provisions of SEBI's circular dated 10.10.2016 which included a provision for a plan of action.

71. The material provisions of SEBI's circular dated 10.10.2016 are reproduced as under:

72. „Annexure-A‟ as referenced under paragraph 4(d) of the said circular reads as under: “Annexure-A. i. The promoter in consultation with the designated stock exchange shall appoint an 'independent valuer' from the panel of expert valuers of the designated stock exchange. ii. In case the fair value determined is positive the promoter of the company shall acquire shares of such companies from the public shareholders by paying them such value determined by the valuer. iii. The promoter shall undertake to complete the entire process within seventy five working days. iv. The promoter of the company to make a public announcement in at least one national daily with wide circulation, one regional language newspaper of the region where the exited stock exchange was located and the website of the designated stock exchanges. v. The public announcement shall contain all material information of the fact of such exit opportunity to its shareholders, disclosing therein the name and address of company, including exit price offered by the promoter with the justification therefore, and shall not contain any false or misleading statement. vi. The announcement shall contain a declaration about the liability of the promoter to acquire the shares of the shareholders, who have not offered their shares under exit offer up to a period of one year from the completion of offer at the same price determined by the valuer. vii. The exit offer shall remain open for a period of minimum five working days during which the public shareholders shall tender their shares. The promoter shall open an escrow account in favour of independent valuer/designated stock exchange and deposit therein the total estimated amount of consideration on the basis of exit price and number of outstanding public shareholders. The escrow account shall consist of either cash deposited with a scheduled commercial bank or a bank guarantee, or a combination of both. The amount in the escrow account shall not be released to the promoter unless all the payments made in respect of shares tendered for the aforesaid period of one year. viii. The promoter shall make payment of consideration within fifteen working days from the date completion of offer. ix. The promoter shall certify to the satisfaction of designated stock exchange that appropriate procedure has been followed for - 30 providing exit to shareholders of such companies. Subsequently, the designated stock exchanges upon satisfaction shall. remove the company from the dissemination board. x. The exclusively listed companies which have 100% promoter holding shall be removed from the dissemination board on obtaining a compliance certification from any independent professional with regard to the holding of shares of these companies and submit to the designated stock exchanges. xi. The names of the companies providing exit opportunity to its shareholders and their promoters shall be displayed in a separate section on the website of the designated stock exchange.”

73. The scheme of SEBI's circular dated 10.10.2016, therefore, is that at the threshold stage, an ELC has to express its intention to the concerned stock exchange of choosing either of the two alternatives available to an ELC on the Dissemination Board. In the event that an ELC fails to do so, the ELC must, as per paragraph 5 of the said circular, submit a plan of action to the concerned stock exchange within 3 months from the date of issuance of the said circular failing which coercive measures against the promoters/directors may be taken under paragraph 6 of the said circular.

74. BSE, through a letter dated 20.10.2016 addressed to Rishabh Ispat Ltd., communicated that as per SEBI's circular dated 10.10.2016, Rishabh Ispat Ltd. is to either raise the capital for listing on a nationwide stock exchange or provide exit to investors. The letter then asked of Rishabh Ispat Ltd., to communicate to BSE its intention of opting for either one of the two alternatives. The material part of the letter dated 20.10.2016 reads as under: “As you are aware that your company was transferred to the Dissemination Board of BE pursuant to circular issued by Securities and Exchange Board of India (SEBI) circular CIR/MRD/DSA/05/2015 dated April 17 and the company has not been listed on any of the Nationwide Stock Exchanges. - 31 - Now SEBI vide circular SEBI/HO/MRD/DSA/CIR/P/2016/110 dated October 10, 2016 has given following two options to the companies which were Exclusively Listed Companies (ELCs) on De-recognised / nonoperational / exited Stock Exchanges and whose names are still appearing on the Dissemination Board of Nationwide stock Exchange.

1) Raising capital for listing on Nationwide Stock Exchange

2) Provide exit to investors. At BSE you can avail any of the two options stated in the SEBI circular. Therefore, you may arrange to forward us your intention of selecting any of the above mentioned options within 3 months as stipulated. For your ready reference we are attaching copy of SEB| circular SEBI/HO/MRD/DSA/CIR/P/2016/110 dated October 10, 2016. As per the requirements of the said circular, we will soon be appointing Independent Valuers. The details of Independent Valuers with the said SEBI circular can also be viewed on our website (www.bseindia.com).”

75. Since Rishabh Ispat Ltd., had neither got itself listed on a nationwide stock exchange, nor had provided an exit option to all of its shareholders, and furthermore, had also not provided a plan of action to BSE, the impugned action/order dated 30.04.2018 was taken.

76. It can, thus, be seen that firstly, Rishabh Ispat Ltd., received a letter from BSE dated 20.10.2016, seeking from it and also from its management, compliance with SEBI's circular dated 10.10.2016. Secondly, the circular of SEBI itself provided under paragraph 6 that coercive actions may be taken against the promoters/directors of ELCs that have failed to demonstrate the adequacy of efforts for providing exit to their shareholders in conformity with the exit mechanism, as provided for under the said circular; and thirdly, Rishabh Ispat Ltd., did in fact, fail to demonstrate the adequacy of efforts for providing exit to its shareholders in conformity with the exit mechanism. - 32 -

77. Since the provisions of the circular dated 10.10.2016 had been violated by Rishabh Ispat Ltd., and also because the requirements of paragraph 3 of the circular dated 01.08.2017 had been met, BSE rightfully, in discharge of its obligations under SEBI's circular dated 01.08.2017, took the action/order dated 30.04.2018.

78. This court finds that sufficient opportunity of hearing was provided to Rishabh Ispat Ltd., as also to the petitioner, in order for BSE to have taken the action/order dated 30.04.2018.

79. The argument of the learned counsel for the petitioner that the petitioner having resigned from the post of the Director on 05.03.2018, and therefore, the action/order dated 30.04.2018 could not have been taken against the petitioner, is also liable to be rejected as the same is found to be baseless.

80. If at all such an argument is to be accepted, then every director, who blatantly violates the mandatory terms of the circulars of the SEBI dated 10.10.2016 and 01.08.2017, could simply resign and claim impunity from the coercive actions that are envisaged by SEBI. The object and purpose for which the circulars were issued would, therefore, get frustrated.

81. It must be seen that when the circular dated 01.08.2017 was issued by SEBI, in furtherance of which BSE took the impugned action/order dated 30.04.2018, the petitioner remained a Director of Rishabh Ispat Ltd. Importantly, it must also be considered, that the terms of the order dated 01.08.2017 do not require a person to hold a continued position of directorship in the ELC. The circular dated 01.08.2017, specifically paragraph 3, merely requires non-compliance with the circular dated 10.10.2016 on the part of an ELC. - 33 -

82. The petitioner‟s representations that are placed on record may now be briefly considered. It may be noted that the first representation placed on record is a joint letter by the petitioner and one Sh. Naresh Kumar Jain, Director, Rishabh Ispat Ltd., dated 28.04.2018. The letter is addressed to SEBI and is concerned with an action taken by SEBI on 04.04.2018. The petitioner, in the present petition, has not assailed any order/action of SEBI dated 04.04.2018. This court, therefore, finds this representation to be wholly irrelevant.

83. The second representation is a letter by the petitioner addressed to SEBI, dated 13.11.2019. This letter is again not concerned with the action/order of BSE dated 30.04.2018. This court does not find the representations to be either relevant or supporting the case of the petitioner insofar as the present writ petition is concerned.

84. In relation to the submission of the learned counsel for the petitioner, that the order dated 30.04.2018 is non-speaking and therefore violative of Section 11(4) of the SEBI Act, this court finds it to be wholly without merit. The action/order dated 30.04.2018 was taken by BSE and not by SEBI. While the action/order was taken by BSE, it was complying with, and taken in furtherance of, the circular dated 01.08.2017 of SEBI. With this factual matrix, this court, is unable to find any relevance or applicability of Section 11(4) of the SEBI Act.

85. So far as the decision relied upon by the learned counsel for the petitioner in the case of Daffodills Pharmaceuticals Ltd (supra) is concerned, the same does not have any application under the facts of the present case. The cited decision is related to the issue of blacklisting. - 34 -

86. This court is, therefore, of the considered opinion that the circulars dated 10.10.2016 and 01.08.2017 issued by SEBI are legally valid, and are part of a structured scheme that deals with the situation of ELCs, and the manner in which the shareholders associated with such ELCs are to be protected.

87. This court also does not find any infirmity in the order dated 30.04.2018 passed by BSE.

88. In view of the aforesaid discussion, the present writ petition is bereft of any merit and is liable to be dismissed, alongwith the pending application.

JUDGE AUGUST 09, 2023