Shareholder’s Appeal Dismissed, Cannot Challenge Scheme of Arrangement Before SEBI
A recent case before the Securities Appellate Tribunal (SAT) in Mumbai involved a shareholder’s appeal challenging the order of the Securities and Exchange Board of India (SEBI) regarding a scheme of amalgamation/arrangement between Indiabulls Real Estate Limited and Embassy Group Companies. The SAT, comprising Justice Tarun Agarwala and Meera Swarup, ruled that the appellant, who purchased shares from the shareholder, has no locus to file the appeal as he is not an aggrieved person and cannot pursue the same grievance before another forum, namely, SEBI.
Indiabulls Real Estate Limited had announced the merger with Embassy One Commercial Property Developments Pvt. Ltd., and later, the merger with NAM Estates Pvt. Ltd. and Embassy One Commercial Property Developments Pvt. Ltd. A draft scheme of arrangement was filed before the stock exchanges for obtaining a no objection certificate, which was forwarded to SEBI.
The appellant, who became a shareholder after purchasing shares from a previous shareholder, challenged SEBI’s rejection of the previous shareholder’s representation. The appellant contended that he has the right to continue with the litigation as he stepped into the shoes of the erstwhile complainant.
However, the SAT ruled that becoming a shareholder does not automatically transfer the cause of action, and the complaint remains personal to the original shareholder. The Court clarified that SEBI’s role is limited to issuing observation/no objection letters to schemes of arrangement and does not encompass adjudicating on the merits of the scheme.
The Court emphasized that a shareholder cannot complain about the scheme of arrangement before SEBI or the Stock Exchange, nor can they make representations or file appeals under Section 15T of the SEBI Act. If a shareholder is aggrieved by the scheme, the appropriate remedy is to object during the shareholders’ consideration or before the National Company Law Tribunal (NCLT) under Section 230(4) of the Companies Act.
Furthermore, the doctrine of election applies, meaning that when two remedies are available for the same relief, the aggrieved party must choose one, not both. Therefore, once the shareholder had approached the NCLT, it was not open to the shareholder or the appellant to pursue the same grievance before SEBI.
In conclusion, the SAT held that the appellant is not an aggrieved person, and thus, the appeal is not maintainable. The appellant’s attempt to challenge the scheme of arrangement before SEBI was dismissed by the Tribunal, affirming that the proper forum for such grievances is the NCLT.
