Mumbai: PNB Housing Finance’s plans to raise Rs4,000 crore from a consortium of investors led by private equity firm Carlyle will continue to be in limbo as the mortgage lender’s appeal against a Sebi order restricting the transaction resulted in a split verdict at the Securities Appellate Tribunal (SAT) on Monday.
While Justice Tarun Agarwala ruled in favour of PNB Housing Finance, Justice M.T. Joshi gave a judgement in favour of market regulator Sebi.
“In view of the difference of the opinion between the Members of the Bench we direct the interim order 56 dated 21st June, 2021 to continue till further orders," the SAT order said.
The 21 June interim order of the SAT bench had allowed PNB Housing to go ahead with its extraordinary general meeting (EGM) to conduct the voting process for shareholder approval for the deal. The tribunal, however, said the results of the vote must not be announced but kept in a sealed cover till further orders are passed.
Given that neither of the parties were able to secure a favorable decision at SAT, they can now move the Supreme Court against the tribunal’s order.
The tussle between Sebi and PNB Housing Finance began in June when PNB Housing announced a preferential sale of shares worth ₹3,200 crore and warrants worth ₹800 crore to a set of investors led by Carlyle, which is already a shareholder in the mortgage lender.
Soon after the announcement, proxy adviser Stakeholders Empowerment Services (SES) criticized the deal as “unfair" to public shareholders and a violation of the company’s Articles of Association (AoA) pertaining to valuation. Sebi then asked PNB Housing Finance to put the deal on hold on the ground that it was ultra-vires of AoA, prompting it to move SAT.
In the course of the SAT hearing, Sebi submitted that a valuation report is required to determine the pricing of shares proposed to be sold, irrespective of the presence of Articles of Association (AoA), and the pricing should be above the formula stated under Sebi rules. This will ensure smaller shareholders are not discriminated against, and one set of shareholders do not get shares either too cheap or too expensive, Sebi argued.
“In the present case in order to safeguard the interest of the investors, the impugned order was passed by SEBI on the line of the provisions made in Article 19(2) by the Appellant Company and it’s shareholders, at the time the Company was to be listed on the Stock Exchanges. Therefore, in my view the same cannot be called as illegal or unjustified," justice M T Joshi said in the order.
On the other hand, justice Tarun Agawala noted that Sebi had no jurisdiction to issue a direction to halt the transaction before any decision could be taken in the EGM by PNB Housing’s shareholders.
“If agenda no.1 was accepted by the majority of the shareholders as per the provisions of the Companies Act and if that resolution was in violation of the ICDR Regulations it would have been open for SEBI to step in at that stage and question that resolution, but it was not open to the respondent to pre-empt the shareholders from passing the resolution," he said.
“...we are of the opinion that there cannot be two kinds of mechanism or two sets of procedure for valuation of the price of the shares in a case of a listed Company which has a provision under its Articles of Association for valuation of the shares through a registered valuer and in the case of another listed Company which has no such stipulation under its Articles of Association," he added in the order.
PNB Housing Finance declined to comment on the SAT verdict.
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PNB Housing’s deal with Carlyle to remain in limbo as SAT gives split verdict - Mint
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