SC overrules SAT in DLF case
The Supreme Court has stayed a Securities Appellate Tribunal order, passed in May, granting relief to the promoters of Bhoruka Financial Services (BFSL) in the sale of shares to DLF group company DLF Commercial Developers.
By TNN |
MUMBAI: The Supreme Court has stayed a Securities Appellate Tribunal order, passed in May, granting relief to the promoters of Bhoruka Financial Services (BFSL) in the sale of shares to DLF group company DLF Commercial Developers.
The apex court order, delivered last Friday, has given a boost to the Securities and Exchange Board of India (Sebi), which is investigating alleged irregularities in the sale.
The development has given risen to speculation that the apex court order could have been one of the reasons that prompted DLF to withdraw its IPO. DLF on Thursday said it planned to file an updated prospectus by October. Investment bankers to the issue, however, said the order had nothing to with the decision to withdraw the IPO.
DLF Commercial Developers (DLFCD) had entered into a share purchase agreement with the promoters of BFSL in July 2005 to buy out their 98.73% stake. The remaining 1.27% stake — 2,550 shares — were held by 26 public shareholders.
DLFCD filed an application with Sebi seeking an exemption from making an open offer to the public shareholders, which was granted. BFSL shares were listed on the Bangalore Stock Exchange. However, DLFCD purchased the shares from the promoters of BFSL through transactions on the Magadh SE.
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In an ex-parte interim order passed on August 19, 2005, Sebi barred DLF from dealing in the scrip of BFSL. The promoters of BFSL were directed to deposit the proceeds of the sale in an escrow account with a nationalised bank.“DLF acquired 98.73% of the shares of BFSL from the promoters by executing the transactions not on Bangalore Stock Exchange, on which the shares were listed, but on Magadh Stock Exchange (MSEA), where the shares were not listed but were hurriedly allowed to be traded in permitted category using the services of a broker of MSEA,” the Sebi order said. Sebi said the transactions were in violation of the by-laws of the exchange and, hence, termed them illegal.
“The concatenation of events when seen together suggested deviousness in the whole set of transactions and led to the prima facie conclusion that the acquirer DLF and the sellers/promoters consciously and with pre-meditated design chose to execute the trades on MSEA, with a view to avoiding regulatory attention and scrutiny,” the Sebi order noted.
In December 2005, after hearing all the parties, the regulator ruled the earlier order would be in force till investigations were completed. In May 2006, the Securities Appellate Tribunal stayed the Sebi order against the promoters of BFSL, while upholding the restriction on DLFCD from transferring BFSL shares in its name.
The apex court last Friday thought otherwise and stayed the portion of the SAT order relating to the promoters of BFSL. “The operation of the impugned judgement and order passed by the tribunal shall remain stayed,” the Supreme Court directed, while admitting Sebi’s appeal against the SAT order.
“It is clarified that Sebi shall conclude the investigation expeditiously subject to the sellers depositing Rs 5.7 crore, if not already deposited. The buyer shall not further transfer or create any third party rights in the shares in dispute,” the ruling said.
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