Don't treat shareholders of companies on regional exchanges as children of lesser God: SAT

Has SEBI’s hands-off approach gone against the interests of investors of companies listed on the regional stock exchanges (RSEs)?

None of the authorities including, SEBI and the stock exchanges, have discharged ‘any of their responsibilities,’ including listing or monitoring the exit opportunity to shareholders of a company listed on RSEs, the Securities and Appellate Tribunal (SAT) observed in one of its recent verdicts involving Schneider Electric President Systems.

SAT observed that (treatment of SEBI and exchanges) made it wonder “if public shareholders of RSE listed companies were children of a lesser God?”

SAT observed that the continued listing, exit and valuation of shares of companies on RSEs cannot be treated as individual investor complaints by SEBI and asked the regulator to pass a reasoned order in three months.

A key fact that emerged in the matter, which would positively impact lakhs of investors, was that companies on RSEs have to first make a ‘genuine’ effort to list on national stock exchanges like BSE and NSE. They should initiate an exit opportunity 'only' if they fail in this task.

This is the second instance in the recent past against SEBI where shareholders of a companies listed on RSE have moved SAT for ‘poor treatment’ of their complaint and trivialising the matter filed on the regulator’s digital grievance platform SCORES. The earlier instance where SAT had asked SEBI to re-examine the complaints were against the holding company of a high profile media house.

In the instant matter, Schneider was listed on Banglore and Pune stock exchanges, which closed down. Somasekhar Sundaresan, the advocate appearing for the shareholders (31 applicants who hold 9 per cent stake in Schneider)  along with Sumit Agrawal of Regstreet Law Advisors argued based on a SEBI circular that “it is mandatory for excursively listed companies on RSEs to seek listing on national level stock exchanges and only for genuine reasons, alternatively, they can provide an exit option to the shareholders as per SEBI Delisting Guidelines/ Regulations, after taking shareholders’ approval for the same within a time frame to be specified by SEBI.”

Sundaresan further argued that Schneider never made any effort to list in the nationwide exchanges despite the fact that it was eligible to get listed on BSE, but rather communicated to its shareholders otherwise and decided to exit / delist with an “undervalued offer to the public shareholders.” The valuation that got conducted by Schneider was contested as it did not take into account the complete assets and strength of the company.

The shareholders in their application to SAT provided detailed evidence of how Schneider did not make any effort to list on BSE or NSE and theself- valuation of its shares did not take all factors into account. ‘Instead of carrying out at least an examination, SEBI has treated these representations as just ordinary SCORES complaints like individual investors’ complaint such as non-receipt of shares, dividend etc and the regulator and national level stock exchanges adopted a completely unconcerned approach and directed the appellants to approach the Bangalore Stock Exchange and Pune Stock Exchange (which are not even functional) or the Company Schneider (which itself is against the public shareholders).’

“What appears on record is that the company prepared a plan of exit, got a valuation done and provided an exit option. No authority seems to have discharged any of their responsibilities including monitoring,” SAT said in its order. The tribunal has given SEBI three months time from November 26 to passed a reasoned order on investor complaints.

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