In a setback to market regulator Sebi and the Department of Company Affairs (DCA), the scheme of arrangement between Sterlite Industries Ltd (SIL) and its shareholders to purchase its own shares from the shareholders of SIL sailed through with SIL’s contention being upheld by the Mumbai High Court on Monday.SIL’s scheme of arrangement became controversial after Sebi and others challenged the validity of the scheme in the court. While the court allowed DCA petition to be admitted, it however made an adverse remark on the part of delay taken by DCA in filing the petition.The division bench comprising of Justice A. P. Shah and Justice Nishita Mhatre while delivering the verdict on Monday afternoon said: “Sebi does not have any locus standi in this case.” The bench also decreed that section 391 of the Companies Act (1956) which governs the company’s buyback scheme is distinctly independent of section 77A of the Companies Act (1956.)As regards investors who have not responded in any way, the Court has accepted SIL’s proposal of providing a safety net. Essentially, the safety net proposal envisages holding in trust for such shareholder, the purchase consideration due to them against the sale of their shares. Within a period of three months, any such shareholder who had not responded to SIL’s offer nor accepted the consideration may communicate to the company of the desire to continue as a shareholder. The company will then make available to such shareholders, an equivalent number of shares as the shares which have been purchased against the shares surrender by the shareholder of the consideration held in the trust.As for those shareholders who encashed their cheques by mistake, they will be given their shares back provided they return the money back to the company. This was agreed upon by the court after SIL came up with this offer.Sebi’s contention was that the scheme of arrangement under section 391 is an alternative route to buy-back which should not be allowed by the Court as the SIL has already been barred by capital market regulator under section 11 and 11B of Sebi Act to enter the capital market for the period of two years.
