SAT | In case of violation of market norms (withholding of dividends), it is SEBI’s duty to inquire and take action under S. 124 of Companies Act

Securities Appellate Tribunal (SAT), Mumbai: Coram of Justice Tarun Agarwala (Presiding Officer), Dr C.K.G. Nair (Member), and Justice M.T. Joshi (Judicial Member) directed SEBI to look into violation of market norms by Cairn India with respect to withholding of dividends along with interest payable to Cairn UK Holdings, the Appellant.

The Appellant created a foreign subsidiary in India called Cairn India which became a subsidiary of Vedanta in 2010-11. The Appellant filed a complaint stating that Cairn India did not pay the due dividends amounting to Rs 340.64 crores and hence brought an action before SEBI to direct them to pay the due dividends along with an interest of 18 percent per annum. In this action, they alleged that Cairn India was in violation of Sections 24 and 127 of the Companies Act, 2013. They also contended that SEBI had jurisdiction over the matter because the company was also in violation of the Regulation 4(2)(c) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements).

SEBI disposed of the complaint and refused to take any action as it said that the unpaid dividend of over Rs 660.63 crores had already been handed over to the income tax authorities by the company and it could therefore not interfere. The Tribunal was of the view that if a company has violated the provisions of the Companies Act in not releasing the dividend when there was no embargo upon it, it is SEBI’s duty to inquire into the alleged violation and if it exists to take action against the said company under Section 124 of the Companies Act. This aspect has not been considered by SEBI. The Tribunal justified SEBI’s decision that since an amount has been transferred to the income tax authorities pursuant to some orders issued by them, the question of paying the dividend by the appellant along with interest does not arise. Therefore, it is open to the appellant to pursue remedies for the return of the dividend amount from the income tax authorities.

The Tribunal, in this case, allowed the appeal in part saying that while SEBI was correct in not interfering with the income tax authorities, it had to give an opportunity of hearing to the appellants.[Cairn UK Holdings Ltd. v. Securities and Exchange Board of India, 2019 SCC OnLine SAT 72, decided on 19-07-2019]