2001 (9) TMI 1055 - HC - Companies Law

Issues Involved:

1. Jurisdiction of the Court.
2. Whether the acquisition of shares by the defendants was in violation of SEBI Regulations.
3. Whether the transactions were void.
4. The right of the plaintiffs to seek rectification of the register of members.
5. The impact of the repeal of the 1994 Regulations by the 1997 Regulations.
6. The conduct of the plaintiffs and defendants.
7. The validity of the trial court's order suspending voting rights.

Summary:

1. Jurisdiction of the Court:

The defendants contended that the Court lacked jurisdiction to try the suit as the matters fell within the exclusive jurisdiction of SEBI and the Company Law Board (CLB). The plaintiffs argued that the defendants had waived their right to contest jurisdiction by not pressing the issue initially. The Court held that issues of jurisdiction must be decided as a preliminary issue under section 9A of the Code of Civil Procedure, as amended in Maharashtra. The Court found that the plaintiffs had a common law right to seek rectification of the register of members and that this right was not extinguished by section 111A of the Companies Act.

2. Violation of SEBI Regulations:

The Court found that the defendants had acted in concert to acquire substantial shares of Herbertsons Ltd., in violation of the SEBI Regulations of 1994. The acquisition was made through companies controlled by the defendants, and the funds for these acquisitions were provided by the defendants. The transactions were not bona fide investments but were part of a concerted plan to acquire control of Herbertsons Ltd.

3. Void Transactions:

The Court held that the acquisitions made in violation of the SEBI Regulations were void under section 6(h) of the Transfer of Property Act and section 23 of the Indian Contract Act. The prohibitions in the SEBI Regulations were mandatory, and any breach rendered the transactions void.

4. Right to Seek Rectification:

The plaintiffs, as shareholders, had a common law right to seek rectification of the register of members. This right was not taken away by section 111A of the Companies Act. The Court held that the jurisdiction of civil courts to entertain suits for rectification was not barred and that the plaintiffs could maintain the suit.

5. Repeal of 1994 Regulations:

The repeal of the 1994 Regulations by the 1997 Regulations did not affect the proceedings initiated under the 1994 Regulations. The saving clause in the 1997 Regulations (Regulation 47) preserved the actions taken under the 1994 Regulations. The Court held that the obligations incurred under the 1994 Regulations survived the repeal, and the proceedings could continue under the 1997 Regulations.

6. Conduct of Parties:

The defendants alleged that the plaintiffs had engaged in improper conduct, including collusive agreements with Herbertsons Ltd. The Court held that these allegations were not relevant to the relief sought in the suit. The conduct of the plaintiffs in other matters did not disentitle them to the relief sought in the present suit.

7. Suspension of Voting Rights:

The trial court's order suspending the voting rights in respect of the shares acquired by the defendants was upheld. The Court held that such an order was necessary to maintain the status quo and prevent the defendants from benefiting from their illegal acquisitions. The suspension of voting rights was consistent with the principles of corporate democracy and was necessary to protect the interests of the shareholders.

Conclusion:

The appeals were dismissed, and the trial court's order was upheld. The Court found that the acquisitions made by the defendants were in violation of the SEBI Regulations and were, therefore, void. The plaintiffs had a right to seek rectification of the register of members, and the repeal of the 1994 Regulations did not affect the proceedings initiated under those regulations. The conduct of the plaintiffs was not relevant to the relief sought, and the suspension of voting rights was justified to maintain the status quo and protect the interests of the shareholders.

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