The Hindu Business Line : SAT sets aside SEBI order on D-Link

Mumbai, July 16 SAT has set aside the impugned order of the SEBI board barring D-Link India Ltd from dealing in securities for one month, saying it had provided misleading information to the investors relating to the buyback of its shares.

The board’s argument was that since the company did not buy back its shares within the stipulated period, after notifying the exchanges, it had no intention to complete the buyback, thereby violating the SEBI regulations prohibiting fraudulent and unfair practices in the securities market.

Buyback obligations

In disposing of the appeal, SAT has made several interesting and far-reaching observations regarding the scope of buyback obligations under Section 77 A of the Companies Act and also under buyback regulations, observed a legal expert.

SAT has held that a company is under no obligation to buyback its securities even after its shareholders have passed a special resolution authorising it to do so. Section 77 A of the Companies Act is only an enabling provision. Moreover, Regulation 15 of the buyback regulation read with Regulation 8 requiring the company to make a public announcement, if the company wanted to buyback makes it abundantly clear that it is only when the second step of making an offer to the shareholders has been taken that the company is obliged to go through the buyback.

In the instant case, the company had not come out with a public announcement.

The charge that the company took no steps to buy back the shares doesn’t stem from the facts of the case and there has to be some other material or circumstances from which such an inference could be drawn, said SAT.

Business decision

On the contrary, the company thought it expedient to utilise its resources for investing in infrastructure and other fixed assets, nearer to the business premises, with a view to keeping pace with emerging market requirements.

Such a course also had the effect of enhancing the shareholders’ value. In any event it was primarily a business decision which the company took.

This is not a matter which affects the securities market and SEBI cannot interfere with the business decision taken by the company so long as they do not prejudicially affect the securities market.

Further, the price of the stock continued to rise during the one-year period and reached Rs 80 on August 3, 2003, and moved upward thereafter during the two months left for implementation of the buyback resolution, noted SAT. In those circumstances, it became impossible for the company to buy back its shares because the shareholders had authorised them to buyback only to a maximum price of Rs 80.

In that view, it cannot be said that the company had no intention ever to implement the buyback resolution. Also, SAT dismissed the complaint of an investor, as deserving of no attention, since no innocent investor would have lost in market where the scrip was moving beyond Rs 80.

SAT cautioned, “It is expected of the board and other regulatory bodies like the stock exchanges to apply their mind on receipt of a complaint to find out whether there is prima facie substance in it before calling upon any entity or market player to explain.”

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