SEBI in its order dated March 25, 2013 restrained the promoters of ZIL from accessing the Securities Market and directed the Board of Directors to furnish a Bank Guarantee in favor of SEBI within 30 days for an amount of $33.93 million allegedly diverted for uses other than repayment of FCCBs.
BRIEF FACTS OF THE CASE:
- ZIL FLOATED FCCBs of USD 33 million in September 2006 and additional USD 50 million in August, 2007. The amount so collected was due for redemption in August 2011 and August 2012 respectively. However, due to inadequate funds for redemption, the company decided to raise money upto Rs. 1500 crore by sale of one of its businesses 'MSD Business' by obtaining shareholders approval which was completed in October 2011.
- LAPSE OF CUT-OFF DATE September 21, 2011 led the Trustees of the FCCBs to issue a 'Notice of Default' for maturity of the FCCBs issued in 2011 coupled with a 'Cross Default Notice' for the FCCBs issued in 2012. The Trustees demanded payment of both FCCBs issued in 2011 and 2012 upon which the Appellants contended that they did not have adequate liquid funds to redeem all the FCCBs at one go. Moreover, the maturity date of 2012 FCCBs could not be accelerated without prior approval of RBI.
- UPON FAILURE OF NEGOTIATIONS with investors for extension of time of repayment, the Appellant No.1 ZIL informed BSE on October 13, 2011 of its default on FCCBs due in September 21, 2011.
- SHAREHOLDERS FILED SUIT: On October 14, 2011 certain shareholders claiming to be FCCB Holders filed Suit No. 2034 of 2011 before Civil Court to stop the sale of the MSD Business and also approached SEBI for the same. On the other hand, Trustees filed Petition in Bombay High Court on October 21, 2011 seeking reliefs in respect of the FCCBs.
- SHARE PRICE OF ZIL PLUNGES: The respondents QVT Fund LP and Quintessence Fund L.P. submitted that due to non-compliance of utilization of sale proceeds of MSD Business for redemption of FCCBs, the share price of Appellant No.1 fell from Rs. 190/- to Rs. 45/- in a span of 45 trading days in the year 2011.
- CONTENTION OF APPELLANTS - ZIL: The Appellants further contended that the rights and interests of the FCCB Holders had already been protected by the High Court's order dated October 9, 2012 upon passing of Notice of Motion moved by Plaintiff Trustee - 'The Bank of New York Mellon', London Branch.
- CONTENTION OF ZIL AGAINST SEBI's ORDER: It was further contended that the order of SEBI dated March 25, 2013 was without jurisdiction, void ab initio and illegal particularly because the same issue dealt in the impugned order is also the subject matter of the proceedings before the High Court and that the rights and interests of the affected parties in the matter of redemption of FCCBs in question are duly protected by the order dated October 9, 2012.
- ALLEGATIONS OF SEBI OVER ZIL:
- The amount received from the sale of MSD Division was not utilized for the purposes for which it was raised i.e. for redemption of FCCBs but was diverted for other purposes.
- The Appellants failed to inform BSE/NSE about their default in repayment of FCCBs and further tried to hide the information about the default in repayment of FCCBs untill intervention of Stock Exchanges.
- Appellants did not disclose the Price Sensitive Information as required under the Listing Agreement and SEBI (Prevention of Insider Trading) Regulations, 1992.
Hence, due to such default, suit and Winding up Petitions have been filed against Appellant by the FCCB holders.
SAT'S COMMENTS OVER SEBI'S AD-INTERIM EX-PARTE ORDER:
Pursuant to the above submissions, it was held that the impugned ad-interim ex-parte order dated March 25, 2013 is not sustainable in the eyes of law as it has been passed in gross violation of the principles of natural justice. Further it was held that SEBI is empowered to pass ex-parte ad-interim orders, however this power can be exercised in most deserving cases of extreme urgency only as in the present case SEBI had knowledge in the matter from the beginning itself.
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