In a setback to Vedanta Ltd, the Supreme Court on Friday asked the Securities and Exchange Board of India (Sebi) to hold an inquiry into the non-payment of dividends by Cairn India to Cairn UK Holdings within six months. Cairn India had merged with Vedanta Ltd in April 2017.
A bench led by Justice DY Chandrachud upheld the Securities Appellate Tribunal (SAT) decision that quashed the Sebi order rejecting Cairn UK’s complaint for non-payment of over Rs 340-crore dividend plus interest at 18% per annum from Cairn India.
The tribunal had on July 5 directed the regulator to hold an inquiry in the prescribed manner, investigate the violations of the Companies Act, Sebi (Listing Obligations and Disclosure Requirements- LODR) Regulations, etc and find a ‘logical conclusion’ in the case within six months.
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“SAT had failed to appreciate that although the dividend payment has not been released even after the expiry of provisional attachment by ITD, the documents available on record are not sufficient to establish the mens rea required to constitute an offence under Section 127 of the Companies Act,” Sebi stated in its appeal before the SC.
“The available documents do not establish that Vedanta Ltd/Cairn India has discriminated in their treatment of shareholders since the non-payment of dividend was ostensibly due to absence of clarity on the issue whether the amount could be released to Cairn UK,” senior counsel CU Singh, appearing for Sebi, argued.
While Cairn UK had demanded initiation of proceedings under the Companies Act against every director of Cairn India who was knowingly a party to the non-payment of the dividend, Sebi had rejected the complaints on the ground that the unpaid dividend was handed over by the company to the income tax authorities and, therefore, it would not be appropriate for the regulator to take any further action. Later, Sebi in December 2019 had rejected the complaint on the ground that Cairn India did not violate the Companies Act and LODR Regulations.
Holding that prima facie case for violation of the Companies Act was made out against Cairn India, SAT noted that dividends were declared by the board of directors of Cairn India during the financial years ended March 31, 2014, March 31, 2015, and March 31, 2016, but such dividends were not paid to the UK firm. And also as a result of the income tax department’s January 2014 attachment order, the dividend could not be released by Cairn India.
However, after the expiry of the attachment order on March 31, 2016, there was no embargo upon Cairn India from not releasing the dividend, the SAT stated.