Amendment to SEBI Regulations - Issue of Capital and Disclosure Requirements

SEBI has recently issued notification on 23^rd September 2011 by means of which it has amendment Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“Regulations”) for the second time. This post will throw light on the important issues pertaining to this amendment –

Rights Issue of Indian Depository Receipts – Requirement of Satisfaction of Certain Conditions by the Issuer (Insertion of Chapter XA)

Chapter XA has been inserted in the Regulations related to rights issue of Indian Depository Receipts (“IDR”). Section 106A states, in addition to compliance with Chapter X of Regulations, issuer has to fulfil the conditions mentioned therein under Chapter XA. Ath the same time, these provisions will not be applicable to the rights issue under Regulation 98, 102 and 103, of the Regulations which connotes Conditions for issue of IDR, Display of Bid Data, and Disclosure in prospectus and Abridged Prospectus respectively. Further, Section 106A obliges an issuer to prepare the offer document in accordance with the home country requirements Section 106B signifies the eligibility criteria of an issuer in relation to IDR. Further, Section 106C provides regulations as regards Renunciation by IDR holder. Other provisions under this Chapter are as follows

Regulation 106D – Steps to be taken by Domestic Depository for IDR holders

Regulation 106E – Announcement of record date for determining eligible shareholders

Regulation 106F – Provisions relating to disclosures in the offer document and the addendum for the rights offering.

Regulation 106G – Provision as regards filing of draft offer document and the addendum for rights offering.

Regulation 106H – Applicability of sub-regulations (1), (2), (3), and (4) of Regulation 106G when certain condition provided therein under Regulation 106H are satisfied.

Regulation 106I – Provision as regards Dispatch of abridged letter of offer and application form.

Regulation 106J – Period of subscription of rights issue as applicable under the laws of the home country of the issuer, but shall not be less than 10 days in any case.

Regulation 106K – Provisions as regards Pre-Issue Advertisement for rights issue.

Regulation 106L – Provisions as regards Utilisation of funds raised in rights issue.

Amendment of Provisions as regards Disclosures in Abridged Prospectus – PART D of Schedule VIII [See regulation 58(1)] –

Provisions relating to Part D of Schedule VIII have been amended by this notification. It basically consists of the provisions relating to the disclosures which ought to be made in Abridged Products.

General Instructions – Information of generic form and not specific form should be brought out under the General Information Document (“GID”). Size of the paper should be A4. Further, provisions relating to the font size and other matters have been included under this new notification.

Disclosures – The requirements of the cover page have been specified under the notification. Also, the provisions as regards the inside cover page have also been provided under the notification. Table of Content should be in tabular form.

History of the issuer and the details of any demergers, mergers and acquisitions to be provided.

Promoters and their background to be provided.

Shareholding pattern and information as regards Boards of Directors. Information in relation to Group Companies, subsidiaries have been provided under this Part of the notification. Summary of Our Business as appearing in offer document. Attention of investor should be invited to refer to RHP for details with regards to business. Summary Statement of Assets and Liabilities, as restated, appearing in offer document in tabular form. The risk factors should be classified. Provisions as regards Particulars of Issue and Basis of Issue Price have been provided. Also, provisions as regards Details of Bidding Centres have been provided.

Disclosures in the Addendum to the Offer Document for Rights Issue of Indian Depository Receipts – Schedule XXI , PART A [Regulation 106F (2)]

The listed issuer making a rights issue of IDRs shall make the disclosures as specified in this Part in the form of an addendum to the offer document.

I. Cover Page – It includes Front Cover Page and Back Cover Pages

II. Instructions for Applications

III. General Information

IV. Management (Board of Directors)

V. Financial Information of the Issuer

VI. Risk Factors and Management Perception, If any.

VII. Capital Structure.

VIII. Particulars of the Issue.

IX. Market price information and other information concerning the shares/IDRs

X. Exchange Rates.

XI. Material Litigations and Defaults

XII. Material Development.

XIII. Material Contracts and Documents for Inspection

XIV. Other Regulatory and Statutory Disclosures.

XV. Undertakings by the issuer in connection with the issue.

XVI. Utilisation of Issue Proceeds.

XVII. Restrictions on foreign ownership of Indian securities, if any.

XVIII. Any other material disclosures (as deemed necessary)

XIX. Declaration.

Disclosures in Abridged Letter of Officer for Rights Issue of Indian Depository Receipts – Schedule XXI PART B [Regulation 106I (1)]

A listed issuer making a rights issue of IDRs shall make disclosures, as required under its home country regulations, if any and as specified in Part B of this Schedule, in the abridged letter of offer for rights offering.

I. Instructions for applicants.

II. General Information.

III. Capital Structure of the Issuing Company.

IV. Terms of the Parent Issue.

V. Particulars of the Issue

VI. Company, Management and Project.

VII. Outstanding Material Litigations and Defaults (in a summarised tabular form).

VIII. Material Development.

IX. Time and Place of Inspection of material contracts. (List of material contracts not required)

X. Financial Performance of the Issuing company as per last completed accounting year for which audit has been completed and for the latest stub period for which audit/limited review has been completed.

XI. Disclosure on Investor Grievances and Redressal System.

XII. Brief details of the Domestic Depository, Overseas Custodian Bank and

Depository Agreement

XIII. Signatories to the Letter of offer

Procedural Facet of Supreme Court Decision in Gulberg Society Case

Procedural law, as generally considered, is the core of the judicial system. The whole purpose of substantive law will be ridiculed, if there does not exist its procedural aspect. The recent decision of Supreme Court in the case of Jakia Nasim Ehsan v. State of Gujarat with regard to the extermination of former Member of Parliament, Ehsan Jafri, who was burnt alive in his own house by a group of members, at a time when the state of Gujarat was facing enormous communal violence. In this case, Supreme Court rejected to scrutinise the matter once submission of the final report of the Special Investigation Team, which was formed to investigate the matter. It is significant here to note the reasons behind the rejection of Supreme Court in doing so. Section 173 (1) of the Code of Criminal Procedure states every investigation under this Chapter shall be completed without unnecessary delay. Thus, a competent authority concludes its investigation under this section.

SIT, deriving power from this particular section finished off its investigation and submitted its report to the Supreme Court in the month of July 2011. Even this procedural aspect is divided into two stages. One, whether Supreme Court should direct or not the matter to the competent or, and secondly whether it should supervise the further process which ought to be carried out by the competent. Supreme Court in both the issues decided that it should not indulge into the matter once the final report is submitted by the concerned investigating agency.

The report was filed before the a criminal court, and this criminal court derives its power by virtue of Section 173 (3) of CrPC to take the cognizance of the matter after the completion of the investigation. Supreme Court deciding this affirmatively stated, while relying on its earlier decision in the case of M.C. Mehta (Taj Corridor Scam) Vs. Union of India & Ors. (2007) 1 SCC 110, that –

“The jurisdiction of the Court to issue a writ of continuous mandamus is only to see that proper investigation is carried out. Once the Court satisfies itself that a proper investigation has been carried out, it would not venture to take over the functions of the Magistrate or pass any order which would interfere with his judicial functions. Constitutional scheme of this country envisages dispute resolution mechanism by an independent and impartial tribunal. No authority, save and except a superior court in the hierarchy of judiciary, can issue any direction which otherwise takes away the discretionary jurisdiction of any court of law. Once a final report has been filed in terms of sub-section (1) of Section 173 of the Code of Criminal Procedure, it is the Magistrate and Magistrate alone who can take appropriate decision in the matter one way or the other. If he errs while passing a judicial order, the same may be a subject-matter of appeal or judicial review. There may be a possibility of the prosecuting agencies not approaching the higher forum against an order passed by the learned Magistrate, but the same by itself would not confer a jurisdiction on this Court to step in.”

Bhagwant Singh Vs. Commissioner of Police & Anr. (1985) 2 SCC 537,

“Where the Magistrate to whom a report is forwarded under Section 173(2)(i) of the Code, decides not to take cognizance of the offence and to drop the proceedings or takes a view that there is no sufficient ground for proceeding against some of the persons mentioned in the FIR, the Magistrate must give notice to the informant and provide him an opportunity to be heard at the time of consideration of the report.”

Further, it was held by the Supreme Court in the case of Union of India & Ors. Vs. Sushil Kumar Modi & Ors. (1998) 8 SCC 661, wherein, relying on the decision in Vineet Narain & Ors. Vs. Union of India & Anr. (1996) 2 SCC 199

"...that once a charge-sheet is filed in the competent court after completion of the investigation, the process of monitoring by this Court for the purpose of making the CBI and other investigative agencies concerned perform their function of investigating into the offences concerned comes to an end; and thereafter it is only the court in which the charge-sheet is filed which is to deal with all matters relating to the trial of the accused, including matters falling within the scope of Section 173(8) of the Code of Criminal Procedure. We make this observation only to reiterate this clear position in law so that no doubts in any quarter may survive."

Supreme Court does not, under its jurisdiction, act as a trail court and does not look into the facts of the case as trail court does. Further, Supreme Court held that the matter should be directed to the competent court which is empowered to discharge its duty by proceeding with the matter. Concerning second issue, Supreme Court held, while relying on the case of M.C. Mehta and Narmada Bai Vs. State of Gujarat & Ors. (2011) 5 SCC 79 that,

“The above decisions make it clear that though this Court is competent to entrust the investigation to any independent agency, once the investigating agency complete their function of investigating into the offences, it is the court in which the charge-sheet is filed which is to deal with all matters relating to the trial of the accused including matters falling within the scope of Section 173(8) of the Code. Thus, generally, this Court may not require further monitoring of the case/investigation. However, we make it clear that if any of the parties including CBI require any further direction, they are free to approach this Court by way of an application."

Hence, it is clear from this case that Supreme does not take cognizance in the matter where an investigation submits its final report. Instead, it forwards the matter to the competent, and further it does not interfere.

Direction, Ratio Decidendi and Obiter Dicta

Several times an issue as regards the obiter dicta and ratio decidendi comes in front of the court. Why ratio of any judgment is important is simply because of the reason that said portion is considered as the relevant part of the judgment which has to be followed. This ratio of the judgment is sometimes accompanied by the remarks or some casual observations made by then judgment which are not binding on anyone, and are considered to be the informal portion of the judgment. One such question has been considered by the Supreme Court recently in the case of Arun Kumar Agrawal v. State of Madhya Pradesh & Ors, wherein it has been held by the court that the impugned part of the order made by the special judge court was not ratio, and in fact it was mere obiter dicta and is not enforceable. The relevant portion which is a matter of dispute in the present appeal can be read as

Therefore matter may be taken up seeking necessary sanction to prosecute the accused persons Raghav Chandra, Shri Ram Meshram and Shahjaad Khan to prosecute them under Section 13 (1-d), 13 (2) Anti Corruption Act and under Section 120-B I.P.C. and for necessary further action, case be registered in the criminal case diary.

It is clear from the reading of the above portion of the judgement delivered by the special judge that it is not mandatory to prosecute the accused persons, and it can be concluded from the use of word “may”. Distinction between Sanction and Permission was also drawn in this case while referring to the case of Rameshwar Bhartia v. The State of Assam, 1953 SCR 126, where this court held that

"15. But where a prosecution is directed, it means that the authority who gives the direction is satisfied in his own mind that the case must be initiated. Sanction is in the nature of a permission, while a direction is in the nature of a command."

Court further referred to the case of Giani Devender Singh v. Union of India, (1995) 1 SCC 391, where it was held by the Supreme Court that

"10. It appears to us that when the High Court was not in a position to precisely discern what was the complaint alleged by the petitioner and when the High Court was of the view that the prayer made by the petitioner was absurd and it also held that the officers who were alleged to have been carrying on nefarious activities were more imaginary than real, the direction in general and sweeping terms to sack erring officers (whomsoever they may be) and overhaul the administration by recruiting only conscientious and devoted people like the petitioner in order to satisfy the vanity of the petitioner, should not have been made. If the High Court intends to pass an order on an application presented before it by treating it as a public interest litigation, the High Court must precisely indicate the allegations or the statements contained in such petition relating to public interest litigation and should indicate how public interest was involved and only after ascertaining the correctness of the allegation, should give specific direction as may deem just and proper in the facts of the case.

11. It appears to us that the application was disposed of by the Division Bench of Madhya Pradesh High Court in a lighter vein and the order dated 27-2-1992 is couched in veiled sarcasm. Such course of action, to say the least, is not desirable and the High Court should not have issued mandate in general and sweeping terms which were not intended to be implemented and were not capable of being implemented because of utter vagueness of the mandate and of its inherent absurdity.

It is interesting here to note that the judgment of the special court was reversed by the high court on the ground that the impugned portion of the judgment was in fact direction issued by the court to initiate prosecution. But, this was again reversed by the Supreme Court on the ground the ground that judgment nowhere clearly mentions the authority on which direction was issued by the special judge, and further it was held by the court that it would be correct to imagine that remarks made by the special judge were in fact directions. Court further held that it is a well settled principle that obiter dicta is the mere observation made by the judge while delivering judgment, and it is the not the essential part of the judgment. Court, while opining this relied on the case of State of Haryana v. Ranbir, (2006) 5 SCC 167, wherein it was held by the court that –

"A decision, it is well settled, is an authority for what it decides and not what can logically be deduced therefrom. The distinction between a dicta and obiter is well known. Obiter dicta is more or less presumably unnecessary to the decision. It may be an expression of a viewpoint or sentiments which has no binding effect. See ADM, Jabalpur v. Shivakant Shukla. It is also well settled that the statements which are not part of the ratio decidendi constitute obiter dicta and are not authoritative. (See Divisional Controller, KSRTC v. Mahadeva Shetty)"

Court further relied on the case of Girnar Traders v. State of Maharashtra, (2007) 7 SCC 555, where it held that –

"Thus, observations of the Court did not relate to any of the legal questions arising in the case and, accordingly, cannot be considered as the part of ratio decidendi. Hence, in light of the aforementioned judicial pronouncements, which have well settled the proposition that only the ratio decidendi can act as the binding or authoritative precedent, it is clear that the reliance placed on mere general observations or casual expressions of the Court, is not of much avail to the respondents."

Consumer Forum and Authority of an Agent to Represent a Consumer

Analysis –

“Can a person under the cover of being an agent represent large number of persons before forums created under Consumer Protection Act, 1986 (hereinafter “Act”)?”, this was the question addressed by the Supreme Court in its recent decision where two appeals had been clubbed, one filed by Bar Council Of India and the other by C. Venkatachalam. The issue in these appeals was whether a person, who is not a legal practitioner, can represent a large number of parties before Consumer Forums. In general, these forums have been established for a specific purpose and achieving that very purpose in the most imperative obligation. It would be necessary here to know the object lying behind the enactment of Consumer Protection Act. “Protection of the interests of consumers” is the most significant reason which can be attributed to this act, and interests of consumers can be preserved only if they are able to obtain justice swiftly and economically. Taking recourse of legal professionalism by means of hiring an advocate does not turn out viable when the compensation demanded is not considerable enough. Rule 2(b) of Consumer Protection Rules, 1987 defines the term “agent” as the person authorised by a party to represent it before the consumer commission. It was contended on behalf of the appellants that arguing before consumer forums needs legal expertise, and further it was argued that arguing in front of the court is limited only to a class of persons namely advocates. Reliance was placed on Section 29 and 33 of the Advocates Act, 1961 which respectively provide that only an advocate can practice and no person can practice as an advocate unless enrolled. Cheap and Speedy redressal are some of the most important mechanisms which need to be made exercisable by each and every consumer, otherwise the very purpose for having the Act will be defeated. But, at the same time it is equally important to ensure that agents in the name of authorization start exploiting the procedure professionally. And, under such a situation when it appears to the court that such agents are exercising this right professionally, courts are empowered to terminate their authorization. It would be important here, in this specific situation, to understand the significant difference between a quasi-judicial body and a civil court. Quasi-judicial bodies in general function in accordance with the Principle of Natural Justice, and further they are not bound to follow procedural laws e.g. Code of Civil Procedure, 1908 etc. On the other hand, civil courts are obliged to function in accordance with the procedural laws. Doubt as regards the misuse of this authority by the agents was handsomely addressed by the Supreme Court, and it clearly opined that judges of Consumer Forums are in position to see whether agents misuse this authority or not. This case can be considered to be a landmark judgment setting a precedent for the matters in relation to the consumer disputes where an agent represents a consumer before the forum.

Case Name - C. Venkatachalam v. Ajitkumar C. Shah & others , Bar Council Of India v. Sanjay R Kothari & Others

Treatises Citied by the Supreme Court –

Ø  Blackstone's Commentaries on the Laws of England

Ø  Administrative Law by M.P. Jain

Ø  H.M. Seervai’s Constitutional Law of India

Cases Cited –

1.      Interpretation of Statutes –

R.M.D. Chamarbaugwalla and Another v. Union of India and Another AIR 1957 SC 628-

“In interpreting the statute the legislative intent is paramount and the duty of the Court is to act upon the true intention of the legislature.”

Anandji  Haridas  &  Company  Private  Limited  v.  Engineering  Mazdoor  Sangh  and Another  (1975)  3  SCC  862

“As  a  general  principle  of  interpretation where the words of a statute are plain, precise and unambiguous, the intention of the Legislature is  to  be  gathered  from  the  language  of  the  statute  itself  and  no  external  evidence  such  as parliamentary  debates, reports of the Committees  of the Legislature  or  even the statement  made by  the  minister  on  the  introduction  of  a  measure  or  by  the  framers  of  the  Act  is  admissible  to construe those words.”

Kartar Singh v. State of Punjab (1994) 3 SCC 569

“Though normally the plain ordinary grammatical meaning of an enactment  affords  the  best  guide  and  the  object  of  interpreting  a  statute  is  to  ascertain  the intention of the legislature enacting it, other methods of extracting extracting the meaning can be resorted  to  if  the  language  is  contradictory,  ambiguous  or  leads  really  to  absurd  results  so  as  to keep at the real sense and meaning”

District  Mining  Officer  and  Others  v.  Tata  Iron  and  Steel  Company  and  Another (2001) 7 SCC 358

"A statute is an edict of the legislature and in construing a statute, it is necessary to seek the  intention  of  its  maker. A statute  has to be construed according to the  intent  of them that make it and the duty of the court is to act upon the true intention of the legislature. If a statutory provision is open to more than one interpretation, the court has to choose that interpretation which represents the true intention of the legislature." 

Bhatia  International  v.  Bulk  Trading  S.A.  and  Another  (2002)  4  SCC  105

"The conventional way of interpreting a statute is to seek the intention of its makers. If a statutory provision is open to  more than  one  interpretation then the Court has to  choose that interpretation which represents the true intention of the legislature."

2.      Consumer Disputes

Lucknow  Development  Authority  v. M.K.  Gupta  (1994)  1  SCC  243

“The  provisions  of  the  Act  have  to  be construed in favour of the consumer to achieve the purpose of enactment as it is a social benefit oriented legislation. The primary duty of the court while construing the provisions of such an Act is to adopt a constructive approach  subject to that it should not do any violence to the language of the provisions and is not contrary to the attempted objective of the enactment. In other words, according to the purpose of enactment the interest of the consumer is paramount.”

Laxmi Engineering Works v.  P.S.G. Industrial Institute (1995) 3 SCC 583

 "10.  A  review  of  the  provisions  of  the  Act  discloses  that  the  quasi-judicial bodies/authorities/agencies  created  by  the  Act  known  as  District  Forums,  State Commissions and the National Commission are not courts though invested with some of the  powers  of  a  civil  court.  They  are  quasi-judicial  tribunals  brought  into  existence  to render  inexpensive  and  speedy  remedies  to  consumers.  It  is  equally  clear  that  these forums/commissions  were  not supposed to supplant but supplement the  existing  judicial system.  The  idea  was  to  provide  an  additional  forum  providing  inexpensive  and  speedy resolution  of  disputes  arising  between  consumers  and  suppliers  of  goods  and  services. The  forum  so  created  is  uninhibited  by  the  requirement  of  court  fee  or  the  formal procedures  of  a  court.  Any  consumer  can  go  and  file  a  complaint.  Complaint  need  not necessarily  be  filed  by  the  complainant  himself;  any  recognized  consumers'  association can espouse his cause. Where a large number of consumers have a similar complaint, one or  more  can  file  a  complaint  on  behalf  of  all.  Even  the  Central  Government  and  State Governments can act on his/their behalf. The idea was to help the consumers get justice and fair treatment in the matter of goods and services purchased and availed by them in a market  dominated  by  large  trading  and  manufacturing  bodies.  Indeed,  the  entire  Act revolves round the consumer and is designed to protect his interest.

Dr. J.J. Merchant and Others v. Shrinath Chaturvedi (2002) 6 SCC 635

"7.  ...One  of  the  main  objects  of  the  Act  is  to  provide  speedy  and  simple  redressal  to consumer  disputes  and  for  that  a  quasi-judicial  machinery  is  sought  to  be  set  up  at  the district,  State  and  Central  level.  These  quasi-judicial  bodies  are  required  to  observe  the principles of  natural justice and  have been  empowered to give relief  of a specific nature and  to  award,  wherever  appropriate,  compensation  to  consumers.  Penalties  for  non-compliance  with  the  orders  given  by  the  quasi-judicial  bodies  have  also  been  provided. The  object and purpose  of  enacting the  Act is to render simple,  inexpensive and speedy remedy to the consumers  with complaints against defective  goods and deficient services and  the  benevolent  piece  of  legislation  intended  to  protect  a  large  body  of  consumers from  exploitation  would  be  defeated.  Prior  to  the  Act,  consumers  were  required  to approach the civil court for securing justice for the wrong done to them and it is a known fact that decision in a suit takes years..”

Common  Cause,  A  Registered  Society  v.  Union  of  India  and  others  (1997)  10  SCC 729,

"The  object  of  the  legislation,  as  the  Preamble  of  the  Act  proclaims,  is  "for  better protection of the interests of consumers".

Click Here for the Judgment