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MUMBAI : PNB Housing Finance Ltd’s plans to raise 4,000 crore from a consortium of investors led by private equity firm Carlyle will continue to be in limbo as the mortgage lender’s appeal of a Sebi order halting the transaction resulted in a split verdict at the Securities Appellate Tribunal (SAT) on Monday.

While Justice Tarun Agarwala ruled in favour of PNB Housing Finance, Justice M.T. Joshi gave a judgement in favour of markets regulator Securities and Exchange Board of India (Sebi).

“In view of the difference of opinion between the members of the bench, we direct the interim order 56 dated 21 June 2021 to continue till further orders," the SAT order said.

The 21 June interim order of the SAT bench allowed PNB Housing to seek shareholders’ approval for the deal at an extraordinary general meeting (EGM) but ordered the results of the vote to be kept in a sealed cover until further orders.

Given that neither of the parties was able to secure a favourable decision at SAT, they can now approach the Supreme Court to resolve the impasse.

A spokesperson for PNB Housing Finance declined to comment on the verdict.

The tussle between Sebi and PNB Housing began in June when the latter announced a preferential sale of shares worth 3,200 crore and warrants worth 800 crore to a set of investors led by Carlyle, an existing investor in the mortgage lender.

Soon after the announcement, proxy adviser Stakeholders Empowerment Services (SES) criticized the deal as “unfair" to public shareholders and a violation of the company’s Articles of Association (AoA) pertaining to the valuation. Sebi then asked PNB Housing to put the deal on hold on the ground that it violated its AoA, prompting the home financier to move SAT.

In the course of the SAT hearing, Sebi submitted that a valuation report is required to determine the pricing of shares proposed to be sold, irrespective of the presence of AoA, and the pricing should be above the formula stated under Sebi rules. This will ensure minority shareholders are not discriminated against, and one set of shareholders do not get shares either too cheap or too expensive, Sebi argued.

“In the present case, in order to safeguard the interest of investors, the impugned order was passed by Sebi on the line of the provisions made in Article 19(2) by the appellant company and its shareholders at the time the company was to be listed on the stock exchanges. Therefore, in my view, the same cannot be called illegal or unjustified," Justice Joshi said in the order.

On the other hand, Justice Agarwala noted that Sebi had no jurisdiction to issue a direction to halt the transaction before any decision could be taken in PNB Housing’s EGM.

“If agenda No. 1 (the EGM resolution on preferential allotment of shares and warrants to Carlyle and others ) was accepted by the majority of the shareholders as per the provisions of the Companies Act, and if that resolution was in violation of ICDR (Issue of Capital and Disclosure Requirements) regulations, it would have been open for Sebi to step in at that stage and question that resolution, but it was not open to the respondent to pre-empt shareholders from passing the resolution," he said.

“There cannot be two kinds of mechanism or two sets of procedures for valuation of price of shares in a listed company, which has a provision under its AoA for valuation of shares through a registered valuer and in the case of another listed firm, which has no such stipulation under its AoA," he added in the order.

“After today’s order, the only solution, if PNB Housing still wants to go ahead with the resolution, is that they will have to knock on the doors of the Supreme Court," said J.N. Gupta, founder of proxy advisory firm Stakeholder Empowerment Services.

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