UVSL's delisting will hit retail investors

Mumbai: The experts have raised a demand for setting up of a new department, Department of Investor Service, by the government at the Centre. The case in point is a petition filed by a Mumbai-based steel manufacturer, Uttam Value Steel Limited (UVSL) before BSE and NSE, requesting for its delisting/capital reduction.

With this, the UVSL wants to wipe out the entire investment of the retail public shareholders which amounts to approximately 56 per cent of the entire shareholding. The investors will get nothing as its plan is to wipe out the shares without any payout.

Sometime back, National Company Law Tribunal (NCLT), Mumbai, had approved the delisting and capital reduction plan for UVSL submitted by the Resolution Applicants - Carval and Nithia Capital consortium.

In this backdrop, experts have brought several startling facts to the notice of the SEBI, and stock exchanges whose primary objective is to safeguard the interest of the investors. They raised demand for setting up of Department of Investor Service by the central government.

The UVSL claimed that it has been allowed by NCLT to get its shares delisted and NCLAT also approved it. But, in reality, the NCLT had put a rider in para 17 (viii) of the order that the company's action can't be inconsistent with the regulations of SEBI and stock exchanges.

Now, SEBI has a set of rules for delisting wherein the value of the shares should be paid to the shareholders and then only they are wiped out and the relaxation granted under the amended regulation to a resolution applicant by NCLT is also not available to this company as it has violated the Proviso to Regulation 3 of the SEBI (Delisting of Shares) regulations 2009 as amended with effect since May 3, 2018. In other words, the plan is not consistent with the SEBI Regulations. "Hence the stock exchanges and mainly the SEBI should gear up and fight this onslaught of the Resolution applicants on behalf of the public shareholders in the instant case as well as in so many other cases who are in queue," an analyst said.

Here, it may be noted that the NCLT actually has exceeded its jurisdiction of granting approval under Section 31 of IBC which has to be given to the Resolution Plan of the Resolution Applicant as approved by the Committee of Creditors (CoC) under Section 30 of the IBC 2016 which deals only and only with the loan and pending dues of the corporate debtor and its settlement.

In fact, Section 30 of the IBC 2016 does not include issues pertaining to the public shareholders. So, delisting is out of the purview of resolution proceedings. Further, its purview can't be expanded by any other Act including SEBI (Delisting of Shares) Regulations 2009 as amended with effect from May 3, 2018 which says that if delisting is approved by the NCLT, the normal delisting provisions will not apply to such proposed delisting on fulfilment of certain provisions. Such power of granting approval should emanate from the IBC 2016 which is not there.

Hence, such approval if at all has to be treated as non-est. Hence delisting can't be allowed on the strength of the NCLT order as such order is not in conformity with the IBC provisions and for IBC purposes NCLT derives its powers from IBC 2016 only and no other act. The NCLT can act as per the provisions of IBC only and it doesn't give the power of granting such approval to the NCLT as Section 30/31 of IBC doesn't deal with the delisting issue. Therefore, with due respect, it must be challenged by the SEBI on behalf of the shareholders as the protector of their interest, experts point out.

During the month of May although the company has filed several information documents on the stock exchange, it failed to file the vital NCLT court order along with the delisting provisions so that public shareholders at least be aware of the fact that their shares are going to be delisted.

Further, Section 30(2)(e) of IBC 2016 provides that the Resolution Professional will examine each resolution plan received by him to confirm that it does not contravene any of the provisions of law for the time being in force. Unfortunately, in the instant case it was the constitutional Right to Property of the shareholders guaranteed under Article 300 A of the Indian Constitution which are being sought to be snatched away without any opportunity being given to the shareholders whose rights are being jeopardised in this very process. Apparently, the plan suffers from infirmity from Section 30(2) stage itself. Therefore, such plan can't be deemed to have been approved entitling it to any exemption from SEBI's delisting regulations. Hence, the experts urged SEBI to ensure that any delisting request/attempt of the UVSL should be countered with all legal might at its disposal so that general public continue to repose faith in such august institutions and do not fall prey to any manipulative arrangements.