BEFORE THE SECURITIES APPELLATE TRIBUNAL

MUMBAI
Date of Hearing: 19.11.2014
Date of Decision: 09.12.2014

Misc. Application No. 88 of 2014

And
Misc. Application No. 130 of 2014
And
Misc. Application No. 49 of 2014
In
Appeal No. 72 of 2014
1. Zenith Infotech Ltd.
B-52, Electronic Sadan 1,
MIDC, TTC Area, Mahape,
Navi Mumbai 400 710.
2. Rajkumar Saraf
5th Floor, Saraf House, SVP Road,
Chowpatty, Mumbai 400 007.
3. Akash Rajkumar Saraf
5th Floor, Saraf House, SVP Road,
Chowpatty, Mumbai 400 007.
4. Devita Rajkumar Saraf
5th Floor, Saraf House, SVP Road,
Chowpatty, Mumbai 400 007.
5. Vijayrani Rajkumar Saraf
5th Floor, Saraf House, SVP Road,
Chowpatty, Mumbai 400 007.
6. Zenith Technologies Pvt. Ltd.
3rd Floor, A-Z Industrial Estate,
Ganpatrao Kadam Marg, Lower Parel,
Mumbai 400 013.
7. VU Technologies Pvt. Ltd.
30, MIDC Central Road,
Andheri (East), Mumbai 400 093.
8. Vipin Shah
C/o. DSK Legal, C-16, Dhanraj Mahal,
Chatrapati Shivaji Marg, Appollo
Bunder, Mumbai 400 001.
9. Vijay Ramchandra Mukhi
C/o. DSK Legal, C-16, Dhanraj Mahal,

Brought to you by http://StockViz.biz

Chatrapati Shivaji Marg, Appollo

Bunder, Mumbai 400 001.

Applicants
(Org. Appellants)

Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051.

Respondent
(Org. Respondent)

Mr. Ravi Kadam, Senior Advocate with Mr. Zal Andhyarujina, Mr. Nirav
Shah, Mr. Rishikesh Soni, Advocates i/b DSK Legal for the Applicants.
Mr. Shyam Mehta, Senior Advocate with Mr. Mihir Mody, Mr. Rushin
Kapadia, Advocates i/b K. Ashar & Co. for the Respondent.
Mr. Janak Dwarkadas, Senior Advocate with Mr. Ranjit Shetty,
Mr. Deepak Deshmukh, Advocates for Interveners in Misc. Application
No. 88 of 2014.
Mr. Navroz Seervai, Senior Advocate with Mr. Ranjit Shetty, Mr. Deepak
Deshmukh, Advocates for Interveners in Misc. Application No. 130 of
2014.
CORAM : Justice J. P. Devadhar, Presiding Officer
Jog Singh, Member
A. S. Lamba, Member
Per : Jog Singh

1.

Miscellaneous Application no. 88 of 2014 has been preferred by

two entities, namely, QVT Fund LP and Quintessense Fund L. P. for

intervention in the Appeal no. 72 of 2014 which has been filed by Zenith
Infotech Ltd. and others before this Tribunal for quashing the impugned
order dated April 11, 2014 passed by SEBI. Both these entities have been
incorporated in the Cayman Islands as a limited partnership and have their
registered office at c/o Intertrust Corporate Services (Cayman) Limited, 190
Elgin Avenue, George Town, Grand Cayman, KY1-9005, Cayman Islands.
Both the entities are praying for impleadment in the appeal by claiming to

Brought to you by http://StockViz.biz

be the Bondholders who are stated to have invested in the Foreign Currency
Convertible Bonds, hereinafter referred to as FCCBs, floated by the
appellant company, hereinafter referred to as Zenith in the years 20112012.

2.

Similarly, the shareholders, namely, QVT Mauritius West Fund and

Quintessence Mauritius West Fund have also filed Miscellaneous

Application no. 130 of 2014 for intervention almost on the same ground.

3.

Zenith issued US$ 33 million FCCBs in the first instance and US$

50 million FCCBs in the second instance which were due for payment in
August-September 2011 and August-September 2012 respectively. Zenith
is stated to have defaulted in making repayment of the same on due dates.
Consequently, the Bank of New York Mellon, London Branch, which
happens to be the Trustee, initiated proceedings against Zenith before the
Honble High Court of Bombay. Similarly, proceedings have been initiated
against Zenith before the learned City Civil Court, Dindoshi by some of the
parties in these miscellaneous applications. It appears that all the applicants
in these miscellaneous applications are parties in those proceedings before
the Honble High Court of Bombay and the learned City Civil Court,
Dindoshi. Various orders have been passed by the Honble High Court of
Bombay in the said proceedings.

4.

In the meanwhile, SEBI also passed an ex-parte ad interim order

dated March 25, 2013 calling upon the appellants to deposit US$ 33.93
million within one month under the provisions of SEBI Act, 1992 read with
relevant provisions of SCRA, 1956 even when the Honble High Court and
the learned City Civil Court were / are seized of the matter. The said order
was challenged before this Tribunal by the appellants by way of Appeal no.

Brought to you by http://StockViz.biz

59 of 2013. After hearing the respondents and even QVT Fund LP and
Quintessense Fund L. P. (Interveners) at that stage, this Tribunal quashed
the said interim order with the following directions by order dated July 23,
2013 :-

29.
In the circumstances, we have no hesitation in setting
aside the impugned order and remanding the matter to
Respondent No. 1 for fresh consideration in accordance with
law by supplying a copy of the complaint to the Appellants in
advance and also by deciding the jurisdictional issues raised
by the Appellants in the present Appeal before hand. Ordered
accordingly.
30.
The matter is, thus, remanded to Respondent No. 1 for
fresh consideration expeditiously and preferably within a
period of six weeks, from receiving a copy of this order. We
hope that the Appellants as well as other affected parties
whom the Respondent No. 1 may feel appropriate to summon,
shall cooperate with Respondent No. 1 in expediting the
matter. All other contentions raised by the parties are kept
open. Misc. Application No. 30 of 2013 also stands disposed
of. No costs.

5.

Abovesaid order was challenged by SEBI before the Honble

Supreme Court and sought a stay in their favour. Said Civil Appeal No.
7134 of 2013 was finally disposed of as infructuous by the Honble
Supreme Court by its order dated August 19, 2014 which reads as under
July 23, 2013 :-

Heard the learned counsel for the parties. It is not in dispute

that the order dated 25th March, 2013 passed by the Securities
and Exchange Board of India (SEBI, for short) was
challenged before the Appellate Tribunal, Mumbai (SAT,
for short) and the order dated 23rd July, 2013, passed by the
SAT in the said appeal had been challenged before this Court.
By virtue of the said order, the case was remanded to the
SEBI for fresh consideration.
During the pendency of this appeal, the SEBI decided the
case on 11th April, 2014.

Brought to you by http://StockViz.biz

The order dated 11th April, 2014 passed by the SEBI has been
challenged before the SAT and the SAT is to hear the appeal
on 20th August, 2014.

In the aforesaid circumstances, we are of the view that this

appeal has become infructuous. The appeal is disposed of as
having become infructuous.
It is clarified that it would also be open to the SAT to pass an
appropriate interim order in accordance with law so as to
protect the interest of the concerned investors.

6.

As SEBI has passed the present impugned order on April 11, 2014,

again calling upon the appellants to furnish bank guarantee of an amount of

US$ 33.93 million in Indian Rupees equivalent, the same has been
challenged by the appellants in the present appeal before this Tribunal.

7.

We have heard all the learned counsel for the parties including

learned senior counsel for the proposed interveners and we are of the view
that the two miscellaneous applications in question for intervention are
misconceived and are liable to be dismissed.

8.

The interveners in these two miscellaneous applications submit that

the Bondholders, namely, QVT Fund LP and Quintessense Fund L. P.

invested in 2011 FCCBs and 2012 FCCBs which were floated by the
appellants during the relevant period. The two Bondholders also submit
that they are the holders of approximately 75.6% of 2011 FCCBs and
approximately 57% of the 2012 FCCBs.

9.

The other two interveners, namely, QVT Mauritius West Fund and

Quintessence Mauritius West Fund i.e. the shareholders submit that they
are the shareholders and are affiliates of Bondholders. They collectively
held an aggregate 0.2438% of the total issued equity share capital of Zenith,
issued abroad in the form of Foreign Currency Convertible Bonds. They
claim to be holding the shares in Zenith since August 2012. These two
entities, namely, QVT Mauritius West Fund and Quintessence Mauritius

Brought to you by http://StockViz.biz

West Fund submit that they were interveners in the earlier round of
litigation in Appeal No. 59 of 2013 which was disposed of by the Tribunal
by its order dated July 23, 2013. It is, thus, contended that since they were
heard in the earlier round of litigation they have right to be impleaded
parties in the present appeal also.

10.

Other two interveners, who claim to be Bondholders, namely, QVT

Fund LP and Quintessense Fund L. P., in Miscellaneous Application no.

130 of 2014 for intervention simply submit in para 4 of the miscellaneous
application that . The interveners crave leave to refer to and rely upon
the Intervention Application being IA No. 88 of 2014 (IA) filed by the
Bondholders in the above Appeal and the compilation of documents filed
alongwith the IA as if the same have been filed by the Interveners. The
contentions raised and submissions made therein be treated as part and
parcel of the present application.

11.

In the premises of four applicants in these two intervention

applications claim to be affected by SEBIs order in as much as they have

suffered considerable losses as a result of sharp price fall in the scrip of the
company.

They also submit that in the year 2011, the present

Interveners have also filed a suit, being suit no. 2034 of 2011 against the
Company, inter alia, for an injunction against the Company, its promoters,
Managing Director, directors, officers, agents, employees and servants
from in any way acting, pursuing, or taking any further steps contrary to
the Explanatory Statement dated 27th December 2010 and the resolution
passed pursuant to such Explanatory Statement at the Extraordinary
General Meeting on 29th January 2011. The suit is pending hearing and

Brought to you by http://StockViz.biz

final disposal. The interveners crave leave to refer to and rely upon the
said suit proceedings when produced.

12.

Per contra, the appellants have vehemently opposed said two

intervention applications on the ground that the proposed interveners have

no locus-standi to intervene in the appeal. The appellants contend that the
interveners have made furious and ludicrous attempt to be impleaded as a
party in the appeal just to assist SEBI on the ostensible ground that the
appellants might mislead the respondent or this Tribunal in the whole
matter. This reflects that the proposed interveners have a doubt about the
respondents ability to defend its case in an appeal before this Tribunal.

13.

It is also specifically submitted by the appellants that FCCBs are

foreign securities and are issued, listed and traded outside India. Therefore,
as per Indian Laws, the expression investors in securities market in India
would not include holders of foreign securities like FCCBs in the instant
case.

14.

It is not disputed that the FCCBs are a foreign security, issued and

traded outside India. In the case in hand, it is an admitted position that the
Bank of New York Mellon (BNYM), who is the Trustee of said FCCBs,
has already approached the Honble Bombay High Court against the
appellants.

In addition to High Court proceedings, the Interveners have

also approached learned City Civil Court at Dindoshi by S. C. Suit No.

2034 of 2011. Further, Honble Bombay High Court has also passed order
in respect of appellant company on December 13, 2013 against which an
appeal was preferred before Division Bench which was dismissed on April
23, 2014. Appellants also seem to have preferred special leave petition
before the Honble Supreme Court of India which is still pending.

Brought to you by http://StockViz.biz

15.

In the face of the above pendency of matter before the Honble

Supreme Court as well as learned City Civil Court at Dindoshi, this

Tribunal in the present appeal, is mainly concerned with the impugned
order dated April 23, 2014 passed against the appellants.

The issue

regarding redemption of FCCBs is not directly before this Tribunal. The

Tribunal is, therefore, of the considered opinion that SEBI itself is
competent enough to defend its order before this Tribunal and interveners
do not have a locus-standi to intervene in the facts and circumstances of the
present case.

Moreover, permitting intervention by shareholders or

Bondholders in any appeal filed by a company against the order passed by

SEBI / Stock Exchanges would mean opening a flood-gate and in such a
case it would be impossible to dispose of the appeals filed before this
Tribunal. It is true that in a given case, the Tribunal may be inclined to
allow an application for intervention on behalf of an affected party but it
cannot be generalized.
16.

As far as the submissions of the Bondholders, namely, QVT Fund

LP and Quintessense Fund L. P. regarding their intervention application

having been allowed in the earlier round of litigation in Appeal no. 59 of
2013 is concerned, it is pertinent to note that firstly, there was no
opposition from the appellants at that stage; and secondly, the same cannot
be treated as a precedent for all times to come. Summing up the position,
thus, we reiterate the settled legal position that a wrong, having come to our
notice, cannot be allowed to be perpetuated.

The shareholders /

bondholders, who were never heard or impleaded as a necessary or even as

a proper party in proceedings before the SEBI at the first instance, cannot
be
Brought to you by http://StockViz.biz

allowed

Tribunal

in

to

be
the

implanted
ordinary

as

interveners by this Appellate

course.

Therefore,

these

two

miscellaneous applications are hereby dismissed. No costs. Registry is

directed to list the main appeal for admission / final hearing on January, 29
2015. It is made clear that no observation is made on the merit of the
respective contentions of the parties.

Sd/Justice J. P. Devadhar
Presiding Officer

Sd/Jog Singh
Member

Sd/A. S. Lamba
Member
09.12.2014
Prepared & Compared by
PTM

Brought to you by http://StockViz.biz