Dismissed¶46

India Power Corporation Limited Formerly Known as Dpsc Limited v. Securities and Exchange Board of India

Calcutta HC10 Apr 2025APO/105/2023

Case brief

AI extract

What is this about?

Calcutta High Court APO/105/2023 dismissed April 10, 2025; minimum public shareholding (MPS) rule 19A SCRR 1957; SEBI enforcement against IPCL (formerly DPSC Ltd.) promoter group and directors; scheme CP/206/2012 under sections 391/392 Companies Act 1956; clause 3.3.3 Power Trust deemed public; SAT order April 3, 2019; SREI Equipment Finance pledge of 32,37,45,165 shares; Receiver sale; impugned Single Bench order dated February 7, 2023 upheld; interim order vacated; no costs.

What did the court decide?

No relief to the appellant; appeal dismissed and the interim order already passed stands vacated forthwith. ¶46

India Power Corporation Limited Formerly Known as Dpsc Limited… — Arbitration | Calcutta HC (2025)

What the court decided

AI extract

Outcome

No relief to the appellant; appeal dismissed and the interim order already passed stands vacated forthwith.

¶46

Issue for consideration

Whether the impugned judgment and order dated February 7, 2023 passed by the Single Bench, granting SEBI leave to take action against the company, its promoter group and directors for inability to meet the MPS requirements, calls for interference in this appeal. +1 more

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Court's answer

The impugned judgment and order dated February 7, 2023 calls for no interference.

¶45

Ratio / Principle

The attempts at compliance with the disinvestment to satisfy the MPS requirement under rule 19A have not been bona fide, and the Court's mind is not free from doubt that the appellant and the Power Trust may have tried to frustrate compliance of rule 19A by presenting repeated fait accompli to the Court.

¶44

Key takeaways

To ensure compliance of the terms and conditions of sanction of the scheme, sufficient leverage over a period of nearly six years was given to the appellant and/or Power Trust to ensure 25% of the shareholding of the former M/s. DPSC Ltd. was disinvested to the public at large.ratio¶43
The object and purpose of rule 19A of the SCRRA is primarily to ensure transparency in corporate management and shareholding; the MPS requirement aims at ensuring listed companies maintain a minimum amount of shares among the public to prevent improprieties in the management and administration of public companies.ratio¶39

Detailed headnote1 paragraphs

Division Bench (Rajasekhar Mantha and Ajay Kumar Gupta, JJ.) dismisses APO/105/2023 challenging the Single Bench order dated February 7, 2023 in CA/4/2021 (arising out of CP/206/2012), by which SEBI was granted leave to take action against India Power Corporation Limited (formerly DPSC Limited), its promoter group and directors under securities laws for failure to meet the 25% minimum public shareholding (MPS) required by rule 19A of the Securities Contracts (Regulation) Rules, 1957 [printed in the judgment as 'Security Contract Requirement Rules, 1957']. The 2013 scheme sanctioned under sections 391/392 of the Companies Act, 1956 had placed about 40% of DPSC shares in Power Trust, deemed 'public' under clause 3.3.3; despite extensions from January 27, 2017 to 2023 only about 6% was disinvested, and the Trust pledged 32,37,45,165 shares to SREI Equipment Finance Ltd. (since under insolvency), later sold under a Receiver appointed by the Court. Holding the compliance attempts not bona fide and that the appellant and the Trust may have frustrated rule 19A by repeated fait accompli, the Court declines to interfere; connected IA ACO/2/2024 dismissed; interim order vacated; no order as to costs.

¶1

OD-3

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ORDER SHEET

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IN THE HIGH COURT AT CALCUTTA CIVIL APPELLATE JURISDICTION ORIGINAL SIDE

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APO/105/2023; WITH CA/4/2021; CP/206/2012; IA NO:ACO/2/2024 INDIA POWER CORPORATION LIMITED FORMERLY KNOWN AS DPSC LIMITED

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-VS-

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SECURITIES AND EXCHANGE BOARD OF INDIA

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BEFORE:

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The Hon‟ble JUSTICE RAJASEKHAR MANTHA And The Hon‟ble JUSTICE AJAY KUMAR GUPTA Date: April 10, 2025.

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Mr. R. Banerji, Sr. Adv.; Mr. D.N. Sharma, Sr. Adv.; Mr. S. Mandal, Adv., appear. Mr. T.K. Bose, Sr. Adv.; Mr. P.K. Dutt, Adv.; Mr. S.K. Dutt, Adv.; Mr. S. Banerjee, Adv., appear. Mr. A. Singh, Sr. Adv.; Mr. S. Ganguli, Adv., appear. Mr. S. Dasgupta, Adv.; Mr. A. Chaudhury, Adv., appear.

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The Court: The instant appeal is directed against the judgment and order dated February 7, 2023, passed by a Single Bench of this Court. The said order was passed on an application filed by the Securities and Exchange Board of India (SEBI) being CA/4/2021 under CP/206/2012.

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By the said order, inter alia, the SEBI was granted leave to take necessary action against the company and its promoter group and directors as per the provisions and methods available under the Security Laws for inability of the company to meet the MPS requirements.

¶13

The facts relevant to the case are that on June 4, 2010, rule 19A of the Security Contract Requirement Rules, 1957 was brought into force, requiring all public listed companies to ensure and maintain at least 25% of its shareholding amongst the general public (MPS) at large.

¶14

The SEBI, by communications to various stock exchanges, required compliance of rule 19A(supra). Specific communications were addressed to one Dishergarh Power Supply Co. Ltd. on February 1, 2012, February 30, 2012 and April 15, 2013.

¶15

In the meantime, the majority shareholders and/or holding company of M/s. DPSC Ltd., one IPCL and the DPSC Ltd. filed an application under sections 391/392 of the Companies Act, 1956 (C.P. No.206 of 2012) for the sanction of a scheme for demerger and/or amalgamation. By and in terms of the said scheme, the investment division of M/s. IPCL was to be transferred to a trust, proposed by the applicant named Power Trust. The residual shareholding of IPCL was to merge with M/s. DPSC Ltd. The name of DPSC was thereafter changed to the name of the former holding company M/s. IPCL.

¶16

Clause 3.3.3 (under the heading “Transfer of the Investment Division to the Investment Trust) of the scheme for amalgamation, inter alia, prescribed that the MPS requirement of DPSC, now known as IPCL, in terms of rule 19A(supra) should be deemed to be satisfied by reason of a transfer of shareholding of M/s. DPSC to a

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trust settled under the scheme. The said clause 3.3.3 of the said scheme is set out hereinbelow:

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“As the Trustees will hold the Investment Division in an irrevocable trust and shall be managing the Investment Trust in an independent manner, the Trustees shall constitute members of „public‟ as defined under the Securities Contracts (Regulation) Rules, 1957, in relation to any and all investments held by the Investment Trust.”

¶20

The scheme was sanctioned by orders of the Company Court dated April 17, 2013. Pursuant to such sanction, about 40% of the shares of M/s. DPSC came to be held by the trust by reason of the scheme.

¶21

Upon SEBI realizing that the scheme, particularly clause 3.3.3 thereof was an attempt to bypass the provision of rule 19A(supra), and the Trust could not constitute members of the public, applied before the Single Bench for recall and/or modification of the scheme in question.

¶22

The Company Court, having in essence, realized that it was misled into sanctioning the scheme to the extent that it violated rule 19A(supra), from time to time allowed the trust to disinvest and make available to the public at large 25% of the shareholding in the erstwhile DPSC (now IPCL). The SEBI was admittedly not notified of C.P. No.206 of 2012.

¶23

Despite several extensions granted from January 27, 2017 till the year 2023, the trust could only sell about 6% of the shareholding in M/s. IPCL.

¶24

There were two intervening proceedings in the meantime. Four independent directors of M/s. DPSC (now IPCL) applied before the Securities Appellate Tribunal

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challenging the order of the SEBI dated June 4, 2013. By the said order, the SEBI had imposed several restraints on the said four directors.

¶27

The Securities Appellate Tribunal disposed of the said appeal on April 3, 2019, inter alia, stating that since the High Court at Calcutta had approved the scheme in question, the SEBI was required to approach the High Court for any coercive measures that it wishes to launch against the directors of DPSC (now IPCL).

¶28

The other development indicated to Court is that the Power Trust for some unexplained reasons is stated to have borrowed sums of money from Non-Banking Financial Companies namely SREI Equipment Finance Ltd. and pledged 32,37,45,165 shares. The purpose for which the loan was availed by the trust against the pledge of shares has not been explained to this Court.

¶29

The said M/s. SREI Equipment Finance came under corporate insolvency. On an application filed under section 9 of the Arbitration and Conciliation Act, 1996, the said shares pledged to M/s. Srei Equipment Finance Ltd. were directed to be sold under a Receiver appointed by this Court. The bonafides and legality of the invocation of the Arbitration Clause by SREI and the concurrence of the trust in this regard leave many questions unanswered.

¶30

The SEBI having realized that M/s. IPCL, in its new form and the Power Trust were attempting by hook or crook to frustrate and/or bypass the compliance of the MPS under rule 19A(supra), finally applied before the Single Judge seeking the following reliefs:

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(a)Leave of the Court may be granted that apart from the divestment process being adopted by the Trust and in case the Trust is unable to meet the MPS

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compliance, the Company/its Promoter(s)/Promoters Group/Directors may also be directed to meet the MPS requirements.

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(b)To allow SEBI to take necessary action against the Company/its Promoter(s)/Promoters Group/Directors as per the provisions/methods available under Securities Laws in order to meet the MPS requirements.

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(d)Pass such other order or orders and/or direction/directions as Your Lordship may deem fit and proper.

¶37

The Single Bench having realized and noted the conduct of the company, permitted prayers (a) and (b) of the said application.

¶38

This Court has carefully considered the arguments advanced by the appellant and M/s. SEBI as also the learned counsel for M/s. Power Trust.

¶39

The object and purpose of rule 19A of the SCRRA is primarily to ensure transparency in corporate management and shareholding. The MPS requirement is aimed at ensuring that the listed companies have a minimum amount of shares among the public at large to prevent any attempt at improprieties in the management and administration of public companies.

¶40

It appears from the records that SEBI had notified the requirement of compliance of MPS to at least 105 companies including the DPSC Ltd. some of which have applied and several are being dealt with in accordance with law. The appellant company is no exception.

¶41

This Court has noted that the Single Bench which sanctioned the scheme on April 17, 2013 later on realized that it might have been misled in so far as compliance of the MPS requirement in the scheme proposed by the appellant in its former avatar.

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It is essentially for this purpose and to ensure compliance of the terms and conditions of sanction of the scheme that sufficient leverage over a period of nearly six years was given to the appellant and/or Power Trust to ensure 25% of the shareholding of the former M/s. DPSC Ltd. to be disinvested to the public at large.

¶44

This Court having carefully considered the orders passed by the Single Bench, is of the view that the attempts at compliance with such disinvestment to satisfy the MPS requirement under rule 19A (supra) have not been bona fide. The Court‟s mind is not free from doubt that the appellant and the Power Trust may have tried to frustrate the process of compliance of rule 19A(supra) by presenting repeated fait accompli to this Court.

¶45

For the reasons stated hereinabove, this Court is of the view that the impugned judgment and order dated February 7, 2023 calls for no interference.

¶46

Accordingly, APO/105/2023 stands dismissed. Consequently, ACO/2/2024 also accordingly stands dismissed. There will be no order as to costs.

¶47

The interim order already passed shall stand vacated forthwith.

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(RAJASEKHAR MANTHA, J.)

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(AJAY KUMAR GUPTA, J.)

¶50

Procedural history

How this case reached the court

AI extract

Order under challenge
Judgment and order dated February 7, 2023 passed by a Single Bench of this Court on SEBI's application CA/4/2021 in CP/206/2012, granting SEBI leave to take necessary action against the company, its promoter group and directors under securities laws for inability to meet the MPS requirements.¶12
Single Bench of the High Court at Calcutta · February 7, 2023
Prior proceeding
Rule 19A of the Security Contract Requirement Rules, 1957 brought into force on June 4, 2010, requiring all listed companies to maintain at least 25% public shareholding (MPS).¶13
Prior proceeding
SEBI addressed specific communications to Dishergarh Power Supply Co. Ltd. on February 1, 2012, February 30, 2012 and April 15, 2013 requiring compliance with rule 19A.¶14
Prior proceeding
Majority shareholders/holding company IPCL and DPSC Ltd. filed C.P. No.206 of 2012 under sections 391/392 of the Companies Act, 1956 for sanction of a demerger/amalgamation scheme; the investment division was to be transferred to Power Trust, the residual shareholding merged into DPSC, and DPSC renamed IPCL.¶15
Prior proceeding
Clause 3.3.3 of the scheme prescribed that the MPS requirement of DPSC (now IPCL) under rule 19A be deemed satisfied by transfer of shareholding to a trust settled under the scheme.¶16
Prior proceeding
Scheme sanctioned by orders of the Company Court dated April 17, 2013; pursuant thereto about 40% of the shares of M/s. DPSC came to be held by the trust.¶20
Prior proceeding
SEBI, considering clause 3.3.3 an attempt to bypass rule 19A and the Trust incapable of constituting members of the public, applied to the Single Bench for recall and/or modification of the scheme.¶21
Prior proceeding
Company Court, having realized it was misled into sanctioning the scheme to the extent it violated rule 19A, allowed the trust from time to time to disinvest 25% of the shareholding in erstwhile DPSC (now IPCL).¶22
Prior proceeding
SEBI was admittedly not notified of C.P. No.206 of 2012.¶22
Prior proceeding
Despite several extensions from January 27, 2017 till 2023, the trust could sell only about 6% of the shareholding in M/s. IPCL.¶23
Prior proceeding
Four independent directors of M/s. DPSC (now IPCL) challenged before the Securities Appellate Tribunal a SEBI order dated June 4, 2013 imposing several restraints on them.¶26
Prior proceeding
SAT disposed of the appeal on April 3, 2019, stating that since the High Court at Calcutta had approved the scheme, SEBI was required to approach the High Court for coercive measures against the directors.¶27
Prior proceeding
Power Trust borrowed sums from NBFCs namely SREI Equipment Finance Ltd. and pledged 32,37,45,165 shares; the purpose of the loan was not explained to the Court.¶28
Prior proceeding
SREI Equipment Finance came under corporate insolvency; on an application under section 9 of the Arbitration and Conciliation Act, 1996, the pledged shares were directed to be sold under a Receiver appointed by this Court.¶29
Prior proceeding
SEBI applied before the Single Judge for reliefs including leave to direct the Company/Promoters/Promoter Group/Directors to meet the MPS requirements and to take necessary action under Securities Laws.¶30

India Power Corporation Limited Formerly Known as Dpsc Limited v. Securities and Exchange Board of India

Case brief

What is this about?

What did the court decide?

India Power Corporation Limited Formerly Known as Dpsc Limited v. Securities and Exchange Board of India

Case brief

What is this about?

What did the court decide?

Why is it important?

What the court decided

Issues for consideration

Statutes considered

Procedural history

Parties & counsel

Coram

Case details

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