HIGH COURT OF BOMBAY
Sesa Goa Ltd.
v.
State of Maharashtra
Writ Petition No. 2739 of 2006
December 11, 2008
RELEVANT EXTRACTS :
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31. In my view, merely because the earlier Writ Petition has been dismissed at the stage of admission and a Special Leave Petition has upheld the order of the dismissal it would not necessarily mean that the issue regarding the breach of section 73 of the Companies Act qua the preferential offer letter of 28.8.1993 and the offer of 5.6.2003 was finally concluded. Section 73 reads as under:
73. Allotment of shares and debentures to be dealt in on stock exchange. — (1) Every company, intending to offer shares or debentures to the public for subscription by the issue of a prospectus shall, before such issue make an application to one or more recognised stock exchanges for permission for the shares or debentures intending to be so offered to be dealt within the stock exchanges or each such stock exchange. (1-A) Where a prospectus, whether issued generally or not, states that an application under sub-section (1) has been made for permission for the shares or debentures offered thereby to be dealt in one or more recognised stock exchanges, such prospectus shall state the name of the stock exchange or, as the case may be, each such stock exchange, and any allotment made on an application in pursuance of such prospectus shall, whenever made, be void if the permission has not been granted by the stock exchange or each such stock exchange, as the case may be, before the expiry of ten weeks from the date of the closing of the subscription lists:
Provided that where an appeal against the decision of any recognised stock exchange refusing permission for the shares of or debentures to be dealt in on that stock exchange has been preferred under Section 22 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), such allotment shall not be void until the dismissal of the appeal.
(2) Where the permission has not been applied under sub-section (1) or, such permission having been applied for, has not been granted as aforesaid, the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay it, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than four per cent and not more than 15 per cent, as may be prescribed, having regard to the length of the period of delay in making the repayment of such money.
(2-A) Where permission has been granted by the recognised stock exchange or stock exchanges for dealing in any shares or debentures in such stock exchange or each such stock exchange and the moneys received from applicants for shares or debentures are in excess of the aggregate of the application moneys relating to the shares or debentures in respect of which allotments have been made, the company shall repay the moneys to the extent of such excess forthwith without interest, and if such money is not repaid within eight days, from the day the company becomes liable to pay it, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than four per cent and not more than 15 per cent, as may be prescribed, having regard to the length of the period of delay in making the repayment of such money.
(2-B) If default is made in complying with the provisions of sub-section (2- A), the company and every officer of the company who is in default shall be punishable with fine which may extend to fifty thousand rupees, and where repayment is not made within six months from the expiry of the eighth day, also with imprisonment for a term which may extend to one year.
(3) All moneys received as aforesaid shall be kept in a separate bank account maintained with a scheduled bank until the permission has been granted, or where an appeal has been preferred against the refusal to grant such permission, until the disposal of the appeal, and the money standing in such separate account shall, where the permission has not been applied for as aforesaid or has not been granted, be repaid within the time and in the manner specified in sub-section (2); and if default is made in complying with this sub-section, the company and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees.
(3-A) Moneys standing to the credit of the separate bank account referred to in sub-section (3) shall not be utilised for any purpose other than the following purposes, namely:—
a. adjustment against allotment of shares, where the shares have been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus; or
b. repayment of moneys received from applicants in pursuance of the prospectus where shares have not been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus, as the case may be, or, where the company is for any other reason unable to make the allotment of share.
(4) Any condition purporting to require or bind any applicant for shares or debentures to waive compliance with any of the requirements of this section shall be void.
(5) For the purposes of this section, it shall be deemed that permission has not been granted if the application for permission, where made, has not been disposed of within the time specified in sub-section (1).
(6) This section shall have effect—
(a) in relation to any shares or debentures agreed to be taken by a person underwriting an offer thereof by a prospectus, as if he had applied therefor in pursuance of the prospectus; and
(b) in relation to a prospectus offering shares for sale, with the following modifications, namely—
i) references to sale shall be substituted for references to allotment;
( ii) the persons by whom the offer is made, and not the company, shall be liable under sub-section (2) to repay money received from applicants, and references to the company’s liability under that sub-section shall be construed accordingly; and
( iii) for the reference in sub-section (3) to the company and every officer of the company who is in default, there shall be substituted a reference to any person by or through whom the offer is made and who is knowingly guilty of, or wilfully authorises or permits, the default.
(7) No prospectus shall state that application has been made for permission for the shares or debentures offered thereby to be dealt in on any stock exchange, unless it is a recognised stock exchange. ”
32. This section relates to a Company intending to offer shares or debentures to the public for subscription by issuance of a prospectus. The word ‘prospectus’ has been defined under section 2(36) of the Companies Act to mean any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for subscription or purchase of shares in or debentures of a body corporate. Mr. Desai submits that the offer document of 28.8.1993 can by no means be considered as a prospectus. According to the learned counsel, unless deposits were invited from the public, the Preferential Offer document was not a prospectus. There is no doubt that this document offered shares to the shareholders of SGL only. There was no involvement of the general public in the purchase/allotment of the shares. Therefore, - 29 - the submission of the learned counsel for the Respondent that this is a prospectus cannot be accepted. The letter of 5.7.1993 also is not a prospectus. An indication of the offer only for the shareholders of SGL is brought out from the fact that the renunciation of the shares was not permitted. Reliance has been placed on several judgments by the learned Counsel for the Petitioner in support of his submission that an offer of shares in a new company to members of an old Company in respect of the shares in the new Company is not an offer to the public. He relies on the observations made by the Court of Appeals in Booth v/s. New Afrikander Gold Mining Co. Ltd., 1903 I Chancery 298.
33. Apart from this, there is no obligation on the part of the public limited Company to have its shares listed on the stock exchange. As held in the case of Raymonds Synthetics Ltd. V/s. Union of India, AIR 1992 SC 647, it is only if a Company intends to offer its shares to the public for subscription by issue of a prospectus that it must apply to the stock exchange for permission to list its shares in terms of section 73, before issuing such a prospectus. It is only when the offer is made to the public and the shares are not listed on the stock exchanges in accordance with section 73, that a Company has no right to receive or retain any amount by way of subscription in pursuance of such prospectus. The letter of offer dated 5.6.2003 was issued for the purpose of acquiring the shares of SIL from the shareholders of SGL, giving the shareholders of SIL an option to sell their shares to the shareholders of SGL. It appears that challenge to this offer document by some of the shareholders of SIL has been rejected being a pure commercial dealing. In my opinion, therefore, section 73 would have no application in the facts and circumstances of this case. The emphasis laid by Mr. Andhyarujina on the case of Barclays Bank Ltd. V/s. Quistclose Investments Ltd. , (1970) AC 567 is also misplaced. The submission of the learned counsel is that a Director of a Corporation acts in a fiduciary capacity when he transacts with the funds lying to the credit of the Company of which he is a Director. He has dominion over the same and, therefore, the funds stand entrusted to him as in the present proceeding. This submission also cannot be accepted as held in Bacha Gazdar's case (supra). Once a shareholder purchases shares of the Company the money becomes an asset of the Company and the shareholder has only the right to receive dividend, attend meetings, etc. The Director of the Company does not hold the monies in a fiduciary capacity and therefore he would not be entrusted with the dominion over the same
