Sebi’s appeal against SAT order dismissed by the apex court

The petitioner is a registered housing finance company and is engaged in the business of providing retail and corporate loans. It’s asserted that they were running into some financial difficulties and were seeking investors to raise their capital. It’s also contended that three of the existing shareholders along with an outlander proposed to pump in a certain quantum of finances into the Company.

On May 31, PNB Housing Finance announced its board had approved raising Rs crore via a preferential allotment of shares to elect shareholders led by Carlyle Group. The company’s board had approved a price of Rs 390 per share determined as per SEBI’s issue of capital and disclosure necessities regulations. But the market regulator directed the company to undertake a valuation of the shares as per its Articles of Association — that mandate a registered valuer’s report for alike fundraising.

Based on this the board of directors issued a resolution dated May 31, 2021, approving allocation and allotment of equity shares and warrants to the proposed allottees by way of preferential allotment on a private placement basis for cash consideration in accordance with the SEBI ( Issue of Capital and Disclosure Conditions) Regulations, 2018 (‘ICDR Regulations’for short). The said resolution also directed to convene an Extra-Ordinary General Meeting (‘EGM’for short) on June 22, 2021, to seek approval from the members of the Company in accordance with Section 62 (1) (c) of the Companies Act, 2013.

The case landed at the top court after the market regulator appealed against the SAT ruling. The apex court bench presided by Justice L Nageswara Rao said it would wait for the appointment of another member at SAT who can cast the deciding vote on the split verdict. Until then, posing results on the preferential issue resolution will remain nonpublic, the apex court said.

By the impugned order of the General Manager of the replier SEBI dated June 18, 2021, which seems to have been communicated to the complainant through the mail in the late hours of June 18, 2021. The respondent has directed the Company not to consider Item No. 1 of the EGM notices dated May 31, 2021, till an independent valuation of the shares is done by a registered independent valuer, and thereafter the matter is placed before the board of directors afresh for deciding the preferential allotment based on the valuation given. The appellant has filed the present appeal being aggrieved by this direction.

After hearing the learned counsel for the parties the crux of the matter is as to whether a valuation report from registered valuer is required to be done as per the Articles of Association of the Company or whether the valuation of the shares is required to be done as per Section 164 of the ICDR Regulations. It has been contended that under Section 62 (1) (c) of the Companies Act a provision has been made for valuation through a registered valuer but under Rule 13 of the Companies ( Share Capital and Debentures) Rules, 2014 this requirement has been dispensed with where the preferential allotment of shares is being issued by a listed company.

The Supreme Court of India adjourned the hearing, indicating that it’ll wait for fresh appointments at the Securities Appellate Tribunal. Earlier this month, SAT had given a split verdict on the Securities and Exchange Board of India’s objection to the preferential issue allotment pricing by the housing financier. The matter at the bench was heard by a two-judge bench of presiding officer Justice Tarun Agarwala and judicial member Justice MT Joshi. Since March 31, the specialized member position at SAT has been vacant.

The Supreme Court has dismissed as” infructuous” the appeal filed by capital markets regulator Sebi against the Securities Appellate Tribunal’s order in a matter related to its Rs-crore equity capital raise plan.

Last week, PNB Housing Finance said that its board of directors has decided to” not do with the preferential issue and terminate the share subscription agreements” with the proposed allottees.

Accordingly, the appeal of the Securities and Exchange Board of India (Sebi) before the Securities Appellate Tribunal (SAT) filed in June also became infructuous.

” Accordingly, the company has filed an application dated October 19, 2021, before SAT, seeking permission to withdraw the appeal,” PNB Housing Finance said in a regulatory filing on Thursday. Further, the appeal by Sebi before the Supreme Court was listed for hearing on October 20, 2021.

” Given the developments stated above, the SC dismissed the appeal filed by Sebi stating that the appeal has become infructuous due to subsequent developments,” the company said in the regulatory filing.

On October 14, PNB Housing Finance informed about scrapping the Rs-crore share-sale plan to US-based private equity establishment Carlyle Group and others. The deal announced in May- end soon got mired into legal hurdles on matters related to the valuation of shares on the offer.

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