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Home Case Index All Cases Companies Law Companies Law + Tri Companies Law - 2021 (2) TMI Tri This

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2021 (2) TMI 1273 - Tri - Companies Law


Issues:
Rectification of Register of Members regarding excess equity shares allotted to a foreign shareholder in violation of FEMA Regulations.

Analysis:
Issue 1: Rectification of Register of Members
The petitioner, a private company, sought rectification of the Register of Members by canceling excess equity shares allotted to a foreign shareholder in violation of FEMA Regulations. The excess shares were allotted to the respondent without proper compliance with regulations. The respondent had no objection to the cancellation of the excess shares, as confirmed in their letter and board resolution. The Registrar of Companies filed a report stating that there was no reduction of share capital involved in the case. The petitioner approached the National Company Law Tribunal seeking rectification under Section 59 of the Companies Act, 2013. However, the Tribunal found that the petitioner did not follow the proper procedure by not approaching the Registrar of Companies as advised by RBI before filing the application. The RBI had clearly stated that adherence to FEMA regulations and cancellation of excess shares did not fall under their purview, advising the petitioner to approach the Registrar of Companies for the same. The Tribunal concluded that the petition was misconceived, not maintainable, and dismissed it.

Issue 2: Compliance with FEMA Regulations
The case highlighted the importance of compliance with FEMA Regulations, especially regarding foreign investments and the issuance of shares to foreign entities. The RBI's response emphasized that the responsibility to adhere to FEMA regulations, FDI policies, and other related guidelines rested solely with the entity. The Tribunal noted that the petitioner failed to follow the proper procedure and obtain necessary approvals before seeking rectification of the Register of Members. The Tribunal's decision to dismiss the petition underscored the significance of regulatory compliance and following due process in corporate transactions involving foreign entities. The judgment served as a reminder for companies to ensure strict adherence to regulatory requirements, especially when dealing with foreign investments and share issuances.

Issue 3: Jurisdiction of the National Company Law Tribunal
The Tribunal's analysis of the jurisdictional aspects of the case highlighted the importance of approaching the relevant authorities before seeking redressal through legal channels. The Tribunal noted that the petitioner did not involve the necessary party, i.e., the RBI, before filing the application. The RBI's communication clearly outlined that the issue of excess shares allotted to the foreign shareholder was not within their purview and advised the petitioner to approach the Registrar of Companies for resolution. By dismissing the petition, the Tribunal reinforced the principle that parties must exhaust all administrative remedies and follow prescribed procedures before seeking judicial intervention. The judgment underscored the Tribunal's role in upholding legal requirements and ensuring that parties adhere to regulatory frameworks before seeking legal remedies.

In conclusion, the judgment highlighted the importance of regulatory compliance, proper procedure, and adherence to legal requirements in corporate transactions involving foreign entities. The dismissal of the petition by the National Company Law Tribunal emphasized the need for companies to follow due process, seek necessary approvals, and exhaust administrative remedies before approaching legal forums for rectification of corporate matters.

 

 

 

 

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