The Securities Appellate Tribunal (SAT) has set aside a Sebi order in a matter related to the non-payment of dividends by Cairn India Ltd to Cairn UK Holdings Ltd and directed the regulator to hold an enquiry and find a “logical conclusion” in the case within six months. Cairn India merged with Vedanta Ltd in 2017. The appellate tribunal’s order, dated July 5, came after an appeal was filed by Cairn UK Holdings Ltd against the Sebi order.
“The impugned order passed by Sebi cannot be sustained and is quashed. The appeal is allowed. “We are of the opinion that a prima-facie, case is made out by the appellant in its complaint. We consequently direct Sebi to initiate an enquiry under… the Sebi Act and hold an enquiry in the prescribed manner, investigate the violations of the Companies Act, LODR Regulations, etc. and take it to its logical conclusion within six months,” the SAT said.
In April 2017, the UK-based firm approached the regulator over the non-payment of dividends amounting to over Rs 340 crore by Cairn India. It had appealed to Sebi to direct Cairn India to pay the dividend along with an interest of 18 per cent per annum. In the appeal, Cairn UK Holdings had demanded initiating proceedings under the Companies Act against every director of Cairn India who was knowingly a party to the non-payment of the dividend.
However, Sebi disposed of the complaint 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.Cairn UK Holdings had challenged Sebi’s rejection of the complaint before the SAT, which then asked the regulator to re-examine the matter in 2019.
After reconsidering the matter, Sebi rejected the complaints on the ground that Cairn India did not violate the Companies Act and LODR (Listing Obligations and Disclosure Requirements) Regulations.The watchdog also said that even though there was no categorical direction from the income tax department to withhold the payment of dividend after the expiry of the provisional attachment, it was not clear as to whether the dividend could be released to the appellant (Cairn UK Holdings) or not.
Accordingly, Sebi said that under the mitigating circumstances, it was difficult to assume that Cairn India committed any default upon failure to pay the dividend. In its order on July 5, the SAT noted that dividends had been 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 appellant.
It transpires that the income tax department initiated assessment proceedings for the financial year 2006-07 and on January 22, 2014, passed a provisional attachment order, which was extended from time to time and expired on March 31, 2016.As a result of the attachment order, the dividend could not be released by Cairn India to the appellant but after the expiry of the attachment order on March 31, 2016, there was no embargo upon Cairn India from not releasing the dividend in favour of the appellant, the SAT mentioned in the order.
The tax department also noted that the attachment order has expired and therefore, the payment of dividend to the appellant was an internal matter of Cairn India. However, no dividend was paid to Cairn India. “Prima-facie, the case is made out for violation of… the Companies Act. The finding that the documents available on record were not sufficient to establish mens rea for an offence to be established under…. the Companies Act is patently erroneous as we find that relevant documents have not been considered by Sebi,” the SAT said in the order.
Further, the appellate tribunal said that nothing has come on record to indicate as to what was the mitigating circumstances that led respondent Cairn India to not release the dividend after the expiry of the attachment order.