M/S. DISCOVERY WEALTH MANAGEMENT SERVICES PVT. LTD. & ORS.versusMIS. PADMINI ENGINEERING PVT. LTD. & ORS.

                    [2014] 14 S.C.R. 265


 MIS. DISCOVERY WEALTH MANAGEMENT SERVICES                      A
                PVT. LTD. &ORS.
                              v.
     MIS. PADMINI ENGINEERING PVT. LTD. & ORS.
               (Civil Appeal No. 5027 of 2008)                  B
                   DECEMBER 10, 2014
      [DIPAK MISRA AND UDAY UMESH LALIT, JJ.]
        Securities Contracts (Regulation) Rules, 1956:
 r.19(2)(b)- Securities and Exchange Board of India (Listing C
 of Securities) Guidelines, 2003: clauses 8.1 to 8.5, 12.1 -
 Delisting of shares- BSE did not al/ow the delisting of shares
 of Hefla· Ltd. as level of public shareholding in Hella India
 did not go below 10% - Held: The offer of delisting would fail
 if the public shareholding does not fall below the minimum D
.listing conditions or the listing agreement- In the instant case,
 as per the agreement between the company He//a India and
 BSE, the level of public shareholding fixed for continuous
 listing was 20% ~ On failure of "Hella India" to maintain the
 level of 20%,. the condition for continuous listing would be E
 violated and breached and Hella Ltd. would be eligible to
 get de/isted.
      Dismissing the appeal, the Court
     HELD: 1. On a perusal of the agreement between F
Hella Ltd. and the BSE, it is clear that the benchmark
had been determined fixed at 20 per cent. It is not in
dispute that the public shareholding has reduced to
18.63 per cent, which is less than 20 per cent. Clause
40A(i) provides that the listing company accepts the G
conditions to maintain on a continuous basis the
minimum level of non-promoter holding at the level of
public shareholding as required at the time of listing. It
clearly conveys the meaning that if there is a benchmark
                                                                H
                             265
266       SUPREME COURT REPORTS               [2014] 14 S.C.R.

A in the agreement, the same has to be maintained. 2003
  guidelines are applicable and prescribe the procedure
  for delisting of securities. As per the procedure
   ~rescribed, any promoter who desires delisting has to
  make an offer for purchase of shares in terms of clauses
B 8.1 to 8.3. The said exercise has to be completed within
  a period specified in clauses 8.1 and 8.5. The whole
   process has to be monitored by the Stock Exchange and
  the Registrar and transfer agency has to asc_ert_ain the
  genuineness of the physical securities tendered, etc.
c Clause 8.8 of 2003 guidelines stipulate that required level
  .of public shareholding must fall below the level of
   continuous listing. Clause 12.1 of2003 guidelines states
  that the offer of delisting would fail if the public
  shareholding does not fall below the minimum limit
o specified by the listing conditions or the listing
  agreement. It is quite vivid that the 2003 guidelines do
   not prescribe or fix the required level of public.
  shareholding of continuous listing though the said limit
   must be breached for an offer of delisting to succeed.
E [Paras 8, 16, 17][275-G-H; 276-A-B, D-H]
          .3 .. Rule 19(2)(b) provided that at least 10% of each
    class or kind of securities must be offered to public for
    subscription through advertisement in newspaper
    during the time specified and the applications received
 F pursuant to such offer should be allotted as per the
    conditions postulated. The proviso engrafts states that
    in case the company does not fulfill the conditions, it
   ..shall offer at least 25% of each of the securities to th.e
    public for subscription through advertisement in
 G newspaper, etc. within the time stipulated. The opening
    words of sub-rule (2) of Rule 19 read "apart from
     complying with such other terms and c"onditions as may
    be laid down by a recognized' stock exchange. These
    words have their own importance. It is clear that
 H
  DISCOVERY WEALTH MANAGEMENT SERVICES P.                      267
       LTD. v.PADMINI ENGINEERING P. LTD.

sub-rule (2) gives primacy to the terms and conditions         A
as may be laid down by the recognized stock exchange
in that regard. In the instant case, as per the agreement
between the company "Hella India" and BSE, the level
of public shareholding fixed for continuous listing was
20%. The said limit of 20%, is a higher Ii mil On failure of   B
"Hella India" to maintain·the level of 20%, the condition
for continuous listing would be violated and breached.
Public holding of 10% would not have satisfied the
requirement of rule 19(2). Therefore, when harmoniously
interpreted, the listing requirement i.e. the agreement        c
with BSE with rule 19(2) along with 2003 Guidelines, it is
apparent that the condition for continuous listing would
not have been followed by "Hella India", if the public
shareholding had fallen below 20%. Thus, it has to be
held that offer of delisting would be successful and           D
would not fail, if the public shareholding falls below 20%.
The 10% limit would not apply in view of Rule 19(2) as
the said Rule recognizes the terms and conditions laid
 down by recognized stock exchange and stipulates that
the same must be satisfied for the company to claim            E
 continuous listing. [Para 18][277-A-H]
        CIVIL APPELLATE JURISDICTION: Civil Appeal No.
5027 of 2008.
    From the Judgment and Order dated 27-05.2008 of the        F
Securities Appellate Tribunal, Mumbai in Appeal No. 51 of
2006.
     A.J. Bhambhani, Sr.Adv., Ms. Sumita Ha.zarika,Adv. for
the Appellants.
     Arvind Datar, Shyam Divan, Sr. Advs., Bhargava V. G
Desai, Vishal Chaudhary,Manpreet Lamba, N. Ganpathy (For
Mis K.J. John &Co.),Advs. for the Respondents.


                                                               H
268       SUPREME COURT REPORTS                  [2014) 14 S.C.R.


A         The Judgment of the Court was delivered by
        DIPAK MISRA, J. 1. The present appeal is dire6ted
  against the judgment and order dated 27 .05.2008 passed by
  the Securities Appellate Tribunal (for short "SAT') in Appeal
  No. 51 of 2006 whereby it has set aside the order passed by
B the Bombay Stock Exchange (for short "BSE") declining to grant
  the benefit of delisting of respon_dent No. 4 herein, viz., Mis
  Hella India Lighting Ltd. (for short "Hella India").
          2. The facts which are required to be stated are that Hella
c  lridia is a public limited company whose shares are listed..on
   BSE as well as on Delhi Stock Exchange (for short ''DSE")
   pursuant to the listing agreements between the company, on
   th~ one hand, and BSE and DSE, on the other. The
   agreements were executed on 17.10.1986. Reinhold Poersch
D Gmbh, the promoter of Hella India, holds 51% of its share
   capital. In July, 2005, Hella India decided to have its shares
   delisted from both the Stock Exchanges in accordance with
   the provisions contained in the Securities and Exchange Board
   of India (Delisting of Securities) Guidelines, 2003 (for short
E "the guidelines"). In January, 2006, a voluntary offer was made
   to the public shareholders to acquire their shares as per the
   guidelines. The offer was made by a public announcem~nt
   through Padmini Engineering Private Limited, the fir.st
   respondent herein, which is an affiliated entity of the prombter
F of Hella India. The approval of the shareholders was obtained
   by a special resolution which was passed in the extraordinary
   general meeting of the shareholders of Hella India in·
   September, 2005. The promoter of Hella India determined
   the floor price of Rs. 52.39 per share which was later turned
G out to be the exit price for delisting of securities in accordance
   with the book building process prescribed by the guidelines.
   The public offer opened on 07.02.2006 and closed on
 . 10.02.2006.
         3. There is no cavil over the fact that 9,63, 193 shares
 H including 16,000 shares in physical form were tendered at that
  DISCOVERY WEALTH MANAGEMENT SERVICES P.             269
LTD. v. PADMINI ENGINEERING P. LTD. [DIPAK MISRA, J.]

price. The total number of shares offered including those at        A
higher prices were 9,71,754. Respondent No. 1-M/s. Padmini
Engineering Pvt. Ltd., as the acquirer, accepted 9,63, 193
shares at the price of Rs, 52.39 per share. The quantity of
share accepted by the said respondent together with the
holding of the promoters came to 81.37 per cent of the total        B
equity share capital of Hella India, as a consequence of which,
the level of public share holding in Hella India was brought down
to 18.63 per cent, which was less than 20 per cent.
      4. As the facts would further unfold, after accepting the
shares at the price aforesaid, respondent No. 1 through the C
merchant banker, viz., UTI Securities approached the SSE by
a letter dated 15.02.2006 for completing the settlement of
transactions and permission was sought to release the
advertisements regarding the final price as discovered by the
reverse book building process. On receipt of the aforesaid D
request from respondent No. 1, BSE, declined to proceed with
the merchant banker by a communication dated .15.02.2006,
which reads as follows:-
      "you are requested to note that the threshold limit for       E
      de listing on the Exchange would be triggered only if the
      acquirers holding together with promoters h_olding
      exceed 90%.
      It is observed from the electronic book, which was kept
      open for the period from February 7, 2006 to February · F
      10, 2006, that the quantity offered therein by the demat
      shareholders together with the promoters existing holding
      would not exceed 90%.
      Hence, the Exchange would not proceed with the
      settlement of funds and securities."                          G
     5. From the aforesaid: it is clear that BSE declined to
proceed with the settlement as th.e holding of the acquirers
together with the promoters did not exceed 90 per cent. In
other words, BSE was of the view that the level of the public       H
270         SUPREME COURT REPORTS                  [2014] 14 S.C.R.


A     shareholding in Hella India had not gone below 10 per cent
      and, therefore, delisting could not be allowed.
            6. Being grieved by the aforesaid communication,
      respondent No. 1 preferred the appeal before SAT. SAT
      referred to Section 30 of the Securities.Contracts (Regulation)
8     Act, 1956 (for short "SCRA"), Rule 19 (2) (b) of the Securities
      Contracts (Regulation) Act, 1956 (for short "Rules"), which was
      substituted with effect from 07.06.2001, and eventually came
      to hold as follows:

c          " ... We have already noticed. the provisions of Rule
           19(2)(b). Companies which fulfil the conditions of clause
           (b) have to maintain at least 1O per cent of public
           shareholding out of their total voting capital and others
           who do not fulfil those conditions have to maintain a
D          minimum of 25 per cent. It is common ground between
           the parties that Hella India does not fulfil the conditions
           laid down in clause (b) of Rules 19(2) of the Rules. It
           has, therefore, to maintain a minimum level of 25 per
           cent of public holding for continuous listing. This
           condition which forms part of the listing agreement when
E
           read with clauses (4 ), 8(8) and 12 of the guidelines would .
           m_ake it clear that if the public shareholding of Hella India
           ~as ever to fall below 25 per cent, it would become
           eligible to get delisted. As already noticed earlier,
           acceptance by the acquirer of the shares offered by the
F
           public would bring the public shareholding of Hella down
           to 18.63 per cent of its total equity share capital. This
           level of public shareholding entitles Hell a India to get its
           securities delisted on BS~ in terms of Rule 1(2) of th~
           Rules read with the guidelines. In this view of the matter,
G
           BSE was not justified in holding that the limit for delisting
           would get triggered .only wlien the public holding would
           fall below 10 per cent or, to put it the other way, the
           acquirers' holding together with promoters' holding

H
  DISCOVERY WEALTH MANAGEMENT SERVICES P.             271
LTD. v. PADMINI ENGINEERING P. LTD. [DIPAK MISRA, J.]

     exceed 90 per cent. We have, therefore, no hesitation       A
     in setting aside the impugned decision of BSE."
      7. Aggrieved by the aforesaid adjudication and order,
as has been indicated earlier, the present appeal has been
preferred. It is also to be noted that the present appellants
were not before the SAT. The present appeal was admitted         B
after grant of permission to file the same.
       8. The singular question that we are required to address
is whether the company, i.e., Hella India, was required to
maintain 1Oper cent benchmark for the public shareholding to     c
remain as a listed company. During the pendency of this
appeal, an agreement between respondent No. 4 herein, Hella
India, and BSE has been brought on record. Be it clarified,
Hella India was not a party before SAT. .It was the 1''respondent
who preferred the appeal before SAT. On a perusal of the D
agreement between respondent No. 4 and the BSE, it is
graphica11y·c1ear that the benchmark had been determined
fixed at 20 per cent. It is not in dispute that the public
 shareholding has reduced to 18.63 per cent, which is less than
 20 per cent.
                                                                  E
       9. It is submitted by Mr. A.J. Bhambhani, learned senior
 counsel appearing for the appellants, that even if the condition
 in°corporated in the agreement is accepted, delisting could not
 have been allowed, regard being had to the Circular dated
 02.05.2001 issued by the Securities and Exchange Board of F
 India (for short "SEBI"), because the respondent No. 4 was
 required to maintain benchmark of 10 per cent and not 20 per
 cent.
     10. To appreciate the said submission of Mr. Bhambhani,
scanning of certain faGets of the guidelines are absolutely      G
essential. Clause 40A of the said circular reads as follows:
      "40A- Conditions for continued listing ·
        (i) The company agrees that in the event of the
            application for listing being granted by the         H
272             SUPREME COURT REPORTS                  [2014] 14 S.C.R.


A                    Exchange, the company shall maintain on a
                     continuous basis, the minimum level of non-
                     promoter holding at the level of public shareholding
                     as required at the time of listing.
                  (ii) Where the non-promoter holding of an existing
B                     listed company as on April 01, 2001 is less than
                      the limit of public shareholding as required at the
                      time of initial listing, the company shall within one
                      year raise the level of non-promoter holding to at
                      least 10%. In case the company fails to do so, it
c                     shall buy-back the public shareholding in the manner
                      provided in the SEBI (Substantial Acquisition of
                      Shares and Takeovers) Regulations, 1997."
           11. Learned counsel for the appellants has also drawn
D     our attention to Rule 19(2)(b) of the Rules, which has been
      brought in by way of amendment. The said Rule deals with
      requirements with respect to the listing of securities on a
      recognised stock exchange. The relevant portion of Rule
      19(2)(b) reads as under:
 E         II   19( 1)   ****                 ****                   ***
                  (2)Apart from complying with such other terms and
                     conditions as may be laid down by a recognised
                     stock exchange, an applicant company shall satisfy
                     the stock exchange that"
 F
                     (a)***            ***                    ***
                     (b )At least 10 per cent of each class or kind of
                     securities issued by a company was offered to the
                     public for subscription through advertisement in
 G                   newspapers for a period not.less than two days and
                     that applications received in pursuance of such
                     offer were allotted subject to the following
                     conditions:

 H
  DISCOVERY WEALTH MANAGEMENT SERVICES P.            273
LTD. v. PADMINI ENGINEERING P. LTD. [DIPAKMISRA, J.]

            (a)minimum 20 lakh securities (excluding                   A
               reservations, firm allotment and promoters'
               contribution) was offered to the public;
            (b) the size of the offer to the public, i.e., the offer
                price multiplied by the number of securities
                offered to the public was minimum Rs.100               B
                crores; and
            (c) the issue was made only through book building
                method with allocation of 60 per cent of the issue
                size to the qualified institutional buyers as          c
                specified by the Securities and Exchange Board
                of India:
         Provided that if a company does not fulfil the conditions,
         it shall offer at feast 25 per cent of each class or kind
         of securities to the public for subscription through          D
         advertisement in newspapers for a period not fess than
         two days and that applications received in pursuance
         of such offer were allotted."
        12. At this stage, we may also refer to the 2003 Guidelines
 framed by SEBI. Clause 4 of the 2003 Guidelines provides              E
 that the guidelines shall be applicable to delisting of securities
 of companies. Clause 8 deals with exit price for voluntary
 delisting of securities. Keeping in view the immense emphasis
 being placed by both·sides on various conditions of the said
 Clause, we think it appropriate to reproduce the same. It reads       F
                                                        ~
·as under:                           ·
      "8. EXIT PRICE FOR VOLUNTARY DELISTING OF
      SECURITIES
         8.1 Any promoter of a company which desires to delis! G
         from the stock exchange shall determine an exit price
         for delisting of securities in accordance with the book
         building process described in Schedule fl of these
         guidelines.
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274   SUPREME COURT REPORTS                 [2014] 14 S.C.R.


A      8.2 The offer price shall have a floor price, which
       will be the average· of 26 weeks traded price quoted
       on the stock exchange where the shares of the
       company are most frequently traded preceding 26
       week from the date of the public announcement and
B      without any ceiling of maximum price.
       8.3 In the case of infrequently traded securities the
       offer price shall be as per regulation 20(5) of the SEBI
       (Substantial Acquisition and Takeover) Regulations,
       and the infrequently traded securities shall be
c      determined in the manner explained under regulation
       20(5) of the SEBI (Substantial Acquisition and
       Takeover) Regulations.
        8.4 The stock exchange(s) shall provide the
      . infrastructure facility for display ofthe price at the
D
        terminals of the trading members to enable the
        investors to access the price on the screen to bring
        transparency to the delisting process.
       8.5 In the event of securities being delisted, the
E      acquirer shall allow a further period of six months for
       any of the remaining shareholders to tender securities
       at the same price;                      ·
       8.6 The stock exchanges shall monitor the possibility
       of price manipulation and keep under special watch
F      the securities for which announcement for deli sting has
       ~enmade.          · ·
       8.7 To ascertain the genuineness of physical
       securities if tendered and to avoid the bad delivery,
       Registrar and Transfer Agent shall co-operate with the
G
       Clearing House I Clearing Corporation to determine
       the quality of the papers upfront.
       8.8 If the quantity eligible for acquiring securities at
       the final price offered does not result in public
H
  DISCOVERY WEALTH MANAGEMENT SERVICES P.                            275
LTD. v. PADMINI ENGINEERING P. LTD. [DIPAK MISRA, J.]

        shareholding falling below required level of public          A
        holding for continuous listing, the company shall
        remain listed."
     Thus, the aforesaid Clause basically stipulates as
regards the exit price for delisting in accordance with the
procedure and also enumerates the role of the stock exchange.        B
     13. At this juncture, it is apt to refer to Clause 12.1 which
provides for minimum number of shares to be acquired. The
said Clause reads as follows: ·
     "12.1 Where the offer for delisting results in acceptance C
     of a fewer number of shares than the total shares
     outstanding and as a consequence the public
     shareholding does not fall below the minimum limit
     specified by the listing conditions or the listing
     agreement, the offer shall be considered to have failed D
     and no securities shall be acquired pursuant·to such
     offer."
      14. The submission of Mr. Bhambhani, as stated earlier,
is that as pr the new guidelines th.e benchmark has to be 10
per cent. For the aforesaid purpose, he has highlighted Clause       E
40A of the Circular, i.e., conditions for continued listing.
     · 15. Mr. Shyam Divan, learned senior counsel appearing
for the respondent nos.1 and 4 and Mr. Arvind Datar, learned
senior counsel appearing for SEBI, would contend that Clause         F
40A has to be read.in conjunction with the delisting guidelines.
That apart, it is contended by them that Clause 40A(i) and
Clause 40A(ii) govern two different situations, and hence, the
order of delisting cannot be found fault with.       ·
      16. To appreciate the rival submissions raised atthe Bar, G
we have carefully scrutinised Clause 40A of the Circular. Be it
stated, the clauses by virtue of the Circular have stood
incorporated in the existing agreement. Clause 40A(i), as the
language would suggest, provides that the listing company
                                                                     H
276         SUPREME COURT REPORTS                    [2014] 14 S.C.R.


A     accepts the conditions to maintain a continuous basis the
      minimum level of non-promoter holding at the level of public
      shareholding as required at the time of listing. It clearly conveys
      the meaning that if there is a benchmark in the agreement, the
      same has to be maintained. Mr. Bhambhani would emphasise
 B    on Clause 40A(ii) to contend that the company has to maintain
      the benchmark at 10 per cent and it can only conceive of
      delisting if it goes below that. Mr. Datar, per contra, would
      submit that before the Ci~cular was issued, certain listed
      companies had less than 1Oper cent of non~promoter holding
C     and, therefore, the Circular was issued that they should, within
      one year, bring it to 10 per cent. The aforesaid submission
      are to be appreciated in the context of the language employed
      in the Rule 19(1 )(b), 2003 Guidelines and the agreement with
      the BSE.
D        17. As we find, 2003 guidelines are applicable and
  prescrioe the procedure for deli sting of securities. As per the
  procedure prescribed, any promoter who desires delisting has
  to make an offer for purchase of shares in terms of clauses
  8.1 to 8.3. The said exercise has to be completed within a
E period specified in clauses 8.1 and 8.5. The whole process
  has to be monitored by the Stock Exchange and the Registrar
  and transfer agency has to ascertain the genuineness of the
  physical securities tendered, etc. Clause 8.8 has its own
  signification. Clause 8.8 of 2003 guidelines stipulate that
F required level of public shareholding must fall below the level
  of continuous listing. Clause 12.1 of 2003 guidelines, states
  that the offer of delisting would fail ifthe public shareholding
  does not fall below the minimum limit specified by the listing
  conditions or the listing agreement. It is quite vivid that the 2003
G guidelines do not prescribe or fi)( the required level of public
  shareholding of continuous listing though the said limit must
  be breached for an offer of delisting to succeed. It is condign
  to note that clause 12.1 refers to minimum limit specified by
  the listing condition or the listing agreement.
H
   DISCOVERY WEALTH MANAGEMENT SERVICES P.                        277
 LTD. v. PADMINI ENGINEERING P. LTD. [DIPAK MISRA, J.]

         18. As is evincible, Rule 19(2)(b) provides that at least A
  10% of each class or kind of securities must be offered to
 public for subscription through advertisement in newspaper
  during the time specified and the applications received
  pursuant to such offer should be allotted as per the conditions
  postulated. The proviso engrafts states that in case the B
 company does not fulfil the conditions, it shall offer at least
  25% of each of the securities to the public for subscription
  though advertisement in newspaper, etc. within the time
  stipulated. The opening words of sub-rule (2) of Rule 19 read
  "apart from complying with !'?UCh other terms and conditions     c
  as may be laid down by a recognized stock exchange. an
  applicant company shall satisfy the stock exchange. These
  words have their own importance. It is clear that sub-rule (2)
  gives primacy to the terms and conditions as may be laid down
  by the recognized stock exchange and the company in question D
  must satisfy the condition imposed by the stock exchange in
  that regard. As we find, in the instant case, as per the
  agreement between the company "Hella India" and BSE, the ·
· level of public shareholding fixed for continuous listing was 20%.
  The said limit of 20% is a higher limit. On failure of "Hella E
   India" to maintain the level of 20%, the condition for continuous
  listing would be violated and breached. Public holding of 10%
  would not have satisfied the requirement of Rule 19(2).
  Therefore, when we harmoniously interpret the listing
  requirement i.e. the agreement with BSE with Rule 19(2) along F
  with 2003 Guidelines, it is apparent and limpid that the
  condition for continuous listing would not have been followed
  by"Hella India", ifthe public shareholding had fallen below 20%.
  Thus, it has to be held that offer of delisting would be successful
  and would not fail, if the public shareholding falls below 20%. G
  The 10% limit would not apply in view of Rule 19(2) as the said
  Rule recognizes the terms and conditions laid down by
  recognized stock exchange and stipulates that the same must
  be satisfied for the company to claim continuous listing.
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278          SUPREME COURT REPORTS                [2014] 14 S.C.R.


A           19. In view of the aforesaid analysis, we are disposed
      to think that the construction ·placed by the learned senior
      counsel for SEBI commends acceptation and we give the
      stamp of approval to the same.
             20. Consequently, the appeal, being bereft of any merit,
8     stands dismissed and the order of stay stands vacated. We
      may hasten to clarify that the order passed by the SAT has to
      be treated as valid from the date of its passing by the .said
      authority and all concerned shall proceed, keeping the said
      fact in view, in accordance with law. There shall be no order
.C    as to costs.


      Dev1ka Gujral                                  Appeal dismissed.