The Securities Appellate Tribunal (SAT) has pronounced an indecisive order in the SEBI-PNB Housing Finance case. In this case, both the judges have different opinion on the SEBI action on PNB Housing.
The interim order of SAT will continue to hold, which stated that the outcome of the EGM will not be made public. Due to the stalled announcement, PNB Housing Finance will not be allowed to allot preferential shares to Carlyle Group and other investors and progress with the deal.
Justice MT Joshi held that SEBI had issued the notification correctly and that the EGM vote cannot go ahead unless the valuation report is also obtained as per the Articles of Association and place it before the general body of shareholders.
Justice Tarun Agarwala held that SEBI ought not to have stopped the voting at EGM since PNB board had approved issuance of shares as per ICDR and shareholders should have been allowed to vote.
Both the parties can move the Supreme Court against SAT's decision.
Since SAT currently has two members, the presiding officer will decide the issue on the administrative side.
SEBI had, in July, defended its decision to intervene in the PNB Housing case before the company's extraordinary general meeting (EGM), saying it was necessary for shareholders to get the correct valuation at which investors led by the Carlyle Group would acquire shares and management control.
The Competition Commission of India (CCI) had, on August 4, given its nod for the proposed investments by Carlyle Group and other investors in PNB Housing Finance.
The Carlyle deal
The case pertains to PNB Housing’s plan, approved by the board on May 31, to raise funds through a preferential allotment of shares worth Rs 3,200 crore and warrants worth Rs 800 crore to Carlyle, General Atlantic and Salisbury Investments, an entity owned by Aditya Puri, a senior advisor at the Carlyle Group and former managing director of HDFC Bank.
The price of the shares and warrants was fixed at Rs 390 apiece, which was Rs 6 higher than the floor price under ICDR norms. For the warrants, 25 percent of the amount needed to be infused on the allotment and the remaining was to be paid within 18 months.
According to proxy adviser Stakeholders Empowerment Services, the proposed transaction was unfair to the company’s public shareholders.
Four days before the EGM on June 22, SEBI directed the company to stop the allotment unless the valuation was carried out by an independent valuer.
The regulator, in a letter to the company dated June 18, said the proposal to issue securities and other related matters was ultra vires of the articles of association.
SEBI said the proposal should not be acted upon until the company undertakes the valuation of shares as prescribed under 19 (2) of articles of association “for the purpose of preferential allotment from an independent registered valuer as per the provisions of applicable laws.
The said report shall be considered by the company’s board while deciding on the preferential issue of shares and warrants.”
The appellate tribunal had allowed the EGM to go ahead on the condition that the voting outcome would not be disclosed until the matter was resolved.