LEGAL UPDATES: SEBI Clarification in the matter of Ambattur Enterprises Limited

Facts:
Ambattur Enterprises Limited a company listed at Madras Stock Exchange filed an appeal with SAT against the SEBI order of rejecting the Exemption Application filed by the Company claiming exemption from provisions of Regulations 8(1)(b), 27(3)(d) of SEBI (Delisting of Equity Shares)  Regulations,  2009.
Hon’ble SAT set aside the impugned order passed by the Board and remitted the case to the Board for passing a fresh order in accordance with law giving reasons in support of its conclusions.

Company filed Exemption Application on the following grounds:
  • NIL trading activity since 1995 at MSE (the only Exchange where the Company is listed).
  • Inability of the promoters to off load their shareholding to comply with the requirement of Clause 40A of the listing agreement.
  • The public shareholders held 17.66% of the capital being only 32 in number.
  • Majority of the public shareholders were non – traceable.
  • The company further submitted that Tamil Nadu Industrial Corporation being the largest public shareholder holding 15.79% shares of the total capital would not be in a position to participate in the delisting process and it would neither agree nor disagree to the proposal of delisting.
  • The company also contended for the provisions of Regulation 25 of the SEBI (Delisting of Equity Shares) Regulations, 2009 read in context with Sections 11(1), 11A, 11B, and 30 of the SEBI Act, 1992 which empowers SEBI for such measures to protect the interest of investors and exemptions from the regulations under the Delisting Regulations that has become impossible to be complied with.
  • It was impossible for the Company to comply with the requirement of prior approval of 2/3rd majority approval of the public shareholder through Postal Ballot and to obtain 90% positive consent from the public shareholders.
Issue:
 Whether SEBI has power to exempt a Company from the provisions of SEBI (Delisting of Equity Shares) Regulations,2009?

Contentions put forth by SEBI
  1. The Board reasoned the company for misplaced reliance on the provisions of Section 11(1), 11A, 11B and 30 of the SEBI Act, 1992 by putting the test for such measures which is the ‘investors interest’, ‘promotion and development of the securities market’ and also Regulation 25 of SEBI (Delisting of Equity Shares) Regulations, 2009 which provides for the power of the Board to issue clarifications.
  2. The Board also contended that there are no provisions under SCRA, SCRR, SEBI Act, or the Delisting Regulations, which allow the Company to file exemption application or which grant the exemption from the requirements and conditions of delisting under the Delisting Regulations.
  3. SEBI also contended that allowing company’s contention that the single largest public shareholder of the company will not participate in the passing of resolution by requisite majority, would defeat the objective and spirit of the conditions laid down in the Delisting Regulations, as voting in favor of delisting and giving positive consent in respect of delisting is the prerogative of a public shareholder and SEBI cannot dilute the same by granting exemption, because the public shareholder is traceable and available but not willing to participate. 
  Decision
In view of the above contentions, the request made by Ambattur Enterprises Limited seeking exemption from the provisions of the SEBI (Delisting of Equity Shares) Regulations, 2009 in respect of its proposed voluntary delisting offer could not be acceded and the application was accordingly disposed off.



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