PNB Housing Finance (PHF) needed a capital injection and was trying to attract an outside shareholder, but the actions of the Indian Securities and Exchange Board (Sebi) deprived it of that and hurt the interests of minority shareholders, the company’s attorney told the Securities Appeal Court. (SAT) in his closing remarks on Monday.
The court has reserved its judgment on the matter.
The lawyer argued that blaming the board of directors was unfair since the preferential allocation price was not final and had to be approved by a special resolution.
Sebi had ignored rule 13 (1) of the 2014 Company Rules (Capital Stock and Obligations) and its interpretation had resulted in two different rules for listed companies wishing to opt for preferential allocation —- those that had bylaws (AoA) and those that did not.
“How will existing rules be interpreted if the company does not have AoA? Why should harmonious construction be used when none is required? Harmonization, if required, is provided for in Rule 13,” said the lawyer .
Although article 62 (1) (c) of the Capital Companies Law allows preferential allocation by means of a special resolution if the price of said shares is determined by the valuation report of a registered appraiser, it has been expressly made subject to compliance of the applicable provisions of Chapter III of the law, which includes Article 24, said the lawyer.
“Even if Rule 13 were not there, this subclause 62 (1) (c) makes it clear that the price to be determined by the registered appraiser is subject to compliance with section 24,” he said.
The second condition of rule 13 (1) was introduced to resolve any doubts one may have due to peremptory language used in section 62 (1) (c) that may have caused some confusion, the attorney said. The second condition says that the price of the shares that will be issued preferentially by a listed company will not be obliged to determine it through the valuation report of a registered appraiser.
The lawyer said that nowhere do the regulations suggest that the price determined by an appraiser should be lower or higher than the minimum price prescribed by section 164 of the ICDR regulations.
“Sebi says that if the price determined is lower, the ICDR will prevail; if it is higher, the statutes will apply. The price has to be determined by the appraisal report of a registered appraiser, which implies that there has to be a price, which cannot be higher or lower, “said the lawyer.
The measure to infuse capital was seen as a positive step by shareholders as seen in the spike in the company’s share price after the announcement, the lawyer said, adding that the measure to intervene before the EGM was not investor interest.
Sebi said that the affidavit submitted by the company was “a pure lie” and that the company’s AoA was specifically entered at the time of listing. He reiterated that the ICDR regulations say that the price “shall not be less than”, which implies that there was no obstacle to setting higher prices in the preferential issue.
The preferential allocation was announced by PNB Housing in May and the proxy advisory firm SES deemed it “unfair” to public shareholders. On June 18, Sebi ordered the company to halt the award unless an independent appraiser made the appraisal. The mortgage lender then moved the SAT.