BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. EAD-2/DSR/RG/404/2015]
__________________________________________________________________
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA
ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING
INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES,
1995
In respect of
Monnet Ispat & Energy Limited
[PAN AAACM0501D]
1.

Securities and Exchange Board of India (hereinafter referred to as "SEBI")

had received letters dated April 04, 2013 and July 25, 2013 from Monnet Ispat
& Energy Limited (hereinafter referred to as "the Noticee"), a company listed
on the Bombay Stock Exchange (BSE) and the National Stock Exchange
(NSE), wherein it had sought clarification / No Objection Certificate (NOC) to
allow allotment of shares after expiry of 18 months from the date of allotment
of the Fully Convertible Debentures (FCDs) in terms of Regulation 109 of the
SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009
(hereinafter referred to as the ICDR Regulations). SEBI had also received a
complaint dated October 11, 2013 from one Vistabrook Limited (hereinafter
referred to as VBL) against the Noticee for non-conversion of the FCDs into
equity shares.

2.

It was observed, from these letters / complaint that on November 21, 2009,
Mount Everest Trading and Investment Limited (hereinafter referred to as
'MTIL'), an erstwhile group company of the Noticee, had allotted 17,50,000
FCDs to VBL, a foreign strategic investor, for a consideration of ` 52.20
crores. In accordance with the terms of the agreement, the FCDs were to be
converted automatically on expiry of 18 months. VBL had voluntarily converted

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4,41,250 FCDs into shares on August 09, 2010. Further, MTIL came out with a
bonus issue which entitled VBL to receive 39,26,250 FCDs. Thus, it was
observed that 52,35,000 FCDs were still pending for conversion. At the Board
meeting held on March 15, 2010, it was observed that the Noticee and MTIL
had resolved to enter into a Scheme of Arrangement which was later approved
by the Hon'ble High Court of Chattisgarh vide order dated November 09, 2010
and accordingly, MTIL amalgamated into the Noticee.

3.

According to the Scheme of Arrangement, the swap ratio for all the shares and
convertibles was fixed at 40:100 and it was specifically mentioned that holders
of FCDs would receive equal number of equity shares in MTIL and would have
pari passu rights with the existing equity shares. Accordingly, as per the
Scheme of Arrangement, VBL was entitled to receive 20,94,000 equity shares
on conversion of FCDs. Further, it was observed that the order of the Hon'ble
High Court had put an obligation on VBL to make an open offer on conversion
of FCDs into equity shares although the equity shares which were to be
allotted after the conversion would have constituted only 7.5% of the
expanded paid up share capital of the company. However, it was noted that
the Noticee had not converted the said FCDs into shares even after the lapse
of 18 months from the date of allotment of the FCDs which was in violation of
Regulation 75 of the ICDR Regulations. SEBI has, therefore, initiated
adjudication proceeding against the Noticee for violating the said provision of
law.

APPOINTMENT OF ADJUDICATING OFFICER

4.

I have been appointed as the Adjudicating Officer vide order dated November
11, 2013 under Section 15-I of the SEBI Act, 1992 (hereinafter referred to as
the Act) read with Rule 3 of the SEBI ( Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred
to as the said Rules) to inquire into and adjudge under Section 15HB of the
Act, the alleged violation of provisions of law by the Noticee.

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NOTICE, REPLY AND PERSONAL HEARING

5.

The Noticee was issued a Show Cause Notice dated February 06, 2014
(hereinafter referred to as SCN) under Rule 4(1) of the said Rules to show
cause as to why an inquiry should not be held and w h y penalty be not
imposed on it for the aforesaid violations. Vide letter dated February 25, 2014,
the Noticee requested for 20 days extension to file its reply in the matter.
Accordingly, vide letter dated March 22, 2014, the Noticee submitted its reply
to the SCN. Thereafter, in the interest of natural justice and in order to conduct
an inquiry as per Rule 4(3) of the said Rules, an opportunity of personal
hearing was granted to the Noticee on July 08, 2014. However, vide letter
dated

July

04,

2014,

the

legal

representatives

of

the

Noticee

sought an adjournment of the scheduled hearing by 4 weeks. Also, on the

scheduled date of hearing i.e. on July 08, 2014, a representative from the
Noticee's company appeared and sought adjournment of 4 weeks which was
taken on record. Accordingly, vide notice dated August 05, 2014, another
opportunity of personal hearing was granted to the Noticee on August 25,
2014. The Authorized Representatives (ARs) appeared on behalf of the
Noticee on the scheduled date and made oral submissions by reiterating the
submissions made by the Noticee vide its reply dated March 22, 2014 and
further filed a compilation of additional documents in the matter. Further, the
ARs sought one weeks' time to file additional submissions in the matter.
Accordingly, the Noticee was advised to file the same on or before September
01, 2014 and vide letter dated September 03, 2014, the Noticee submitted its
additional reply in the matter.

6.

Further, in order to conduct further inquiry, vide summons dated January 30,
2015, the authorized representatives (ARs) of the complainant viz. VBL were
called upon to appear before me on February 13, 2015 in terms of Section 15I
of the Act read with Rule 4(6) of the said Rules. The AR attended the hearing
on the scheduled date and made the submissions. Also, vide notice dated
January 30, 2015, another opportunity of hearing was granted to the Noticee
on February 13, 2015. However, vide letter dated February 06, 2015, the
Noticee requested for an adjournment of the said hearing to any date after
February 19, 2015. Accordingly, vide notice dated February 18, 2015, another

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opportunity of personal hearing was granted to the Noticee on February 26,

2015. Due to some administrative exigencies, the said hearing was adjourned
again and finally the hearing was scheduled to March 09, 2015. The ARs
attended the hearing on behalf of the Noticee on the scheduled date and
made submissions with respect to the prevention of conversion of FCDs into
equity shares in view of provision laid down under Clause 24(a) of the Listing
Agreement. Therefore, the Noticee was advised to file its detailed reply with
respect to the said submissions on or before March 16, 2015. Accordingly, the
Noticee, vide letter dated March 13, 2015 made additional submissions in the
matter.

CONSIDERATION OF EVIDENCE AND FINDINGS

7.

I have carefully perused the charges leveled against the Noticee in the SCN,
written submissions made by the Noticee and the documents available on
record. In the instant matter, the following issues arise for consideration and
determination :i.

Whether the Noticee has violated the provisions of Regulation 75 of

the ICDR Regulations?

ii.

If so, whether the Noticee is liable for monetary penalty as

prescribed under Section 15 HB of the SEBI Act for the aforesaid
violation?

iii.

8.

If so, what should be the quantum of monetary penalty?

Before proceeding further, I would like to refer to the relevant provisions of the
ICDR Regulations which read as under:
Tenure of convertible securities.
75. The tenure of the convertible securities of the issuer shall not exceed
eighteen months from the date of their allotment.
..

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9.

I find from the SCN that SEBI had received letters dated April 04, 013 and July
25, 2013 from the Noticee wherein it had sought clarification / NOC to allow
allotment of shares after expiry of 18 months from the date of allotment of the
FCDs in terms of Regulation 109 of the ICDR Regulations. SEBI had also
received a complaint dated October 11, 2013 from one entity viz. VBL against
the Noticee stating that the FCDs allotted to the said entity were not converted
into equity shares at the expiry of 18 months from the date of allotment of the
said FCDs as per the Agreement entered into between the said entity and the
Noticee and in terms of Regulation 75 of the ICDR Regulations. It was noted
from these letters / complaint that MTIL, an erstwhile group company of the
Noticee, had allotted 17,50,000 FCDs to VBL, a foreign strategic investor, on
November 21, 2009 for a consideration of ` 52.20 crores. In accordance with
the terms of the agreement, the FCDs were to be converted automatically on
expiry of 18 months. VBL had opted for conversion of 4,41,250 FCDs into
shares voluntarily on August 09, 2010. Further, MTIL had come out with a
bonus issue which entitled VBL to receive 39,26,250 FCDs. Thus, it was
observed that 52,35,000 FCDs were still pending for conversion.

10.

I further find that at the Board meeting held on March 15, 2010, the Noticee
and MTIL had resolved to enter into a Scheme of Arrangement which was
later approved by the Hon'ble High Court of Chattisgarh vide order dated
November 09, 2010 and accordingly, MTIL had amalgamated into the Noticee.
According to the Scheme of Arrangement, the swap ratio for all the shares and
convertibles was fixed at 40:100 and it was specifically mentioned that holders
of FCDs would receive equal number of equity shares in MTIL and would have
pari passu rights with the existing equity shares. Accordingly, as per the
Scheme of Arrangement, VBL was entitled to receive 20,94,000 equity shares
on conversion of FCDs. However, I find that the order of the Hon'ble High
Court had put an obligation on VBL to make an open offer on conversion of
FCDs into equity shares although the equity shares after conversion would
have constituted only 7.5% of the expanded paid up share capital of the
company. It is noted that due to lack of clarity on the requirement to make an
open offer, the FCDs were not converted into equity shares even after the
lapse of 18 months from the date of allotment of the said FCDs.

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11.

Further, I find that the Noticee had sought clarification from the BSE on the
said requirement and accordingly, the BSE had, on January 12, 2011, clarified
that an open offer ought to be made in compliance with the High Court order
and this was accepted by the Board of Directors of the Noticee. However, VBL
had approached the Honble High Court again in November 2011, seeking
clarification on the issue of open offer. Vide order dated February 14, 2012,
the Honble High Court clarified that the obligation to make an open offer
would arise as prescribed under Regulation 10 of the SEBI (Substantial
Acquisition of Shares and Takeover) Regulations, 1997 (hereinafter referred to
as SAST Regulations). I find that the Noticee, in its Board meeting dated
December 22, 2011, had approved a buy-back of fully paid up equity shares
from the open market. In accordance with SEBI (Buy-back of Securities)
Regulations, 1998, the Noticee could not allot further shares before the
closure of the said buy-back. Thus, the allotment of equity shares for the FCDs
was further delayed. On the completion of the buy-back, the Noticee had
approached the NSE for the said allotment and it was informed by the NSE
that listing shall not be granted on the grounds that 18 months period had
already expired and accordingly, had advised the Noticee to get NOC from
SEBI for the said allotment. Pursuant to the same, the Noticee had made an
application to SEBI vide letters dated April 04, 2013 and July 25, 2013.

12.

It was, therefore, alleged in the SCN that the Noticee had failed to convert the
FCDs into equity shares even after the expiry of 18 months from the date of
allotment of the said FCDs which was in violation of Regulation 75 of the ICDR
Regulations.

13.

The Noticee vide letter dated March 22, 2014 submitted its reply to the SCN.
The Noticee submitted that Regulation 109 (c) of the ICDR Regulations
provides that the SEBI "may, in the interest of investors or for development of
the securities market, relax the strict enforcement of any requirement of these
regulations, if the Board is satisfied that the non-compliance was caused due
to factors beyond the control of the issuer". Further, on the basis of the said
provision, the Noticee had made an application seeking relaxation of

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Regulation 75 on April 04, 2013. The relaxation was duly granted by the SEBI
vide letter dated October 23, 2013 in the form of NOC stating that "SEBI has
no objection in allotment of the equity shares on conversion of FCDs and its
consequential listing even though the stipulated time period has expired".
Soon thereafter, on October 30, 2013, the Noticee had allotted the shares to
VBL. Therefore, it is the case of the Noticee that the issuance of a show cause
notice at this point in time for the said cause does not survive. The Noticee
submitted that a perusal of the facts leading to the complaint on the basis of
which the said notice has been issued, would show that the non-compliance, if
any, of Regulation 75 of the ICDR Regulations was neither willful nor
intentional and the intentions and conduct of the Noticee has in all these times
been in good faith.

14.

The Noticee also made the following factual submissions:

i.

MTIL, a Company listed on BSE and MPSE, had issued the following
convertible securities:

a. 15,00,000 Warrants to its promoters on 30.06.2009;

b. 17,50,000 Fully Convertible Debentures ("FCDs") to Vistabrook Limited
("VBL"), a Foreign Strategic Investor, on 21.11.2009.

ii. On February 13, 2010, MTIL allotted Bonus Shares and its shareholders
got 3 bonus shares for each share held by them. The entitlement of
bonus shares in respect of convertible securities was reserved at the time of
their conversion.

iii. Of the above, 366750 Warrants and 1308750 FCDs were pending for
conversion when the Scheme of Amalgamation of MTIL into the Noticee was
approved by the Hon'ble High Court of Chhattisgarh by its order dated
9.11.2010. (A copy of the order dated 9.11.2010 has been submitted by the
Noticee).

iv. The details of Warrants and FCDs pending for conversion and the

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entitlement to get equity shares of the Noticee company subsequent to

Scheme of Amalgamation are as under:

Nature of
converti
ble
Security /
particular
s of
Holders
Warrants
Promoter
s of MTIL

v.

Due
date of
conver
sion

29.12.
2010

No. of
Securiti
es
Originall
y
allotted

175000
0

No. of Securities
Pending for conversion
+ Bonus entitlement
thereon in
Mounteverest Trading
& Investment Ltd.

Entitlement
of Equity
shares of
Monnet lspat
& Energy in
the
ratio of
40 :100
586800

Warrants
366750
Bonus shares
1100250
Total
1467000

20-05150000 FCDs
1308750
2094000
Fully
2011
0
Bonus
Convertib
3926250
le
Debentur
Shares Total 5235000
es VBL a
Foreign
Strategic
The Order of amalgamation passed by the Hon'ble High Court became
Investor
effective from 23.11.2010 and MTIL ceased to exist on filing of the order
with the Registrar of Companies. As a result of a merger or amalgamation,
the convertible securities, if any, pending for conversion on the date of the
order cease to exist. Only the entitlement in respect thereof survives. The
allotments

are

therefore,

made

to

give

effect

to

the Scheme of

Amalgamation and not upon conversion of securities. In the instant case too,
the allotments in MIEL were to be made pursuant to the Scheme of
Amalgamation and not upon Conversion of Warrants and FCDs.
vi.

Moreover, the allotment of shares pursuant to the Scheme are granted

exemption under Regulation 3(1)(j) of the SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997 from operation of Regulations 10, 11
& 12. Regulation 3 (1) (j) reads as follows:

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"Applicability of the regulation.

3. (1)Nothing contained in regulations 10, 11 and 12 of these regulations
shall apply to:
(j) pursuant to a scheme:
(i)
(ii) of arrangement or reconstruction including amalgamation or merger
or demerger under any law or regulation, Indian or foreign; "
viii.

However, the Hon'ble High Court by its Order dated 9.11.2010, while
approving the amalgamation, observed in para 11as under:
"The rights and obligations of Convertible debentures and warrant holders in
the transferor company, should become the rights and obligations of the
holders in the transferee company including the obligation to make public
announcement for

making a public

offer to the shareholders of the

transferee company. "

ix.

The language of the para 11 gave rise to complications of interpretation. Para

11dealt with transfer of rights and obligation of holders of FCDs and warrants.
The last part of the Para was not required in case the Hon'ble High Court
wanted the exemption under Regulation 3(1)(j) to be made applicable to the
conversion. This last part of Para 11 made it an obligation on FCDs and
Warrant holders to make an open offer and did not exempt acquisition of shares
pursuant to a Scheme of Amalgamation from making an open offer.

x.

Subsequently, the Noticee had allotted 47,22,539 equity shares to the

shareholders of MTIL on 20.12.2010, but could not allot shares to the warrant
holders (incidentally, the Promoters) although the eighteen months period was
coming to an end on 29.12.2010. The last date of payment of the balance 75%
of the warrant price by the promoters for subscribing to the shares was on or
before that date. Accordingly, the payment of the balance 75% of warrant price
was kept in abeyance till the Noticee was certain that it could allot 5,86,800
shares to the warrant holders.

xi.

As per the Legal Opinion of an eminent jurist sought for by the Noticee, the

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impact of Para 11 was that the allotment of shares was to be pursuant to

conversion of Warrants and FCDs and not pursuant to the Scheme of
Amalgamation and hence, both Warrant holders and FCDs holder would
have to make an open offer to the shareholders of the Noticee company.

xii.

MIEL did all it could to resolve the issue including seeking legal opinion and
also the opinion of the NSE and BSE on the interpretation of Para 11 of the
Order dated 9.11.2010, i.e. whether the warrant and FCD holders were
required to make any public offer. However, the obligation to approach the
Hon'ble High Court and seek the relief was that of the warrant and debenture
holders and not of the Noticee. It was the prerogative of the holders whether
to accept the order and make an open offer or seek clarification from the
Hon'ble High Court.

xiii.

MIEL sought the views of the NSE and the BSE because NSE had granted inprinciple approval under Clause 24 (a) of Listing Agreement only after MIEL
had furnished to NSE an additional undertaking that it will comply with the Order
of the High Court and the Takeover Regulations.

xiv.

The BSE, vide its letter dated 12.01.2011, stated that "as per the order of the
Hon'ble High Court, the conversion of warrants/ FCDs will require a public
announcement for making a public offer to the shareholders of the transferee
company and the same will be required to be complied with. You are
requested to take note of the above and comply accordingly." (A copy of
BSE's letter dated 12.1.2011 has been provided by the Noticee). The BSE by
the said letter required VBL to make a public announcement and as the
matter related to the interpretation of the order dated 09.11.2010 of the
Hon'ble High Court, the Noticee endeavored to ensure that there was no
contempt of the order of the Hon'ble High Court.

xv.

Consequently, the promoters of MTIL holding Warrants were informed that

making of a public announcement was required to enable the Noticee to allot
the shares. These Warrant holders opted out of conversion and did not
deposit the remaining 75% of warrant price. Thereafter, MIEL forfeited

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` 78.39 lakhs, being 25% of the warrant price paid by the Promoters, at
the time of subscription of warrants in the meeting of the Board of Directors
held on 8.02.2011. Thus, MIEL did not act in a partisan manner and against the
interest of FCD holder as iits decision first affected the promoters of MTIL.

xvi.

The Board of Directors of the Noticee company considered the matter in their
meeting held on 8.02.2011 and passed the following resolutions :
"RESOLVED that consequent to warrant holders having decided not to
make public announcement and not to exercise their right to convert
remaining 3,66,750 warrants into equity shares, the 25% of consideration
of `85.50 per warrant paid by the subscribers prior to allotment of
warrants pursuant to Clause 77 (2) of ICDR Regulations, 2009 and
amounting to ` 78.39 lakhs in respect of above outstanding warrants be
and is hereby forfeited pursuant to Regulation 77 (4) of said ICDR
Regulations, 2009."

"RESOLVED FU RTHER that the Company do ensure full compliance of

Para 11 of the order of Hon'ble High Court at Bilaspur, Chhattisgarh
dated 9th November, 2010 of making public announcement by the
holders of outstanding FCDs at the time of exercising conversion option
as conveyed by the stock exchanges and as counseled in the legal
opinions obtained by the Company in compliance of Regulation 11 (2)
and Regulation 10 of the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997."

xvii.

Therefore, more than three months before the date of conversion, MIEL's
Board of Directors (in which a representative of the VBL was also present)
decided that public announcement for making open offer to the shareholders
was required at the time of exercising conversion option.

xviii.

As aforesaid, the Noticee did all it could to resolve the issue. However, the
obligation to approach the Hon'ble High Court and seek the relief was t h a t
of the warrant and FCD holders. VBL could have approached High Court

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and filed an application for the clarification of the Order dated 9.11.2010
before expiry of 18 months. However, for reasons best known only to itself
the application was filed more than a year later on 31.10.2011.

xix.

On 22.12.2011, during the pendency of the application, the Board of MIEL

proposed a Buy-back Scheme of its equity shares to enhance the overall
shareholder value.

xx.

Soon thereafter, on 14.02.2012 the Hon'ble High Court of Chhattisgarh passed

an Order clarifying para 11of the Order dated 9.11.2010 by adding a line at the
end of the para as follows:

"The rights and obligations of Convertible debentures and warrant holders in

the transferor company, should become the rights and obligations of the
holders in the transferee company including the obligation to make public
announcement for making a public offer to the shareholders of the
transferee company, as prescribed

under Regulation 10 of the

SEBI

Regulations, 1997."

As a result of this modification, the allotment of shares was to be made

pursuant to the Scheme of Amalgamation and not pursuant to conversion of
FCDs. A copy of the order dated 14.02.2012 has been provided by the
Noticee).

xxi.

VBL also sought directions from the Hon'ble High Court against the Noticee to
allot the shares in respect of expired FCDs but the request was declined. As
such, the Board of Directors of MIEL on 05.09.2012, acknowledged the
convertibility of FCDs and decided to take up the matter as soon as the
buyback offer got closed and allotment of shares was permissible.

xxii.

The Noticee had approached NSE in February, 2012 for guidance with respect
to documents to be made for listing of proposed allotment of Shares to the
FCD holder. The NSE advised that the Company should seek relaxation of
the norms in the form of an NoC for allotment of shares which had expired in

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May, 2011, without which, NSE would not be able to grant listing. Accordingly,
on 04.04.2013, the Noticee made an application to the SEBI seeking a
relaxation of the strict enforcement of the Regulation 75 of the ICDR
Regulations.
xxiii.

SEBI granted its Noc by its letter dated 23.10.2013 and immediately
thereafter, the Company allotted the shares to the FCDs holder on
30.10.2013. It may be noted that VBL was aware of the fact that NSE had
required NoC from SEBI. It also sought the development on day to day basis
about the progress of the application pending with SEBI. In spite of being
aware that MIEL could not have made allotment without the Noc from SEBI
and also that NSE would not grant in-principle approval without the NoC and
permit crediting the shares in its demat account, VBL insisted on a day to day
basis that the allotment be made without waiting for Noc from SEBI. In fact
after the issue of the NOC by the SEBI dated 23.10.2013, NSE and BSE have
only recently granted Listing cum Trading permission to the shares vide their
letters dated 20.03.2014. (A Copy of the two letters dated 20.03.2014 by the
NSE and the BSE are provided by the Noticee).

xxiv.

In spite of being aware that MIEL's application was pending before SEBI, VBL
by its letter dated 11.10.2013 complained against non-allotment of shares by
MIEL. It is submitted that MIEL was granted NoC on October 23, 2013 and
within a week thereof, MIEL allotted

2094000

shares

to VBL and

accordingly, the said complaint stood redressed.

15.

The Noticee further submitted that the said FCDs were issued by MTIL after
obtaining the approval of the shareholders by way of a Special Resolution and
the said Special Resolution or Explanatory Statement did not stipulate
automatic conversion of the FCDs after expiry of 18 months. The proposal of
the management of MTIL to merge it with the Noticee company was put-forth
before the Creditors of MTIL for their approval in a meeting of the creditors
called by the Hon'ble High Court. It is stated by the Noticee that VBL had not
objected to the Scheme. Further, the Noticee stated that apart from allotment
of 20,94,000 equity shares to VBL, the allotment of 5,86,800 equity shares to

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the Promoters holding warrants in MTIL could also not be made due to lack of
clarity on the requirement to make open offer since, the company had
approached the stock exchanges for their point of view but no comments /
observations had come from the said exchanges. The Noticee also submitted
that the allegations of VBL are false and misleading. The FCDs were allotted
on November 29, 2009. Thereafter, the proposal of amalgamation was
considered by the board on March 15, 2010. The meetings of the creditors as
well as shareholders were held, the scheme was finally approved by the Board
of MTIL. The Order approving scheme of amalgamation was after more than
11 months. It is the case of the Noticee that VBL had the right to exercise
conversion option any number of times during 18 months period. However, it
exercised the option only once and that too for only 4,41,250 FCDs. It is a
settled principle that allotment subsequent to Amalgamation and pursuant to
the Scheme, even in respect of convertible security allotted pursuant to
Chapter VII of ICDR Regulations, shall be an allotment pursuant to Scheme.
This position was clear since December, 2010 as NSE had informed that
listing formats of listing application of Scheme of Amalgamation will be
applicable. This position was also made amply clear from the language of the
E-mail from NSE dated December 16, 2010 which reads as under:
"Kindly submit confirmation from the Company that the equity shares to be
allotted pursuant to Scheme and equity shares to be allotted arising on
conversion of warrants I debentures pursuant to Scheme shall be in
compliance with SEBI (SAST} Regulations, 1997."
16.

The Noticee submitted that in the backdrop of Para 11 of the order passed by
Hon'ble High court, the Noticee company had taken categorical stand before
completion of 18 months period of warrants that making public announcement
for an open offer will be a pre-requisite. This was reaffirmed by the Board by
passing a resolution to that effect on February 08, 2011, consequent whereto
the Promoters incurred a book loss of nearly ` 30.75 crores. Conversely,
having known the Noticee's stand for six months, it is the case of the Noticee
that it was neglect / failure on the part of VBL to not utilize this ample time and
file appropriate application before the Hon'ble High Court for clarification
before May 20, 2011. Further, vide letter dated September 03, 2014, the

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Noticee reiterated the submissions made in its earlier reply.

17.

In addition to the above, vide letter dated March 13, 2015 the Noticee
submitted that post the approval of the scheme of arrangement between MTIL
and the Noticee, on November 09, 2010, it had approached NSE seeking in
principal approval for issue and proposed allotment of 47,22,539 equity shares
and 26,80,800 equity shares each arising on conversion of warrants and
debentures pursuant to the scheme of amalgamation in terms of Clause 24(a)
of the Listing Agreement. NSE ,while granting the approval, had also vide its
e-mail dated February 16, 2010, inter alia,

sought confirmation from the

Noticee to the effect that the shares to be allotted arising on conversion of

warrants / debentures pursuant to the scheme shall be in compliance with the
SEBI (SAST) Regulations, 1997. This in principal approval was subject to the
compliance of the said confirmation. Similarly, BSE had also orally informed
the Noticee that in terms of Para 11 of the order of the Hon'ble High Court, the
conversion of warrants/ FCDs was requiring public announcement for making
public offer to the shareholders of the transferee company and the same was
required to be complied with. Subsequently, the same was confirmed in writing
by BSE vide its letter dated January 12, 2011.

18.

The Noticee further submitted that the combined reading of the e-mails
exchanged between the company secretary of the Noticee with the officials of
NSE on December 16, 2010 clarifies that NSE had specifically informed the
Noticee that confirmation / undertaking with regard to the compliance with the
provisions of SEBI (SAST) Regulations, 1997 under Clause 24(A) of the
Listing Agreement was required prior to any issuance of shares/ allotment and
not post issuance of shares/ allotment. Clause 24(a) of the Listing Agreement
reads as under:

"The company agrees to obtain 'in-principle' approval for listing from the
exchanges having nationwide trading terminals where it is listed, before
issuing further shares or securities. Where the company is not listed on any
exchange having nationwide trading terminals, it agrees to obtain such 'inprinciple' approval from all the exchanges in which it is listed before issuing
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further shares or securities. The company agrees to make an application to

the Exchange for the listing of any new issue of shares or securities and of the
provisional documents relating thereto."

19.

It is the case of the noticee that the plain reading of the said Clause makes it
clear that in-principle approval is to be obtained from the exchanges before
issuing any further shares or securities. The conversion of FCDs entailed
issuance of fresh shares and prior to the issuance of fresh shares, the Noticee
was under an obligation to seek in principle approval from the stock
exchanges. Therefore, the Noticee could not have gone ahead with the
issuance and allotment of shares arising on conversion of FCDs to VBL,
without obtaining in principle approval from the stock exchanges and also
complying with the conditions imposed by the stock exchange while granting
in-principle approval. The Noticee submitted that grant of in-principle approval
is the discretion of stock exchanges which stock exchanges may give subject
to compliance of conditions imposed by exchange. In the subject matter, the
stock exchanges had specifically put the condition of submission of
confirmation / undertaking with regard to the compliance of the provisions of
SEBI (SAST) Regulations, 1997. In view of the same, vide letter dated
December 27, 2010, the Noticee had brought the said fact to the notice of VBL
and informed it that for the conversion of the FCDs, VBL would be required to
give public offer to the shareholders of the company. Here, the Noticee has
highlighted the fact that the 18 months period for allotment of equity shares
was to expire on May 19, 2011 and the Noticee had written to VBL as early as
on December 27, 2010 and had informed about the impediments of the
allotment. However, the Noticee stated that VBL had stuck to its stand that
there was no requirement for making public announcement in terms of Para 11
of the High Court's order, completely ignoring and overlooking that as a
compliance conscious company, the Noticee had no option but to go by the
advice / directions of its regulators i.e. the stock exchanges.

20.

I have carefully perused the facts of the case and the material available on
record. I find that the Noticee is a listed company and MTIL was an erstwhile
group company of the Noticee which later amalgamated with the Noticee

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company by entering into a scheme of arrangement which was later approved

by the Hon'ble High Court of Chattisgarh vide order dated November 09, 2010
and accordingly, MTIL amalgamated into the Noticee. Further, I note that it is
an admitted fact that before amalgamating into the Noticee company, on
November 21, 2009, VBL, a foreign strategic investor, who was also an
allottee who had an investment of ` 52.50 crores in MTIL, was allotted
17,50,000 FCDs convertible into equivalent number of equity shares by MTIL.
These FCDs were to be converted within / at the expiry of 18 months of the
said allotment. As per the Investment Agreement dated November 19, 2009,
on expiry of the said 18 months, the FCDs were eligible for "Automatic
Conversion" at the end of business hours on last day of the 18th month. Out of
the said allotted FCDs, 4,41,250 FCDs were converted voluntarily by VBL into
equal number of equity shares on August 09, 2010. I also note that during this
time, MTIL had also come out with a bonus issue and the bonus allotment of
39,26,250 equity shares was reserved in respect of the said unconverted
portion of the FCDs.

21.

I further find that at the Board meeting held on March 15, 2010 (i.e. appx. 2.5
months after allotment of the said FCDs), MTIL and the Noticee resolved to
enter into a scheme of arrangement, whereby, it was proposed to amalgamate
MTIL into the Noticee company. As mentioned above, the said scheme of
arrangement was approved by the Hon'ble High Court of Chattisgarh vide
order dated November 09, 2010 and accordingly, MTIL amalgamated with the
Noticee. Upon perusal of the Scheme of Arrangement approved by the
Hon'ble High Court of Chattisgarh, I note that Clause 1.1.1 of the said scheme
mandated allotment of equity shares as per the approved swap ratio to the
holders of the Warrants and FCDs. The said clause read as under:

"1.1.1. MIEL shall (without further application, act or deed) issue and allot each
of the shareholders of MTIL, Equity shares in proportion of 40(Forty) Equity
shares of Rs. 10/- (Rupees Ten) each in MIEL for every 100 (Hundred) Equity
shares of Rs. 10/- (Rupees Ten) each held by them in MTIL pursuant to its
proposed amalgamation. The holders of outstanding Fully Convertible
Warrants
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and

Fully

Convertible

Debentures

Page 17 of 23

(including

their

bonus

entitlements) have vested rights to receive equal number of equity shares in

MTIL hence they would have pari passu rights with the existing equity
shareholders of MTIL under the scheme, subject to payments, if any, under
the terms of their allotment".

22.

Further, the order of the Hon'ble High Court of Chattisgarh became effective
on November 23, 2010 and MTIL ceased to exist on filing of order with the
Registrar of Companies. As a result of a merger or amalgamation, the
convertible securities, if any, pending for conversion on the date of the order
ceased to exist. Only the entitlement in respect thereof survives. The
allotments

are

therefore,

made

to

give

effect

to

the Scheme of

Amalgamation and not upon conversion of securities. In the instant case too,
the allotments in the Noticee company were to be made pursuant to the
Scheme of Amalgamation and not upon Conversion of Warrants and FCDs.
Further, I find from the submissions made by the Noticee and the documentary
evidence provided in support thereof that vide its letter dated December 16,
2010, the NSE had given in-principle approval for listing of 47,22,539 equity
shares to be allotted to the equity shareholders of MTIL and for 26,80,000
equity shares to be allotted to the Warrant and FCD holders. However, I note
that the NSE had granted the said in-principle approval under Clause 24 (a) of
Listing Agreement only after the Noticee had furnished to NSE an additional
undertaking that it will comply with the Order of the High Court and the
Takeover Regulations.

23.

On December 20, 2010, when the equity allotment post merger were to be
made, 20,94,000 equity shares in lieu of FCDs were also to be allotted but the
same could not be allotted as Para 11 of the High Court Order had put an
obligation on the FCDs and Warrant holders, to make a public announcement
for making a public offer to the shareholders of the transferee company. Since,
the said para of the High Court order led to a confusion as to open offer
obligation on the Allottee/s (including VBL), I note that the Noticee, vide its
letter dated December 29, 2010 (i.e. immediately after the High Court Order
became effective) had applied to the BSE to obtain its view regarding the
effect and implementation of the said para 11 of the Order. Vide letter dated

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January 12, 2011, BSE had replied to the letter of the Noticee and conveyed
that keeping in view the order of the Hon'ble High Court, the conversion of
warrants / FCDs would require a public announcement for making a public
offer to the shareholders of the transferee company.

24.

Further, I find that the Noticee company had also approached an eminent legal
Jurist for clarification and interpretation of Para 11 of the High Court Order.
Upon perusal of the said legal Opinion, I find that the learned Jurist had opined
that "the High Court has categorically asked for compilation of the Takeover
Regulations.....Since it is explicitly mentioned in the order that the right and
obligation in the transferor company including the obligation to make public
offer shall become the right and obligation in the transferor company and in
the context of the above reason, in my opinion the holders of warrants / FCDs
would be required to carry the obligation of giving a public announcement for
making public offer to the shareholders of the transferee company in case they
opt for the conversion of these warrants / FCDs respectively ".

25.

I even find that the Board of Directors of the Noticee company, at its meeting
held on December 22, 2011, had approved a buy-back of its fully paid up
equity shares from the open market. Before the said approval of buy-back of
shares itself, VBL, in the month of November 2011, had approached the
Hon'ble High Court for a clarification in the matter and Para 11 of the order
regarding the approval of the scheme of arrangement i.e. after a year from the
previous order of the High Court. The Hon'ble High Court, vide its order dated
February 14, 2012, allowed the petition and accordingly, had given a
clarificatory order and modified Para 11 of its order dated November 09, 2010
(reproduced under para 14 (xx) above). I find that the Noticee company, based
on the clarification given by the said order, had considered the same and
resolved to allot the said equity shares in lieu of FCDs only after the buy-back
was completed. I find that in the first Board Meeting held after the closure of
the buy back on February 14, 2013, the Noticee company had constituted
Special Allotment Committee for allotment of shares and also followed up with
the stock exchanges for the procedures to be adopted by the company. Also,
upon the completion of the buy-back (which closed on December 20, 2012),

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the Noticee company had approached the NSE for ascertaining the formats in
which the application for listing was to be made. However, as submitted by the
Noticee, the NSE believed that the said allotment was an allotment pursuant to
the conversion of FCDs and informed the Noticee company that listing shall
not be granted without getting NOC or clarification from SEBI as 18 months
had already lapsed since allotment of the said FCDs.

26.

Accordingly, vide letter dated April 04, 2013, the Noticee company had applied
to SEBI seeking relaxation from the provisions of Regulation 75 of the ICDR
Regulations so as to enable it to make the necessary allotment to VBL and
other warrant / FCD holders. Vide letter dated October 23, 2013, I find that the
SEBI did grant the requisite NOC to the Noticee Company by stating that SEBI
has no objection in allotment of equity shares on conversion of FCDs and its
consequential listing even though the stipulated time period had expired.
Based on the said NOC, on October 30, 2013, I note that the Noticee
company had allotted 20,94,000 shares to VBL and subsequently, the said
shares were even listed on the exchanges.

27.

From the foregoing and after examining the chronology of events, I find that
the obligation to make a public announcement as required under the SAST
Regulations was put on the FCD holders or the warrant holders and the
Noticee was not under any obligation. Also, according to the scheme of
arrangement, the swap ratio for all the shares and convertibles was fixed at
40:100 and it was specifically mentioned that the holders of FCDs would
receive equal number of equity shares in the Noticee company & would have
pari-passu rights with the existing equity shares. Therefore, as per the scheme
of arrangement, VBL was entitled to receive 20,94,000 shares on conversion
of the FCDs. As VBL had voluntarily converted a part of its FCD holding into
equity shares before the expiry of 18 months, upon conversion of the said
remaining FCDs into equity shares, I find that the holding of VBL would have
constituted

only 7.5% of the expanded paid up capital of the Noticee

company. However, as the Hon'ble High Court was under a belief that the
SAST Regulations would get triggered upon conversion of the said FCDs and
allotment of shares, it had accordingly mentioned in its order at Para 11 that
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the same had to be adhered to by the warrant / FCD holders.

28.

The Noticee in its submissions has stated that although the company wanted
to make allotment of equity shares in lieu of FCDs, the same could not be
made due to lack of clarity as regards the open offer. I find that the Noticee
company had taken all bonafide steps for clarification from the stock
exchanges where the shares of the Noticee are listed and also from a legal
jurist to enable it better understand the obligation put on the FCD / Warrant
holders and go ahead with the conversion of the said FCDS/ Warrants.
However, as the exchanges and the legal opinion of the eminent jurist required
the Noticee to adhere to the order of the High Court, I find that the Noticee
was not in a position to convert the said FCDs/ Warrants into equity shares. I
note that even if the obligation to make the public announcement was on the
FCD / Warrant Holders, the Noticee being a listed company was bound by the
rules and regulations of the Stock Exchanges and also with Clause 24(a) of
the Listing Agreement as in-principle approval from the stock exchanges is
mandatory at the time of issuance of fresh shares / securities. I note that
pursuant to the NSE's in-principal approval and the condition of taking an
undertaking from the FCD / Warrant holders that they will comply with the
directions of the High Court, the Noticee had requested the FCD/ Warrant
holders to give their undertaking. With respect to the warrant holders( i.e. the
promoters holding warrants of the company), I find that they had opted out of
the conversion of the warrants into equity shares and therefore, the Noticee
had taken steps to forfeit

the 25% of consideration paid by the subscribers

(prior to allotment of warrants pursuant to Clause 77 (2) of ICDR

Regulations, 2009) i.e. an amount of ` 78.39 lakhs in respect of the said
outstanding warrants as mentioned in para 14 (xvi) above. The said fact
shows the bonafide intentions on the part of the Noticee.

29.

Further, I also find that similar attempt was made by the Noticee in case of
VBL and the Noticee vide its letter dated December 27, 2010 had brought the
said fact to the notice of the FCD holder (VBL) and further had requested it for
a confirmatory letter confirming adherence to the obligation put on the FCD
holder by the High Court. Despite the said fact, I note that VBL had not taken

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any steps to that effect but had pressed on conversion of FCDs into equity
shares as per the terms of the agreement.

30.

I find merit in the submissions of the Noticee company that even if the
obligation to make an open offer, if any, was on the FCD holders or warrant
holders , the Noticee company was bound by Clause 24(a) of the Listing
Agreement as ultimately after the conversion of FCDs into equity shares, the
shares had to be listed for trading on the stock exchanges. Without following
the conditions laid down by the said High Court Order and without obtaining
the undertaking from the FCD holders as directed by the Stock Exchanges,
the Noticee was apparently not in a position to obtain listing permission from
the stock exchanges in terms of Clause 24(a) of the Listing Agreement.
Further, I find from the submissions of VBL during the statement recorded on
February 13, 2015 and from its submissions vide letter dated February 20,
2015 that the FCDs were converted into equity shares on October 30, 2013
i.e. immediately upon receipt of NOC from SEBI. Therefore, I find that here
again the Noticee company did take immediate steps in converting the FCDs
into equity shares.

31.

From the forgoing and in the light of the facts and circumstances of the case, I
am inclined to give benefit of doubt to the Noticee company and conclude that
the Noticee company cannot be held guilty of violating the provisions of
Regulation 75 of the ICDR Regulations.

ORDER

32.

In view of the above, after considering all the facts and circumstances of the
case and exercising the powers conferred upon me under section 15-I (2) of
the SEBI Act, 1992, I hereby conclude that the charges leveled against the
Noticee viz. Monnet Ispat & Energy Limited do not stand established and the
matter is, accordingly, disposed of.

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Page 22 of 23

33.

In terms of the Rule 6 of the Adjudication Rules, copies of this order are sent
to the Noticee and also to Securities and Exchange Board of India.

Date: March 31, 2015

D. SURA REDDY

Place: Mumbai

GENERAL MANAGER &

ADJUDICATING OFFICER

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