Mumbai, Aug. 28: The Supreme Court today dealt a blow to the Securities and Exchange Board of India (Sebi), when it declined to grant a stay on the buyback offer of Godrej Industries Limited while admitting the regulator’s appeal against the Mumbai High Court order on the issue.
“The refusal of the apex court to stay the Mumbai High Court order virtually means that the buyback schemes of both Godrej Industries and Sterlite Industries under Section 391 will proceed as scheduled,” Godrej Industries in a statement said.
The capital market regulator is dead against firms resorting to Section 391 of the Companies Act to delist their shares through a court approved scheme of arrangement.
“The question of Sebi’s locus standi in the matter of Section 391 of the Companies Act will be decided as and when the matter comes up for hearing,” the statement added.
Sebi had objected to the two companies—Sterlite Industries and Godrej Industries— bypassing the market regulator and obtaining clearance for their respective buyback schemes from the department of company affairs (DCA).
While Sterlite has already completed its buyback and extinguished the shares, the Godrej buyback is currently on and will end on September 7.
Sebi and the DCA were forced to move court as several investors raised objections on the route the two companies have taken to delist their shares. However, the Mumbai High Court turned down the contention of the two regulatory bodies, forcing them to approach the apex court.
Sebi is concerned as Section 391 allows companies to bypass Section 77 of the Companies Act which deals specifically with the buyback of shares. Sebi contended that several capital market related statutes meant to protect small investors could be bypassed if firms resorted to Section 391 of the Companies Act.
The defence of the two companies was that Section 391 came under the purview of the DCA.
The shareholders of GIL had, at a meeting on April 6, approved the scheme of arrangement under Section 391 of the Companies Act 1956, for buying equity shares representing up to 40 per cent of the company’s paid up equity capital from shareholders.