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2023 (1) TMI 257 - SC - Companies LawJurisdiction of NCLT over violation of SEBI law - Scope of the rectificatory jurisdiction of the National Company Law Tribunal under Section 59 of the Companies Act, 2013 - determination of appropriate forum for adjudication and determination of violations of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997 - HELD THAT - The scope and ambit of Section 155 of the Companies Act, 1956, as it then existed, fell for consideration in a decision of this Court in Ammonia Supplies 1998 (9) TMI 427 - SUPREME COURT . The application for rectification in Ammonia s case was filed under Section 155, and it was submitted that the scope for rectification under Section 155 is enlarged in comparison with the position as it were under Section 38 of the 1913 Act. Rejecting the argument, this Court in Ammonia held that the jurisdiction exercised by the court for rectification of the register of members is essentially limited - It is evident from the above that while interpreting Section 155, this Court has held that the power of CLB is narrow and can only consider questions of rectification. If a petition seeks an adjudication under the garb of rectification, then the CLB would not have jurisdiction, and it would be duty-bound to re-direct the parties to approach the relevant forum. The Court also held that the words sufficient cause cannot be interpreted in a manner which would enlarge the scope of the provision. The company petition under Section 111A of the 1956 Act for a declaration that the acquisition of shares by the Respondents as null and void is misconceived. The Tribunal should have directed the Appellant to seek such a declaration before the appropriate forum. The Appellate Tribunal is, therefore, justified in allowing the appeal and setting aside the order of the Tribunal. Appropriate forum for enquiry and adjudication of violations of the SEBI Regulations - HELD THAT - In the exercise of its adjudicatory powers under Section 15-I, the SEBI has the power to appoint officers for holding an inquiry, give a reasonable opportunity to the person concerned and determine if there is any transgression of the rules prescribed. The Board has the power to impose penalties for violations and also restitute the parties. The adjudicatory power also includes the power to settle administrative and civil proceedings under Section 15JB of the SEBI Act - The regulatory jurisdiction of the Board also includes ex-ante powers to predict a possible violation and take preventive measures. The exercise of ex-ante jurisdiction necessitates the calling of information as provided in Sections 11(2)(i), 11(2)(ia) and 11(2)(ib) of the SEBI Act. Where the Board has a reasonable ground to believe that a transaction in the securities market is going to take place in a manner detrimental to the interests of the stakeholders or that any intermediary has violated the provisions of the Act, it may investigate into the matter under Section 11(C) of the SEBI Act. In other words, being the real-time security market regulator, the Board is entitled to keep a watch, predict and even act before a violation occurs. It is in this context, that the SEBI (SAST) Regulations and the SEBI (PIT) Regulations, with which we are concerned in this case, are to be understood. The important role of the Regulator cannot be circumvented by simply asking for rectification under Section 111A of the 1956 Act. Such an approach is impermissible. The scrutiny and examination of a transaction allegedly in violation of the SEBI (PIT) Regulations will have to be processed through the regulations and remedies provided therein - When Constitutional Courts are called upon to interpret provisions affecting the exercise of powers and jurisdictions of these regulatory bodies, it is the duty of such Courts to ensure that transactions falling within the province of the regulators are necessarily subjected to their scrutiny and regulation. This will ensure that the regulatory body, charged with the duty to protect the consumers has real time control over the sector, thus, realizing the purpose of their constitution. The Appellant is not justified in invoking the jurisdiction of the CLB under Section 111A of the Act for violation of SEBI regulations. We are also of the opinion that the Tribunal committed an error in entertaining and allowing the company petition filed under Section 111A of the 1956 Act. Though we are not in agreement with the reasoning adopted by the Appellate Tribunal in the impugned order, we are in agreement with its conclusion that the Tribunal exceeded its jurisdiction and therefore, the Appellate Tribunal was correct in setting aside the judgment dated 05.07.2017. Appeal dismissed.
Issues Involved:
1. Scope of rectificatory jurisdiction of the National Company Law Tribunal (NCLT) under Section 59 of the Companies Act, 2013. 2. Appropriate forum for adjudication and determination of violations of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (SEBI (SAST) Regulations) and SEBI (Prohibition of Insider Trading) Regulations, 1992 (SEBI (PIT) Regulations). Detailed Analysis: 1. Scope of Rectificatory Jurisdiction of NCLT under Section 59 of the Companies Act, 2013: The Supreme Court examined whether the rectificatory jurisdiction under Section 59 of the Companies Act, 2013, is summary in nature and not intended for cases involving contested facts and disputed questions. The Court referenced Ammonia Supplies Corporation (P) Ltd. v. Modern Plastic Containers Pvt. Ltd. & Ors. (1998) 7 SCC 105, affirming that rectificatory jurisdiction is limited to summary corrections and not for adjudicating seriously disputed civil rights or titles. The Court held that the Tribunal's power under Section 59 is confined to evident facts needing no serious inquiry, and if a petition seeks an adjudication under the guise of rectification, the Tribunal should redirect the parties to the appropriate forum. The Court noted that the Tribunal should not have entertained the petition under Section 111A of the Companies Act, 1956 (now Section 59 of the 2013 Act) for declaring the acquisition of shares as null and void. The Tribunal's jurisdiction is limited to rectification and does not extend to adjudicating violations of SEBI regulations, which require detailed scrutiny and investigation. 2. Appropriate Forum for Adjudication and Determination of Violations of SEBI Regulations: The Supreme Court emphasized that transactions falling within the jurisdiction of regulatory bodies created under a statute must be subjected to their scrutiny, enquiry, and adjudication. The Court highlighted the comprehensive regulatory framework of SEBI, which includes powers to regulate, investigate, and adjudicate violations of the SEBI (SAST) and SEBI (PIT) Regulations. The Court noted that SEBI's regulatory regime is all-encompassing, providing for the method of detecting violations, investigation procedures, and the power to pass necessary directions and orders. The Court held that the SEBI (SAST) and SEBI (PIT) Regulations provide a comprehensive scheme for inquiry, investigation, and restitution, and such matters should be adjudicated by SEBI, not the Tribunal. The Court concluded that the Appellant's invocation of the Tribunal's jurisdiction under Section 111A of the Companies Act, 1956, for violations of SEBI regulations was impermissible. The Tribunal committed an error in entertaining and allowing the company petition filed under Section 111A. The Appellate Tribunal was correct in setting aside the Tribunal's judgment, as the Tribunal exceeded its jurisdiction. Conclusion: The Supreme Court dismissed the appeal, affirming that the rectificatory jurisdiction under Section 59 of the Companies Act, 2013, is summary in nature and not intended for cases involving contested facts and disputed questions. The Court also held that violations of SEBI regulations must be adjudicated by SEBI, not the Tribunal, emphasizing the comprehensive regulatory framework provided by SEBI for such matters.
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