CASE BRIEF: MR. MAHENDRA GIRDHARILAL v. NSE, SEBI, AND T. STANES AND COMPANY LTD.

CASE NAME	Mr. Mahendra Girdharilal (Appellant) vs. NSE, SEBI, and T. Stanes And Company Limited (Respondents)
CITATION	Misc. Application No. 91 of 2019 & Appeal No. 73 of 2019
COURT	Securities Appellate Tribunal, Mumbai
BENCH	Justice Tarun Agarwala (Presiding Officer), Dr. C.K.G. Nair (Member)
PETITIONER	Mr. Mahendra Girdharilal
RESPONDENTS	National Stock Exchange of India Limited (NSE) Securities and Exchange Board of India (SEBI) T. Stanes And Company Limited (Respondent No. 3)
DECIDED ON	28th February 2019

INTRODUCTION

The appeal was filed by Mr. Mahendra Girdharilal, a shareholder in T. Stanes and Company Limited, against an order dated July 2, 2018, passed by the National Stock Exchange (NSE). The order enabled the removal of T. Stanes and Company Limited from the NSE's Dissemination Board, which had been a platform for the shares of the company after the Madras Stock Exchange, where the company’s shares were initially listed, surrendered its recognition. As a result of the Madras Stock Exchange's de-recognition, the shares were moved to the Dissemination Board of the NSE, effective from December 1, 2014, as per SEBI’s guidelines. SEBI issued a series of circulars starting in May 2012, followed by other circulars in 2014 and 2015, to guide the exit process for companies listed on de-recognized or non-operational stock exchanges. These circulars specified measures for companies to provide an exit route to their shareholders and ensure compliance with the regulatory framework. Accordingly, T. In 2016, Stanes and Company Limited made a buy-back offer where the company allowed shareholders to sell back the shares to the company. Under this buy-back procedure, the company paid an amount of ₹1,92,41,602/- to those shareholders who accepted the offer. However, Mr. Girdharilal had not accepted the buy-back offer, and hence, Mr. Girdharilal challenged that the delisting of the company from the NSE Dissemination Board in the year 2018 was too early and inappropriate. The appellant argued that the failure to accept the buy-back offer should not result in the removal of the shares of the company from the Dissemination Board since it left him with very limited options to liquidate his holdings. Mr. Girdharilal expressed his reservations about the process and asked for the restoration of T. Stanes and Company Limited went on the Dissemination Board to offer him and all the other shareholders a less bleak exit option. From this appeal, Mr. Girdharilal challenged the order of NSE and pleaded for relief by praying for his reinstatement on the Dissemination Board so that shareholders such as himself may look to alternative routes for selling shares. The case has concerns related to shareholder rights, buy-back offers, and the wider implications of delisting processes from a stock exchange. FACTS Mr. Mahendra Girdharilal, a shareholder of T. Stanes and Company Limited, was aggrieved by the ruling of the National Stock Exchange (NSE) for excluding the company from the Dissemination Board. T. Stanes and Company Limited were listed originally in the long-defunct Madras Stock Exchange, which had lost recognition status as it did not fulfill the SEBI criteria. Due to this, the company's shares were transferred to the NSE's Dissemination Board on December 1, 2014. To address concerns of companies listed on non-operational exchanges, SEBI issued a series of guidelines in 2012 and 2014 detailing how such companies could be treated. In 2015, SEBI even offered an exit opportunity to shareholders, enabling companies to offer buy-back offers to their shareholders. This was meant to ensure that shareholders do not end up in situations where they cannot liquidate their investments based on the delisting of exchanges or removal of shares from operational platforms. According to SEBI guidelines, T. Stanes and Company Limited made a buy-back offer to its shareholders in the year 2016. Among them was the appellant, Mr. Girdharilal. The company purchased shares from the shareholders who were willing to participate in the buy-back offer. But the appellant refused to accept the buy-back offer and retained his shares Although the buy-back process was completed, two years later, Mr. Girdharilal challenged NSE's decision to delete the company's shares from the Dissemination Board. His contention was that the deletion of the shares from the board deprived him of the right to sell his shares under the buy-back offer and left him without an option for an exit. The appellant argued that the decision of the NSE to delist the shares from the Dissemination Board was not in accordance with the SEBI guidelines, which were meant to provide a clear and fair process for dealing with companies in such circumstances. This case highlights issues related to the rights of shareholders whose investments are affected by delisting, and the adequacy of regulatory measures to provide them with an exit option, as well as the proper implementation of SEBI’s exit guidelines for companies listed on non-operational exchanges.

ISSUE RAISED

The primary legal issues that arose in this case were:

1. Whether the appeal filed by the appellant against the NSE's decision to expel T. Stanes and Company Limited from the Dissemination Board is maintainable?
2. Whether the buy-back offer made by T. Stanes and Company Limited is in conformity with SEBI guidelines and whether, in that event, the appellant is entitled to some other remedy.

PETITIONER'S ARGUMENTS

• The appellant, Mr. Mahendra Girdharilal, argued that the de-listing of T. Stanes and Company Limited from the NSE Dissemination Board was done in a premature and arbitrary manner, especially against those shareholders who, like the appellant, did not accept the buy-back offer of the company. He further argued that such a decision to delist the company from the Dissemination Board should have considered the shareholders who did not participate in the buy-back offer and that it was done without adequate alternatives being provided to them.
• The appellant argued that his decision to decline the buy-back offer should not be a basis for the removal of the shares from the Dissemination Board, as it prejudices the interests of shareholders like him who did not participate in the buy-back. He indicated that only those shareholders who accepted the buy-back offer and agreed to sell back their shares at the terms would have had a means of liquidating their holding after the removal of the company from the Dissemination Board; others declined the offer with no option available for liquidating their holding thereafter.
• In his argument, the appellant raised concerns that the NSE and SEBI had failed to consider the broader impact of the delisting process on shareholders who had legitimate reasons for not participating in the buy-back offer. He contended that the removal of the company’s shares from the Dissemination Board deprived these shareholders of an opportunity to exit, effectively trapping them with their shares in a market where liquidity had already been restricted.
• The appellant further argued that both regulatory bodies, including SEBI and NSE, have the duty to ensure fairness and provide a balanced exit strategy for all the shareholders, whether they agree or not to accept the buy-back offer. Thus, the premature removal of the company from the Dissemination Board, without considering the alternative or providing a fair mechanism for all the shareholders, was an infringement upon the rights of the investors and shareholders in the company.
• In view of these facts, the appellant filed an application for reconsideration of the NSE's decision to de-list T. Stanes and Company from the Dissemination Board, arguing that the de-listing was not in the best interest of the shareholders who were left with limited options for their shares.

RESPONDENT'S ARGUMENTS

• The NSE, in its defense, cited that the buy-back offer from T. Stanes and Company Limited was well within the guidelines laid out by SEBI for exit by shareholders. The exchange argued that it was an open and fair process where shareholders would be allowed to sell back shares to the company at an appropriate price. NSE argued that this buy-back process was in accordance with the legal framework provided by SEBI for companies whose shares had been shifted to the Dissemination Board due to the de-recognition of their listing exchange. According to NSE, the shareholders who deliberately didn't participate in this buy-back offer voluntarily decided not to sell their respective shares, and hence, it becomes inapplicable for them to raise an objection against deletion by the company from the Dissemination Board, as the main avenue for exit of this scheme of investors was its buy-back offer.
• Even the actions taken by the above companies were supported by the SEBI. The regulator concluded that the company had indeed followed all the necessary procedures and complied with the respective SEBI circulars and guidelines. According to SEBI, shareholders who did not participate in the buy-back were not entitled to dispute the removal of the company from the NSE Dissemination Board, as the buyback was the legally prescribed mode of providing an exit opportunity. The regulator further added that after the company had made the buy-back offer, it had complied with its obligation under the SEBI regulations, and thereby, it had discharged its duty to the shareholders.
• The appellant company, T. Stanes and Company Limited, did not present its case on the appeal. Thus, the position of the company was not presented directly in the court. This lack of response from the company left the NSE and SEBI’s defense to carry the weight of justifying the buy-back process and the subsequent removal of the company’s shares from the Dissemination Board. Both parties argued that the actions were within the scope of SEBI’s regulatory framework and provided sufficient protection to the shareholders.

JUDGEMENT

The Securities Appellate Tribunal (SAT) addressed the appeal filed by Mr. Mahendra Girdharilal, a shareholder in T. Stanes and Company Limited, challenging the removal of the company from the NSE Dissemination Board. The Tribunal first considered the appellant’s delay in filing the appeal, which was five days beyond the prescribed period. SAT found the delay to be justifiable under the circumstances and condoned it, allowing the appeal to proceed on its merits. The Tribunal further went on to decide on the core issue related to the de-listing of T. Stanes and Company Limited from the NSE Dissemination Board. SAT overturned the order passed by the NSE, and as held, it was totally in strict compliance with SEBI guidelines. These guidelines were drafted so that there would not be any disorganized exit by shareholders of companies whose shares had been transferred to the Dissemination Board as a result of the de-recognition of its listing exchange. The tribunal clearly mentioned that T. Stanes had adopted the procedure prescribed by regulation. The buy-back offer for its shareholders was made so that the prescribed method would provide an exit opportunity under the guidelines of SEBI. The Tribunal noted that Mr. Girdharilal, the appellant, had also voluntarily chosen not to exercise his right under the buy-back offer. Since the buyback offer was strictly in consonance with SEBI regulations, the Tribunal could hold no justifiable grounds on account of which the decision to decline the offer of Mr. Girdharilal should enable his objections to the company's removal from the Dissemination Board. The Tribunal held that once the buy-back offer had been made, the company had discharged its legal obligations toward its shareholders and that it was a matter of personal choice for the appellant to fail to act upon the offer. Lastly, the Tribunal rejected the appeal submitted by the appellant to restore T. Stanes and Company Limited to the NSE Dissemination Board. SAT ruled that the company had complied with all the regulatory requirements as required and that the exit mechanism of the company was valid under the SEBI framework. The decision taken by the Tribunal vindicated the regulatory powers of SEBI and NSE as well as ensured compliance through the exit mechanism for the shareholders of de-recognized companies.

CONCLUSION

The Securities Appellate Tribunal (SAT) dismissed the appeal filed by Mr. Mahendra Girdharilal, affirming the decision of the NSE to remove T. Stanes and Company Limited from the Dissemination Board. The Tribunal upheld that the removal was in compliance with SEBI’s guidelines, which outline an exit mechanism for shareholders of companies listed on de-recognized stock exchanges. SAT said the company had done the correct thing in giving the buy-back opportunity to its shareholders, and those who opted out of the offer could not challenge their removal from the Dissemination Board. The Tribunal emphasized that the appellant’s voluntary decision not to take part in the buy-back process did not affect the legality or fairness of the company’s removal from the board. By providing a transparent exit option, the company fulfilled its obligations under SEBI’s regulations. The Tribunal also noted that the appellant's failure to participate was a personal choice and could not serve as grounds for challenging the removal. This case clearly brings out the vital necessity of following the regulatory requirements laid down by SEBI for the protection of shareholder interest, especially when delisting or de-recognition becomes a possibility. This decision strengthens the validity of the exit mechanisms of SEBI, which are essentially in place to protect the interest of investors while ensuring companies also comply with the norms for corporate governance and market conduct. The judgment reflects the support of the judiciary for continued compliance with SEBI guidelines in the interest of protecting investors and ensuring orderly market functioning.