SynopsisThe Securities Appellate Tribunal on Monday gave a split verdict on PNB Housing Finance’s petition, which challenged the market regulator’s stay on the mortgage lender’s proposal for a preferential issue of shares to private equity funds.
Mumbai: The Securities Appellate Tribunal on Monday gave a split verdict on PNB Housing Finance’s petition, which challenged the market regulator’s stay on the mortgage lender’s proposal for a preferential issue of shares to private equity funds.
Since there is a difference of opinion on the two-member bench, the SAT said its interim order would continue to be in force till further orders. The tribunal in its June 21 interim ruling had asked PNB Housing to go ahead with its extraordinary general meeting to seek shareholder approval for the share issue to funds led by the Carlyle Group, but not release the results of the voting.
On Monday, presiding officer justice Tarun Agarwala ruled in favour of PNB Housing Finance, and directed it to go ahead and declare the voting results.
Justice MT Joshi, however, ruled in favour of the Securities and Exchange Board of India (Sebi), which had restrained the lender from holding the shareholder meeting and said that the proposal should not be proceeded with until a valuation was done by a registered valuer.
“There is no clear verdict in the matter,” said a lawyer involved with the matter. “Both parties can move the Supreme Court to resolve this deadlock.”
Sebi and PNB Housing did not respond to emails seeking comment till press time Monday.
The controversy arose after Sebi wrote to the company on June 18, raising objections to the way it had priced the shares for the issue and saying that it was unfair.
The share issue would reduce the holding of the largest shareholder, Punjab National Bank, in the mortgage financier to 20.28% from 32.64% and increase the ownership of private equity investors to 68%. Since this would result in a change in control, the deal would trigger an open offer to the public shareholders of the company.
The regulator said the floor price fixed under Sebi rules at Rs 384.60 a share was far less than the book value of Rs 540. This price was unfair even considering the price of Rs 390 fixed by the company for the preferential issue and the Rs 403.22 a share offered by the acquirers.
Justice Agarwala said where there was a provision in the Articles of Association that was contrary to the provisions of the Companies Act, the Companies Act would prevail.
According to the Companies Act, a listed company is not required to determine the price of the shares in a preferential issue based on the report of a registered valuer.
As per Sebi rules on pricing, where the shares are listed for more than 12 months, the price shall not be less than the higher of the average of weekly highs and lows during the 26 weeks preceding the relevant date, or during the two weeks preceding it.
“…we are of the opinion that there cannot be two kinds of mechanism or two sets of procedure for valuation of the price of the shares in a case of a listed company which has a provision under its Articles of Association for valuation of the shares through a registered valuer and in the case of another listed company which has no such stipulation under its Articles of Association,” justice Agarwala said.
He said Sebi’s letter, which said the proposal was ultra vires, would mean the company did not have the legal authority to place the proposal before its shareholders in the EGM.
“Such unilateral decision taken by the authority is patently erroneous and smacks of arbitrariness quite apart from the fact that the same was also violative of the principles of natural justice,” the judge said.
He said Sebi didn’t have jurisdiction to issue such a direction before a decision was made at the EGM.
“The right of the shareholders to accept or reject an agenda is supreme and paramount which cannot be whittled by any executive action of the respondent (Sebi),” he said.
Justice Joshi, while differing from the views of Justice Agarwala, said the viewpoint of Sebi was a concern of the general investors in the company as there would be change of control and which would trigger an open offer.
“This price of the shares to be offered would be admittedly impacted by the price of the preferential shares now proposed to be allotted to the group (private equity funds),” justice Joshi said.
Justice Joshi also said there could be two methods of valuation of the shares and the higher of the valuation would be the valuation of the shares for the purpose of preferential allotment of shares, which ultimately would be the price for an open offer.
“The timeline of the entire episode would show that in view of the impending extraordinary general meeting of the company, the impugned decision was taken by respondent Sebi. The procedure adopted by Sebi, therefore, cannot be faulted with,” he viewed.
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