APL Industries Ltd. v. Security and Exchange Board of India (2017) 200 Comp Cas440 (Del.)

The Securities Exchange Board of India has been established to protect the interests of thee investors in the Securities market. The court in this case opined that if the minimum subscription prescribed in the prospectus of the company has not been received then it is not a valid allotment. No shares can be allotted unless atleast the amount of minimum subscription stated in the prospectus has been subscribed. Therefore, in the given case the issue was undersubscribed so the company has to refund all the application money received, to the applicants along with the adequate amount of interest.
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Introduction

The APL Industries Ltd. v. SEBI case came into existence in 1996 to protect the interests of the investors if the issue is undersubscribed and to cancel all the allotment of shares. As per Section 69 of the Companies Act, 1956, allotment of shares should be prohibited if the minimum subscription is not received. In this case, at the date of closing, the subscription was oversubscribed by 1.75 times but due to subsequent rejection and withdrawals, it came down to 83%. The petitioner company asked for a minimum subscription of 100 % which it did not receive. As a result of which the company became bound to refund the amount received from all the applicants along with the interest @ 15% per annum. The case also draws attention to the obligation of the Registrar of Shares to make a list of all the applicants along with their names and addresses. It is the duty of the Securities Exchange Board of India to make sure that no applicant is at loss and all of them have received a justified amount.

Facts of the case

The petitioner in the APL Industries Ltd. v, SEBI case is M/s APL Industries Ltd. who filed a petition for issuing a writ of certiorari, quashing a communication dated 17.11.2014 issued by the respondent No.1/Securities Exchange Board of India. Respondent No. 2 and 3 are Canara Bank and Punjab National Bank respectively. The dispute began when respondent No. 1 through its prospectus asked for a public issue of 30 Lakhs equity shares of the face value of Rs.10/- each, for cash at par for a total amount of Rs. 3 Crores. The minimum subscription demanded by the company was 100%. The public issue opened on 26th February 1996, and was closed on 29th February 1996. In the first instance, the issue was received by the Registrar to the issue who is respondent No. 4 and the said issue was oversubscribed by 1.75 times but due to subsequent withdrawals and rejections of applications, the issue got undersubscribed. As the minimum prescribed subscription was not received the SEBI advised the company to refund all the money to the share applicants along with the interest. Against the order of the SEBI to return all money to the applicants, the petitioner company filed an appeal before the central government under Section 20 of the Securities Exchange Board of India Act, 1992. The appeal was not allowed and the Board asked APL Industries Ltd. to refund the number of share applicants. The petitioner company further filed an appeal before Security Appellate Tribunal and it sets aside the order passed by SEBI and directs an appropriate action to be taken as per the procedure established by law. Against the decision of the SAT, a writ petition was filed in Delhi High Court which set aside the decision of the Securities Appellate Tribunal and directed the company for the refund of the application money to all the applicants along with the interest. The money was not delivered by the company in the prescribed time; therefore, the SEBI wrote a letter to the petitioner company to refund all the money. In the context of the letter written by SEBI, the petitioner company wrote a letter to respondent No. 2 and 3 for the refund of the application money along with the interests. Total applicants who have applied through Canara Bank are 909 investing Rs. 25,28,000/- and applicants who have applied through Punjab National Bank are 631 investing Rs. 16,71,500/-. The respondent Banks asked the company to arrange the amount of interest so that they can pay back to applicants. Therefore, the present petition was filed in Delhi High Court to seek appropriate relief.

Issues

  • Whether respondent No. 2 and 3 were illegally withholding the application money and denying the payment of interest accrued.
  • Whether it is the duty of the respondent No. 2 and 3 to pay the interest to all the applicants or the duty of the petitioner company to make them available adequate funds.
  • Whether respondent No. 4 has provided all relevant details of the applicants to the petitioner.

Contentions from both the sides

Petitioner

  • The learned Counsel for petitioner contended that it is the duty of the respondent banks to pay the application money along with the interest.
  • The Counsel also contended to know about the whereabouts of Registrar of Shares.

Respondent

  • The learned Counsel for SEBI contended that it is the share applicants who are suffering the most and most of them cannot initiate a case because of the huge litigation expenses.
  • The learned Counsels for respondent No. 2 and 3 contended that it is the duty of the petitioner company to refund the application amount along with interests.

Summary of the Judgement

The Delhi High Court in its judgment in APL Industries Ltd. v, SEBI delivered that respondent No. 2 and 3 were directed to deposit the entire amount related to the case available with them in an interest-bearing account. The court further reiterated that since the parties have been in litigation for more than 20 years, it is the share applicants who are majorly suffering the loss and it is the duty of the petitioner company to refund back all the money along with interest to the share applicants. The honorable court in APL Industries Ltd. v. SEBI directed the petitioner company to make a list of all the 909 share applicants who had applied through Canara Bank and ordered the bank to pay back all the money along with an interest of 15% per annum. It asked respondent No. 3, Punjab National Bank to do the same and refund back the entire amount with interest. The court imposed the duty of calculating the interest amount on the respondent banks and since the court has ordered to transfer the entire amount to an interest-bearing account, the interests need to be paid through that account. The court opined that if the respondent banks are falling short of any amount to be paid back to the share applicants then it is the duty of the petitioner company to provide the bank with all the necessary funds. The banks are directed to complete the entire process of transfer of amount within four weeks from the date of commencement. After the process of intimation is complete the respondent banks are directed to inform about the same to the petitioner and respondent No. 1. The court authorized the Securities Exchange Board of India to keep under control the entire process of transfer of the number of share applicants.

Analysis

The judgment delivered by Delhi High Court in APL Industries Ltd. v, SEBI was appropriate with justified reasoning that if the minimum subscription prescribed in the prospectus is not attained then it is not a valid allotment and all the money received from the applicants should be returned back to them along with the specified amount of interest. The court imposed SEBI with the obligation that all the application money need to be refunded as expeditiously as possible and if the respondent banks are falling short of any funds then it is the duty of the petitioner company to make those funds available. The decision laid down in this case is in uniformity with certain laid down provisions and Section 69 and Section 75 of Companies Act, 1956. The hon’ble court relied on certain judicial precedents laid down while delivering the judgment. The court justified its decision and asked the respondent No. 4 to provide the names and addresses of all the applicants so that money could be delivered to them immediately. The Court emphasized on the power of the SEBI and asked the petitioner to separately file a compliance report with the respondent No. 1, in accordance with the rules stipulated in that regard. The court emphasized on the fact that till date it was only the applicants who were facing the loss and were not even able to file a case for the same because of huge amount of litigation expenses. Therefore, justice needs to be delivered to them as soon as possible.

Conclusion

The Delhi High Court in the given case ordered to refund all the application money along with the interests to the share applicants. However, it was the duty of the respondent banks to deliver all the money to the share applicants as soon as possible and it was the duty of the petitioner company to make all the adequate funds available to the respondent banks. The judgement delivered by the hon’ble court has no scope of improvement as it has been delivered in uniformity with Section 69 and Section 75 of the Companies Act, 1956.

Also read https://thecompany.ninja/rights-of-shareholders/

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