Sebi's actions hurt minority shareholders: PNB Housing tells SAT

The counsel argued that blaming the board of directors was unfair as preferential allotment price was not final and had to be approved by a special resolution

PNB Housing Finance (PHF) needed capital infusion and was trying to bring in an outside shareholder but the Securities and Exchange Board of India's (Sebi's) actions has deprived it of that and hurt the interests of minority shareholders, the company's counsel told Securities Appellate Tribunal (SAT) in its closing remarks on Monday.

The tribunal has reserved its judgement in the matter.

The counsel argued that blaming the board of directors was unfair as the preferential allotment price was not final and had to be approved by a special resolution.

Sebi had ignored rule 13(1) of the Companies (Share Capital and Debentures) Rules, 2014 and its interpretation had given rise to two different rules for listed companies wanting to opt for preferential allotment ---- ones that had articles of association (AoA) and the ones that did not.

"How will existing rules be interpreted if the company didn't have AoA? Why should harmonious construction be resorted to when none is required? Harmonisation, if at all required, is provided for by Rule 13," the counsel said.

While section 62 (1)(c) of the Companies Act allows preferential allotment by special resolution if the price of such shares is determined by the valuation report of a registered valuer, it has been made expressly subject to compliance with the applicable provisions of chapter III of the Act, which brings in section 24, the counsel said.

"Even if Rule 13 were not there this sub clause 62 (1) (c) makes it clear that the price to be determined by registered valuer is itself made subject to compliance with section 24,” he said.

The second proviso of rule 13 (1) was introduced to resolve any doubts one may have because of the peremptory language used in section 62 (1) (c) that may have caused some confusion, the counsel said. The second proviso says that the price of shares to be issued on a preferential basis by a listed company shall not be required to be determined by the valuation report of a registered valuer.

The counsel said that nowhere do regulations suggest that the price determined by a valuer has to be lower or higher than the floor price prescribed by section 164 of the ICDR regulations.

"Sebi says that if the price determined is lower, then ICDR will prevail; if it is higher, articles of association will apply. The price has to be determined by the valuation report of a registered valuer, which implies there has to be one price, which cannot be higher or lower," the counsel said.

The move to infuse capital was regarded a positive step by shareholders as seen in the uptick in the company's share price post the announcement, the counsel said, adding that the move to intervene before the EGM was not in investor interest.

Sebi said that the affidavit filed by the company was "a pure lie" and the company's AoA was specifically introduced at the time of listing. It reiterated that ICDR regulations say that pricing "shall not be less than", implying there was no bar on higher pricing of the preferential issue.

The preferential allotment was announced by PNB Housing in May. It was deemed “unfair” to public shareholders by proxy advisory firm SES. On June 18, Sebi directed the company to halt the allotment unless an independent valuer did the valuation. The mortgage lender then moved the SAT.

PNB Housing Finance's final arguments  

• Blaming board of directors for preferential allotment price unfair

• Sebi had ignored Rule 13(1) of the Companies (Share Capital and Debentures) Rules, 2014

• Harmonious construction should not be resorted to

• Harmonisation provided for in Rule 13

• Move to infuse capital was seen as positive by shareholders