ART NIRMAN LTD. …………APPELLANT, REPRESENTED BY MS. NATASHA DHRUMAN SHAH, ADVOCATE
NATIONAL STOCK EXCHANGE OF INDIA LTD. ……..RESPONDENT, REPRESENTED BY MR. PRADEEP SANCHETI, SENIOR ADVOCATE WITH MR. RASHID BOATWALLA, MR. ADITYA VYAS, ADVOCATES
Justice Tarun Agarwala (Presiding officer), Justice M.T. Joshi (Judicial Member) and Meera Swarup (Technical Member)
The present case is an appeal challenging the orders of National Stock Exchange of India Ltd. with respect to violation of SEBI Regulations in the Securities Appellate Tribunal, Mumbai and it elaborates a very important issue.
FACTS OF THE CASE
The appellant (Art Nariman Ltd.) made the following allotments under the Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018
76,50,000 equity shares on May 2, 2019 on a preferential basis and applied to the Stock Exchange for listing the same on 10th June, 2019
51,30,000 equity shares on 25th April, 2019 on a preferential basis and applied for listing to The National Stock Exchange of India on 7th June, 2019
The NSE on 12th June, 2019 by issuing two orders against the appellant,
imposed fine of Rs. 5,57,168 on the ground that there was a delay of 23 days in applying for listing of shares in the Stock Exchange and;
imposed a fine of Rs. 4,62,768 on the ground that there was a delay of 19 days for applying for listing in Stock Exchange.
The NSE imposed a fine on the appellant for the violation of Regulation 108 (2) of the SEBI (ICDR) Regulations, 2009 read with the SEBI’s circular dated 15th June, 2017.
As per Regulation 108(2), the issuer company has to apply to the Stock Exchange for listing of securities within 20 days of the allotment. Under Regulation 112 of the ICDR Regulations, 2009 a circular was passed directing the Stock Exchanges to impose fines on issuer companies for violation of certain provisions of the ICDR regulations including Regulation 108(2). The penalty for non- compliance of the provision was Rs. 20,000 per day of non-compliance till date of compliance and if it continues for more than 15 days, additional fine of 0.01% of paid-up-share capital or Rs. 1 Crore, whichever is less.
As per the ICDR Regulation, 2018, provisions related to listing of securities in Stock Exchange has been enumerated as general conditions under Regulation 104.
As per Regulation 104(1)(a), application to Stock Exchange has to be made as per Schedule XIX.
As per Para 2 Clause (2) of the schedule, the application to Stock Exchange with respect to listing of securities should be made within time prescribed by SEBI from time to time.
Pursuant to this provision, SEBI by a circular dated August 19, 2019 fixed the time limit for applying to the Stock Exchange for listing of securities to 20 days from the date of allotment. The new circular suppressed the circular of 2017.
The issue of the case was that the earlier listings of the company was made under ICDR Regulations of 2009 but with effect from September 11, 2018 the earlier regulations were repealed and ICDR Regulations of 2018 came into force
The question before the bench was whether the actions taken by the NSE is valid since the instant listing was made under 2018 Regulations but actions were taken under 2009 Regulations which has been repealed, read with 2017 circular which is a subordinate legislation under the 2009 Regulation.
The appellants urged that such orders could not be passed and is invalid because the provisions under which it has been passed has been repealed w.e.f. September 11, 2018.
The respondents contended that the 2017 circular was not repealed and is in force by the virtue of Section 24 of the General Clauses Act, 1897 which states that unless the notification or circulars passed under the repealed statute is inconsistent with the new statute, the circulars will continue to be in force, and hence the order passed by the NSE is valid, since the circular is still in force.
The bench opined that when a statute is repealed, the consequences are very drastic, it is obliterated as if it was never enacted and therefore no proceedings can be initiated or continued once the statute is repealed.
The repeal of the statute is given effect from the date on which it was repealed and it remains in operation for the time before it was repealed unless there is a saving clause for past and ongoing transactions which preserved certain rights and remedies that are already existing.
Regulation 301 of the ICDR Regulations 2018 provides the savings clause and it states that notwithstanding rescission, anything done under the previous regulation shall be deemed to have done or taken under corresponding provision of the 2018 regulation.
The bench also opined that word “anything done” in Clause (2)(a) of Regulation 301 will preserve the Rules, bye-laws and notifications issued under the repealed statute as held by the Supreme Court in State of Nagaland vs. Ratan Singh.
The bench also opined that once a statute is repealed, the subordinate legislations under the statute also gets repealed; however this can be avoided by insertion of savings clause and in the absence of savings clause, Section 24 of the General Clauses Act will come into force.
The bench also opined that Regulation 108(2) of 2009 Regulation read with circular of 2017, is not inconsistent with Regulation 104 of 2018 Regulations read with circular of 2019.
The bench held that the circular dated 2017 would apply to Regulation 104 of 2018 Regulations in the light of the decision of Supreme Court in Poonjabhai Varmalidas vs. Commissioner of Income Tax and although the impugned order is with reference to violation of Regulation 108(2) of the 2009 Regulations, it should actually be read as violation of Regulation 104 of the 2018 Regulations by the virtue of Section 24 of the General Clauses Act. The bench disposed of the appeal by concluding that the fine imposed by the Stock Exchange is valid.
Thus from the above mentioned case details it can be figured out that the fine imposed with reference to the 2017 circular and the ICDR Regulations of 2017. The counter party stated that with the amendment the circular and the previous statute must not be taken into consideration.
The judgment of the bench stated that when a statute is repealed, the consequences are very drastic, it is obliterated as if it was never enacted and therefore no proceedings can be initiated or continued once the statute is repealed. It stated that the amended statute comes in force immediately but previous statutes remain in operation for the time before it was repealed unless there is a saving clause for past and ongoing transactions which preserve certain rights and remedies that are already existing. It also stated that Clause (2)(a) of Regulation 301 will preserve the Rules, bye-laws and notifications issued under the repealed statute as held by the Supreme Court in the above mentioned case. It also held that Regulation 108(2) of 2009 Regulation read with circular of 2017, is not inconsistent with Regulation 104 of 2018 Regulations read with circular of 2019. Moreover it stated that although the impugned order is with reference to violation of Regulation 108(2) of the 2009 Regulations, it should actually be read as violation of Regulation 104 of the 2018 Regulations by the virtue of Section 24 of the General Clauses Act.
1. State of Nagaland vs. Ratan Singh, 1967 AIR 212
2. Poonjabhai Varmalidas vs. Commissioner of Income Tax, 1990 SCR Supl. (2) 206
This article is written by Vishnurath Varma of JIS University.